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Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
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<SEC-DOCUMENT>0001178913-09-000819.txt : 20090402
<SEC-HEADER>0001178913-09-000819.hdr.sgml : 20090402
<ACCEPTANCE-DATETIME>20090402165802
ACCESSION NUMBER:		0001178913-09-000819
CONFORMED SUBMISSION TYPE:	20-F
PUBLIC DOCUMENT COUNT:		20
CONFORMED PERIOD OF REPORT:	20081231
FILED AS OF DATE:		20090402
DATE AS OF CHANGE:		20090402

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MAGIC SOFTWARE ENTERPRISES LTD
		CENTRAL INDEX KEY:			0000876779
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-PREPACKAGED SOFTWARE [7372]
		IRS NUMBER:				330477418
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		20-F
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-19415
		FILM NUMBER:		09728409

	BUSINESS ADDRESS:	
		STREET 1:		5 HAPLADA STREET
		CITY:			OR YEHUDA ISRAEL
		STATE:			L3
		ZIP:			602
		BUSINESS PHONE:		97235389322

	MAIL ADDRESS:	
		STREET 1:		5 HAPLADA STREET
		CITY:			OR YEHUDA ISRAEL
		STATE:			L3
		ZIP:			602
</SEC-HEADER>
<DOCUMENT>
<TYPE>20-F
<SEQUENCE>1
<FILENAME>zk96546.htm
<TEXT>
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     <!-- Control Number: 96546                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Magic Software Enterprises Ltd                                   -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
<BODY>

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<HR ALIGN=LEFT WIDTH=100% SIZE=4 NOSHADE STYLE="margin-top: -5px">
<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE STYLE="margin-top: -10px">

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=4>SECURITIES AND
EXCHANGE COMMISSION </FONT>
<BR><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Washington D.C. 20549 </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="4"><B>FORM 20-F</B> </FONT> </P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT size="3" face="Wingdings">o
</font>
</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934</B> </FONT></TD>
</TR>
</TABLE>
<BR>

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

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT size="3" face="Wingdings">x</font>
</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the fiscal year
ended December 31, 2008 </FONT></H1>

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

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT size="3" face="Wingdings">o
</font>
</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B> </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the transition
period from __________ to __________ </FONT></H1>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT size="3" face="Wingdings">o
</font>
</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B> </FONT> </TD>
</TR>
</TABLE>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Date
of event requiring this shell company report  </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commission file
number: 0-19415 </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="5"><B>MAGIC SOFTWARE
ENTERPRISES LTD.</B> </FONT>
<BR><FONT FACE="Times New Roman, Times, Serif" SIZE="2">(Exact
name of Registrant as specified in its charter
<BR>and
translation of Registrant&#146;s name into English)</FONT></P>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Israel</B>
<BR>(Jurisdiction
of incorporation or organization) </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1-TNR" FSL="Workstation" -->
<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>5 Haplada Street, Or
Yehuda 60218, Israel</B>
<BR>(Address
of principal executive offices) </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1-TNR" FSL="Workstation" -->
<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Amit Birk; +972 (3)
538 9322; abirk@magicsoftware.com
</B><BR><B>5 Haplada Street, Or
Yehuda 60218, Israel</B>
<BR>(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person</FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Securities registered or to be
registered pursuant to Section 12(b) of the Act:  </FONT></P>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=50% ALIGN=center><FONT FACE="Times New Roman" SIZE=2>Title of each class</FONT></TD>
     <TD WIDTH=50% ALIGN=center><FONT FACE="Times New Roman" SIZE=2>Name of each exchange on which registered</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=center><FONT FACE="Times New Roman" SIZE="2"><B>Ordinary Shares, NIS 0.1 Par Value</B> </FONT></TD>
     <TD ALIGN=center><FONT FACE="Times New Roman" SIZE="2"><B>NASDAQ Global Market</B> </FONT></TD></TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Securities registered or to be
registered pursuant to Section 12(g) of the Act: <B>None</B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Securities for which there is a
reporting obligation pursuant to Section 15(d) of the Act: <B>None</B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate the number of outstanding
shares of each of the issuer&#146;s classes of capital or common stock as of the close of
the period covered by the annual report:  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Ordinary
Shares, par value NIS 0. 1 per share&#133;&#133;&#133;&#133;..31,893,880</B> (as of
December 31, 2008) </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Yes <FONT size="3" face="Wingdings">o
</font> No  <FONT size="3" face="Wingdings">x
</font> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>If this report is an annual or
transition report, indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Yes <FONT size="3" face="Wingdings">o
</font> No  <FONT size="3" face="Wingdings">x
</font>  </FONT></P>

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


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Yes  <FONT size="3" face="Wingdings">x
</font>  No <FONT size="3" face="Wingdings">o
</font></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated filer in Rule&nbsp;12b-2
of the Exchange Act. (Check one):  </FONT></P>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=33% align=center><FONT FACE="Times New Roman" SIZE=2>Large accelerated filer <FONT size="3" face="Wingdings">o
</font></FONT></TD>
     <TD WIDTH=33% align=center><FONT FACE="Times New Roman" SIZE=2>Accelerated filer <FONT size="3" face="Wingdings">o
</font></FONT></TD>
     <TD WIDTH=34% align=center><FONT FACE="Times New Roman" SIZE=2>Non-accelerated filer <FONT size="3" face="Wingdings">x
</font></FONT></TD></TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark which basis
of accounting the registrant has used to prepare the financial statements included in
this filing:  </FONT></P>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=30% align=center><FONT FACE="Times New Roman" SIZE=2>U.S. GAAP <FONT size="3" face="Wingdings">x
</font></FONT></TD>
     <TD WIDTH=40% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>International Financial</FONT></TD>
     <TD WIDTH=30% align=center><FONT FACE="Times New Roman" SIZE=2>Other <FONT size="3" face="Wingdings">o
</font></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Reporting Standards as issued by</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>the International Accounting</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Standards Board <FONT size="3" face="Wingdings">o
</font></FONT></TD></TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>If &#147;Other&#148; has been
checked in response to the previous question, indicate by check mark which financial
statement item the registrant has elected to follow:  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 17 <FONT size="3" face="Wingdings">o
</font> Item 18 <FONT size="3" face="Wingdings">o
</font> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>If this is an annual report,
indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Yes <FONT size="3" face="Wingdings">o
</font> No <FONT size="3" face="Wingdings">x</font>  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>This annual report on Form 20-F is
incorporated by reference into the registrant&#146;s Registration Statements on Form S-8,
File Nos. 333-13270, 333-11220, 333-1946, 333-10794, 333-113552, 333-132221 and
333-149553.  </FONT></P>

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

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<P align=center><IMG SRC="magic.jpg"> </P>

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

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Magic
Software Enterprises Ltd. develops markets, sells and supports an application platform
and business and process integration solutions. Our products and services are available
through a global network of our regional offices, independent software vendors, or ISVs,
system integrators, or SIs, distributors and value added resellers, or VARs, as
well as original equipment manufacturers, or OEMs, and consulting partners in
approximately 50 countries. Our technology provides our partners and customers the
ability to create any type of business application, leverage existing information
technology, or IT, resources, enhance business ability, and focus on core business
priorities to gain maximum return on their existing and new IT investments. We are known
for our code-free approach, allowing users to focus on business logic rather than
technological requirements. This approach forms the driving principle of both our uniPaaS
application platform and our iBOLT business and process integration suites. Our ordinary
shares are listed on the NASDAQ Global Market under the symbol &#147;MGIC&#148; and are
also traded on the Tel Aviv Stock Exchange. As used in this annual report, the terms
&#147;we,&#148;&#147;us,&#148; &#147;our,&#148; and Magic mean Magic Software Enterprises
Ltd. and its subsidiaries, unless otherwise indicated.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have obtained trademark registrations for Magic&reg; in the United States, Canada, Israel,
the Netherlands (Benelux), Switzerland, Thailand and the United Kingdom. All other
trademarks and trade names appearing in this annual report are owned by their respective
holders. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
consolidated financial statements appearing in this annual report are prepared in U.S.
dollars and in accordance with generally accepted accounting principles in the United
States, or U.S. GAAP. All references in this annual report to &#147;dollars&#148; or
&#147;$&#148; are to U.S. dollars and all references in this annual report to
&#147;NIS&#148; are to New Israeli Shekels. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statements
made in this annual report concerning the contents of any contract, agreement or other
document are summaries of such contracts, agreements or documents and are not complete
descriptions of all of their terms. If we filed any of these documents as an exhibit to
this annual report or to any previous filling with the Securities and Exchange Commission,
you may read the document itself for a complete recitation of its terms. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
annual report on Form 20-F contains various &#147;forward-looking statements&#148; within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation
Reform Act of 1995, as amended, with respect to our business, financial condition and
results of operations. Such forward-looking statements reflect our current view with
respect to future events and financial results. Statements which use the terms
&#147;anticipate,&#148; &#147;believe,&#148; &#147;expect,&#148; &#147;plan,&#148;
&#147;intend,&#148; &#147;estimate&#148; and similar expressions are intended to identify
forward looking statements. We remind readers that forward-looking statements are merely
predictions and therefore inherently subject to uncertainties and other factors and
involve known and unknown risks that could cause the actual results, performance, levels
of activity, or our achievements, or industry results, to be materially different from any
future results, performance, levels of activity, or our achievements expressed or implied
by such forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. Except as
required by applicable law, including the securities laws of the United States, we
undertake no obligation to publicly release any update or revision to any forward looking
statements to reflect new information, future events or circumstances, or otherwise after
the date hereof. We have attempted to identify significant uncertainties and other factors
affecting forward-looking statements in the Risk Factors section that appears in Item 3D.,
&#147;Key Information &#150; Risk Factors.&#148; </FONT></P>

<p align=center>
<font size=2>i</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
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     <TD WIDTH=12% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2"><a href="#zk201"><B>PART I</B></a> </FONT></TD>
     <TD WIDTH=80% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk202">ITEM 1.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk202">IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk203">ITEM 2.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk203">OFFER STATISTICS AND EXPECTED TIMETABLE</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk204">ITEM 3.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk204">KEY INFORMATION</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>A.&nbsp;&nbsp;&nbsp;&nbsp;Selected Financial Data</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>B.&nbsp;&nbsp;&nbsp;&nbsp;Capitalization and Indebtedness</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>C.&nbsp;&nbsp;&nbsp;&nbsp;Reasons for the Offer and Use of Proceeds</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>D.&nbsp;&nbsp;&nbsp;&nbsp;Risk Factors</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk205">ITEM 4.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk205">INFORMATION ON THE COMPANY</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>13&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>A.&nbsp;&nbsp;&nbsp;&nbsp;History and Development of the Company</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>13&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>B.&nbsp;&nbsp;&nbsp;&nbsp;Business Overview</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>15&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>C.&nbsp;&nbsp;&nbsp;&nbsp;Organizational Structure</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>25&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>D.&nbsp;&nbsp;&nbsp;&nbsp;Property, Plants and Equipment</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>26&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk206">ITEM 4 A.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk206">UNRESOLVED STAFF COMMENTS</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>26&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk207">ITEM 5.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk207">OPERATING AND FINANCIAL REVIEW AND PROSPECTS</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>26&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>A.&nbsp;&nbsp;&nbsp;&nbsp;Operating Results</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>26&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>B.&nbsp;&nbsp;&nbsp;&nbsp;Liquidity and Capital Resources</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>39&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>C.&nbsp;&nbsp;&nbsp;&nbsp;Research and Development, Patents and Licenses</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>41&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>D.&nbsp;&nbsp;&nbsp;&nbsp;Trend Information</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>41&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>E.&nbsp;&nbsp;&nbsp;&nbsp;Off-Balance Sheet Arrangements</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>41&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>F.&nbsp;&nbsp;&nbsp;&nbsp;Tabular Disclosure of Contractual Obligations</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>41&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk208">ITEM 6.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk208">DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>42&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>A.&nbsp;&nbsp;&nbsp;&nbsp;Directors and Senior Management</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>42&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>B.&nbsp;&nbsp;&nbsp;&nbsp;Compensation</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>45&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>C.&nbsp;&nbsp;&nbsp;&nbsp;Board Practices</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>45&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>D.&nbsp;&nbsp;&nbsp;&nbsp;Employees</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>53&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>E.&nbsp;&nbsp;&nbsp;&nbsp;Share Ownership</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>53&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk209">ITEM 7.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk209">MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>57&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>A.&nbsp;&nbsp;&nbsp;&nbsp;Major Shareholders</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>57&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>B.&nbsp;&nbsp;&nbsp;&nbsp;Related Party Transactions</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>58&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>C.&nbsp;&nbsp;&nbsp;&nbsp;Interests of Experts and Counsel</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>58&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk210">ITEM 8.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk210">FINANCIAL INFORMATION</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>58&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>A.&nbsp;&nbsp;&nbsp;&nbsp;Consolidated Statements and Other Financial Information</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>58&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>B.&nbsp;&nbsp;&nbsp;&nbsp;Significant Changes</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>60&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk211">ITEM 9.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk211">THE OFFER AND LISTING</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>60&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>A.&nbsp;&nbsp;&nbsp;&nbsp;Offer and Listing Details</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>60&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>B.&nbsp;&nbsp;&nbsp;&nbsp;Plan of Distribution</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>61&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>C.&nbsp;&nbsp;&nbsp;&nbsp;Markets</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>61&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>D.&nbsp;&nbsp;&nbsp;&nbsp;Selling Shareholders</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>61&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>E.&nbsp;&nbsp;&nbsp;&nbsp;Dilution</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>61&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>F.&nbsp;&nbsp;&nbsp;&nbsp;Expense of the Issue</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>61&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk212">ITEM 10.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk212">ADDITIONAL INFORMATION</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>61&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>A.&nbsp;&nbsp;&nbsp;&nbsp;Share Capital</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>61&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>B.&nbsp;&nbsp;&nbsp;&nbsp;Memorandum and Articles of Association</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>61&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>C.&nbsp;&nbsp;&nbsp;&nbsp;Material Contracts</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>64&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>D.&nbsp;&nbsp;&nbsp;&nbsp;Exchange Controls</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>64&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>E.&nbsp;&nbsp;&nbsp;&nbsp;Taxation</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>64&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>F.&nbsp;&nbsp;&nbsp;&nbsp;Dividends and Paying Agents</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>73&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>G.&nbsp;&nbsp;&nbsp;&nbsp;Statement by Experts</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>73&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>H.&nbsp;&nbsp;&nbsp;&nbsp;Documents on Display</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>73&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;I.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsidiary Information</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>74&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk213">ITEM 11.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk213">QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>74&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk214">ITEM 12.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk214">DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>74&nbsp;</FONT></TD></TR>
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<font size=2>ii</font></p>
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     <TD WIDTH=12% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2"><a href="#zk215"><B>PART II</B></a> </FONT></TD>
     <TD WIDTH=80% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>74&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk216">ITEM 13.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk216">DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>74&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk217">ITEM 14.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk217">MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>74&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk218">ITEM 15.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk218">CONTROLS AND PROCEDURES</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>75&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk219">ITEM 16.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk219">RESERVED</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>76&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk220">ITEM 16A.</a>  </FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk220">AUDIT COMMITTEE FINANCIAL EXPERT</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>76&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk221">ITEM 16B.</a>  </FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk221">CODE OF ETHICS</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>76&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk222">ITEM 16C.</a>  </FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk222">PRINCIPAL ACCOUNTANT FEES AND SERVICES</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>76&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk223">ITEM 16D.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk223">EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>77&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk224">ITEM 16E.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk224">PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>77&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk225">ITEM 16F.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk225">CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>77&nbsp;</FONT></TD></TR>
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     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk226">ITEM 16G.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk226">CORPORATE GOVERNANCE</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>77&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2"><a href="#zk227"><B>PART III</B> </a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>77&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk228">ITEM 17.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk228">FINANCIAL STATEMENTS</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>77&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk229">ITEM 18.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk229">FINANCIAL STATEMENTS</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>77&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk230">ITEM 19.</a></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><a href="#zk230">EXHIBITS</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>78&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT colspan=2><FONT FACE="Times New Roman" SIZE=2><a href="#zk231">S I G N A T U R E S</a></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>80&nbsp;</FONT></TD></TR>
</TABLE>
<BR>

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

<a name=zk201></a>
<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART I </FONT></H1>

<a name=zk202></a>
<!-- MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 1.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable.</FONT></P>

<a name=zk203></a>
<!-- MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 2.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
OFFER STATISTICS AND EXPECTED TIMETABLE</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable.</FONT></P>

<a name=zk204></a>
<!-- MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 3.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
KEY INFORMATION</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>A.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>SELECTED
FINANCIAL DATA</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table presents selected consolidated financial data as of the dates and for
each of the periods indicated. This data includes discontinued operations for certain of
the presented periods (see Note 3(a) and 3(c) to the consolidated financial statements).
You should read the selected consolidated financial data set forth below together with
Item 5. &#147;Operating and Financial Review and Prospects&#148; as well as our
consolidated financial statements and notes thereto appearing elsewhere in this annual
report.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have derived the following consolidated income statement data for the years ended
December 31, 2006, 2007 and 2008 and the consolidated balance sheet data as of December
31, 2007 and 2008 from our audited consolidated financial statements and notes included
elsewhere in this annual report, with the relevant adjustments due to the discontinued
operations. We have derived the consolidated income statement data for the years ended
December 31, 2004 and 2005 and the consolidated balance sheet data as of December 31,
2004, 2005 and 2006 from our audited consolidated financial statements that are not
included in this annual report, with the relevant adjustments due to the discontinued
operations.  </FONT></P>


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




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=black NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2007</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2008</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman" SIZE=1>(U.S. dollars in thousands, except share and per share data)</FONT></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="43%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Revenues:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Software</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>  24,861</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>  21,503</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>  18,788</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>  17,707</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>  20,913</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Maintenance and technical support</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>11,233</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>11,238</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>11,531</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>12,605</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>14,530</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Consulting services</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>21,119</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>19,095</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>22,252</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>28,116</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>26,537</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenues</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>57,213</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>51,836</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>52,571</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>58,428</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>61,980</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Cost of revenues:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Software</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>4,814</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>6,965</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>5,433</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>4,557</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>4,898</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Maintenance and technical support</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,072</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,179</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,873</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,602</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,263</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Consulting services</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>14,403</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>14,123</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>16,862</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>21,181</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>19,978</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total cost of revenues</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>22,289</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>23,267</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>25,168</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>27,340</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>27,139</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Gross profit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>34,924</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>28,569</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>27,403</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>31,088</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>34,841</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Operating costs and expenses:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Research and development, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>2,545</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>2,413</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>2,462</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>2,716</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>2,350</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Selling and marketing</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>16,243</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>17,197</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>15,712</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>15,558</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>17,357</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;General and administrative</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>13,442</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>14,510</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>13,784</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>11,532</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>10,867</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Restructuring and impairment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,157</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Operating income (loss)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>2,694</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(5,551</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(6,712</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>1,282</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>4,267</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Financial income (expense), net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>917</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(809</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>332</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>161</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>448</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Other income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>278</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>170</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Income (loss) before taxes on income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,611</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(6,360</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(6,102</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,613</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4,715</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Taxes on income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>254</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>462</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>310</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>362</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>199</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Income (loss) after taxes on income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,357</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(6,822</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(6,412</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,251</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4,516</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Equity in earnings (losses) of affiliates</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>79</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>19</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>15</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(86</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(8</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Minority interest in losses (earnings) of</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;subsidiaries</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(67</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(8</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>71</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>     (22</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Net income (loss) from continued operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>   3,369</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  (6,811</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  (6,326</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>   1,143</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>   4,508</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net income from discontinued operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>721</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,204</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,320</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>11,465</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Net income (loss)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>4,090</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(4,607</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(5,006</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>12,608</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>4,508</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Basic net income (loss) per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>    0.13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>   (0.15</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>   (0.16</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>    0.40</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>    0.14</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Diluted net income (loss) per share</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>    0.13</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>   (0.15</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>   (0.16</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>    0.39</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>    0.14</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Shares used to compute basic income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;(loss) per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>31,029</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>31,124</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>31,184</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>31,443</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>31,769</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" colspan=16><FONT FACE="Times New Roman" SIZE=2>Shares used to compute diluted income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;(loss) per share</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>32,426</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>31,124</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>31,184</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>32,023</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>32,032</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>

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

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




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=black NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2007</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2008</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman" SIZE=1>(U.S. dollars in thousands)</FONT></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="43%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Working capital</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 25,934</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 19,052</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 15,584</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 28,737</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 33,763</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Cash, cash equivalents, short term deposits  and</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>10,982</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>10,173</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>11,653</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>16,446</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>32,588</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Total assets including discontinued operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>80,285</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>73,722</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>71,172</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>82,298</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>82,656</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Shareholders' equity</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>59,547</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>52,305</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>47,644</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>61,244</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>66,755</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>B.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>CAPITALIZATION
AND INDEBTEDNESS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable.</FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>C.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;REASONS
FOR THE OFFER AND USE OF PROCEEDS</B> </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable.</FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>D.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>RISK
FACTORS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Investing
in our ordinary shares involves a high degree of risk and uncertainty. You should
carefully consider the risks and uncertainties described below before investing in our
ordinary shares. Our business, prospects, financial condition and results of operations
could be adversely affected due to any of the following risks. In that case, the value of
our ordinary shares could decline, and you could lose all or part of your investment.</I> </FONT></P>


<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risks Related to Our
Business and Our Industry </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We have a history of
losses and may not be able to maintain profitability in the future.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although
we reported net income from continued operations of $ 1.1 million and $ 4.5 million for
the years ended December 31, 2007 and 2008, respectively, we incurred losses in the two
prior years. No assurance can be given that we will be able to maintain our current level
of revenues or profitability in the future.  </FONT></P>

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

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We have a history of
quarterly fluctuations in our results of operations and expect these fluctuations to
continue.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have experienced and in the future may continue to experience significant fluctuations in
our quarterly results of operations and we expect these fluctuations to continue. Factors
that may contribute to fluctuations in our quarterly results of operations include:  </FONT></P>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
size and timing of orders;</FONT></TD>
</TR>
</TABLE>
<BR>



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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
high level of competition that we               encounter;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
timing of our product introductions or               enhancements or those of our
competitors or of providers of complementary products;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Market
acceptance of our new products,               applications and services;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
purchasing patterns and budget cycles               of our customers and end-users;</FONT></TD>
</TR>
</TABLE>
<BR>

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

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

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
customers ordinarily require the delivery of products promptly after we accept their
orders. With the exception of contracts for services, we usually do not have a backlog of
orders for our products. Consequently, revenues from our products in any quarter depend
on orders received and accepted by the customers in that quarter. The deferral of the
placing and acceptance of any large order from one quarter to another could materially
adversely affect our results of operations for the former quarter. Our customers
sometimes require an acceptance test for services we provide and as a result, we may have
a significant backlog of orders for our services. Our revenues from services depend on
orders received and services provided by us and accepted by our customers in that
quarter. If sales in any quarter do not increase correspondingly or if we do not reduce
our expenses in response to level or declining revenues in a timely fashion, our
financial results for that quarter would be materially adversely affected. For these
reasons, quarter-to-quarter comparisons of our results of operations are not necessarily
meaningful and you should not rely on the results of our operations in any particular
quarter as an indication of future performance.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Continuing unfavorable
national and global economic conditions could have a material adverse effect on our
business, operating results and financial condition.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
recent crisis in the financial and credit markets in the United States, Europe and Asia
has led to a global economic slowdown, with the economies of the United States and Europe
showing significant signs of weakness. If the economies in any part of the world continue
to be weak or weaken further, the demand for our products, technology and services may
decrease as a result of continued constraints on capital spending by our customers. In
addition, this could result in longer sales cycles, slower adoption of new technologies
and increased price competition for our products and services. Any of these events would
likely harm our business, operating results and financial condition. If global economic
and market conditions, or economic conditions in the United States, Europe or Asia or
other key markets, remain uncertain, persist, or deteriorate further, our business,
operating results and financial condition may be materially adversely affected.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Recent worldwide economic
downturn may adversely affect our customers, exposing us to credit risk and payment
delinquencies on our accounts receivable.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
outstanding accounts receivables are not covered by collateral. As economic conditions
deteriorate, certain of our customers may face liquidity concerns and may delay or be
unable to satisfy their payment obligations, which would have an adverse effect on our
financial condition and operating results.  </FONT></P>

<p align=center>
<font size=2>3</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Changes in the ratio of
our revenues generated from different revenue elements may adversely affect our gross
profit margins.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
derive our revenues from the sale of software licenses, maintenance and technical support
and consulting services. Our gross margin is affected by the proportion of our revenues
generated from the sale of each of those elements of our revenues. Our revenues from the
sale of our software licenses and maintenance and technical support have higher gross
margins than our revenues from the sale of consulting services. If the relative
proportion of our revenues from the sale of consulting services increases as a percentage
of our total revenues, our gross profit margins will decline. Our software licenses
revenues include the sale of the third party software license sales, which have a lower
gross margin than the sales of our software products. Any increase in the portion of
third party software license sales out of total license sales will decrease our gross
profit margin.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We derive a significant
portion of our revenues from independent distributors who are under no obligation to
purchase our products and the loss of such independent distributors could adversely affect our
business, results of operations and financial condition.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
sell our products through our direct sales representatives, as well as through third
parties that use our technology to develop and sell solutions for their customers,
referred to as ISVs or Magic Software Providors, or MSPs, and also through SIs. These
independent distributors then resell our products to end-users. We are dependent upon the
acceptance of our products by our independent distributors and their active marketing and
sales efforts. Typically, our arrangements with our independent distributors do not
require them to purchase specified amounts of products or prevent them from selling
non-competitive products. The independent distributors may not continue, or may not give
a high priority to, marketing and supporting our products. Our results of operations
could be materially adversely affected by changes in the financial condition, business,
marketing strategies, local and global economic conditions, or results of our independent
distributors.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We may lose independent
distributors on whom we currently depend and we may not succeed in developing new distribution channels
which could adversely affect our business, results of operations and financial condition.</I></B> </FONT> </P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
any of our distribution relationships are terminated, we may not be successful in
replacing them on a timely basis, or at all. In addition, we will need to develop new
sales channels for new products, and we may not succeed in doing so. Any changes in our
distribution and sales channels, or our inability to establish effective distribution and
sales channels for new markets, will impact our ability to sell our products and result
in a loss of revenues and profits.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We are dependent on a
limited number of product families and a decrease in revenues from these products would
adversely affect our business, results of operations and financial condition.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently,
we derive most of our revenues from sales of application platform and integration
products primarily under our uniPaaS and iBOLT brands, as well as related revenues from
software maintenance and support and other services. We do not expect our revenue
structure to change in the foreseeable future. Our future growth depends heavily on our
ability to effectively develop and sell new and acquired products as well as add new
features to existing products. A decrease in revenues from our primary products would
adversely affect our business, results of operations and financial condition.</FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>The revenue of one of our
vertical subsidiaries is dependent upon two customers and a significant decrease in
revenues from these customers could adversely affect our business, results of operations
and financial condition.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
majority of revenues generated by one of our vertical subsidiaries in 2006, 2007 and 2008
were from two customers, and we expect the revenues of the subsidiary to continue to be
largely dependent upon these two customers in 2009. We do not know if, or for how much
longer, these two customers will continue to purchase the services of the subsidiary, nor
do we have any control or influence over their purchasing decisions. A significant
decrease in revenues from these customers could adversely affect our business, results of
operations and financial condition.  </FONT></P>

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

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Our widespread operations
may strain our management, operational and financial resources and could have a
material adverse affect on our business, results of operations and financial condition.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
widespread operations have significantly strained our management, operational and
financial resources in the past. Any future growth may increase this strain. To manage
future growth effectively, we must:  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Expand
our operational, management,               financial, marketing and research and
development functions;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Train,
motivate, manage and retain               qualified employees; and</FONT></TD>
</TR>
</TABLE>
<BR>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may not succeed in managing future growth.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We may encounter
difficulties with our international operations and sales which could adversely affect our
business, results of operations and financial condition.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While
our principal executive offices are located in Israel, 92% of our sales in 2006, 2007 and
2008 were generated from other countries. This subjects us to many risks inherent to
international business activities, including:  </FONT></P>



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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Limitations
and disruptions resulting from               the imposition of government controls;</FONT></TD>
</TR>
</TABLE>
<BR>

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

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

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

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

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

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

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Difficulties
in the collection of               receivables;</FONT></TD>
</TR>
</TABLE>
<BR>

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

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

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Difficulties
in managing overseas subsidiaries and international operations. </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may encounter significant difficulties in connection with the sale of our products in
international markets as a result of one or more of these factors and our business,
results of operations and financial condition could be adversely affected.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Currency exchange rate
fluctuations in the world markets in which we conduct business could have a material
adverse affect on our business, results of operations and financial condition.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
financial statements are stated in U.S. dollars, our functional currency. Nevertheless, a
substantial portion of our revenues and expenses are incurred in other currencies,
particularly Euros, Japanese yen, NIS and the British pound. We maintain substantial
non-U.S. dollar balances of assets, including cash and accounts receivable, and
liabilities, including accounts payable. Fluctuations in the value of the currencies in
which we do business relative to the U.S. dollar may have a material adverse effect on
our business, results of operations and financial condition, by decreasing the U.S.
dollar value of assets held in other currencies and increasing the U.S. dollar amount of
liabilities payable in other currencies, or by decreasing the U.S. dollar value of our
revenues in other currencies and increasing the U.S. dollar amount of our expenses in
other currencies. From time to time we use derivative or other instruments to hedge
against part or all of our exposures.  </FONT></P>

<p align=center>
<font size=2>5</font></p>
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<page>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Declines in our share
price and/or operating performance could result in a future impairment of our goodwill
or long-lived assets.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
assess potential impairments of goodwill annually and when there is evidence that events
or changes in circumstances indicate that an impairment condition may exist. We assess
potential impairments of our long-lived assets, including property and equipment and
capitalized software, when there is evidence that events or changes in circumstances
indicate that the carrying value may not be recoverable. In the current capital market
downturn, our share price, and consequently our market capitalization, have declined and
may decline further in the future. If the value of our market capitalization falls below
the value of our shareholders&#146; equity, it might indicate that an impairment of
goodwill is required. We determine the value of each of our reporting units using the
income approach, which utilizes a discounted cash flow model, as we believe that this
approach best approximates our fair value at this time. Our ability to reconcile the gap
between our market capitalization and aggregate fair value of the reporting units depends
on various factors, some of which are qualitative, such as estimated control premium that
an investor would be willing to pay for a controlling interest in us, while others
involve management judgment. If our market capitalization stays below our shareholders&#146;equity,
or actual results of operations materially differ from our modeling estimates, we may be
required to record a non-cash impairment charge of our goodwill. A significant impairment
loss could have a material adverse effect on our operating results and on the carrying
value of our goodwill and/or our long-lived assets on our balance sheet.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We face intense
competition in the markets for our application platform as well as process and business integration technologies
and services, which are evolving into a new market for software as a service, orSaaS. This competition could
adversely affect our business, results of operations and financial condition.</I></B> </FONT> </P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
compete with other companies in the areas of application platforms, business integration
and business process management, or BPM, tools, and in the applications and services
markets in which we operate. The enhancement of the SaaS market increases the competition
in these areas, and one of our competitors even claims to offer a fully automated
eDeveloper conversion process, converting eDeveloper based applications to .NET based
applications. We expect that competition will increase in the future, both with respect
to our technology, applications and services which we currently offer and applications
and services which we and other vendors are developing. Increased competition, direct and
indirect, could adversely affect our business, financial condition and results of
operations.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some
of our existing and potential competitors are larger, have substantially greater
resources including financial, technological, marketing, skilled human resources and
distribution capabilities, and enjoy greater market recognition than us. We may not be
able to differentiate our products from those of our competitors, offer our products as
part of integrated systems or solutions to the same extent as our competitors, or
successfully develop or introduce new products that are more cost-effective, or offer
better performance than our competitors. Failure to do so could adversely affect our
business, financial condition and results of operations.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We may not succeed in
increasing our market share in the business and process integration markets with our
iBOLT products, or leverage our advantage in the rich internet application, or RIA, and
SaaS enabled application platform, or SEAP, fields, which could adversely affect our
business, results of operations and financial condition.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
iBOLT Integration Suite provides business integration and process management solutions
with a particular focus on enterprise applications. iBOLT allows the seamless integration
and interoperability of diverse solutions, including legacy applications, in a quick and
efficient manner. Since we launched iBOLT in 2003, we have continued to develop this
product and enhance it, releasing successive versions over the years (the current version
is 3.0). In 2005, we started a line of special editions of iBOLT tailored for specific
application packages, and we have released three such special editions, for SAP, Oracle
JD Edwards and Salesforce.com. We are currently developing solution accelerators, which
will be periodically released during 2009.  </FONT></P>

<p align=center>
<font size=2>6</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
business integration and BPM markets in which we compete are extremely competitive and
subject to rapid changes. Our competitors utilize varying approaches to the provision of
technology to business integration and BPM markets. We may not have the resources, skills
and product variety required to successfully increase our market share in these markets.
In addition, even if we succeed in convincing prospective customers and the market that
our products are effective and provide real business benefits, our target customers may
not choose them due to technical, cost, support or other reasons.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Our future success will
be largely dependent on the acceptance of future releases of our RIA and SEAP offerings
and if we are unsuccessful our business, results of operations and financial condition
will be adversely affected</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2008, we released a new generation of our eDeveloper application platform, branded
uniPaaS. uniPaaS is compatible with previous versions of eDeveloper, adds RIA
capabilities, and in the future will add SaaS capabilities. Our future success will be in
great measure dependent on the acceptance of uniPaaS. The acceptance of this product
relies in part on the continued acceptance and growth of RIA and SaaS, for which uniPaaS
is particularly useful and advantageous. If this product is not accepted, our business,
results of operations and financial condition will be adversely affected.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Our efforts to increase
our presence worldwide, including the United States, Europe, Japan, Asia, South Africa and Russia may not
be profitable, which could adversely affect our business, results of operations and
financial condition. </I></B> </FONT> </P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
success in becoming a stronger competitor in the sale of application platform and
integration solutions is dependent upon our ability to increase our sales in all our
markets, including, but not limited to the United States, Europe, Japan, Asia Pacific,
South Africa and Russia. Our efforts to increase our penetration to these markets are
subject to risks inherent to such markets, including the high cost of doing business in
such locations. Our efforts may be costly and the may not result in profits, which could
adversely affect our business, results of operations and financial condition.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Rapid technological
changes may adversely affect the market acceptance of our products and services, and our
business, results of operations and financial condition could be adversely affected.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
compete in a market that is characterized by rapid technological change. The introduction
of new technologies could render existing products and services obsolete and unmarketable
and could exert price pressures on our products and services. Our future success will
depend upon our ability to address the increasingly sophisticated needs of our customers
by:  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Supporting
existing and emerging hardware,               software, databases and networking
platforms; and</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Developing
and introducing new and enhanced software development technology and applications that
keeps pace with such technological developments, emerging new markets and changing
customer requirements. </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
release dates of any future products or enhancements are delayed or if, when released,
they fail to achieve market acceptance, our business, financial condition and results of
operations would be materially adversely affected.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Our products have a
lengthy sales cycle which could adversely affect our revenues.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
customers typically use our technology to develop and deploy as well as integrate
applications that are critical to their businesses. As a result, the licensing and
implementation of our technology generally involves a significant commitment of attention
and resources by prospective customers. Because of the long approval process that
typically accompanies strategic initiatives or capital expenditures by companies, our
sales process is often delayed, with little or no control over any delays encountered by
us. Our sales cycle can be further extended for sales made through third party
distributors.  </FONT></P>

<p align=center>
<font size=2>7</font></p>
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<page>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Our products may contain
defects that may be costly to correct, delay market acceptance of our products and
expose us to difficulties in the collection of receivables and to litigation.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Despite
quality assurance testing performed by us, as well as by our partners and end-users who
participate in our beta-testing programs, errors may be found in our software products or
in applications developed with our technology. This risk is exacerbated by the fact that
a significant percentage of the applications developed with our technology were and are
likely to continue to be developed by our ISV partners and SIs over whom we exercise no
supervision or control. If defects are discovered, we may not be able to successfully
correct them in a timely manner or at all. Defects and failures in our products could
result in a loss of, or delay in, market acceptance of our products, as well as
difficulties in the collection of receivables and litigation, and could damage our
reputation.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
standard license agreement with our customers contains provisions designed to limit our
exposure to potential product liability claims that may not be effective or enforceable
under the laws of some jurisdictions. Accordingly, we could fail to realize revenues and
suffer damage to our reputation as a result of, or in defense of, a substantial claim.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Our proprietary
technology is difficult to protect and unauthorized use of our proprietary technology by third
parties may impair our ability to compete effectively.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
success and ability to compete depend in large part upon our ability to protect our
proprietary technology. We rely on a combination of trade secret and copyright laws and
confidentiality, non-disclosure and assignment-of-inventions agreements to protect our
proprietary technology. We do not have any patents. Our policy is to require employees
and consultants to execute confidentiality agreements upon the commencement of their
relationships with us. These measures may not be adequate to protect our technology from
third-party infringement, and our competitors might independently develop technologies
that are substantially equivalent or superior to ours. Additionally, our products may be
sold in foreign countries that provide less protection for intellectual property rights
than that provided under U.S. or Israeli laws.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Third parties may claim
that we infringe upon their intellectual property rights and could harm our business. </I></B> </FONT> </P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Third
parties may assert infringement claims against us or claims that we have violated a
patent or infringed upon a copyright, trademark or other proprietary right belonging to
them. Any infringement claim, even one without merit, could result in the expenditure of
significant financial and managerial resources to defend any such claims.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We may be unable to
attract, train and retain qualified personnel, which could adversely affect our business,
results of operations and financial condition.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event our business grows, we will need to hire additional qualified personnel. The
process of locating, training and successfully integrating qualified personnel into our
operations can be lengthy and expensive. We may not be able to attract the personnel we
need. Any loss of members of senior management or key technical personnel, or any failure
to attract or retain highly qualified employees as needed, could have a material adverse
effect on our business, financial condition and results of operations.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We made and expect to
make acquisitions that could disrupt our operations and harm our operating results.</I></B> </FONT> </P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
growth depends upon market growth, our ability to enhance our existing products, and our
ability to introduce new products on a timely basis. We intend to continue to address the
need to develop new products and enhance existing products through acquisitions of other
companies, product lines, technologies, and personnel. Acquisitions involve numerous
risks, including the following:  </FONT></P>

<p align=center>
<font size=2>8</font></p>
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<page>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Difficulties
in integrating the               operations, systems, technologies, products, and
personnel of the acquired companies;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Diversion
of management&#146;s attention from normal daily operations of the business and the
challenges of managing larger and more widespread operations resulting from acquisitions; </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Potential
difficulties in completing               projects associated with in-process research and
development;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Difficulties
in entering markets in which we have no or limited direct prior experience and where
competitors in such markets have stronger market positions; </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Initial
dependence on unfamiliar supply               chains or relatively small supply partners;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Insufficient
revenue to offset increased               expenses associated with acquisitions; and</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
potential loss of key employees, customers, distributors, vendors and other business
partners of the companies we acquire following and continuing after announcement of
acquisition plans. </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mergers
and acquisitions of high-technology companies are inherently risky and subject to many
factors outside of our control and no assurance can be given that our future acquisitions
will be successful and will not materially adversely affect our business, operating
results, or financial condition. Failure to manage and successfully integrate
acquisitions could materially harm our business and operating results. Prior acquisitions
have resulted in a wide range of outcomes, from successful introduction of new products
and technologies to a failure to do so. Even when an acquired company has already
developed and marketed products, there can be no assurance that product enhancements will
be made in a timely fashion or that pre-acquisition due diligence will have identified
all possible issues that might arise with respect to such products.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Because we are controlled
by Formula Systems (1985) Ltd. and Emblaze Ltd., investors will not be able to affect
the outcome of shareholder votes.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Formula
Systems (1985) Ltd., or Formula Systems, an Israeli company whose shares trade on the
NASDAQ Global Market and the Tel Aviv Stock Exchange, or TASE, directly owns 18,560,352,
or 58.2%, of our outstanding ordinary shares. Emblaze Ltd., or Emblaze, an Israeli
company traded on the London Stock Exchange, owns 51.7% of the outstanding shares of
Formula Systems. Although transactions between us and our controlling shareholders are
subject to special approvals under Israeli law (see Item 6C. &#147;Directors, Senior
Management and Employees &#150; Board Practices &#150; Disclosure of Personal Interests
of a Controlling Shareholder; Approval of Transactions with Controlling Shareholders&#148;),
Formula Systems and Emblaze will be able to exercise control over our operations and
business strategy and affairs, including any determinations with respect to potential
mergers or other business combinations involving us, our acquisition or disposition of
assets, our incurrence of indebtedness, our issuance of any additional ordinary shares or
other equity securities, our repurchase or redemption of ordinary shares and our payment
of dividends. Similarly, Formula Systems and Emblaze will be able to control most matters
requiring shareholder approval, including the election of our directors (subject to a
special majority required for the election of outside directors). Such concentration of
ownership may have the effect of delaying or preventing an acquisition or a change in
control of us.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>If we are unable to
maintain effective internal control over financial reporting in accordance with Section
404 of the Sarbanes-Oxley Act of 2002, the reliability of our financial statements may be questioned
and our share price may suffer.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Sarbanes-Oxley Act of 2002 imposes certain duties on us and on our executives and
directors. Our efforts to comply with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 governing internal control and procedures for financial
reporting, which started in connection with our 2007 Annual Report on Form 20-F, have
resulted in increased general and administrative expense and a diversion of management
time and attention, and we expect these efforts to require the continued commitment of
significant resources. We may identify material weaknesses or significant deficiencies in
our assessments of our internal controls over financial reporting. Failure to maintain
effective internal control over financial reporting could result in investigation or
sanctions by regulatory authorities, and could have a material adverse effect on our
operating results, investor confidence in our reported financial information and the
market price of our ordinary shares.  </FONT></P>

<p align=center>
<font size=2>9</font></p>
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<page>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risks Related to Our
Ordinary Shares </FONT></H1>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Our share price has been
very volatile in the past and may continue to be susceptible to significant market
price and volume fluctuations in the future.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
ordinary shares have experienced significant market price and volume fluctuations in the
past and may experience significant market price and volume fluctuations in the future in
response to factors such as the following, some of which are beyond our control:  </FONT></P>


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<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Quarterly
variations in our operating               results;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Changes
in expectations as to our future               financial performance, including financial
estimates by securities analysts and investors; </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Announcements
of technological innovations               or new products by us or our competitors;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Announcements
by us or our competitors of               significant contracts, acquisitions, strategic
partnerships, joint ventures or capital               commitments;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Changes
in the status of our intellectual               property rights;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Announcements
by third parties of               significant claims or proceedings against us;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Additions
or departures of key personnel;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
public&#146;s response to our press releases, our other public announcements and our
filings with the Securities and Exchange Commission and the Israeli Securities Authority; </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Future
sales of our ordinary shares by our               directors, officers and significant
shareholders;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Political
and economic conditions, such as               a recession or interest rate or currency
rate fluctuations or political events;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other
events or factors in any of the countries in which we operate, including those resulting
from war, incidents of terrorism, natural disasters or responses to such events; and </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>General
trends of the stock markets. </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Domestic
and international stock markets often experience extreme price and volume fluctuations.
The market prices of ordinary shares of software companies have been extremely volatile.
Stock prices of many software companies have often fluctuated in a manner unrelated or
disproportionate to the operating performance of such companies. In the past, securities
class action litigation has often been brought against registrants following periods of
volatility in the market price of their securities. We may in the future be the targets
of similar litigation. Securities litigation could result in substantial costs and divert
management&#146;s attention and resources.  </FONT></P>

<p align=center>
<font size=2>10</font></p>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We have not paid any cash
dividends on our ordinary shares in the last five fiscal years and may not do so in
the future.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although
we paid a dividend in 2003 we did not pay any cash dividends on our ordinary shares in
the last five fiscal years. Future dividend distributions are subject to the discretion
of our board of directors and will depend on various factors, including our operating
results, future earnings, capital requirements, financial condition and tax implications
of dividend distributions on our income, future prospects and any other factors deemed
relevant by our board of directors. The distribution of dividends also may be limited by
Israeli law, which permits the distribution of dividends only out of profits (as defined
by Israeli law) or otherwise upon the permission of the court. You should not rely on an
investment in our company if you require dividend income from your investment. The
success of your investment will likely depend entirely upon any future appreciation of
the market price of our ordinary shares, which is uncertain and unpredictable. There is
no guarantee that our ordinary shares will appreciate in value or even maintain the price
at which you purchased your ordinary shares.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Our ordinary shares are
traded on more than one market and this may result in price variations.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
ordinary shares are traded primarily on the NASDAQ Global Market and on the Tel Aviv
Stock Exchange. Trading in our ordinary shares on these markets is made in different
currencies (U.S. dollars on the NASDAQ Global Market, and New Israeli Shekels, or NIS, on
the Tel Aviv Stock Exchange), and at different times (resulting from different time
zones, different trading days and different public holidays in the United States and
Israel). Consequently, the trading prices of our ordinary shares on these two markets may
differ. Any decrease in the trading price of our ordinary shares on one of these markets
could cause a decrease in the trading price of our ordinary shares on the other market.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risks Related to Our
Location in Israel </FONT></H1>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Political, economic and
military instability in Israel may disrupt our operations and negatively affect our
business condition, harm our results of operations and adversely affect our share price.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are incorporated under the laws of, and our executive offices and research and
development facilities are located in, the State of Israel. Although most of our sales
are made to customers outside Israel, we are influenced to a limited extent by the
political, economic and military conditions affecting Israel. Specifically, we could be
adversely affected by any major hostilities involving Israel, the interruption or
curtailment of trade between Israel and its present trading partners, or a significant
downturn in the economic or financial condition of Israel.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
the establishment of the State of Israel in 1948, Israel and its Arab neighbors have
engaged in a number of armed conflicts. A state of hostility, varying from time to time
in intensity and degree, has led to security and economic problems for Israel. Major
hostilities between Israel and its neighbors may hinder Israel&#146;s international trade
and lead to economic downturn. This, in turn, could have a material adverse effect on our
operations and business. There has been an increase in unrest and terrorist activity in
Israel, which began in September 2000 and which continued with varying levels of severity
through 2008. The future effect of this deterioration and violence on the Israeli economy
and our operations is unclear. In the summer of 2006, Israel was engaged in an armed
conflict with Hezbollah, which involved missile strikes against civilian targets in
northern Israel and negatively affected business conditions in Israel. The establishment
in 2006 of a government in the Gaza Strip by representatives of the Hamas, which
effectively took control of the Gaza Strip from the Palestinian Authority in 2007
following Israel&#146;s disengagement from the Gaza Strip in 2005, has created additional
unrest and uncertainty in the region. In December 2008 and January 2009, there was an
armed conflict between Israel and Hamas, following the firing of thousands of missile
into southern Israel. The missile attacks by Hamas have not targeted the greater Tel Aviv
region, the location of our principal executive offices; however, any armed conflicts,
terrorist activities or political instability in the region would likely negatively
affect business conditions and could significantly harm our results of operations.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore,
there are a number of countries, primarily in the Middle East, as well as Malaysia and
Indonesia, that restrict business with Israel or Israeli companies, and we are precluded
from marketing our products to these countries. Restrictive laws or policies directed
towards Israel or Israeli businesses may have an adverse impact on our operations, our
financial results or the expansion of our business.  </FONT></P>

<p align=center>
<font size=2>11</font></p>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Our results of operations
may be negatively affected by the obligation of our personnel to perform military
service.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many
of our executive officers and employees in Israel are obligated to perform annual reserve
duty in the Israeli Defense Forces and may be called for active duty under emergency
circumstances at any time. If a military conflict or war arises, these individuals could
be required to serve in the military for extended periods of time. Our operations could
be disrupted by the absence for a significant period of one or more of our executive
officers or key employees or a significant number of other employees due to military
service. Any disruption in our operations could adversely affect our business.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Our financial results may
be adversely affected by inflation and currency fluctuations.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
report our financial results in dollars, while a substantial portion of our expenses,
primarily labor expenses, are incurred in NIS. Therefore, our NIS related costs, as
expressed in U.S. dollars, are influenced by the exchange rate between the U.S. dollar
and the NIS. During 2007 and 2008, the NIS appreciated against the U.S. dollar, which
resulted in a significant increase in the U.S. dollar cost of our NIS expenses. We are
also influenced by the timing of, and the extent to which, any increase in the rate of
inflation in Israel over the rate of inflation in the United States is not offset by the
devaluation of the NIS in relation to the dollar. Our dollar costs in Israel will
increase if inflation in Israel exceeds the devaluation of the NIS against the U.S.
dollar or if the timing of such devaluation lags behind inflation in Israel. We cannot
predict any future trends in the rate of inflation in Israel or the rate of devaluation
or appreciation of the NIS against the dollar. If the dollar cost of our operations in
Israel increases, our dollar measured results of operations will be adversely affected.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We currently have the
ability to benefit from government tax benefits, which may be cancelled or reduced in
the future.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are eligible to receive tax benefits under Government of Israel programs. In order
to maintain our eligibility for these tax benefits, we must continue to meet specific
conditions. If we fail to comply with these conditions in the future, the tax benefits we
could receive may be cancelled.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Service and enforcement
of legal process on us and our directors and officers may be difficult to obtain.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are incorporated in Israel and some of our directors, executive officers and the Israeli
experts named in this annual report reside outside the United States.
Service of process upon them may be difficult to effect within the United States.
Furthermore, most of our assets and the assets of some of our executive officers and
directors and some of the experts named in this annual report are located outside the
United States. Therefore, a judgment obtained against us or any of them in the United
States, including one based on the civil liability provisions of the U.S. federal
securities laws may not be collectible in the United States and may not be enforced by an
Israeli court. It also may be difficult for you to assert U.S. securities law claims in
original actions instituted in Israel. For more information regarding the enforceability
of civil liabilities against us, our directors and executive officers and the Israeli
experts named in this prospectus, including the terms under which
certain judgments may be enforced by an Israeli court, please see &#147;Enforceability of
Civil Liabilities.&#148; </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Provisions of Israeli law
may delay, prevent or make difficult an acquisition of us, which could prevent a
change of control and therefore depress the price of our shares.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Israeli
corporate law regulates mergers, requires tender offers for acquisitions of shares above
specified thresholds, requires special approvals for transactions involving directors,
officers or significant shareholders and regulates other matters that may be relevant to
these types of transactions. Furthermore, Israeli tax considerations may make potential
transactions unappealing to us or to some of our shareholders. These provisions of
Israeli corporate and tax law may have the effect of delaying, preventing or complicating
a merger with, or other acquisition of, us. This could cause our ordinary shares to trade
at prices below the price for which third parties might be willing to pay to gain control
of us. Third parties who are otherwise willing to pay a premium over prevailing market
prices to gain control of us may be unable or unwilling to do so because of these
provisions of Israeli law.  </FONT></P>

<p align=center>
<font size=2>12</font></p>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Your rights and
responsibilities as a shareholder will be governed by Israeli law and differ in some respects
from the rights and responsibilities of shareholders under U.S. law.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are incorporated under Israeli law. The rights and responsibilities of holders of our
ordinary shares are governed by our memorandum of association, articles of association
and by Israeli law. These rights and responsibilities differ in some respects from the
rights and responsibilities of shareholders in typical U.S. corporations. In particular,
a shareholder of an Israeli company has a duty to act in good faith in exercising his or
her rights and fulfilling his or her obligations toward the company and other
shareholders and to refrain from abusing his power in the company, including, among other
things, in voting at the general meeting of shareholders on certain matters. Israeli law
provides that these duties are applicable in shareholder votes at the general meeting
with respect to, among other things, amendments to a company&#146;s articles of
association, increases in a company&#146;s authorized share capital, mergers and actions
and transactions involving interests of officers, directors or other interested parties
which require the shareholders&#146; general meeting&#146;s approval. In addition, a
controlling shareholder of an Israeli company or a shareholder who knows that he or she
possesses the power to determine the outcome of a vote at a meeting of our shareholders,
or who has, by virtue of the company&#146;s articles of association, the power to appoint
or prevent the appointment of an office holder in the company, or any other power with
respect to the company, has a duty of fairness toward the company. The Israeli Companies
Law does not establish criteria for determining whether or not a shareholder has acted in
good faith. Moreover, the law is relatively new and there is no case law available on the
duty of a non-controlling shareholder to act in good faith.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>As a foreign private
issuer whose shares are listed on the NASDAQ Global Market, we may follow certain home
country corporate governance practices instead of certain NASDAQ requirements. We follow
Israeli law and practice instead of NASDAQ rules regarding the requirement that our
independent directors have regularly scheduled meetings at which only independent
directors are present.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a foreign private issuer whose shares are listed on The NASDAQ Global Market, we are
permitted to follow certain home country corporate governance practices instead of
certain requirements of the NASDAQ Marketplace Rules. We follow Israeli law and practice
instead of The NASDAQ Marketplace Rules regarding the requirement that our independent
directors have regularly scheduled meetings at which only independent directors are
present. As a foreign private issuer listed on the NASDAQ Global Market, we may also
follow home country practice with regard to, among other things, the composition of the
board of directors, director nomination procedure, compensation of officers and quorum at
shareholders&#146;meetings. In addition, we may follow our home country law, instead of
the NASDAQ Marketplace Rules, which require that we obtain shareholder approval for
certain dilutive events, such as for the establishment or amendment of certain equity
based compensation plans, an issuance that will result in a change of control of the
company, certain transactions other than a public offering involving issuances of a 20%
or more interest in the company and certain acquisitions of the stock or assets of
another company. A foreign private issuer that elects to follow a home country practice
instead of such requirements must submit to NASDAQ in advance a written statement from an
independent counsel in such issuer&#146;s home country certifying that the issuer&#146;s
practices are not prohibited by the home country&#146;s laws. In addition, a foreign
private issuer must disclose in its annual reports filed with the Securities and Exchange
Commission each such requirement that it does not follow and describe the home country
practice followed by the issuer instead of any such requirement. Accordingly, our
shareholders may not be afforded the same protection as provided under NASDAQ&#146;s
corporate governance rules.  </FONT></P>

<a name=zk205></a>
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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 4.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
INFORMATION ON THE COMPANY</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>A.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;HISTORY
AND DEVELOPMENT OF THE COMPANY</B> </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
were incorporated under the laws of the State of Israel in February 1983 as Mashov
Software Export (1983) Ltd. and we changed our name to Magic Software Enterprises Ltd. in
1991. We are a public limited liability company and operate under the Israeli Companies
Law 1999 and associated legislation. Our registered offices and principal place of
business are located at 5 Haplada Street, Or Yehuda 60218, Israel, and our telephone
number is +972-3-538-9292. Our U.S. subsidiary, Magic Software Enterprises Inc., is
located at 23046 Avenida de la Carlota, Laguna Hills, CA 926653. Our address on the
Internet is <U>www.magicsoftware.com.</U> The information on our website is not
incorporated by reference into this annual report.  </FONT></P>

<p align=center>
<font size=2>13</font></p>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
develop, market and support uniPaaS, an application platform for software development and
deployment, and iBOLT, a platform for business integration and BPM. The uniPaaS and the
iBOLT enable enterprises to accelerate the process of building and deploying applications
that can be rapidly customized and integrated with existing systems.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a leading IT technology innovator, we have over 25 years of experience in assisting
software companies and enterprise software companies worldwide to produce and integrate
their business applications. Our application platform, uniPaaS, is used by
thousands of enterprises and ISVs to develop solutions for their customers in
approximately 50 countries. We also refer to these ISVs as MSPs. We also
provide maintenance and technical support as well as professional services to our
enterprise customers and to MSPs. In addition, we sell our technology for business
integration, iBOLT, to customers of specific popular software applications, such as SAP,
Salesforce.com, IBM i (AS/400) or Oracle JD Edwards or other business applications. We
refer to these vendor-centered market sectors as ecosystems.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
May 2008, we launched the uniPaaS application platform, the next generation of our
eDeveloper. In July 2008, uniPaaS was made available worldwide. Since May 2008, we have
introduced a strategy to improve the penetration of our uniPaaS application platform by
organizing user-group events, globally. In November 2008, we released the latest version
of our flagship application platform, uniPaaS V1.5 for developing RIAs.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2008, we developed a migration program consisting of special prices, training marketing
campaigns and informative webinars to help our customers achieve a smooth migration to
new RIA technologies.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2008, we sharpened our iBOLT business integration suite to focus more on gaining
ecosystem business. We have recruited a number of new partners from within a number of
various ecosystems and gained new partners to aid our sales for both uniPaaS and iBOLT.
To support this we&#146;ve increased our attendance at major ecosystem events in 2008.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the latter part of 2008, we released a controlled and limited first version of iBOLT
Version 3. Since then we have continued to develop the iBOLT channel and have entered
into agreements with additional SIs, consultancies and service providers who acquired
iBOLT skills and offer iBOLT licenses and related services to their customers.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
May 2008, we launched our partnership with Salesforce.com, an on-demand customer
relationship management, or CRM, solution vendor, and introduced iBOLT Special Edition
for Salesforce.com integration solution. Since then we have developed partnerships with
SIs in the Salesforce.com ecosystem and we are continuing to experience increasing sales
in this sector.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June 2008, we introduced the new Intercompany Accelerator as part of the iBOLT for SAP
solution. In July 2008, we won the SAP Business One Global Solution Partner Award for
Leadership in Innovation. This is the third consecutive year that we have won a SAP
partner award.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the last quarter of 2008, we focused the iBOLT integration tool on the SAP R/3 market,
and to date we completed several successful new deployments of iBOLT for SAP ERP R3.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have increased our penetration into the JD Edwards market, particularly in the United
States where we have gained a number of new partners specializing in JD Edwards solutions
and won a number of significant deals.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have continued to work closely with IBM as an Advanced Partner of the IBM Partnerworld
for Developer Business Partner program and as a Member Partner of IBM Partnerworld for
Software. IBM has awarded us with its ServerProven&reg; certification for our uniPaaS and
iBOLT products following a rigorous testing and evaluation process. Only those products
that are validated by IBM to install quickly, start up easily and run reliably on IBM
servers are awarded this certification, designed by IBM to assist its customers to easily
identify complete solutions for their business-critical e-business needs. We are also
part of IBM&#146;s System i Tools Innovation Program. As part of our activities with the
IBM i customers and business partners, we released a special edition of iBOLT for Oracle
JD Edwards, targeted at users of JD Edwards Enterprise One Oracle enterprise resource
planning, or ERP, software on the IBM System i platform.  </FONT></P>

<p align=center>
<font size=2>14</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December 30, 2007, we sold our wholly-owned subsidiary, Advanced Answers on Demand
Holding Corporation, or AAOD, a Florida corporation that develops and markets application
software targeted at the long-term care industry, to Fortissimo Capital, for $17 million.
Fortissimo Capital paid us $1.0 million of the sale price in December 2007 and the
remaining $16 million at the beginning of 2008. In addition, as part of the transaction,
we entered into a three year license agreement with AAOD according to which AAOD will
continue to sell products based on our platform in consideration of $3.0 million, to be
paid quarterly over three years starting in 2008. We recorded a capital gain of
$9.3 million in discontinued operations as a result of the transaction in 2007.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June 2008, we sold our 40% interest in Nextstep Infotech PVT. Ltd., or Nexstep, in
consideration of $150,000. We recorded a capital loss of $61,000 as a result of the
transaction in 2008.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
capital expenditures for the years ended December 31, 2006, 2007 and 2008 were
approximately $1.0 million, $0.8 million and $0.7 million, respectively. These
expenditures were principally for network equipment and computers, furniture and office
equipment and leasehold improvements.  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>B.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>BUSINESS
OVERVIEW</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
recent years the multiplication of enterprise applications has lead to a level of
complexity of an enterprise&#146;s information system that is obstructing business
progress and evolution, reducing business agility and often resulting in multiple
versions of similar data objects, such as customer records. We believe that one of the
main challenges the modern enterprise faces today is &#147;creating a single view of the
truth,&#148; which is the better way to make effective and relevant business decisions.
Business integration is employed to facilitate this. Traditionally, given their cost and
complexity, business integration solutions were targeted at large enterprises.
Consequently, business integration tools are mostly complex, require significant
implementation resources, take a long time to implement and are costly. Given the
critical need for business integration across the demand and supply chain, enterprises of
all sizes require such solutions. We recognized this trend and emerging need when we
designed iBOLT.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Another
major evolution in enterprises is the trend of reusing IT assets, such as enterprise
applications, which is driving the move towards service oriented architecture, or SOA.
Due to the large investments in enterprise applications, such as ERP and CRM, on the one
hand, and the accelerating business change, on the other hand, organizations need to find
a way to continue to leverage and amortize their IT investments while increasing their
ability to change business processes and support new ones. The software industry&#146;s
response is a new SOA, a new paradigm of application development, service oriented
development architecture, and composite applications. Most of these involve metadata
(which is data that describes other data, similar to a table of content describing a
book), rather than traditional programming. We have developed and enhanced this paradigm
over the last 20 years, and we believe that we have one of the largest installed-base of
products employing such technology.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally,
SaaS is becoming a well-established phenomenon in some areas of enterprise IT. It is
growing into a mainstream option for software-based business solutions and will affect
most of enterprise IT departments in the next three years in one way or another. It
appears that SEAP is becoming a dominant player in the growing SaaS application industry.
We are developing our technology to provide the functionality of a SEAP, as a result of
the growing demand from application vendors to repackage their applications as a SaaS
offering. In 2008, we were already recognized by independent industry analysts such a
Gartner as one of the few vendors, providing a comprehensive application platform for
SaaS and cloud computing.  </FONT></P>

<p align=center>
<font size=2>15</font></p>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>General </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
technology enables enterprises to accelerate the process of building and deploying
business software applications that can be rapidly customized to meet current and future
needs. Our development and integration products empower customers to dramatically improve
their business performance and return on investment by enabling the affordable and rapid
integration of diverse applications, systems and databases to streamline business
processes from within one comprehensive framework.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
technology and solutions are especially in demand when time-to-market considerations are
critical, budgets are tight, integration is required with multiple platforms or
applications, databases or existing systems and business processes, as well as for RIA,
cloud computing and SaaS.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
address the critical business needs of companies so that they are able to quickly respond
to changing market forces and demands. Robust business solutions are created, deployed
and maintained with unrivaled productivity and time-to-market results. Our development
paradigm is aligned with modern application development theories and enables developers
to create better solutions in less time and with fewer resources.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
technology, comprised of the iBOLT and uniPaaS solutions, is comprehensive and industry
proven. These technologies can be applied to the entire software development market, from
the implementation of micro-vertical solutions, through tactical application renovation
and process automation solutions, to enterprise spanning SOA migrations and composite
applications initiatives. Unlike most competing platforms, we offer a coherent and
unified toolset stemming from the same proven metadata driven and rules based declarative
technology, resulting in unprecedented cost savings through fast and easy implementation
and reduced project risk.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Development
communities are facing high complexity, cost and extended pay-back periods in order to
deliver SaaS applications. uniPaaS and iBOLT provide ISV&#146;s with the ability to
rapidly build integrated applications in a more productive manner, deploy them in
multiple modes and architectures as needed, lower IT maintenance costs and decreasing
time-to-market.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With
the launch of iBOLT, we started a process of expanding from the application development
field to the business integration and process management fields, which are, presently
converging, from a technology perspective, to the composite application field. Products
for these fields require SOA, application integration capabilities, process management,
orchestration capabilities, and information delivery capabilities. Our technology and
products provide all of these capabilities.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With
the impending introduction of our SEAP, we expect to strengthen our position as a leading
application platform provider opening the path for us to address the top-tier sector of
the market. The increasing adoption of the SaaS delivery and business model requires the
use of a new generation application platforms, which support the relevant functions
required for SaaS deployment. We are one of the first vendors to offer such a platform.
By leveraging the easy migration of applications between the different versions of our
products, our MSPs have the potential to become among the first and most versatile
sources of SaaS applications. Industry analysts as well as several of our major MSPs have
recognized this, and we have begun to work with some of them in this context.  </FONT></P>


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

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>The driving principles
behind our technology are:</I></B> </FONT> </P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Focus
on business logic rather than               technological means using our tried and
tested code-free approach;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Abstraction
- - to hide complexity and               facilitate change;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Automation
of mundane tasks - to               accelerate development and maintenance and reduce
risk; and</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Interoperability
&#150; to support business logic across multiple hardware and software platforms,
operating systems and geographies. </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
offer two complementary products that address the wide spectrum of composite applications. </FONT></P>

<p align=center>
<font size=2>16</font></p>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>uniPaaS Application
Platform</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
uniPaaS application platform was released during 2008 as the next generation of
eDeveloper. uniPaaS was released in recognition of the growing market demand for RIA and
SaaS. It features new functionality and extensions to our application platform, with the
objective of enabling the development of RIA and SaaS applications. SaaS is a relatively
new business and technical model for delivering software applications, similar to a phone
or cable TV model, in which the software applications are installed and operated in
dedicated data centers and users subscribe to these centers and use the applications over
an internet connection. This model requires the ability to deliver RIA.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;uniPaaS
is a comprehensive RIA platform which is also cloud enabled. It is the industry&#146;s
first RIA and SEAP that uses a single development paradigm to handle all client and
server partitioning. uniPaaS offers customers the power to choose how they deploy their
applications, whether full client or web; on-premise or on-demand; in the cloud or behind
the corporate firewall; software or SaaS; and global or local. Our uniPaaS application
platform complies with event driven and service oriented architectural principles. By
offering technology transparency, this product allows customers focus on their business
requirements rather than technological means. uniPaaS&#146; single development paradigm
significantly reduces the time and costs associated with the development and deployment
of RIAs. In addition, application owners can leverage their initial investment when
moving from full client mode to RIA and SaaS, and eventually modify these choices as the
situation requires. Furthermore, enterprises can use cloud based uniPaaS applications in
a SaaS model and still have their databases in the privacy of their own data centers. It
also supports most hardware and operating system environments such as Windows, Unix,
Linux and AS/400, as well as multiple databases. In addition, uniPaas is interoperable
with .NET and Java technologies.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;uniPaaS
can be applied to the full range of software development, from the implementation of
micro-vertical solutions, through tactical application renovation and process automation
solutions, to enterprise spanning SOA migrations and composite applications initiatives.
Unlike most competing platforms, we offer a coherent and unified toolset stemming from
the same proven metadata driven and rules based declarative technology, resulting in
unprecedented cost savings through fast and easy implementation and reduced project risk.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>iBOLT Business and
Process Integration</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
iBOLT business integration suite is a graphical, wizard-based code-free solution
delivering fast and simple integration and orchestration of business processes and
applications. iBOLT allows businesses to more easily view, access, and leverage their
mission-critical information, delivering true enterprise application integration, or EAI,
BPM, and SOA, infrastructure.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;iBOLT
allows the seamless integration and interoperability of diverse solutions, including
legacy applications, in a quick and efficient manner. In 2008, we released iBOLT Version
3.0 and since then we have continued to develop the iBOLT channel and entered into
agreements with additional SIs, consultancies and service providers, who acquired iBOLT
skills and offer iBOLT licenses and related services to their customers.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increasing
the usability and life span of existing legacy and other IT systems, iBOLT allows fast
EAI, development and customization of diverse applications, systems and databases,
assuring rapid return on invested capital and time-to-market, increased profitability,
and customer satisfaction. We also offer special editions of iBOLT targeted at specific
enterprise application vendor ecosystems, such as SAP, JD Edwards or Salesforce.com.
These special editions contain specific features and pricing tailored for these market
sectors.  </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
technology and solutions are especially in demand when budgets are tight and
time-to-market considerations are critical. Our technology enables enterprises to
accelerate the process of building and deploying business software applications that can
be rapidly customized to meet current and future needs. Our development and integration
products empower customers to dramatically improve their business performance and return
on investment by enabling the affordable and rapid integration of diverse applications,
systems and databases to streamline business processes from within one comprehensive
framework.  </FONT></P>

<p align=center>
<font size=2>17</font></p>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
address the critical business needs of companies so that they are able to quickly respond
to changing market forces and demands. Robust business solutions are created, deployed
and maintained with unrivaled productivity and time-to-market results.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With
uniPaaS, our unique, single development paradigm is aligned with modern application
development theories and enables developers to create better solutions in less time and
with fewer resources.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;uniPaaS
offers our customers &#150; ISVs, SIs and enterprises the following benefits:  </FONT></P>


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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Time
to Market. uniPaaS eliminates the difficulties and costs of developing distinct client
and server paradigms and partitioning. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total
Cost of Ownership. When deployment is required uniPaaS automatically instructs the
business logic to the various technical components, thus saving the need for human
intervention or planning and enabling deployment at an unprecedented low cost of
ownership. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deployment
Flexibility. Unique to the market, uniPaaS gives users the power to choose how they
deploy their applications, whether full client or web, on-premise or on-demand, software
or SaaS. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Scalability
and Adaptability. uniPaaS enables application owners to move from full client mode to RIA
and SaaS and back again as business situations and demands change. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Portability.
uniPaaS can be used with most hardware platforms, operating systems and databases.
Applications developed with our technology for one platform can also be deployed on other
supported platforms. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Database
Access and Technology Independence. Our technology can easily move data across platforms
and convert the data from one database format to another. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Comprehensiveness.
uniPaaS incorporates all aspects of the development and deployment process which usually
requires organizations to buy and integrate multiple and diverse Server and Client
paradigms. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Global
Experience and Expertise.  uniPaaS &nbsp;leverages 25 years of research and development,
including applied customer experience and feedback.</FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that iBOLT offers our customers and partners the following benefits:  </FONT></P>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Time
to Market. iBOLT has services, components and wizards that translate into a level of
productivity between five and ten times greater than other technologies, ensuring that
once an integration project is started, it finishes on time and on budget. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cost
Effectiveness. Many vendors design their business logic in a way that&#146;s so complex;
customers can barely use it. iBOLT&#146;s graphical business flow editor allows users to
easily and intuitively configure their business processes, ensuring that their end
project is practical, usable and gives value for their money. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Comprehensiveness.
iBOLT is a comprehensive integration technology stack, guaranteeing powerful and
cost-effective integration for any business scenario. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>18</font></p>
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<page>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deployment
Flexibility.  iBOLT has a               significant range of built-in certified and
optimized adaptors to maximize the integration               flexibility and intuitive
use.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Scalability
and Adaptability. iBOLT is used by hundreds of companies of every size in every vertical
worldwide and is responsible for tens of millions of transactions every single day. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Global
Experience and Expertise. iBOLT leverages 25 years of research and development, including
applied customer experience and feedback. uniPaaS stands at the core of the iBOLT
integration suite, from studio to its actual deployment. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Special
editions of iBOLT with optimized adaptors are available to expand the capabilities of the
most commonly used ERP and CRM packages, including SAP Business One, SAP Business
All-in-One, SAP R/3, Salesforce.com, JD Edwards, IBM i Series, Lotus Notes, and HL7. </FONT></TD>
</TR>
</TABLE>
<BR>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
goal is to achieve a leadership position in the application platform and business
integration markets. We focus on providing technology, applications and services that
enable enterprises to meet their business needs on time and budget. The key elements of
our strategy to achieve this goal are to:  </FONT></P>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Develop
and up-sell to our installed base               and partner community by leveraging our
solutions (uniPaaS, iBOLT and professional               services);</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Utilize
connectivity/integration solutions (iBOLT based) in existing ecosystems (SAP,
Salesforce.com, JD Edwards and OEMs) to enlarge our installed base; </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Strengthen
our alliance with SAP,               Salesforce.com, Oracle JD Edwards and IBM i;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Develop
additional alliances with leading application vendors and develop offerings and partner
programs for their ecosystems, such as Oracle&#146;s JD Edwards and Salesforce.com; </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Focus
on recruiting OEM partners that will incorporate our iBOLT integration technology into
their product offerings; </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Promote
uniPaaS (RIA and SaaS platforms)               into the mid- and upper-markets of both
enterprises and ISVs;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Increase
the number of software houses and               ISVs that use uniPaaS to build their
applications;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Focus
our sales efforts on our core               products, uniPaaS and iBOLT; and</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Focus
our efforts on further building a strong partner base of SIs, ISVs, distributors,
resellers, OEMs and consulting partners of our core technologies. </FONT></TD>
</TR>
</TABLE>
<BR>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
software industry is characterized by rapid technological changes and is highly
competitive with respect to timely product innovation. We must maintain compatibility and
competitiveness in the face of ongoing changes in industry standards.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
place considerable emphasis on research and development in order to improve and expand
the functionality of our technology and to develop new applications. We believe that our
future success depends upon our ability to maintain our technological leadership, to
enhance our existing products and to introduce new commercially viable products
addressing the needs of our customers on a timely basis. We also intend to support
emerging technologies as they are introduced in the same way we have supported new
technologies in the past. We will continue to devote a significant portion of our
resources to research and development. We believe that internal development of our
technology is the most effective means of achieving our strategic objective of providing
an extensive, integrated and feature-rich development technology.  </FONT></P>

<p align=center>
<font size=2>19</font></p>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2008, we invested mainly in the development of the following products:  </FONT></P>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>uniPaaS.
During 2008, in response to customers&#146; needs and service requests, we released
uniPaaS version 1.0 and later version 1.5, as well as service packs for current
eDeveloper versions. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>RIA
Technology. This is a new technology of web based solutions. Based on eDeveloper
browser client engine, we developed a new client module that provides full thin-client
functionality using standard widgets. The advantage of the new technology is its ability
to run on any .NET device, significantly reducing the cost of application management and
operation. We are continuing to develop the technology targeting the SaaS market. We plan
to release a version of uniPaaS with full SaaS capabilities during the first half of
2009. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A
new version of iBOLT<I>.</I> iBOLT Version 3 was the main focus of the iBOLT development
in 2008. The new version delivers a full range of new functionalities for the integration
market as well as massive performance improvements. Some of the main functionalities
include new data mapper, expression editor, user defined storages, resource management
and component software development kit. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Intercompany
iBOLT solution. In 2007 we developed a generic solution for inter-company
synchronization with iBOLT Version 2.5. Some of the main functionalities include mail and
HTTP synchronization, object management, synchronization process monitoring and more. We
released the first version during the fourth quarter of 2007 and continue to improve the
functionality of this product. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Hermes
software. In 2007, we continued to develop the Hermes software solution for air cargo
handling. HERMES Releases 3.1 and 3.2 incorporate new and advanced functionalities.
HERMES Release 3.1 software is operating in full production. During 2008, HERMES Release
3.2 was launched by HERMES users in India, and Hermes Release 4.0 was deployed at a first
air cargo center in Europe. During the first half of 2009, Hermes expects Release 4.0 to
be launched by additional HERMES users in Europe and elsewhere. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In
January 2009, we released the Data Replicator for Salesforce.com, a new addition to the
iBOLT for Salesforce.com product line. </FONT></TD>
</TR>
</TABLE>
<BR>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Two
of our subsidiaries develop, market, and support vertical applications, cargo handling
solutions and IT professional services.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CoreTech
Consulting Group LLC, our wholly-owned subsidiary, is an IT consulting firm offering
flexible and creative solutions in the areas of infrastructure design and delivery,
application development, technology planning and implementation services, as well as
supplemental staffing services.  </FONT></P>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Hermes
Logistics Technologies Ltd.<I>,</I> (formerly Magic eCargo), our wholly-owned subsidiary,
develops and markets a comprehensive solution for air cargo handling, which is designed
to increase productivity, improve efficiency and reduce costs. The Hermes system provides
a complete and integrated solution encompassing all physical handling, documentation and
messaging requirements, including real-time warehousing, automated build-up of
flights/manifesting, messaging to CARGO-IMP standards, customs clearance, weight and
balance departure control systems, interfacing, scanning and verification of cargo,
secured tracking and a comprehensive financial package for all aspects of billing and
collecting fees.  </FONT></P>

<p align=center>
<font size=2>20</font></p>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Services </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Professional
Services. </I>We provide a broad range of consulting and software development project
management services to customers developing, deploying and integrating distributed
applications. We believe that the availability of effective consulting services is an
important factor in achieving widespread market acceptance.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
offer fee-based consulting services in connection with installation assurance,
application audits and performance enhancement, application migration and application
prototyping and design. Consulting services are aimed at both generating additional
revenues and ensuring successful implementation of uniPaaS and iBOLT projects through
knowledge transfer. As part of management efforts to focus on license sales, our goal is
to provide such activities as a complementary service to our customers and partners.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Services
are offered as separately purchased add-on packages or as part of an overall software
development and deployment technology framework. Over the last several years, we have
built upon our established global presence to form business alliances with our MSPs that
use our technology to develop solutions for their customers, and distributors to deliver
successful solutions in focused market sectors.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Maintenance.</I> We
offer our customers annual maintenance contracts providing for upgrades and           new
versions of our products for an annual fee.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Technical
Support.</I> We believe that a high level of customer support is important to the
successful marketing and sale of our products. Our in-house technical support group
provides training and post-sale support. We believe that effective technical support
during product evaluation as well as after the sale has substantially contributed to
product acceptance and customer satisfaction and will continue to do so in the future.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
offer an online support system for the MSPs, which provides them with the ability to
instantaneously enter, confirm and track support requests via the Internet. This system
supports MSPs and end-users worldwide.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Training.</I> We
conduct formal and organized training on our development tools. We develop
          courses, pertaining to our principal products, uniPaaS and iBOLT and provide
          trainer and student guidebooks. Course materials are available both in
          traditional, classroom courses and as web-based training modules, which can be
          downloaded and studied at the student&#146;s own pace and location. The courses
          and course materials are designed to accelerate the learning process, using an
          intensive technical curriculum in an atmosphere conducive to productive
training  </FONT></P>


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

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
market and sell our products and services in more than 50countries worldwide. The
following table presents our revenues by revenue type and geographical market for the
periods indicated:  </FONT></P>





<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=black NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2007</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2008</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman" SIZE=1>(In thousands)</FONT></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="60%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Software sales</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 18,788</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 17,707</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 20,913</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Maintenance and technical support</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>11,531</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>12,605</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>14,530</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Consulting services</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>22,252</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>28,116</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>26,537</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Total revenues</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 52,571</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 58,428</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 61,980</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
</TABLE>
<BR>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=black NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2007</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2008</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman" SIZE=1>(In thousands)</FONT></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="60%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Israel</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  4,307</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  4,471</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  4,760</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Europe</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>21,713</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>24,916</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>25,359</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>United States</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>13,995</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>18,612</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>20,096</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Japan</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>10,223</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>9,080</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>10,110</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>2,333</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>1,349</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>1,655</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Total revenues</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 52,571</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 58,428</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 61,980</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>

<p align=center>
<font size=2>21</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>









<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Industries
that are significantly represented by our partners include finance, insurance,
government, health care, logistics, manufacturing media, retail and telecommunications.
Our uniPaaS and iBOLT technologies are used by a wide variety of developers, integrators
and solution providers, which can generally be divided into two sectors: in the first
sector are those performing in-house development (corporate IT departments) and in the
second sector are MSPs, including large SIs and smaller independent developers, and VARs
that use our technology to develop or provide solutions to their customers. MSPs who are
packaged software publishers use our technology to write standard packaged software
products that are sold to multiple clients, typically within a vertical industry sector
or a horizontal business function.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Among
the thousands of customers running their business systems with our technology are the
following: Access Data, Adecco, Adidas-Canada, Administar Services Group, AFC Worldwide
Express, Allstate, Anglo-Canadian Housewares, Anritsu, Athlon Group, Boeing, Burger King,
Carey International, City of Phoenix Police Department, Club Med, CBIA, Charlotte Country
Court System, Compass Group PLC, Danish Ministry of Economic, Deka Bank, Deutsche Bank,
DHL, Electricit&eacute; de Strasbourg, Electra, Esmee Fairbairn Foundation, Fortis
Assurances, Fujitsu-Ten, Euroclear, Europ Assistance Netherlands, Financial Times, FMRP,
Fraport AG, GAP, GGD Amsterdam, Grange Insurance, Heller Bank AG, Hitachi, ING Commercial
Finance, Johnson &amp; Johnson, John Menzies, Kodak, Lord Corporation, Marconi Mobile,
Merrill Lynch, Matsushita, Minolta, NEC, Nestle Nespresso, Nintendo, New York State
Public Defenders Association, Online Trading Academy, OTOR, Paris Nord Villepinte
Exhibition Center, Philip Morris, Primagas, Prestwick House, Rosenbauer, San Francisco
Courts, Semeru, Sharp System Products, Sklar Peppler, TEVA, Title Solutions, Titan
Software, Vadim Software, Vodafone, the United Nations, UPS, Victorinox, Vodafone, W3Com,
Warren Board and Washington State.  </FONT></P>


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

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
market, sell and support our products through our own direct sales force as well as
through a global channel-network of ISVs, SIs, value-added distributors and resellers, as
well as OEM and consulting partners. Our own sales force is based in our regional offices
in the United States, Japan, the United Kingdom, France, Germany, the Netherlands,
Hungary, India and Israel, and through local distributors elsewhere, our channel-network
is present in about 50 countries worldwide.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Direct
Sales.</I> For uniPaaS, our direct sales force pursues enterprise accounts and software
solution providers. Our sales personnel carry out strategic sales with a direct approach
to decision makers, managing a constantly monitored consultative type of sales cycle.
iBOLT is mostly sold via indirect channels and through our ecosystem business
relationships, but we have some direct customers with integration needs.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December 31, 2008, we had approximately 58 sales personnel including a team of 10 sales
engineers who provide pre-sale technical support, presentations and demonstrations in
order to support our sales force.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Indirect
Sales. </I>We maintain an indirect sales channel for iBOLT, through our ecosystem
business relationships, as well as via SIs, value added distributors and resellers, OEM
partners, as well as consultancies and service providers. We maintain an indirect sales
channel for uniPaaS through ISVs and SIs, who use our application platform to develop and
deploy different applications selling them to their end-user customers. We carry out
marketing activities with our indirect channels, and expect to see during 2009 an
improved channel focus and programs.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Distributors.</I> In
general, we distribute our products through local distributors in those
          countries where we do not have a sales office. A local distributor is typically
          a software marketing organization with the capability to add value with
          consulting, training, and support. Distributors are generally responsible for
          the localization of our software development technology and applications into
          their native language. The distributors also translate our marketing literature
          and technical documentation. Distributors must undergo our program of sales and
          technical training. Marketing, sales, training, consulting, product and client
          support are provided by the local distributor. We are available for backup
          support for the distributor and for end-users. In coordination with the local
          subsidiaries and distributors, we also provide sales support for large and
          multinational accounts. We have approximately 13 distributors in Europe, Latin
          America and Asia, many of whom are also MSPs.  </FONT></P>

<p align=center>
<font size=2>22</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>VARs.</I> In
general, we resell our products through VARs that extend their           capabilities
with our offerings. These include SAP VARs.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Marketing
Activities.</I> We carry out a wide range of marketing activities aimed at generating
awareness of our solutions offering. Among our activities we focus on online and viral
marketing, PR and media relations, analyst relations, an extensive program of
Internet-based webcasts, exhibitions, attendance at trade shows, fairs and exhibitions,
direct mail, response mail, telemarketing campaigns and user and distributor conferences
and seminars. We conduct distributor and user conferences to update our worldwide
affiliates and user base concerning our new releases, marketing strategies, pricing,
technical information and the like.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
order to foster improved relationships with our channel partners, we periodically sponsor
local events and other marketing programs and activities. On our corporate Internet
website, we host an online solutions directory, which highlights applications developed
and offered by our partners, and an information sharing section, which enables our
partners to participate alongside our representatives at trade shows and conferences.
Furthermore, we expect to have an effective partner portal aired during 2009 as well as
our Developers Network where all developers using our software can exchange ideas, learn
best practices and hear recent tips for more effective use of our technology and more.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>iBOLT
Ecosystems</I>. The important ecosystem businesses pursued by us to date include:  </FONT></P>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>SAP</I>.
During 2004, we entered into a partnership with SAP that focused on providing a special
edition of iBOLT as a collaboration platform for the SAP Business One product, an
integrated business management solution designed specifically for small and midsize
businesses. Our iBOLT Special Edition was accepted by the SAP community with enthusiasm,
and our company was awarded by SAP the ISV Partner Leadership in Innovation 2005 award,
in 2006 we were awarded the SAP Software Solution Partner Quality Excellence Award, and
in 2007 we were awarded the SAP global award for SAP Business One Global Solution Partner
Award for Leadership in Innovation. Our iBOLT Special Edition partner program is endorsed
by over 230 SAP Business One partners across the globe that have signed a partnership
agreement with us and have become a significant new addition to the Magic partner
community. In the beginning of 2007, we announced a new iBOLT Special Edition for SAP R/3
ERP software and we received SAP&#146;s xAPPS certification. In addition to the direct
economic impact of iBOLT sales, we are experiencing the following benefits that arise
from our partnership with SAP: (i) recognition and validation of our technology as a
mainstream player in the business integration and composite application development
domains; (ii) privileged access to a pre-qualified partner community that can also employ
iBOLT in non-SAP related projects; and (iii) revitalization of our partner community, by
offering them access to the SAP Partner Program and branding of their existing
applications. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>IBM</I>.
In March 2007, we qualified for the IBM Business Partner SOA Specialty. For this
specialty, IBM selects business partners who market SOA content, services, or both that
demonstrate compatibility with or complement the IBM SOA Foundation products, who endorse
the IBM SOA strategy, and whose marketing activities IBM determines to be in agreement
with its own. We offer SOA capabilities in the System i (iSeries / AS/400) market and we
qualified for this specialty with respect to one of our SOA projects. Our technology
allows IBM i users to better utilize the value of their legacy systems and integrate them
with different applications in their organization to maximize the return on their
existing investments. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Salesforce.com</I>.
In late 2007, we joined the partner program of Salesforce.com and became AppExchange
certified. This enables us to address the Salesforce.com ecosystem and introduce our
iBOLT for Salesforce.com to its partners and customers. Since then, we have participated
in Salesforce.com&#146;s regional Success Tours, Tour-de-Force events, as well as
launched our iBOLT for Salesforce.com at Dreamforce Europe 2008 in May in London, and
participated at Dreamforce U.S. in November 2008, where we released the advanced version
of iBOLT for Salesforce.com. We have signed partnerships and already implemented our
solutions with customers in the United Kingdom, the United States and Israel. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>23</font></p>
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<page>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Oracle
JD Edwards.</I> Since late 2006 we have been very active in Oracle&#146;s JD Edwards
ecosystem, including JD Edwards Enterprise One and JD Edwards World, offering a special
edition of iBOLT called JDE Connect. We have sponsored and participated in a range of
annual events including Oracle OpenWorld and Oracle Collaborate. We have recruited more
than 12 partners and in 2008, we won a number of customer deals and increased our JD
Edwards business. </FONT></TD>
</TR>
</TABLE>
<BR>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
markets for our uniPaaS and iBOLT technologies and applications are characterized by
rapidly changing technology, evolving industry standards, frequent new product
introductions and rapidly changing customer requirements. These markets are therefore
highly competitive, and we expect competition to intensify in the future. The enhancement
of the SaaS market increases the competition in these areas, and one of our competitors
even claims to offer a fully automated eDeveloper conversion process, converting
eDeveloper based applications to .NET based applications. We constantly follow and
analyze the market trends and our competitors in order to effectively compete in these
markets and avoid losing market share to other players and to our competitors.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With
the introduction of uniPaaS in mid 2008, we further shifted our activities from the
integrated development environment market, in which we were competing with eDeveloper in
the past, towards the application platform and web oriented architecture market. Our
current competitors include Cordys, IBM, Microsoft, Oracle, Pegasystems, Progress,
Fiorano, Intersystems, Sun, Ultimus, and Unify. In the iBOLT integration market, our
competitors include Microsoft BizTalk, Informatica, TIBCO and Software AG. Additional
competitors may enter each of our markets at any time. Moreover, our customers may seek
to develop internally the products that we currently sell to them and thereafter they may
also compete with us.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
goal is to maintain our technology superiority, time to market and worldwide channel
network, as well as our constant market analysis to quickly address changing market
dynamics. We believe that the principal competitive factors affecting the market for our
products include developer productivity, rapid results, product functionality,
performance, reliability, portability, interoperability, ease-of-use, demonstrable
economic benefits for developers and users relative to cost, quality of customer support
and documentation, ease of installation, vendor reputation and experience, financial
stability as well as intuitive and out of the box solutions to extend the capabilities of
ERP and/or CRM and other application vendors for enterprise integration.  </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
do not hold any patents and rely upon a combination of copyright, trademark, trade secret
laws and contractual restrictions to protect our rights in our software products. Our
policy has been to pursue copyright protection for our software and related documentation
and trademark registration of our product names. Also, our key employees and independent
contractors and distributors are required to sign non-disclosure and secrecy agreements.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
provide our products to customers under a non-exclusive, non-transferable license.
Usually, we have not required end-users of our products to sign license agreements.
However, in some accounts license agreements are required to be signed by the end-users.
Generally, a &#147;shrink wrap&#148; license agreement is included in the product
packaging, which explains that by opening the package seal, the user is agreeing to the
terms contained therein. It is uncertain whether license agreements of this type are
legally enforceable in all of the countries in which the software is marketed.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
trademark rights include rights associated with our use of our trademarks, and rights
obtained by registration of our trademarks. We have obtained trademark registrations in
South Africa, Canada, China, Israel, the Netherlands (Benelux), Switzerland, Thailand,
Japan, the United Kingdom and the United States. The initial terms of the registration of
our trademarks range from 10 to 20 years and are renewable thereafter. Our use and
registration of our trademarks do not ensure that we have superior rights to others that
may have registered or used identical or related marks on related goods or services. We
do not believe that patent laws are a significant source of protection for our products.
We have registered a copyright for our software in the United States and Japan. Also, we
have registered copyrights for some of our manuals in the United States and have acquired
an International Standard Book Number (ISBN) for some of our manuals. Our copyrights
expire 70 years from date of first publication.  </FONT></P>

<p align=center>
<font size=2>24</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
the software industry is characterized by rapid technological changes, the policing of
the unauthorized use of software is a difficult task and software piracy is expected to
continue to be a persistent problem for the packaged software industry. As there can be
no assurance that the above-mentioned means of legal protection will be effective against
piracy of our products, and since policing unauthorized use of software is difficult,
software piracy can be expected to be a persistent potential problem.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that because of the rapid pace of technological change in the software industry,
the legal protections for our products are less significant factors in our success than
the knowledge, ability and experience of our employees, the frequency of product
enhancements and the timeliness and quality of our support services.  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>C.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ORGANIZATIONAL
STRUCTURE</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Emblaze,
an Israeli company traded on the London Stock Exchange (LSE: BLZ), has a 51.7%
controlling interest in our controlling shareholder Formula Systems, an Israeli company
(NASDAQ: FORTY). Formula Systems beneficially owns 58.2% or our outstanding ordinary
shares. Formula Systems is an international IT company principally engaged, through its
subsidiaries, in providing software consulting services, developing proprietary software
products and producing computer-based solutions.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth the legal name, location and country of incorporation and
percentage ownership of each of our subsidiaries:  </FONT></P>








<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH align=left><FONT FACE="Times New Roman" SIZE=1>Subsidiary/Affiliate Name</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1>Country of<BR>
Incorporation</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1>Ownership<BR>
Percentage</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="5%"> </TD>
     <TD WIDTH="67%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Software Japan K.K</FONT></TD>
     <TD WIDTH="20%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Japan</FONT></TD>
     <TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises Inc.</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>United States</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises (UK) Ltd.</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>United Kingdom</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Hermes Logistics Technologies Limited</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>United Kingdom</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises Spain Ltd.</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Spain</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Coretech Consulting Group Inc.</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>United States</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Coretech Consulting Group LLC</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>United States</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises (Israel) Ltd.</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Israel</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises Italy S.r.l.*</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Italy</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises Netherlands B.V</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Netherlands</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises France</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>France</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Magic Beheer B.V</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Netherlands</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Benelux B.V</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Netherlands</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises GMBH</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Germany</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises India Pvt. Ltd.</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>India</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Onyx Magyarorszag Szsoftverhaz</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Hungary</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>CarPro Systems Ltd.</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Israel</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>90.48%</FONT></TD></TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><HR SIZE=1 NOSHADE WIDTH=15% ALIGN=LEFT></TD>
</TR>
</TABLE>



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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
* In March 2009 a liquidator was appointed for Magic Software Enterprises Italy S.r.l.  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>25</font></p>
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<page>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>D.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>PROPERTY,
PLANTS AND EQUIPMENT</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
headquarters and principal administrative, finance, sales, marketing and research and
development operations are located in an office building of approximately 39,321 square
feet that we own in Or Yehuda, Israel, a suburb of Tel Aviv. The building was constructed
on a parcel of land leased from the Israel Land Authority. The lease expires in 2040 and
can be renewed for an additional period of 49 years.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Hungarian subsidiary owns a 4,850 square foot office facility in Budapest, Hungary.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
subsidiaries lease office space in Laguna Hills, California; King of Prussia,
Pennsylvania Paris, France; Munich, Germany; Pune, India; Bangalore, India; Tokyo, Japan;
Houten, the Netherlands; and Bracknell, United Kingdom. The aggregate annual cost for
such facilities was $1,198,000 in the year ended December 31, 2008.  </FONT></P>

<a name=zk206></a>
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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 4A.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>UNRESOLVED STAFF COMMENTS</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable. </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 5.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
OPERATING AND FINANCIAL REVIEW AND PROSPECTS</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>A.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>OPERATING
RESULTS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The
following discussion of our results of operations should be read together with our
consolidated financial statements and the related notes, which appear elsewhere in this
annual report. The following discussion contains forward-looking statements that reflect
our current plans, estimates and beliefs and involve risks and uncertainties. Our actual
results may differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include those discussed below
and elsewhere in this annual report.</I> </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
were incorporated under the laws of Israel in February 1983 and began operations in 1986.
Our ordinary shares have been listed on the NASDAQ Global Market (symbol: MGIC) since our
initial public offering in the United States on August 16, 1991. Since November 16, 2000,
our ordinary shares have also traded on the Tel Aviv Stock Exchange. We develop market,
sell and support an application platform and business and process integration solutions.
We have 16 wholly-owned subsidiaries, incorporated in the United States, Europe, Asia and
Israel. Our subsidiaries are engaged in developing, marketing and supporting vertical
applications, as well as in selling and supporting our products, and one of our
subsidiaries provides software consulting services.  </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
develop market, sell and support uniPaaS, an application platform for software
development and deployment, and iBOLT, a platform for business integration and BPM. Both
uniPaaS and iBOLT enable enterprises to accelerate the process of building and deploying
applications that can be rapidly customized and integrated with existing systems.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a leading IT technology innovator, we have over 25 years of experience in assisting
software companies and enterprise software companies worldwide to produce and integrate
their business applications. Our application platform, uniPaaS, is used by
thousands of enterprises and ISVs to develop solutions for their customers in
approximately 50 countries. We also refer to these ISVs as MSPs. We also
provide maintenance and technical support as well as professional services to our
enterprise customers and to MSPs. In addition, we sell our technology for business
integration, iBOLT, to customers of specific popular software applications, such as SAP,
Salesforce.com, IBM i (AS/400) or Oracle JD Edwards or other business applications. We
refer to these vendor-centered market sectors as ecosystems.  </FONT></P>

<p align=center>
<font size=2>26</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2008, we generated cash flows from operations of $7.7 million and repaid $3.6 million of
short-term credit and long-term loans. Our cash and cash equivalents, together with our
investments, were $32.6 million as of December 31, 2008, compared with $16.4 million at
the end of 2007. However, during the second half of 2008, it became apparent that global
economic conditions had deteriorated and that we are in the midst of a global economic
downturn. Specifically, the economic downturn that began in the United States had spread,
initially to our customers in our European and Japanese markets and later to our
customers in other geographical areas. We believe that it is likely that this economic
downturn will persist; however, we cannot predict its severity or duration. We believe
that our strong cash position, our solid balance sheet and our financing capabilities all
provide a key competitive advantage and collectively will enable us to be well positioned
to manage our business through the economic downturn.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Strategy and Focus Areas</I> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on our experience with managing through economic downturns in the past, we have developed
a multifaceted strategy for addressing the current economic downturn that involves the
following:  </FONT></P>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vision
and strategy. Our vision of how the industry will evolve is being driven by SOA, RIA and
SaaS. This transition appears to be occurring as we expected. We believe that our
technology will allow us to move into market adjacencies with speed, scale and
flexibility. We intend to remain focused on both the technology and business
architectures to enable our customers&#146; objectives. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Resource
management and realignment. During the first quarter of 2009, we continued to realign
resources to better focus on our priorities. During 2009, we plan to continue this
realignment and at the same time reduce our expenses. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Implementation
of our strategy. During the economic downturn, we will attempt to prudently take
advantage of opportunities to capture market transitions and to put our assets to use in
existing and new markets as the recovery occurs. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As
we have done in the past, we will attempt to use the current economic downturn as an
opportunity to expand our share of our customers&#146; information technology spending
and to continue moving into product adjacencies. Our
approach of aiming to achieve balance across products and services, customer markets and
geographic areas contributed to the growth we experienced in past quarters. We have
delivered several new products recently, and we are pleased with the breadth and depth of
our innovations and the impact that we believe these innovations will have on our
long-term prospects. We believe that our strategy and our ability to innovate and execute
may enable us to improve our relative competitive position in difficult business
conditions and may continue to provide us with long-term growth opportunities.</FONT></TD>
</TR>
</TABLE>
<BR>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Significant Revenues and
Expenses</I> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenues.</I> Revenues
consist from sales of software, maintenance and technical support           and
consulting services. Revenues may continue to be affected by factors           including
the current global economic downturn and related market uncertainty,           which so
far has resulted in cautious spending in our global markets; changes in           the
geopolitical environment; sales cycles; high fluctuation of exchange rates;
          changes in the mix of direct sales and indirect sales and variations in sales
          channels.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cost
of Revenues. </I> Cost of revenues for software sales consist primarily of software
production costs royalties and licenses payable to third parties, as well as amortization
of capitalized software. Cost of revenues for maintenance and technical support and
professional services consists primarily of personnel expenses, subcontracting and other
related costs. Cost of revenues continue to be affected by changes in the mix of revenues
sold; price competition; sales discounts and increases in labor costs. Service gross
margin may be impacted by various factors such as the change in mix between technical
support services and advanced services, the timing of technical support service contract
initiations and renewals, and the timing of our strategic investments in headcount and
resources to support this business.  </FONT></P>

<p align=center>
<font size=2>27</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Research
and Development Expenses, Net. </I> Research and development costs consist primarily of
salaries of employees engaged in on-going research and development activities and other
related expenses. The capitalization of software development costs is applied as
reductions to gross research and development costs to calculate net research and
development expenses.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth the gross research and development costs, capitalized software
development costs, and the net research and development expenses for the periods
indicated:  </FONT></P>





<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman" SIZE=1>Year ended December 31</FONT><HR WIDTH=98% SIZE=1 COLOR=black NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2007</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2008</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman" SIZE=1>(U.S. dollars in thousands)</FONT></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="61%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Gross research and development costs</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  5,944</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  5,743</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  4,927</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Less capitalized software development costs</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(3,482</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(3,027</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(2,577</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Research and development expenses, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  2,462</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  2,716</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  2,350</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling
and Marketing Expenses. Selling and marketing expenses consist primarily of salaries and
related expenses for sales and marketing personnel, sales commissions, marketing
programs, web site related expenses, public relations, promotional materials, travel
expenses and trade show exhibit expenses.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General
and Administrative Expenses. </I>General and administrative expenses consist primarily of
salaries and related expenses for executive, accounting, human resources and
administrative personnel, professional fees, provisions for doubtful accounts, and other
general corporate expenses.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Financial
income (expenses), net. </I> Net financial income (expenses) consists primarily of
interest earned on cash equivalents and marketable securities, interested paid on loans
received and currency translation adjustments.  </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
consolidated financial statements appearing in this annual report are prepared in U.S.
dollars and in accordance with generally accepted accounting principles in the United
States, or U.S. GAAP. All references in this annual report to &#147;dollars&#148; or
&#147;$&#148; are to U.S. dollars and all references in this annual report to &#147;NIS&#148; are
to New Israeli Shekels.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transactions
and balances originally denominated in dollars are presented at their original amounts.
Transactions and balances in other currencies are converted into dollars in accordance
with the principles set forth in Financial Accounting Standards Board, or FASB, Statement
of Financial Accounting Standard, or SFAS, No. 52. The majority of our sales are made
outside of Israel and a substantial part of them are in dollars. In addition, substantial
portions of our costs are incurred in dollars. Since the dollar is the primary currency
of the economic environment in which we and certain of our subsidiaries operate, the
dollar is our functional and reporting currency and accordingly, monetary accounts
maintained in currencies other than the dollar are converted using the foreign exchange
rate at the balance sheet date. Operational accounts and non monetary balance sheet
accounts are measured and recorded at the exchange rate in effect at the date of the
transaction. For certain subsidiaries whose functional currency is other than the U.S.
dollar, all balance sheet accounts have been translated using the exchange rates in
effect at the balance sheet date. Operational accounts have been translated using the
average exchange rate for the period. The resulting translation adjustments are reported
as a component of shareholders&#146; equity in accumulated other comprehensive income
(loss).  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Critical Accounting
Policies and Estimations </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have identified the policies below as critical to the understanding of our financial
statements. The preparation of our consolidated financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions in certain circumstances
that affect the amounts reported in the accompanying financial statements and the related
footnotes. Actual results may differ from these estimates. To facilitate the
understanding of our business activities, certain of our accounting policies that we
believe are the most important to the portrayal of our financial condition and results of
operations and that require management&#146;s subjective judgments are described below.
We base our judgments on our experience and various assumptions that we believe are
reasonable.  </FONT></P>

<p align=center>
<font size=2>28</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
derive our revenues mainly from licensing the rights to use our software, maintenance and
technical support and professional services. We sell our products primarily through
direct sales force and indirectly through distributors.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
account for our software sales in accordance with Statement of Position, or SOP, No.
97-2, <I>&#147;Software Revenue Recognition,&#148;</I> as amended by SOP No. 98-9, <I>&#147;Modification
of SOP&nbsp;No.&nbsp;97-2, Software Revenue Recognition, With Respect to Certain
Transactions,&#148;</I> referred to together as SOP 97-2. Software license revenue is
recognized when persuasive evidence of an arrangement exists, delivery has occurred, the
vendor&#146;s fee is fixed or determinable, no further obligation exists and
collectability is probable.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
required by SOP&nbsp;97-2, we determine the value of the software component of our
multiple-element arrangements using the residual method when vendor specific objective
evidence, or VSOE, of fair value exists for the undelivered elements of the support and
maintenance agreements. VSOE is based on the price charged when an element is sold
separately or renewed. Under the residual method, the fair value of the undelivered
elements is deferred and the remaining portion of the arrangement fee is allocated to the
delivered elements and is recognized as revenue. Maintenance and support revenue is
deferred and recognized on a straight-line basis over the term of the maintenance and
support agreement.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
generally do not grant a right of return to our customers. When a right of return exists,
we defer revenue until the right of return expires, at which time revenue is recognized
provided that all other revenue recognition criteria are met.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue
from consulting services consists of billable hours for services provided, recognized as
the services are rendered.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Arrangements
that include consulting services are evaluated to determine whether those services are
essential to the functionality of other elements of the arrangement. When services are
considered essential, revenues under the arrangement are recognized using contract
accounting based on SOP No. 81-1, &#147;<I>Accounting for Performance of
Construction-Type and Certain Production-Type Contracts,&#148;</I> or SOP 81-1, on a
percentage of completion method based on inputs measures. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are first
determined, in the amount of the estimated loss for the entire contract. During the years
ended December&nbsp;31, 2006, 2007 and 2008, no such estimated losses were identified.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When
consulting services are not considered essential, the revenues allocable to the
consulting services are recognized as the services are performed. In most cases, we have
determined that the services are not considered essential to the functionality of other
elements of the arrangement.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred
revenue includes unearned amounts received under maintenance and support contracts, and
amounts received from customers but not yet recognized as revenues.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Capitalization of
software development costs</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain
software development costs are capitalized subsequent to the establishment of
technological feasibility in accordance with FASB SFAS, No. 86 &#147;<I>Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed</I>.&#148; Based
on our product development process and that of our subsidiaries, technological
feasibility is established upon completion of a detailed program design and a working
model.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research
and development costs incurred in the process of developing product improvements are
generally charged to expenses as incurred.  </FONT></P>

<p align=center>
<font size=2>29</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant
costs incurred by us and our subsidiaries between completion of the detailed program
design and the point at which the product is ready for general release, have been
capitalized.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capitalized
software costs are amortized on a product by product basis, by the greater of the amount
computed using the: (i) ratio that current gross revenues from sales of the software to
the total of current and anticipated future gross revenues from sales of that software,
or (ii) the straight-line method over the estimated useful life of the product (three to
five years). We assess the recoverability of this intangible asset on a regular basis by
determining whether the amortization of the asset over its remaining life can be
recovered through undiscounted future operating cash flows from the specific software
product sold. As of December 31, 2006, 2007 and 2008, no impairment losses have been
identified.  </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill
and intangible assets with an indefinite useful life are no longer amortized but are
subject to annual impairment tests based on estimated fair value in accordance with SFAS
No. 142 <I>&#147;Goodwill and Other Intangible Assets</I>,&#148; or SFAS No. 142. We
conduct our annual test of impairment for goodwill in December of each year. In addition
we test for impairment periodically whenever events or circumstances occur subsequent to
our annual impairment tests that indicate that the asset might be impaired. Indicators we
consider important which could trigger an impairment include, but are not limited to,
significant underperformance relative to historical or projected future operating
results, significant changes in the manner of use of acquired assets or the strategy for
our overall business, significant negative industry or economic trends, a significant
decline in our stock price for a sustained period and our market capitalization relative
to net book value.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December 31, 2008, we had two reporting units. Goodwill attributable to each of the
reporting units is measured separately. The first step of the goodwill impairment test
compares the carrying value of each reporting unit with its fair value on that date. We
determined the fair value of each of our reporting units using the income approach, which
utilizes a discounted cash flow model, as we believe that this approach best approximates
our fair value at this time. The aggregate fair value of the two reporting units was
reconciled to our market capitalization based on the share price of our ordinary share as
of December 31, 2008, including estimated control premium that an investor would be
willing to pay for controlling interest in us. A key assumption used in the calculation
of our fair value based on market capitalization was the consideration of a control
premium. We reviewed industry premium data and determined an appropriate control premium
for our analysis based on the average of any premium received in transactions over the
past several months.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant
estimates used in the discounted cash flow model include projections of revenue growth,
net income margins, discount rate, and terminal business value. The forecasts of revenue
growth and net income margins are based upon management&#146;s long-term view of the
business and are used by senior management and the Board of Directors to evaluate
operating performance. The discount rate utilized was estimated using our weighted
average cost of capital. The terminal business value was determined by applying a growth
factor to the latest year for which a forecast exists. Since the fair value of the
reporting units exceeded their carrying amount, no impairment was identified in 2006,
2007 and 2008.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent
to December 31, 2008, our share price has declined. The decline is consistent with
overall market conditions and is not a result of changes in our expectations of future
cash flows. We will continue to monitor our market capitalization and expectations of
future cash flows and will perform impairment testing if deemed necessary.  </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible
assets are comprised of distribution rights, acquired technology and customer relations,
and are amortized over their useful life using a method of amortization that reflects the
pattern in which the economic benefits of the intangible assets are consumed or otherwise
used up. Distribution rights, acquired technology and customer relations are amortized on
a straight line basis over a period of five years. As of December 31, 2008, such assets
have been fully amortized.  </FONT></P>

<p align=center>
<font size=2>30</font></p>
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<page>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Impairment of long-lived
assets</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
review our long-lived assets for impairment in accordance with SFAS No. 144, &#147;<I>Accounting
for the Impairment or Disposal of Long-Lived Assets</I>,&#148; or SFAS No. 144, whenever
a sale event or change in circumstances indicates that the carrying value of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying value of an asset to the future undiscounted cash flows
expected to be generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying value of the
assets exceeds the fair value of the assets. During the years ended December 31, 2007 and
2008, no impairment indicators have been identified.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2006, our board of directors approved a comprehensive global restructuring plan in
connection with which we wrote off certain intangible assets following a determination
that the assets were impaired. As a result, we recorded a $309,000 impairment charge for
the year ended December 31, 2006. See Note 15c to our consolidated financial
statements.  </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
account for investments in marketable securities in accordance with SFAS No. 115, <I>&#147;Accounting
for Certain Investments in Debt and Equity Securities</I>,&#148; or SFAS No. 115. Our
management determines the appropriate classification of its investments in marketable
debt and equity securities at the time of purchase and reevaluates such determinations at
each balance sheet date. Debt and equity securities are designated as available-for-sale
and are stated at fair value, with unrealized gains and losses reported in accumulated
other comprehensive income (loss), a separate component of shareholders&#146; equity.
Realized gains and losses on sales of investments, as determined on a specific
identification basis, are included in financial income, net.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
accordance with our policy and FASB Staff Position No. FAS 115-1 and SAB Topic 5M, &#147;<I>The
Meaning of Other-Than-Temporary Impairment and It&#146;s Application to Certain
Investments</I>,&#148; we recognize an impairment charge when a decline in the fair value
of our investments below the cost basis is determined to be other-than-temporary. Factors
we consider to determine whether to recognize an impairment charge include our intent and
ability to hold the investment for a period of time sufficient to allow for any
anticipated recovery in market value, the length of time and extent to which the fair
value has been less than the cost basis, the credit ratings of the securities and the
financial condition and near-term prospects of the issuers.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2008, we recorded a $131,000 other than temporary impairment of marketable securities.
Our ongoing consideration of these factors could result in additional impairment charges
in the future, which could adversely affect our net income.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Stock-based compensation</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
account for stock-based compensation in accordance with FASB SFAS No. 123 (revised 2004),
<I>&#147;Share-Based Payment,&#148;</I> or SFAS 123(R). SFAS 123(R) requires registrants
to estimate the fair value of equity-based payment awards on the date of grant using an
option-pricing model. The value of the portion of the award that is ultimately expected
to vest is recognized as an expense over the requisite service periods in our
consolidated statement of operation. We recognize compensation expenses for the value of
our awards, which have graded vesting based on the accelerated method over the requisite
service period of each of the awards, net of estimated forfeitures. Estimated forfeitures
are based on actual historical pre-vesting forfeitures. We used the Black-Scholes
option-pricing model through December 31, 2006 and use the Binomial option-pricing model
for options granted after such date.  </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are, from time to time, subject to claims arising in the ordinary course of our business,
including claims relating to product liability, employees, suppliers and public
authorities. In determining whether liabilities should be recorded for pending litigation
claims, we assess the allegations made and the likelihood that we will be able to defend
against the claim successfully. When we believe that it is probable that we will not
prevail in a particular matter, we estimate the amount of liability based, in part, on
advice of legal counsel.  </FONT></P>

<p align=center>
<font size=2>31</font></p>
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<page>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Allowance for doubtful
accounts</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
maintain an allowance for doubtful accounts for losses that may result from the failure
of our customers to make required payments. We estimate this allowance based on our
judgment as to our ability to collect outstanding receivables. We form this judgment
based on an analysis of significant outstanding invoices, the age of the receivables, our
historical collection experience and current economic trends. If the financial condition
of our customers were to deteriorate, resulting in their inability to make payments, we
would need to increase the allowance for doubtful accounts.  </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
recorded the results of the sale of AAOD in December 2007 and the liquidation of one of
our subsidiaries as discontinued operations, according to Exhibit 03-13A of FASB
Emerging Issues Task Force No. 03-13, or EITF 03-13, which applies to par. 42 of FASB
SFAS 144, &#147;<I>Accounting for the Impairment or Disposal of Long Lived Assets.&#148;</I> Under
Exhibit 03-13A of EITF 03-13, in order to record a disposed activity as a discontinued
operation, the activity must meet all of the following criteria:  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
activity needs to be qualified as a               "component of an entity"; and</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
results of operations of a component of an entity that either has been disposed of or is
classified as held for sale shall be reported as a discontinued operation if both of the
following conditions are met: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
(i)
The operations and cash flows of the component have been (or will be)
          eliminated from the ongoing operations of the entity as a result of the
          transaction  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
(ii)
The entity will not have any significant continuing involvement in the
          operations of the component after the transaction.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According
to Exhibit 03-13A of EITF 03-13, activities that meet the foregoing requirements are
classified as a discontinued operation for all presented periods.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Accounting for income tax</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
account for income taxes in accordance with SFAS No.&nbsp;109, &#147;Accounting for
Income Taxes,&#148; or SFAS No. 109. This Statement prescribes the use of the liability
method whereby deferred tax assets and liability account balances are determined based on
differences between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. We provide a valuation allowance, if necessary, to reduce
deferred tax assets to their estimated realizable value.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
January 1, 2007, we adopted FIN&nbsp;48, &#147;<I>Accounting for Income Taxes,&#148;</I> or
SFAS No. 109. The first step is to evaluate the tax position taken or expected to be
taken in a tax return by determining if the weight of available evidence indicates that
it is more likely than not that, on an evaluation of the technical merits, the tax
position will be sustained on audit, including resolution of any related appeals or
litigation processes. The second step is to measure the tax benefit as the largest amount
that is more than 50% likely to be realized upon ultimate settlement. Prior to January&nbsp;1,
2007, we estimated our uncertain income tax obligations in accordance with SFAS No.109
and SFAS No.&nbsp;5 &#147;<I>Accounting for Contingencies,</I>&#148; or SFAS No. 5.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
recognize accrued interest related to unrecognized tax benefits in tax expense.
Accounting for tax positions requires judgments, including estimating reserves for
potential uncertainties. We also assess our ability to utilize tax attributes, including
those in the form of carry forwards, for which the benefits have already been reflected
in the financial statements. We do not record valuation allowances for deferred tax
assets that we believe are more likely than not to be realized in future periods. While
we believe the resulting tax balances as of December&nbsp;31, 2007 and 2008 are
appropriately accounted for in accordance with FIN 48 and SFAS No.&nbsp;109, as
applicable, the ultimate outcome of such matters could result in favorable or unfavorable
adjustments to our consolidated financial statements and such adjustments could be
material.  </FONT></P>

<p align=center>
<font size=2>32</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have filed or are in the process of filing local and foreign tax returns that are subject
to audit by the respective tax authorities. The amount of income tax we pay is subject to
ongoing audits by the tax authorities, which often result in proposed assessments. Our
estimate of the potential outcome for any uncertain tax issue is highly judgmental. We
believe that we adequately provided for any reasonably foreseeable outcomes related to
tax audits and settlement. However, our future results may include favorable or
unfavorable adjustments to our estimated tax liabilities in the period the assessments
are made or resolved, audits are closed or when statutes of limitation on potential
assessments expire.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a result of the adoption of FIN 48, we recorded a charge of $530,000 in our accumulated
deficit for the year ended December 31, 2007. We recorded a tax expense of $50,000 and
$16,000 for the years ended December 31, 2007 and 2008, respectively.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
associated with uncertain income tax positions and penalties expense are classified as
income tax expenses. We have not recorded any material interest or penalties during 2007
and 2008.  </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table presents selected consolidated statement of operations data for the
periods indicated as a percentage of total revenues:  </FONT></P>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=black NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2007</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2008</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="60%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Revenues:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Software</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>35.7</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>30.3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>33.7</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Maintenance and technical support</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>21.9</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>21.6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>23.5</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Consulting services</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>42.4</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>48.1</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>42.8</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenues</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100.0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100.0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100.0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Cost of revenues:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Software</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>10.3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>7.8</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>7.9</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Maintenance and technical support</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>5.5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2.7</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3.7</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Consulting services</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>32.1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>36.3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>32.2</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total cost of revenues</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>47.9</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>46.8</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>43.8</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Gross profit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>52.1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>53.2</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>56.2</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Operating costs and expenses:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Research and development, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>4.7</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>4.7</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>3.8</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Selling and marketing,</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>29.9</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>26.6</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>28.0</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;General and administrative</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>26.2</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>19.7</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>17.5</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Restructuring and impairment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4.1</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>64.9</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>51.0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>49.3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Operating income (loss)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(12.8</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2.2</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>6.9</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Financial  income, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>0.7</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>0.3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>0.7</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Other income, net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>0.5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>0.3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Income (loss) before taxes on income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(11.6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>2.8</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>7.6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Taxes on income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>0.6</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>0.6</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>0.3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Equity in earnings (losses) of affiliates</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(0.0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(0.2</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>0.0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Minority interest in (earnings) losses of</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;consolidated subsidiaries</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>0.2</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>0.0</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>0.0</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Net income (loss) from continued operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(12.0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>2.0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>7.3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net income from discontinued operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2.5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>19.6</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Net income (loss)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(9.5</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>21.6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>7.3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


<p align=center>
<font size=2>33</font></p>
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<page>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Year Ended December 31, 2008
Compared With Year Ended December 31, 2007</B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenues</I>. Revenues
in 2008 increased by 6% from $58.4 million in 2007 to $62.0 million in           2008.
License revenues increased by 19% from $15.0 million in 2007 to $17.9           million
in 2008, as a result of uniPaaS and iBOLT sales to new customers.           Revenues from
sales of applications increased by 11% from $2.7 million in 2007           to $3.0
million in 2008, primarily due to sales of additional licenses to           current
customers. Revenues from maintenance and technical support increased by           15%
from $12.6 million in 2007 to $14.5 million in 2008, as a result of the
          increased maintenance and support services that we provided to existing and new
          customers consistent with the increase in license sales. Revenues from
          consulting and other services decreased by 5% from $28.1 million in 2007 to
          $26.6 million in 2008, as a result of the advancement of a number of
          customers&#146; projects to production stage, consequently reducing the
          technology consulting needs of these customers. Based on the decline in our
          business that we began to experience in the fourth quarter of 2008, we
          anticipate that our revenues may decline on a year-over-year basis in 2009.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cost
of Revenues</I>. Cost of revenues decreased by 1.0% from $27.3 million in 2007 to $27.1
million in 2008. Cost of revenues for licenses decreased by 3% from $3.3 million in 2007
to $3.2 million in 2008, due to a decrease in amortization of capitalized software
development expenses from $2.5 million in 2007 to $2.4 million in 2008. Cost of revenues
for applications increased by 31% from $1.3 million in 2007 to $1.7 million in 2008,
consistent with the increase in application revenues. Cost of revenues for maintenance
and technical support increased by 38% from $1.6 million in 2007 to $2.2 million in 2008,
consistent with the increase in maintenance and technical support revenues. Cost of
revenues for consulting and other services decreased by 6% from $21.2 million in 2007 to
$20.0 million in 2008, consistent with the decrease in consulting and other services
revenues. Cost of revenues for the years ended December 31, 2007 and 2008 includes
$35,000 and $20,000, respectively, of stock-based compensation recorded under FASB SFAS
No. 123 (revised 2004), &#147;<I>Share-Based Payment</I>,&#148; or SFAS No. 123(R). </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gross
Profit</I>. Gross profit in 2008 was 56.2% compared to gross profit of 53.2% in 2007. The
improvement in gross profit was mainly a result of the increase in license sales, which
have a high gross profit margin, and cost savings that we implemented that improved the
gross profit margin from professional services.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Research
and Development Expenses, Net</I>. Total research and development expenses decreased by
14% from $5.7 million in 2007 to $4.9 million in 2008. &nbsp;Net research and development
expenses decreased by 15% from $2.7 million in 2007 to $2.3 million in 2008. In 2008, we
capitalized $2.6 million of software development costs, compared to $3.0 million in 2007.
The decrease in total research and development expenses in 2008 was due to a decrease in
the number of our research and development department personnel. Net research and
development expenses as a percentage of revenues in 2008 was 4% compared with 5% in 2007.
Research and development expenses for the years ended December 31, 2007 and 2008 include
$47,000 and $13,000, respectively, of stock-based compensation recorded under SFAS No.
123(R).  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Selling
and Marketing Expenses.</I> Selling and marketing expenses increased by 12% from $15.6
million in 2007 to $17.4 million in 2008. The increase in selling and marketing expenses
is primarily attributable to the appreciation of the Japanese Yen against the U.S. dollar
in 2008, which adversely affected the U.S. dollar value of our Japanese Yen denominated
expenses and the reclassification of certain employees between departments, which
resulted in an increase in selling and marketing personnel in 2008. Selling and marketing
expenses for the years ended December 31, 2007 and 2008 include $132,000 and $112,000,
respectively, of stock-based compensation recorded under SFAS No. 123(R).  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General
and Administrative Expenses</I>. General and administrative expenses decreased by 5% from
$11.5 million in 2007 to $10.9 million in 2008. The decrease in general and
administrative expenses is primarily attributable to the depreciation of the Euro against
the U.S. dollar in 2008, which positively affected the U.S. dollar value of our Euro
denominated expenses and the reclassification of certain employees between departments,
which resulted in a decrease in general and administrative personnel in 2008. General and
administrative expenses for the years ended December 31, 2007 and 2008 include $220,000
and $99,000, respectively, of stock-based compensation recorded under SFAS No. 123(R).  </FONT></P>

<p align=center>
<font size=2>34</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Financial
Income, Net</I>. Financial income, net increased from $0.2 million in 2007 to $0.4
million in 2008. The increase in financial income, net was primarily due to an increase
in interest income as a result of increased cash and cash equivalents.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other
Income</I>,<I> Net</I>. We recorded other income of $0.3 million and $0.1 million in 2007
and 2008, respectively, relating to the sale of CarPro System Ltd.&#145;s intellectual
property, related assets and eDeveloper licenses.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Taxes
on Income</I>. We recorded taxes on income of $0.4 million in 2007 compared to $0.2
million in 2008. Taxes on income are primarily attributable to taxes incurred in Europe
and the United States. Most of our subsidiaries have accumulated carryforward losses for
tax purposes.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Equity
in Earnings (Losses) of Affiliates. </I>Prior to the sale of our 40% ownership
interest in Nextstep in June 2008, we recognized income and loss from the operations of
Nextstep. In 2008, we recorded equity in losses of affiliates of $8,000 compared to
equity in losses of affiliates of $86,000 in 2007. As a result of the sale of our
interest in Nextstep in June 2008, we recorded a loss of $61,000 in 2008.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Minority
Interest in Earnings (Losses) of Subsidiaries</I>. Minority interest in earnings (losses)
of subsidiaries represents the minority shareholders&#146; share of the earnings or
losses of CarPro Systems Ltd. In 2007, we recorded a loss of $22,000 relating to the
minority interest in earnings of CarPro Systems Ltd. We did not record a minority
interest in the earnings (losses) of subsidiaries in 2008 as CarPro Systems was not
active in 2008.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net
Income (Loss) from Continued Operations</I>. We recorded net income of $1.1 million from
continued operations in 2007 compared to net income of $4.5 million from continued
operations in 2008. The increase in net income in 2008 is mainly attributable to the
increase of licenses sales, maintenance and support and improved profitability.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net
Income from Discontinued Operations.</I> In 2007, we recorded $11.5 million net income
from discontinued operations relating to our former wholly-owned subsidiary, AAOD, which
we sold in 2007, and to our Italian subsidiary, which ceased to be active in 2007. The
net income from discontinued operations in 2007 consists of a $9.3 million capital gain
resulting from the sale of AAOD and $2.9 million net income from the operations of AAOD,
offset in part by a $0.7 million loss from the operations of our Italian subsidiary. We
did not record net income from discontinued operations in 2008.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Year Ended December 31,
2007 Compared With Year Ended December 31, 2006 </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenues</I>. Total
revenues increased by 11% to $58.4 million in 2007 from $52.6 million in           2006.
License revenues decreased by 5% to $15.0 million in 2007 from $15.8           million in
2006. Application revenues decreased by 7% to $2.7 million in 2007           from $2.9
million in 2006, primarily due to our efforts to decrease sales to           third
parties. Revenues from maintenance and technical support increased by 10%           to
$12.6 million in 2007 from $11.5 million in 2006, as a result of increased
          maintenance and support services that we provided to existing customers.
          Revenues from consulting and other services increased by 27% to $28.1 million
in           2007 from $22.2 million in 2006, as a result of customers upgrading to
          eDeveloper V10 and due to the growth of our IT consulting subsidiary.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cost
of Revenues</I>. Cost of revenues increased by 8% to $27.3 million in 2007 from $25.2
million in 2006. Cost of revenues for licenses decreased by 6% to $3.3 million in 2007
from $3.5 million in 2006, consistent with the decrease in licenses sales. These costs
include the amortization of capitalized software development assets in the amount of $2.5
million in 2007 and $3.6 million in 2006. Cost of revenues for applications decreased by
32% to $1.3 million in 2007 from $1.9 million in 2006, primarily as a result of decrease
in sales to third parties. Cost of revenues for maintenance and technical support
decreased by 45% to $1.6 million in 2007 from $2.9 million in 2006, primarily due to cost
saving resulting from the implementation of our restructuring plan. Cost of revenues for
consulting and other services increased by 25% to $21.2 million in 2007 from $16.9
million in 2006, consistent with the increase in consulting and other services revenues.
Cost of revenues for the years ended December 31, 2006 and 2007 includes $0 and $35,000,
respectively, of stock-based compensation recorded under FASB SFAS No. 123 (revised
2004), &#147;<I>Share-Based Payment</I>,&#148; or SFAS No. 123(R).  </FONT></P>

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

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gross
Profit</I>. Gross profit in 2007 was 53.2% compared to gross profit of 52.1% in 2006. The
improvement in gross profit was due to cost saving resulting from the implementation of
our restructuring plan and improved gross profit margin from professional services.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Research
and Development Expenses, Net</I>. Total research and development expenses decreased by
3% to $5.7 million in 2007 from $5.9 million in 2006. Net research and development
expenses increased by 8% to $2.7 million in 2007 from $2.5 million in 2006. In 2007, we
capitalized $3.0 million of software development costs, compared to $3.4 million in 2006.
The decrease in total research and development expenses in 2007 was due to a decrease in
the number of employees in our research and development personnel. Net research
and development expenses as a percentage of revenues remained consistent at 5% in 2007
and 2006. Research and development expenses for the years ended December 31, 2006
and 2007 include $0 and $47,000, respectively, of stock-based compensation recorded under
SFAS No. 123(R).  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Selling
and Marketing Expenses, Net</I>. Selling and marketing expenses decreased slightly to
$15.6 million in 2007 from $15.7 million in 2006. Marketing and selling expenses for the
years ended December 31, 2006 and 2007 include $0 and $132,000, respectively, of
stock-based compensation recorded under SFAS No. 123(R).  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General
and Administrative Expenses</I>. General and administrative expenses decreased by 17% to
$11.5 million in 2007 from $13.8 million in 2006. The decrease in general and
administrative expenses is primarily attributable to cost saving as a result of the
implementation of our restructuring plan. General and administrative expenses for the
years ended December 31, 2006 and 2007 include $27,000 and $220,000, respectively, of
stock-based compensation recorded under SFAS No. 123(R).  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Restructuring</I><I>and
impairment expenses</I>. In the third quarter of 2006, we announced a restructuring and
impairment plan primarily to reduce our costs and improve profitability. Total
restructuring and impairment expenses in 2006 were $2.2 million, a significant portion of
which was attributable to severance payments. We did not record any restructuring and
impairment expenses in 2007.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Financial
Income, Net</I>. Financial income, net decreased from $0.3 million in 2006 to $0.2
million in 2007, primarily due to the appreciation of certain currencies in which we held
assets or to which assets were tied, against the U.S. dollar in 2007, which adversely
affected the U.S. dollar value of such assets.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other
Income, Net</I>. We recorded other income of $0.3 million in 2007 and $1.2 million in
2006 relating to the sale of CarPro System Ltd.&#145;s intellectual property, related
assets and eDeveloper licenses.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Taxes
on Income</I>. We recorded taxes on income of $0.4 million in 2007 compared to $0.3
million in 2006. Taxes on income are primarily attributable to taxes incurred in
Europe and the United States. Most of our subsidiaries have accumulated carryforward
losses for tax purposes.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Equity
in Earnings (Losses) of Affiliates</I>. Prior to the sale of our 40% ownership
interest in Nextstep in June 2008, we recognized income and loss from the operations of
Nextstep. In 2007, we recorded equity in losses of affiliates of $86,000, while we
recorded equity in earnings of affiliates of $15,000 in 2006.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Minority
Interest in Earnings (Losses) of Subsidiaries</I>. Minority interest in earnings (losses)
of subsidiaries represents the minority shareholders&#146; share of the earnings or
losses of CarPro Systems Ltd. In 2007, we recorded a loss of $22,000 relating to the
minority interest in earnings of CarPro Systems Ltd. compared to income of $71,000 in
2006 relating to the minority interest in losses of CarPro Systems Ltd.  </FONT></P>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net
Income (Loss) from Continued Operations</I>. We recorded $6.3 million net loss from
continued operations in 2006 compared to $1.1 million net income from continued
operations in 2007.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Discontinued
Operations.</I> In 2007, we recorded $11.5 million net income from discontinued
operations relating to our former wholly-owned subsidiary AAOD, which we sold in 2007,
and to our Italian subsidiary, which ceased to be active in 2007. The net income from
discontinued operations in 2007 consists of a $9.3 million capital gain resulting from
the sale of AAOD and $2.9 million net income from the operations of AAOD, offset in part
by a $0.7 million loss from the operations of our Italian subsidiary. In 2006 we recorded
$1.3 million net income from discontinued operations relating to AAOD and our Italian
subsidiary. The net income from discontinued operations in 2006 consists of $1.7 million
net income from the operations of AAOD, offset in part by a $0.4 million loss from the
operations of our Italian subsidiary.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Impact of Currency
Fluctuations and of Inflation </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
financial statements are stated in U.S. dollars, our functional currency. However, a
substantial portion of our revenues and costs are incurred in other currencies,
particularly NIS, Euros, Japanese yen, and the British pound. We also maintain
substantial non-U.S. dollar balances of assets, including cash, accounts receivable, and
liabilities, including accounts payable. Therefore, fluctuations in the value of the
currencies in which we do business relative to the U.S. dollar may have a material
adverse effect on our business, results of operations and financial condition. The
depreciation of such other currencies in relation to the U.S. dollar has the effect of
reducing the U.S. dollar value of any of our liabilities which are payable in those other
currencies (unless such costs or payables are linked to the U.S. dollar). Such
depreciation also has the effect of decreasing the U.S. dollar value of any asset that is
denominated in such other currencies or receivables payable in such other currencies
(unless such receivables are linked to the U.S. dollar). In addition, the U.S. dollar
value of revenues and expenses denominated in such other currencies would increase.
Conversely, the appreciation of any currency in relation to the U.S. dollar has the
effect of increasing the U.S. dollar value of any unlinked assets and the U.S. dollar
amounts of any unlinked liabilities and increasing the U.S. dollar value of revenues and
expenses denominated in other currencies.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, while we incur a portion of our costs in NIS, the U.S. dollar cost of our
operations in Israel is influenced by the extent to which any increase in the rate of
inflation in Israel is (or is not) offset, or is offset on a lagging basis, by a
devaluation of the NIS in relation to the U.S. dollar.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because
exchange rates between the NIS, Euro, Japanese yen, and the British pound and the U.S.
dollar fluctuate continuously, exchange rate fluctuations and especially larger periodic
devaluations will have an impact on our profitability and period-to-period comparisons of
our results. We cannot assure you that in the future our results of operations may not be
materially adversely affected by currency fluctuations.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth, for the periods indicated, (i) devaluation or appreciation of
the U.S. dollar against the most important currencies for our business, the NIS, Euro,
Japanese yen, the British pound; and (ii) inflation as reflected in changes in the
Israeli consumer price index.  </FONT></P>





<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman" SIZE=1>Year Ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=black NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2007</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2008</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="5%"> </TD>
     <TD WIDTH="32%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>New Israeli Shekel</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(4.9</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)%</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>6.8</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>2.0</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>9.9</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>1.2</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Euro</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1.0</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(1.0</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4.2</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>11.7</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(5.3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Japanese Yen</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(2.4</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(0.3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(7.6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>6.2</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>23.1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>British Pound</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2.1</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2.1</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>6.4</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2.2</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(27.2</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Israeli Consumer Price Index</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>1.2</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>2.4</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(0.1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>3.4</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>3.8</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
</TABLE>
<BR>



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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Conditions in Israel</B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are incorporated under the laws of, and our principal executive offices and most of our
research and development facilities are located in, the State of Israel. See Item 3.D.
&#147;Key Information &#150; Risk Factors &#150; Risks Relating to Our Location in Israel&#148; for
a description of governmental, economic, fiscal, monetary or political polices or factors
that have materially affected or could materially affect our operations.  </FONT></P>

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

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Israeli
companies are subject to &#147;company tax&#148; on their taxable income. The applicable
rate was 27% in 2008, was reduced to 26% in 2009 and will be further reduced to 25% in
2010 and thereafter. However, the effective tax rate payable by a company that derives
income from an &#147;approved enterprise&#148; (as further discussed below), may be
considerably less.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Eight
investment programs at our facility in Or Yehuda have been granted &#147;approved
enterprise&#148; status under the Law for Encouragement of Capital Investments, 1959,
commonly referred to as the Investment Law, and we are, therefore, eligible for certain
tax benefits. Subject to compliance with applicable requirements, the portion of our
income derived from the approved enterprise programs will be tax-exempt for a period of
two to four years commencing in the first year in which an approved enterprise generates
taxable income and will be subject, for a period of five to eight years, to a reduced
corporate tax of 25%. However, these benefits will not be available to us with respect to
any income derived by our non-Israeli subsidiaries.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
April 1, 2005, an amendment to the Investment Law came into effect that has significantly
changed the provisions of the Investment Law. The amendment limits the scope of
enterprises which may be approved by the Investment Center of the Ministry of Industry
and Trade of the State of Israel, or the Investment Center, by setting criteria for the
approval of a facility as an approved enterprise, such as provisions generally requiring
that at least 25% of the approved enterprise&#146;s income will be derived from export.
Additionally, the amendment enacted major changes in the manner in which tax benefits are
awarded under the Investment Law so that companies no longer require Investment Center
approval in order to qualify for tax benefits.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However,
the April 2005 amendment to the Investment Law provides that terms and benefits included
in any certificate of approval granted prior to the amendment will remain subject to the
provisions of the Investment Law as they were on the date of such approval. Therefore,
our existing approved enterprise programs will generally not be subject to the provisions
of the April 2005 amendment. As a result of the amendment, tax-exempt income will subject
us to taxes upon distribution or liquidation and we may be required to record deferred
tax liability with respect to such tax-exempt income. As of December 31, 2008, we did not
generate income under the provision of the amended Investment Law.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December 31, 2008, our net operating loss carry-forwards for Israeli tax purposes was
approximately $40.6 million. Under current Israeli tax laws, operating loss carry
forwards do not expire and may be offset against future taxable income. As of December
31, 2008, our subsidiaries in Europe and Japan had estimated total available tax loss
carry-forwards of $10.8 million and $2.3 million, respectively, which may be offset
against future taxable income for 15 to 20 years, and two years, respectively.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
received final tax assessments for the years 1997 to 2002 from the Israeli tax
authorities and have submitted an appeal to the District Court of Tel Aviv-Jaffa with
respect to such tax assessments. As of March 2009, one open issue remains to be settled
by the court (see Item 8.A, &#147;Financial Information &#150; Consolidated Statements
and Other Financial Information&#148;), while all other issues were resolved with no
additional taxes to be paid by us. Our management believes, based on the advice of its
legal advisors, that the probability of an unfavorable outcome to our company on this
matter is remote, therefore no provision was provided in the financial statements in
respect of this matter.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Recently Issued
Accounting Standards </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December 2007, the FASB issued SFAS No.&nbsp;141 (revised 2007), &#147;<I>Business
Combinations,&#148;</I>or SFAS 141R. SFAS&nbsp;141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non controlling interest in
the acquiree and the goodwill acquired. SFAS&nbsp;141R also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the business
combination. SFAS&nbsp;141R is effective for fiscal years beginning after December&nbsp;15,
2008 and early adoption is prohibited. We believe that the impact of SFAS&nbsp;141R on
our consolidated results of operations and financial condition will depend on the nature
and size of acquisitions, if any, subsequent to the effective date.  </FONT></P>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December 2007, the FASB issued SFAS No.&nbsp;160, &#147;<I>Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No.&nbsp;51,&#148;</I> or SFAS 160.
SFAS No.&nbsp;160 establishes accounting and reporting standards that require that the
ownership interests in subsidiaries held by parties other than the parent be clearly
identified, labeled, and presented in the consolidated statement of financial position
within equity, but separate from the parent&#146;s equity; the amount of consolidated net
income attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income; and changes
in a parent&#146;s ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently. SFAS 160 is effective for
fiscal years, and interim periods within those fiscal years, beginning on or after
December&nbsp;15, 2008. We do not expect that the adoption of SFAS 160 will have a
significant impact on our consolidated financial statement.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April 2008, the FASB issued FASB Staff Position, or FSP, FAS&nbsp;142-3, &#147;<I>Determination
of the Useful Life of Intangible Assets,&#148;</I> or FSP FAS&nbsp;142-3. FSP FAS&nbsp;142-3
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset under FASB
SFAS No.&nbsp;142, &#147;<I>Goodwill and Other Intangible Assets.&#148;</I> FSP FAS&nbsp;142-3
is effective for fiscal years beginning after December&nbsp;15, 2008 and early adoption
is prohibited. We believe that the adoption of FPS FAS&nbsp;142-3 will not have impact on
our consolidated financial statement.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
February 2008, the FASB issued FSP FAS No. 157-2, &#147;<I>Effective Date of FASB
Statement No. 157,&#148;</I> or FSP FAS 157-2, to delay the effective date of FASB SFAS
157 for one year for certain nonfinancial assets and nonfinancial liabilities, excluding
those that are recognized or disclosed in financial statements at fair value on a
recurring basis (that is, at least annually). For purposes of applying FSP FAS 157-2,
nonfinancial assets and nonfinancial liabilities include all assets and liabilities other
than those meeting the definition of a financial asset or a financial liability in FASB
SFAS 159. FSP FAS 157-2 defers the effective date of SFAS 157 to fiscal years beginning
after November 15, 2008, and interim periods within those fiscal years for items within
the scope of this FSP FAS 157-2. We do not expect the adoption of SFAS 157 with respect
to certain nonfinancial assets and nonfinancial liabilities, excluding those that are
recognized or disclosed in financial statements at fair value on a recurring basis (that
is, at least annually), to have a material impact on our financial position, results of
operations or cash flows.  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>B.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>LIQUIDITY
AND CAPITAL RESOURCES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically,
we have financed our operations through cash generated by operations, funds generated by
our public offerings in 1991 (approximately $8.5 million), 1996 (approximately $5.0
million) and 2000 (approximately $79.6 million), private equity investments in 1998
(approximately $12.2 million), as well as from research and development and marketing
grants primarily from the Government of Israel. In addition, we have also financed our
operations through short-term loans and borrowings under available credit facilities.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December 30, 2007, we entered into an agreement, to sell our wholly-owned
subsidiary, AAOD, a Florida corporation, that develops and markets application software
targeted at the long-term care industry, to Fortissimo Capital, for $17 million. We
received $1.0 million of the sale proceeds in December 2007 and $16.0 million at the
beginning of 2008. We recorded a capital gain of $9.3 million as a result of the
transaction in 2007.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June 2008, we sold our 40% interest in Nextstep in consideration of $150,000. We recorded
a capital loss of $61,000 as a result of the transaction in 2008.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December 31, 2008, we had approximately $32.6 million in cash and cash equivalents and
working capital of approximately $33.8 million, compared to $16.4 million in cash and
cash equivalents and working capital of approximately $28.7 million at December 31, 2007.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December 31, 2008, our accumulated debt was approximately $180,000, comprised of
$178,000 of long-term loans (including current maturities) and $2,000 of short term
credit, compared to approximately $3.8 million as of December 31, 2007, comprised of
$202,000 of long-term loans (including current maturities) and $3.6 million of short-term
credit. The decrease is mainly attributable to the repayment of short-term credit in
2008.  </FONT></P>

<p align=center>
<font size=2>39</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
do not currently have significant capital spending or purchase commitments; however we
anticipate a moderate decrease in capital expenditures and lease commitments during 2009
consistent with our anticipated level of operations, infrastructure and personnel. We
believe that our accumulated cash, in conjunction with cash generated from operations and
available funds, will be sufficient to meet our cash requirements for working capital and
capital expenditures for at least the next 12 months. We expect that cash provided by
operating activities may fluctuate in future periods as a result of a number of factors,
including fluctuations in our operating results, accounts receivable collections, and the
timing and amount of tax and other payments.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
light of the challenging conditions in the financial markets over the last several
months, we have been more proactively managing our cash equivalents and fixed income
portfolio. We believe the overall credit quality of our portfolio is strong, with our
cash equivalents and fixed income portfolio invested in securities with a
weighted-average credit rating exceeding A. A majority of our investments are priced by
pricing vendors and our fixed income and publicly traded equity securities are classified
as Level 1 investments, as measured under FASB SFAS 157, as these vendors either provide
a quoted market price in an active market or use observable inputs.  </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes our cash flows for the periods presented:  </FONT></P>







<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman" SIZE=1>Year ended December 31,</FONT></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2006</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman" SIZE=1>(U.S. dollars in thousands)</FONT></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="61%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Net income (loss) from continuing operation</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> (6,326</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  1,143</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>4,508</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Adjustments to reconcile net income (loss) from continuing</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>operations to net cash provided by operating activities from</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>continuing operations:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>9,764</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>8,073</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,186</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#cceeff">
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net cash provided by operating activities from continuing operation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,438</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>9,216</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>7,694</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Net cash provided by (used in) operating activities from</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>discontinued operation</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>393</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(1,656</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(21</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#cceeff">
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net cash provided by operating activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,831</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>7,560</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>7,673</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Net cash provided by (used in) investing activities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(5,185</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(2,391</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>11,266</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#cceeff">
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net cash provided by (used in) financing activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>678</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(756</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(3,371</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Effect of exchange rate changes on cash and cash equivalents</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(272</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(375</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>(458</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#cceeff">
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Increase in cash and cash equivalents from continuing operation.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>693</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>5,243</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>15,131</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
cash provided by operating activities was approximately $7.7 million for the year ended
December 31, 2008, compared to approximately $7.6 million for the year ended December 31,
2007 and approximately $3.8 million for the year ended December 31, 2006. Net cash
provided by operations in 2008 consists primarily of our ongoing operations activity and
of net income adjusted for non cash activity, including depreciation and amortization of
our capitalized research and development assets and an increase in accrued expenses and
other accounts payable. Net cash provided by operations in 2007 consists primarily of net
income adjusted for non cash activity, including stock-based compensation expenses,
depreciation and amortization of our capitalized research and development assets and an
increase in accrued expenses and other accounts payable and a decrease in other accounts
receivable and prepaid expenses. Net cash provided by operations in 2006 consists
primarily of net income adjusted for non cash activity, depreciation and amortization of
our capitalized research and development assets, an increase in accrued expenses and
other accounts payable, a decrease in other accounts receivable and prepaid expenses and
a decrease in trade receivables.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
cash provided by investing activities was approximately $11.3 million for the year ended
December 31, 2008, compared to net cash used in investing activities of approximately
$2.4 million and $5.2 million for the years ended December 31, 2007 and 2006,
respectively. Net cash provided by investment activities in 2008 is primarily
attributable to proceeds received from the sale of our wholly owned subsidiary AAOD, as
well as proceeds of $150,000 from the sale of Nextstep, offset by capitalized software
development costs, the purchase of property and equipment and investment in marketable
securities and short term bank deposits. Net cash used in investment activities in 2007
is primarily attributable to capitalized software development costs and the purchase of
property and equipment. Net cash used in investment activities in 2006 is primarily
attributable to software development costs, the purchase of property and equipment and
investment in marketable securities, offset in part by proceeds of $900,000 from the sale
of the assets of CarPro Systems Ltd.  </FONT></P>

<p align=center>
<font size=2>40</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
cash used in financing activities was approximately $3.4 million and $0.8 million for the
years ended December 31, 2008 and 2007, respectively, primarily attributable to the
repayment of short-term loans, compared to net cash provided by financing activities of
approximately $0.7 million for the year ended December 31, 2006, primarily attributable
to an increase in short-term loans and proceeds from the exercise of stock options.  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>C.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>RESEARCH
AND DEVELOPMENT, PATENTS ANDLICENSES</B> </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
research and development and support personnel work closely with our customers and
prospective customers to determine their requirements and to design enhancements and new
releases to meet their needs. We periodically release enhancements and upgrades to our
core products. In the years ended December 31, 2006, 2007 and 2008, we invested $5.9
million, $5.7 million and $4.9 million, respectively, in research and development.
Research and development activities take place in our facilities in Israel, India, Japan,
the United States and Europe.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December 31, 2008, we employed 96 employees in research and development activities, of
which 33 persons were located in Israel, 56 persons in India, four persons in Japan and
three persons in Europe. Our product development team includes technical writers who
prepare user documentation for our products. In addition, we have also entered into
arrangements with subcontractors for the preparation of product user documentation and
certain product development work.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
additional information regarding product development see Item 4. &#147;Information on the
Company &#150; Business Overview &#150; Product Development&#148;.  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>D.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>TREND
INFORMATION</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on the decline in our business that we began to experience in the fourth quarter of 2008,
we anticipate that our revenues may decline on a year-over-year basis in 2009. In order
to mitigate a reduction in sales, we intend to continue our tight cost control efforts in
order to achieve improved profitability in 2009.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
more information on trends in our industry, please see Item 4. &#147;Information on the
Company-Business Overview-Industry Background and Trends&#148; and Item 5. &#147;Operating
and Financial Review and Prospects &#150; Results of Operations.&#148; </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>E.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>OFF-BALANCE
SHEET ARRANGEMENTS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are not a party to any off-balance sheet arrangements. In addition, we have no
unconsolidated special purpose financing or partnership entities that are likely to
create material contingent obligations.  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>F.</B> </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>TABULAR
DISCLOSURE OF CONTRACTUALOBLIGATIONS</B> </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes our minimum contractual obligations as of December 31, 2008
and the effect we expect them to have on our liquidity and cash flow in future periods.  </FONT></P>

<p align=center>
<font size=2>41</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>






<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3 align=left><FONT FACE="Times New Roman" SIZE=1>Contractual Obligations</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=12><FONT FACE="Times New Roman" SIZE=1>Payments due by period</FONT><HR WIDTH=98% SIZE=1 COLOR=black NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Total</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>less than 1 year</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>1-3 years</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>3-5 years</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="49%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Operating lease obligations</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 3,421,000</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 2,250,000</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1,150,000</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>    21,000</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Severance payments*</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>   186,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Uncertainties in income taxes (FIN 48)..</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>   596,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Long term loan</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>   178,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>   145,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>    33,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Total contractual obligations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 4,381,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 2,395,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1,183,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>    22,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
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<TR VALIGN=TOP>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
*Severance
payments relate to accrued severance obligations mainly to our Israeli employees as
required under Israeli labor law. We are legally required to pay severance upon certain
circumstances, primarily upon termination of employment by our company, retirement or
death of the respective employee. Our liability for all of our Israeli employees is fully
provided for by monthly deposits with insurance policies and by an accrual.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 6.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>A.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>DIRECTORS
AND SENIOR MANAGEMENT</B> </FONT> </TD>
</TR>
</TABLE>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Set
forth below are the name, age, principal position and a biographical description of each
of our directors and executive officers:  </FONT></P>




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<TR VALIGN=Bottom>
     <TH> </TH>
     <TH align=left><FONT FACE="Times New Roman" SIZE=1>Name</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1>Age</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH> </TH>
     <TH align=left><FONT FACE="Times New Roman" SIZE=1>Position</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="5%"> </TD>
     <TD WIDTH="30%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Guy Bernstein</FONT></TD>
     <TD WIDTH="8%" ALIGN="CENTER"><FONT FACE="Times New Roman" SIZE=2>41&nbsp;</FONT></TD>
     <TD WIDTH="2%"> </TD>
     <TD WIDTH="55%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Chairman of the Board of Directors</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Hadas Gazit Kaiser (1)(3)</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman" SIZE=2>33&nbsp;</FONT></TD>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Chief Financial Officer</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Gad Goldstein</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman" SIZE=2>50&nbsp;</FONT></TD>
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Director</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Itiel Efrat (2)</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman" SIZE=2>45&nbsp;</FONT></TD>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Outside director</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Elan Penn (1)(2)(3)</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman" SIZE=2>58&nbsp;</FONT></TD>
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Outside director</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Eli Reifman</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman" SIZE=2>40&nbsp;</FONT></TD>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Director</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Naamit Salomon</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman" SIZE=2>44&nbsp;</FONT></TD>
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Director</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Yehezkel Zeira (2)</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman" SIZE=2>65&nbsp;</FONT></TD>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Director</FONT></TD></TR>
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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><HR SIZE=1 NOSHADE WIDTH=15% ALIGN=LEFT></TD>
</TR>
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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
(1)
Member of our Option Committee  </FONT></TD>
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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
(2) Member
of our Audit Committee  </FONT></TD>
</TR>
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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
(3) Member
of our Investment Committee  </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Messrs. Guy
Bernstein, Gad Goldstein, Yehezkel Zeira and Eli Reifman, Ms. Naamit Salomon
          and Ms. Hadas Gazit Kaiser were elected at our 2008 annual general meeting of
          shareholders for a one year period, to serve as directors until our 2009 annual
          general meeting of shareholders. Messrs. Itiel Efrat and Elan Penn will serve
as           our outside directors pursuant to the provisions of the Israeli Companies
Law           for three-year terms until December 28, 2009 and December 29, 2011,
          respectively.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April 2008, Mr. Eitan Naor, our former president and chief executive officer, ceased to
serve in such capacity and in May 2008, Mr. Naor ceased to serve as a member of our
board of directors. In January 2009, Mr. David Zigdon, our former financial
executive officer, ceased to serve in such capacity. On March 31, 2009, Ms. Hadas Gazit
Kaiser ceased to served as a member of our board of directors.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Guy
Bernstein</I></B>  has served as the chairman of our board of directors since April
2008 and as a board member since January 2007. Mr. Bernstein has served as the chief
executive officer of Formula Systems, our parent company, since January 2008. Since
December 2006, Mr. Bernstein has served as a director and the chief executive officer of
Emblaze, our controlling shareholder. Mr. Bernstein also serves as a director of Sapiens
and is the chairman of the board of directors of Matrix, both of which are subsidiaries
of Formula Systems. From April 2004 to December 2006, Mr. Bernstein served as the chief
financial officer of Emblaze and he has served as a director of Emblaze since April 2004.
Prior thereto and from 1999, Mr. Bernstein served as our chief financial and operations
officer. Prior to joining our company, Mr. Bernstein was at Kost Forer Gabbay &amp;Kasierer,
a member of Ernst &amp; Young Global, where he acted as senior manager from 1994 to 1997.
Mr. Bernstein holds a B.A. degree in accounting and economics from Tel Aviv University
and is a certified public accountant (CPA) in Israel.  </FONT></P>

<p align=center>
<font size=2>42</font></p>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Hadas
Gazit Kaiser </I></B> has served as our chief financial officer since
February 2009.  Ms. Gazit Kaiser served as a director of our company from August
2007 to March 31, 2009. Prior to joining us and from December 2006, Ms. Gazit Kaiser
served as chief financial officer of Emblaze. From August 2005 to December 2006, Ms.
Gazit Kaiser served as a vice president of finance of Emblaze and as chief financial
officer of Emblaze Mobile. Prior thereto and from August 2003, Ms. Gazit Kaiser served as
the budget control manager of TTI Team Telecom International. From August 2000 to August
2003, Ms. Gazit Kaiser was a manager for Kost Forer Gabbay &amp; Kasierer, a member of
Ernst &amp;Young Global. Ms. Gazit Kaiser is a director of Matrix IT Ltd., Formula
Systems, Sapiens International Corporation and RadView Software Ltd. Ms. Gazit Kaiser is
a certified public accountant (CPA) in Israel and holds a B.A. degree in economics and
accounting and an M.B.A. degree in finance from Tel Aviv University.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Gad Goldstein</I></B>
has served as a director of our company since December 1998. Mr. Goldstein served as the
chief executive officer   of Formula Systems, our parent company, from November 2006 to
January 2008 and as its President from 1995 until November 2006, and also served as a
member of its board of directors from 1985 until January 2008. Mr. Goldstein serves as a
director of Matrix IT Ltd. of the Formula group and Formula Vision Technologies Ltd.
(formerly of the Formula group). Mr. Goldstein has a B.A. degree in economics and an MBA
degree, both from Tel Aviv University. </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Itiel
Efrat</I></B>  has served as an outside director of our company since December 2006
and is a member of our audit committee. Mr. Efrat is the founder and has served as
co-managing director of ERB Ltd., a leading financial consulting firm, since 1995. Mr.
Efrat was also the founder and is a member of the board of directors of ESOP-Excellence
Trust Company since 2004. Mr. Efrat is a certified public accountant (CPA) in Israel and
holds a B.A. degree in accounting and economics from Tel-Aviv College of Management.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Elan
Penn</I></B>  has served as an outside director of our company
since December 2005 and is a member of our audit committee. Mr. Penn has served as chief
executive officer and chairman of Penn Publishing Ltd., a private company based in Tel
Aviv, Israel since 2001. From 2000 to 2001, Mr. Penn served as vice president of finance
and administration of A.I. Research and Development Ltd. Mr. Penn served as chief
executive officer of Sivan Computer Training Company Ltd. during the years 1998 through
2000. From 1992 to 2000, Mr. Penn served as vice president of finance and administration
of Mashov Computers Ltd. From 1987 to 1991 and again from 1992 to 1997, Mr. Penn served
as our company&#146;s vice president of finance and administration. Mr. Penn also serves
as a director of Telcoor Telekom Ltd. Mr. Penn holds a B.A. degree in economics from the
Hebrew University of Jerusalem and a Ph.D. in management science from the University of
London.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Eli
Reifman</I></B> has served as a director of our company since January 2007. In
1994, Mr. Reifman co-founded Emblaze and has served as its President since December 2006.
Mr. Reifman serves as a director of Emblaze and Sapiens International Corporation. Mr.
Reifman served as the chief executive officer of Emblaze from September 2000 until
December 2006. Before founding Emblaze, Mr. Reifman was the head of the Technical
Development Department and acting head of all production in the Training Development
Center of the Israeli Defense Forces, where he was responsible for producing high-end
military simulators. In parallel to his business activities, Mr. Reifman is a regular
lecturer at BA and MBA courses to Israeli and international students and is involved with
promoting social education agenda in Israel via his involvement in various nonprofit
organizations.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Naamit
Salomon</I></B> has served as director of our company since March 2003. Ms.
Salomon has served as chief financial officer of Formula Systems since August 1997. Ms.
Salomon serves as a director of Sapiens International Corporation N.V. of the Formula
group. From 1990 through August 1997, Ms. Salomon served as the controller of two large
privately held companies in the Formula group. Ms. Salomon holds a B.A. degree in
economics and business administration from Ben Gurion University and a L.L.M. degree from
Bar-Ilan University.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Yehezkel
Zeira</I></B> has served as a director of our company since
December 2005 and is a member of our audit committee. Mr. Zeira has served as an
independent information technologies consultant since 2001. From 2000 to 2001, Mr. Zeira
served as executive vice president international of Ness Technologies Inc., and from 1970
to 2000, Mr. Zeira served in various positions at Advanced Technology Ltd., including as
chief executive officer which position he assumed in 1982. Mr. Zeira also serves as a
director of Tim Computer Systems Ltd. and Dafron Ltd. Mr. Zeira is also a lecturer at Ben
Gurion University Faculty of Engineering. Mr. Zeira holds a B. Sc. degree in industrial
engineering and M. Sc. degree in operations research, both from the Technion &#150; Israel
Institute of Technology and has participated in the Harvard Business School program for
management development.  </FONT></P>

<p align=center>
<font size=2>43</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table lists our other key employees:  </FONT></P>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH align=left><FONT FACE="Times New Roman" SIZE=1>Name</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1>Age</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH> </TH>
     <TH align=left><FONT FACE="Times New Roman" SIZE=1>Position</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH> </TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="5%"> </TD>
     <TD WIDTH="15%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Amit Ben-Zvi</FONT></TD>
     <TD WIDTH="8%" ALIGN="CENTER"><FONT FACE="Times New Roman" SIZE=2>42</FONT></TD>
     <TD WIDTH="2%"> </TD>
     <TD WIDTH="70%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Vice President, International Sales and Chief Executive</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Officer of Hermes Logistics Technologies Limited</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Amit Birk</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>38</FONT></TD>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Vice President, Mergers and Acquisitions, General Counsel</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>and Corporate Secretary</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Arita Mattsoff</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman" SIZE=2>45</FONT></TD>
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Vice President, Marketing</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Avikam Perry</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>52</FONT></TD>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Chief Technology Officer and Vice President of Products</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Udi Ertel</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman" SIZE=2>49</FONT></TD>
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Vice President, Magic Global Services, Distribution and</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Operations</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Regev Yativ</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>40</FONT></TD>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>President and Chief Executive Officer Magic Software</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Enterprises Inc.</FONT></TD></TR>
</TABLE>
<BR>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Amit
Ben-Zvi</I></B> has served as our vice president and chief executive officer of
our subsidiary, Hermes Logistics Technologies Limited, since October 2007. Prior to that
and from September 2005, Mr. Ben-Zvi served as the vice president marketing and manager
of our iBOLT division. From July 2002 to July 2005, Mr. Ben-Zvi served as chief executive
officer of WizCom Technologies, a publicly traded company specializing in scanning pens
and mobile data capture products. Prior thereto and from January 2000, Mr. Ben-Zvi served
as the chief executive officer of ISYS Operational Management Systems Ltd., a software
applications company based in Israel. From December 1997 to January 2000, Mr. Ben-Zvi
served as chief operating officer of Top Imaging Systems Ltd., a publicly traded company.
Mr. Ben-Zvi holds a B.A. degree in accounting and LLB degree, both from Tel-Aviv
University.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Amit
Birk</I></B> has served as our vice president, mergers and acquisitions, general
counsel and corporate secretary since May 1999. From 1997 to 1998, Mr. Birk was an
associate at Avital Dromi &amp; Co., a leading law firm in Tel Aviv, Israel. Since
November 2007, Mr. Birk has served as an outside director of BGI Investment (1961) Ltd.,
an Israeli public company. Mr. Birk holds an L.L.B. degree from the University of
Sheffield, M.B.A. degree from Bar Ilan University and a Practical Engineer degree from
ORT College. Mr. Birk is also a certified mediator.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Arita
Mattsoff</I></B>&nbsp; has served as our vice president, global marketing since
September 2007.  From June 2004 to September 2007, Ms. Mattsoff served as vice
president marketing at Finjan Software Ltd., and from July 2001 to June 2004 as vice
president commercial marketing at Paradigm Geophysical Ltd. From 1995 to1999, Ms.
Mattsoff held senior marketing positions at Scitex Corporation. Ms. Mattsoff serves as a
board member of LATET, Israeli Humanitarian Organization, and during 2000 Ms. Mattsoff
served as active general manager of LATET. Ms. Mattsoff holds a BA degree in social
sciences and an MBA degree, both from Tel Aviv University.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Avikam
Perry</I></B> has served as our chief technology officer and vice president of
products since January 2008. Prior to that and from July 1997, Mr. Perry served as our
vice president, research and development. Mr. Perry joined our company in July 1992 and
has held various positions, including group and product manager, development department
manager and vice president, product development. Mr. Perry holds a B.Sc. degree in
mathematics and computer science from Tel Aviv University.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Udi
Ertel</I></B> has served as vice president of global services and distribution in
Asia Pacific region, East Europe, South Africa and the Middle East since January 2009.
From July 2004 until December 2008, Mr. Ertel served as the chief executive officer of
Magic Israel. From June 1995 until July 2004, Mr. Ertel served as the chief executive
officer of Complot (83) Ltd. Mr. Ertel holds a B.Sc. degree in mathematics and computer
science from Tel Aviv University.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Regev
Yativ</I></B> has served as our president and chief executive officer Magic
Software Enterprises Inc. since January 2008. Prior to that and from October 2006, Mr.
Yativ served as our vice president international sales and was responsible for our
business activities and branches in Europe and Japan, as well as the Israel-based team
that oversees the distribution network in the Asia Pacific region, Latin America and
South Africa. From September 2002 until June 2006, Mr. Yativ served as our vice president
and managing director of Europe, Middle East and Africa, based at our Netherlands office.
From 2001 to 2002, Mr. Yativ served as chief operating officer of Agro Marches Int.
Paris, a company specializing in software and eBusiness platforms and managed its
branches across Europe. From 1999 to 2001, Mr. Yativ was the chief executive officer of
G.E.D B.V. in Amsterdam, an investments and business development group dealing in
software and eBusiness solutions throughout Europe. Mr. Yativ holds a B.A. degree in
linguistics &amp; middle east science from Tel Aviv University.  </FONT></P>

<p align=center>
<font size=2>44</font></p>
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<page>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth all compensation we paid with respect to all of our directors
and executive officers as a group for the year ended December 31, 2008.  </FONT></P>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Salaries, fees, commissions and bonuses</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Pension, retirement and similar benefits</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=69% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>All directors and executive officers as a group (11 persons)</FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1,370,330</FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>   181,180</FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the year ended December 31, 2008, we paid to each of our outside and independent
directors an annual fee of approximately $10,000 and a per-meeting attendance fee of
approximately $530. Those fees are paid based on the fees detailed in a schedule
published semi-annually by the Committee for Public Directors under the Israeli
Securities Law. The above compensation excludes stock based compensation costs in
accordance with SFAS No. 123 (revised 2004), &#147;<I>Share-Based Payment</I>.&#148; </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December 31, 2008, our directors and executive officers as a group, then consisting of
11 persons, held options to purchase an aggregate of 368,155 ordinary shares, at exercise
prices ranging from $0.8 to $4.02 per share (after the dividend adjustment). Of such
options, options to purchase 2,779 ordinary shares expire in 2012, options to purchase
154,376 ordinary shares expire in 2013, options to purchase 36,000 ordinary shares expire
in 2015 and options to purchase 175,000 ordinary shares expire in 2017. All such options
were granted under our 2000 Stock Option Plan and 2007 Incentive Compensation Plan. See
Item 6E. &#147;Directors, Senior Management and Employees &#150; Share Ownership &#150;Stock-Based
Compensation Plans.&#148; </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>C.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>BOARD
PRACTICES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According
to the Israeli Companies Law and our Articles of Association, the management of our
business is vested in our board of directors. The board of directors may exercise all
powers and may take all actions that are not specifically granted to our shareholders.
Our executive officers are responsible for our day-to-day management. The executive
officers have individual responsibilities established by our board of directors.
Executive officers are appointed by and serve at the discretion of the board of
directors, subject to any applicable agreements.  </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
articles of association provide for a board of directors consisting of no less than three
and no more than 11 members or such other number as may be determined from time to time
at a general meeting of shareholders. Our board of directors is currently composed of
eight directors.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to our articles of association, all of our directors are elected at our annual general
meeting of shareholders, which are required to be held at least once during every
calendar year and not more than 15 months after the last preceding meeting. Except for
our outside directors (as described below), our directors are elected by a vote of the
holders of a majority of the voting power represented and voting at such meeting and hold
office until the next annual meeting of shareholders following the annual meeting at
which they were appointed. Directors (other than outside directors) may be removed
earlier from office by resolution passed at a general meeting of our shareholders. Our
board of directors may temporarily fill vacancies in the board until the next annual
meeting of shareholders, provided that the total number of directors will not exceed the
maximum number permitted under our articles of association.  </FONT></P>

<p align=center>
<font size=2>45</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Israeli Companies Law, our board of directors is required to determine the minimum
number of directors who must have &#147;accounting and financial expertise&#148; (as such
term is defined in regulations promulgated under the Israeli Companies Law). In
determining such number, the board of directors must consider, among other things, the
type and size of the company and the scope of and complexity of its operations. Our board
of directors has determined that at least one director must have &#147;accounting and
financial expertise,&#148; within the meaning of the regulations promulgated under the
Israeli Companies Law.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are exempt from the requirements of the NASDAQ Marketplace Rules with regard to the
nomination process of directors, since we are a controlled company within the meaning of
NASDAQ Marketplace Rule 4350(c)(5). See below in this Item 6C. &#147;Directors, Senior
Management and Employees &#150; Board Practices &#150; NASDAQ Exemptions for a Controlled
Company.&#148; </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Outside and Independent
Directors </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Outside
Directors</I>. The Israeli Companies Law requires companies incorporated under the laws
of the State of Israel with shares that have been offered to the public in or outside of
Israel to appoint at least two outside directors. No person may be appointed as an
outside director if the person or the person&#146;s relative, partner, employer or any
entity under the person&#146;s control has or had, on or within the two years preceding
the date of the person&#146;s appointment to serve as outside director, any affiliation
with the company or any entity controlling, controlled by or under common control with
the company. The term &#147;affiliation&#148; includes an employment relationship, a
business or professional relationship maintained on a regular basis, control and service
as an &#147;office holder&#148; as defined in the Israeli Companies Law, however, &#147;affiliation&#148; does
not include service as a director of a private company prior to its first public offering
if the director was appointed to such office for the purpose of serving as an outside
director following the company&#146;s first public offering.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, no person may serve as an outside director if the person&#146;s position or
other activities create or may create a conflict of interest with the person&#146;s
responsibilities as an outside director or may otherwise interfere with the person&#146;s
ability to serve as an outside director. If, at the time outside directors are to be
appointed, all current members of the board of directors are of the same gender, then at
least one outside director must be of the other gender.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
least one of the outside directors must have &#147;accounting and financial expertise&#148; and
the other outside directors must have &#147;professional expertise,&#148; as such terms
are defined by regulations promulgated under the Israeli Companies Law.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
outside directors are elected by a majority vote at a shareholders meeting. The
shareholders voting in favor of their election must include at least one-third of the
shares of the non-controlling shareholders of the company who voted on the matter (not
including abstentions). This minority approval requirement need not be met if the total
shareholdings of those non-controlling shareholders who vote against their election
represent 1% or less of all of the voting rights in the company.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
general, outside directors serve for a three-year term and may be reelected to one
additional three-year term. However, Israeli companies listed on certain stock exchanges
outside Israel, including The NASDAQ Global Market, may appoint an outside director for
additional terms of not more than three years subject to certain conditions. Such
conditions include the determination by the audit committee and board of directors, that
in view of the director&#146;s professional expertise and special contribution to the
company&#146;s board of directors and its committees, the appointment of the outside
director for an additional term is in the best interest of the company.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Outside
directors may be removed from office only by the same percentage of shareholders as is
required for their election, or by a court, and then only if the outside directors cease
to meet the statutory qualifications for their appointment, violate their duty of loyalty
to the company or are found by a court to be unable to perform his or hers duties on a
full time basis. Outside directors may also be removed by the court if they are found
guilty of bribery, fraud, administrative offenses or use of inside information.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
committee of the board of directors must include at least one outside director and the
audit committee must be comprised of at least three directors and include all the outside
directors. An outside director is entitled to compensation as provided in regulations
adopted under the Israeli Companies Law and is otherwise prohibited from receiving any
other compensation, directly or indirectly, in connection with such service.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until
the lapse of two year from termination of office, we may not engage an outside director
to service as an office holder and cannot employ or receive services from that person,
either directly or indirectly, including through a corporation controlled by that person.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Independent
Directors</I>. NASDAQ Marketplace Rules require us to establish an audit committee
comprised of at least three members and only of independent directors each of whom
satisfies the respective &#147;independence&#148; requirements of the Securities and
Exchange Commission and NASDAQ.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a controlled company, within the meaning of NASDAQ Marketplace Rule 4350(c)(5), we are
exempted from the NASDAQ Marketplace Rule which requires that a majority of our board of
directors must qualify as independent directors, within the meaning of the NASDAQ
Marketplace Rules. See Item 6.C. &#147;Directors, Senior Management and Employees &#150;Board
Practices &#150; NASDAQ Exemptions for a Controlled Company.&#148; </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to a recent amendment to the Israeli Companies Law, an Israeli company whose shares are
publicly traded may elect to adopt a provision in its articles of association pursuant to
which a majority of its board of directors will constitute individuals complying with
certain independence criteria prescribed by the Israeli Companies Law. We have not
included such a provision in our articles of association.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Board of Directors has determined that Messrs. Itiel Efrat and Mr. Elan Penn both qualify
as independent directors under the Securities and Exchange Commission and NASDAQ
requirements and as outside directors under the Israeli Companies Law requirements. Our
Board of Directors has further determined that Mr. Yehezkel Zeira qualifies as an
independent director under the Securities and Exchange Commission and NASDAQ
requirements.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Committees of the Board
of Directors </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Audit
Committee</I>. Our audit committee, established in accordance with Section 114 of the
Israeli Companies Law and Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
assists our board of directors in overseeing the accounting and financial reporting
processes of our company and audits of our financial statements, including the integrity
of our financial statements, compliance with legal and regulatory requirements, our
independent public accountants&#146; qualifications and independence, the performance of
our internal audit function and independent public accountants, finding any defects in
the business management of our company for which purpose the audit committee may consult
with our independent auditors and internal auditor, proposing to the board of directors
ways to correct such defects and such other duties as may be directed by our board of
directors.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
responsibilities of the audit committee also include approving related-party transactions
as required by law. Under Israeli law, an audit committee may not approve an action or a
transaction with a controlling shareholder, or with an office holder, unless at the time
of approval two outside directors are serving as members of the audit committee and at
least one of the outside directors was present at the meeting in which an approval was
granted.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
audit committee is currently composed of Messrs. Efrat, Penn and Zeira, each of whom
satisfies the respective &#147;independence&#148; requirements of the Securities and
Exchange Commission and NASDAQ. We also comply with Israeli law requirements for audit
committee members. Mr. Elan Penn has been elected as the chairperson of the audit
committee. Our Board of Directors has determined that Mr. Penn qualifies as a financial
expert. The audit committee meets at least once each quarter.  </FONT></P>

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<font size=2>47</font></p>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Option
Committee. </I> Our board of directors has established an option committee, which
administers our option plans (see Item 6E. Directors, Senior Management and Employees
&#150; Share Ownership &#150; Stock-Based Compensation Plans&#148;). Mr. Penn, an outside
director, and Ms. Gazit Kaiser, our chief financial officer, are the current members of
our option committee.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Investment
Committee</I>. Our board of directors has established an investment committee, which
administers our investments. Mr. Penn, an outside director, Ms. Gazit Kaiser, our chief
financial officer, and Ms. Dafna Cohen, the treasurer of Emblaze, are the
current members of our investment committee. Our investment committee meets approximately
once each quarter  </FONT></P>


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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Israeli Companies Law also requires the board of directors of a public company to appoint
an internal auditor proposed by the audit committee. A person who does not satisfy the
Israeli Companies Law&#146;s independence requirements may not be appointed as an
internal auditor. The role of the internal auditor is to examine, among other things, the
compliance of the company&#146;s conduct with applicable law and orderly business
practice. Our internal auditor complies with the requirements of the Israeli Companies
Law.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Directors&#146; Service
Contracts </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
are no arrangements or understandings between us and any of our subsidiaries, on the one
hand, and any of our directors, on the other hand, providing for benefits upon
termination of their employment or service as directors of our company or any of our
subsidiaries.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Approval of Related
Party Transactions Under Israeli Law </FONT></H1>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Fiduciary Duties of
Office Holders</I> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Israeli Companies Law codifies the fiduciary duties that &#147;office holders,&#148;including
directors and executive officers, owe to a company. An &#147;office holder&#148;is
defined in the Israeli Companies Law as a director, general manager, chief business
manager, deputy general manager, vice general manager, any other person assuming the
responsibilities of any of the foregoing positions without regard to such person&#146;s
title or any other manager directly subordinate to the general manager. An office holder&#146;s
fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care
requires an office holder to act at a level of care that a reasonable office holder in
the same position would employ under the same circumstances. This includes the duty to
utilize reasonable means to obtain (i) information regarding the appropriateness of a
given action brought for his approval or performed by him by virtue of his position and
(ii) all other information of importance pertaining to the foregoing actions. The duty of
loyalty includes (i) avoiding any conflict of interest between the office holder&#146;s
position in the company and any other position he holds or his personal affairs, (ii)
avoiding any competition with the company&#146;s business, (iii) avoiding exploiting any
business opportunity of the company in order to receive personal gain for the office
holder or others, and (iv) disclosing to the company any information or documents
relating to the company&#146;s affairs that the office holder has received due to his
position as an office holder.  </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Disclosure of Personal
Interests of an Office Holder</I> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Israeli Companies Law requires that an office holder promptly, and no later than the
first board meeting at which such transaction is considered, disclose any personal
interest that he or she may have and all related material information known to him or her
and any documents in their position, in connection with any existing or proposed
transaction by us. In addition, if the transaction is an extraordinary transaction, that
is, a transaction other than in the ordinary course of business, other than on market
terms, or likely to have a material impact on the company&#146;s profitability, assets or
liabilities, the office holder must also disclose any personal interest held by the
office holder&#146;s spouse, siblings, parents, grandparents, descendants, spouse&#146;s
descendants and the spouses of any of the foregoing, or by any corporation in which the
office holder or a relative is a 5% or greater shareholder, director or general manager
or in which he or she has the right to appoint at least one director or the general
manager.  </FONT></P>

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<font size=2>48</font></p>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Approval of Transactions
with Office Holders</I> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Israeli Companies Law, all arrangements as to compensation of office holders who are
not directors require approval by the board of directors, and exculpation, insurance and
indemnification of, or an undertaking to, indemnify an office holder who is not a
director requires both board of directors and audit committee approval. The compensation
of office holders who are directors must be approved by our audit committee, board of
directors and shareholders.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some
transactions, actions and arrangements involving an office holder (or a third party in
which an office holder has an interest) must be approved by the board of directors or as
otherwise provided for in a company&#146;s articles of association, however, a
transaction that is adverse to the company&#146;s interest may not be approved. In some
cases, such a transaction must be approved by the audit committee and by the board of
directors itself, and under certain circumstances shareholder approval may be required. A
director who has a personal interest in a transaction that is considered at a meeting of
the board of directors or the audit committee may not be present during the board of
directors or audit committee discussions and may not vote on the transaction, unless the
transaction is not an extraordinary transaction or the majority of the members of the
board or the audit committee have a personal interest, as the case may be. In the event
the majority of the members of the board of directors or the audit committee have a
personal interest, then the approval of the general meeting of shareholders is also
required.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Disclosure of Personal Interests of
a Controlling Shareholder; Approval of Transactions with Controlling Shareholders</I> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
disclosure requirements which apply to an office holder also apply to such transaction
with respect to his or her personal interest in the transaction. The Israeli Companies
Law provides that an extraordinary transaction with a controlling shareholder or an
extraordinary transaction with another person in whom the controlling shareholder has a
personal interest or a transaction with a controlling shareholder or his relative
regarding terms of service and employment, must be approved by the audit committee, the
board of directors and shareholders. The shareholder approval for such a transaction must
include at least one-third of the shareholders who have no personal interest in the
transaction who voted on the matter (not including abstentions). The transaction can be
approved by shareholders without this one-third approval if the total shareholdings of
those shareholders who have no personal interest and voted against the transaction do not
represent more than one percent of the voting rights in the company.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Companies Regulations (Relief from Related Party Transactions), 5760-2000,
promulgated under the Israeli Companies Law, as amended, certain extraordinary
transactions between a public company and its controlling shareholder(s) do not require
shareholder approval. In addition, under such regulations, directors&#146; compensation
and employment arrangements in a public company do not require the approval of the
shareholders if both the audit committee and the board of directors agree that such
arrangements are solely for the benefit of the company. Also, employment and compensation
arrangements for an office holder that is a controlling shareholder of a public company
do not require shareholder approval if certain criteria are met. The foregoing exemptions
from shareholder approval will not apply if one or more shareholders holding at least 1%
of the issued and outstanding share capital of the company or of the company&#146;s
voting rights, objects to the use of these exemptions provided that such objection is
submitted to the company in writing not later than fourteen days from the date of the
filing of a report regarding the adoption of such resolution by the company pursuant to
the requirements of the Israeli Securities Law. If such objection is duly and timely
submitted, then the transaction or compensation arrangement of the directors will require
shareholders&#146; approval as detailed above.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, a private placement of securities that will (i) cause a person to become a
controlling shareholder or (ii) increase the relative holdings of a shareholder that
holds 5% or more of the company&#146;s outstanding share capital, or (iii) will cause any
person to become, as a result of the issuance, a holder of more than 5% of the company&#146;s
outstanding share capital in a private placement in which 20% or more of the company&#146;s
outstanding share capital prior to the placement are offered, the payment for which (in
whole or in part) is not in cash or not under market terms, requires approval by the
board of directors and the shareholders of the company.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Israeli Companies Law provides that an acquisition of shares in a public company must be
made by means of a tender offer if as a result of the acquisition the purchaser would
become a 25% or greater shareholder of the company. This rule does not apply if there is
already another 25% or greater shareholder of the company. Similarly, the Israeli
Companies Law provides that an acquisition of shares in a public company must be made by
means of a tender offer if as a result of the acquisition the purchaser would hold
greater than a 45% interest in the company, unless there is another shareholder holding
more than a 45% interest in the company. These requirements do not apply if, in general,
the acquisition was made in a private placement that received shareholder approval, (i)
was from a 25% or greater shareholder of the company which resulted in the acquirer
becoming a 25% or greater shareholder of the company, if there is not already a 25% or
greater shareholder of the company, or (ii) was from a shareholder holding a 45% interest
in the company which resulted in the acquirer becoming a holder of a 45% interest in the
company if there is not already a 45% or greater shareholder of the company.  </FONT></P>

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<font size=2>49</font></p>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If,
as a result of an acquisition of shares, the acquirer will hold more than 90% of a public
company&#146;s outstanding shares or a class of shares, the acquisition must be made by
means of a tender offer for all of the outstanding shares or a class of shares. If less
than 5% of the outstanding shares are not tendered in the tender offer, all the shares
that the acquirer offered to purchase will be transferred to the acquirer. The Israeli
Companies Law provides for appraisal rights if any shareholder files a request in court
within three months following the consummation of a full tender offer. If more than 5% of
the outstanding shares are not tendered in the tender offer, then the acquirer may not
acquire shares in the tender offer that will cause his shareholding to exceed 90% of the
outstanding shares.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Provisions Restricting
Change in Control of Our Company </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Tender
Offer</I>. A person wishing to acquire shares or any class of shares of a publicly traded
Israeli company and who would as a result hold over 90% of the company&#146;s issued and
outstanding share capital or of a class of shares which are listed, is required by the
Israeli Companies Law to make a tender offer to all of the company&#146;s shareholders
for the purchase of all of the issued and outstanding shares of the company. If the
shareholders who do not respond to the offer hold less than 5% of the issued share
capital of the company, all of the shares that the acquirer offered to purchase will be
transferred to the acquirer by operation of law. The Israeli Companies Law provides for
an exception regarding the threshold requirement for a shareholder that prior to and
following February 2000 holds over 90% of a company&#146;s issued and outstanding share
capital. However, the shareholders may petition the court to alter the consideration for
the acquisition. If the dissenting shareholders hold more than 5% of the issued and
outstanding share capital of the company, the acquirer may not acquire additional shares
of the company from shareholders who accepted the tender offer if following such
acquisition the acquirer would then own over 90% of the company&#146;s issued and
outstanding share capital.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Israeli Companies Law provides that an acquisition of shares of a public company must be
made by means of a tender offer if as a result of the acquisition the purchaser would
become a 25% or greater shareholder of the company. This rule does not apply if there is
already another 25% shareholder of the company. Similarly, the Israeli Companies Law
provides that an acquisition of shares in a public company must be made by means of a
tender offer if as a result of the acquisition the purchaser would become a 45% or
greater shareholder of the company, if there is no 45% or greater shareholder of the
company.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
requirements regarding tender offers do not apply to companies that are traded outside of
Israel if, local law or the rules of the foreign stock exchange impose a limit on the
percentage of control which may be acquired or require that acquisitions will be made by
a way of a tender offer to the public.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Merger</I>. The
Israeli Companies Law permits merger transactions if approved by each           party&#146;s
board of directors and the majority of each party&#146;s shares           voted on the
proposed merger at a shareholders&#146; meeting called on at least           21 days&#146; prior
notice. Under the Israeli Companies Law, merger transactions           may be approved by
holders of a simple majority of our shares present, in person           or by proxy, at a
general meeting and voting on the transaction. In determining           whether the
required majority has approved the merger, if shares of a company           are held by
the other party to the merger, or by any person holding at least 25%           of the
outstanding voting shares or 25% of the means of appointing directors of           the
other party to the merger, then a vote against the merger by holders of the
          majority of the shares present and voting, excluding shares held by the other
          party or by such person, or anyone acting on behalf of either of them, is
          sufficient to reject the merger transaction. If the transaction would have been
          approved but for the exclusion of the votes of certain shareholders as provided
          above, a court may still approve the merger upon the request of holders of at
          least 25% of the voting rights of a company, if the court holds that the merger
          is fair and reasonable, taking into account the value of the parties to the
          merger and the consideration offered to the shareholders. Upon the request of a
          creditor of either party to the proposed merger, the court may delay or prevent
          the merger if it concludes that there exists a reasonable concern that, as a
          result of the merger, the surviving company will be unable to satisfy the
          obligations of any of the parties to the merger. In addition, a merger may not
          be executed unless at least 30 days have passed from the receipt of the
          shareholders&#146; approval and 50 days have passed from the time that a
          proposal for approval of the merger has been filed with the Israeli Registrar
of           Companies.  </FONT></P>

<p align=center>
<font size=2>50</font></p>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Exculpation,
Indemnification and Insurance of Directors and Officers </FONT></H1>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Exculpation of Office
Holders</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Israeli Companies Law provides that an Israeli company cannot exculpate an office holder
from liability with respect to a breach of his duty of loyalty, but may, if permitted by
its articles of association, exculpate in advance an office holder from his liability to
the company, in whole or in part, with respect to a breach of his or her duty of care.
However, a company may not exculpate in advance a director from his or her liability to
the company with respect to a breach of his duty of care in the event of distributions.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Insurance for Office
Holders</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Israeli Companies Law provides that a company may, if permitted by its articles of
association, insure an office holder for acts or omissions performed by the office holder
in such capacity for:  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A
breach of his or her duty of care to the               company or to another person;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A
breach of his or her duty of loyalty to the company, provided that the office holder
acted in good faith and had reasonable cause to assume that his act would not prejudice
the company&#146;s interests; and </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A
financial liability imposed upon the office holder in favor of another person as a result
of an action which was performed by that office holder. </FONT></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Indemnification of Office
Holders</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Israeli Companies Law provides that a company may, if permitted by its articles of
association, indemnify an office holder for acts or omissions performed by the office
holder in such capacity for:  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A
financial liability imposed on the office holder in favor of another person by any
judgment, including a settlement or an arbitrator&#146;s award approved by a court; </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Reasonable
litigation expenses, including attorney&#146;s fees, actually incurred by the office
holder as a result of an investigation or proceeding instituted against him or her by a
competent authority, provided that such investigation or proceeding concluded without the
filing of an indictment against the office holder or the imposition of any financial
liability in lieu of criminal proceedings, or concluded without the filing of an
indictment against the office holder and a financial liability was imposed on the officer
holder in lieu of criminal proceedings with respect to a criminal offense that does not
require proof of criminal intent; and </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Reasonable
litigation expenses, including attorneys&#146; fees, incurred by such office holder or
which were imposed on him by a court, in proceedings the company instituted against the
office holder or that were instituted on the company&#146;s behalf or by another person,
or in a criminal charge from which the office holder was acquitted, or in a criminal
proceeding in which the office holder was convicted of a crime which does not require
proof of criminal intent. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>51</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
accordance with the Israeli Companies Law, a company&#146;s articles of association may
permit the company to:  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Undertake
in advance to indemnify an office holder, except that with respect to a financial
liability imposed on the office holder by any judgment, settlement or court-approved
arbitration award, the undertaking must be limited to types of occurrences, which, in the
opinion of the company&#146;s board of directors, are, at the time of the undertaking,
foreseeable due to the company&#146;s activities and to an amount or standard that the
board of directors has determined is reasonable under the circumstances; and </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Retroactively
indemnify an office holder               of the company.</FONT></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Limitations on
Exculpation, Insurance and Indemnification</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Israeli Companies Law provides that neither a provision of the articles of association
permitting the company to enter into a contract to insure the liability of an office
holder, nor a provision in the articles of association or a resolution of the board of
directors permitting the indemnification of an office holder, nor a provision in the
articles of association exempting an office holder from duty to the company shall be
valid, where such insurance, indemnification or exemption relates to any of the
following:  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a
breach by the office holder of his duty of loyalty, except with respect to insurance
coverage or indemnification if the office holder acted in good faith and had reasonable
grounds to assume that the act would not prejudice the company; </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a
breach by the office holder of his duty of care if such breach was committed
intentionally or recklessly, unless the breach was committed only negligently; </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>any
act or omission committed with intent               to derive an unlawful personal gain;
and</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>any
fine or forfeiture imposed on the               office holder.</FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, pursuant to the Israeli Companies Law, exemption of, procurement of insurance
coverage for, an undertaking to indemnify or indemnification of an office holder must be
approved by the audit committee and the board of directors and, if such office holder is
a director or a controlling shareholder or a relative of the controlling shareholder,
also by the shareholders general meeting. A special majority at the general meeting is
required if a controlling shareholder is interested in such transaction as an office
holder or as a relative of an office holder, as described above.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
articles of association allow us to insure, indemnify and exempt our office holders to
the fullest extent permitted by law, subject to the provisions of the Israeli Companies
Law. We currently maintain a directors&#146; and officers&#146; liability insurance
policy with a per claim and aggregate coverage limit of $20 million, including legal
costs incurred world-wide.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NASDAQ Exemptions for a
Controlled Company </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are a controlled company within the meaning of NASDAQ Marketplace Rule 4350(c)(5), or
Rule 4350(c)(5), since Formula Systems (1985) Ltd. holds more than 50% of our voting
power.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
Rule 4350(c)(5), a controlled company is exempt from the requirements of NASDAQ
Marketplace Rule 4350(c) that would otherwise require that  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
majority of the company&#146;s board of directors must qualify as independent directors,
as defined under NASDAQ Marketplace Rules. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
compensation of the chief financial officer and all other executive officers be
determined, or recommended to the board of directors for determination, either by (i) a
majority of the independent directors or (ii) a compensation committee comprised solely
of independent directors. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>director
nominees either be selected or recommended for the board of directors&#146;selection,
either by (a) a majority of independent directors or (b) a nominations committee
comprised solely of independent directors. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>52</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>D.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>EMPLOYEES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December 31, 2008, we and our 16 wholly-owned subsidiaries and one controlled subsidiary
had 422 employees worldwide, of which 102 employees were located in Israel, 112 employees
were located in Asia, 80 employees were located in Europe and 128 employees were located
in North America. Of such employees, 96 persons were employed in research and
development, 177 persons were employed in technical support and consulting, 89 persons
were employed in marketing and sales and 60 persons were employed in operations and
administration.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December 31, 2007, we and our 16 wholly-owned subsidiaries and one controlled subsidiary
had 414 employees worldwide, of which 122 employees were located in Israel, 124 employees
were located in Asia, 73 employees were located in Europe and 95 employees were located
in North America. Of such employees, 118 persons were employed in research and
development, 150 persons were employed in technical support and consulting, 74 persons
were employed in marketing and sales and 72 employees were employed in operations and
administration.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December 31, 2006, we and our 17 wholly-owned subsidiaries and one controlled
subsidiary had 503 employees worldwide, of which 159 employees were located in Israel,
123 employees were located in Asia, 73 employees were located in Europe and 148 located
were based in North America. Of such employees, 145 persons were employed in research and
development, 179 persons were employed in technical support and consulting, 90 persons
were employed in marketing and sales and 89 persons were employed in operations and
administration.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
relationships with our employees in Israel are governed by Israeli labor legislation and
regulations, extension orders of the Israeli Ministry of Labor and personal employment
agreements. Israeli labor laws and regulations are applicable to all of our employees in
Israel. The laws concern various matters, including severance pay rights at termination,
notice period for termination, retirement or death, length of workday and workweek,
minimum wage, overtime payments and insurance for )work-related accidents. We currently
fund our ongoing legal severance pay obligations by paying monthly premiums for our
employees&#146; insurance policies and or pension funds. At the time of
commencement of employment, our employees generally sign written employment agreements
specifying basic terms and conditions of employment as well as non-disclosure,
confidentiality and non-compete provisions.  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>E.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>SHARE
OWNERSHIP</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Beneficial Ownership of
Executive Officers and Directors </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth certain information as of April 2, 2009 regarding the
beneficial ownership by each of our directors and executive officers:  </FONT></P>






<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3 align=left><FONT FACE="Times New Roman" SIZE=1>Name</FONT><HR WIDTH=30% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Number of Ordinary <BR>Shares <BR>Beneficially Owned (1)</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Percentage of<BR>
Ownership (2)</FONT><HR WIDTH=95% SIZE=1 COLOR=black NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="69%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Guy Bernstein</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Hadas Gazit Kaiser (3)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>12,500</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Gad Goldstein</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Itiel Efrat</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Elan Penn (4)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>18,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>*</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Eli Reifman</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Naamit Salomon (5)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Yehezkel Zeira (4)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>18,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>*</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>All directors and executive officers as a group (8 persons) (3)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>48,500</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>*</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>



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

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=100%><HR SIZE=1 NOSHADE WIDTH=15% ALIGN=LEFT> </TD>
</TR>
</TABLE>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=100%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
*
Less than 1%  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Beneficial
ownership is determined in accordance with the rules of the
                    Securities and Exchange Commission and generally includes voting or
investment                     power with respect to securities. Ordinary shares relating
to options currently                     exercisable or exercisable within 60 days of the
date of this table are deemed                     outstanding for computing the
percentage of the person holding such securities                     but are not deemed
outstanding for computing the percentage of any other person.                     Except
as indicated by footnote, and subject to community property laws where
                    applicable, the persons named in the table above have sole voting and
investment                     power with respect to all shares shown as beneficially
owned by them. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
percentages shown are based on 31,893,880 ordinary shares issued and
                    outstanding as of April 2, 2009. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Subject
to currently exercisable options granted under our 2007 Stock Option
                    Plan, having an exercise price of $1.11 per share and expire in 2019. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Subject
to currently exercisable options granted under our 2000 Stock Option
                    Plan, having an exercise price of $1.5 per share and expire in 2015. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Naamit
Salomon, an officer of Formula Systems and a director of our company,
                    disclaims beneficial ownership of 18,560,352 ordinary shares of our
company held                     by Formula Systems. </FONT></TD>
</TR>
</TABLE>
<BR>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Stock-Based Compensation
Plans </FONT></H1>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>1991 Stock Option Plan</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
1991 Employee Stock Option Plan, or the 1991 Plan, as amended, authorized the grant of
options to purchase an aggregate of 6,750,000 ordinary shares. Employees and directors of
our company and its subsidiaries were eligible to participate in the 1991 Plan. The 1991
Plan had a ten-year term and no options were granted under the 1991 Plan after July 31,
2001.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2008, options to purchase 36,050 ordinary shares were exercised under the 1991 Plan, at
an average exercise price of $1.039 per share. As of December 31, 2008, options to
purchase 111,636 ordinary shares were outstanding under the 1991 Plan, having
an average exercise price of $3.29 per share. As of December 31, 2008, our executive
officers and directors as a group, then consisting of 11 persons, did not hold any
options under the 1991 Plan.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>2000 Stock Option Plan</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2000, we adopted our 2000 Employee Stock Option Plan, or the 2000 Plan, under which we
may grant options to employees, officers, directors and consultants of our company and
its subsidiaries. The 2000 Plan initially authorized the grant of options to purchase up
to 3,000,000 ordinary shares. In January 2004, our shareholders approved an increase in
the number of shares available for grant under the 2000 Plan by 1,000,000 ordinary shares
and in December 2005 our shareholders approved an additional increase in the number of
shares available for grant under the 2000 Plan by 600,000 ordinary shares. As such, up to
an aggregate of 4,600,000 ordinary shares may be issued under the 2000 Plan.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Awards
under the 2000 Plan may be granted in the forms of incentive stock options as provided in
Section 422 of the U.S. Internal Revenue Code of 1986, as amended, non-qualified stock
options, options granted pursuant to Section 102 of the Israeli Tax Ordinance and options
granted pursuant to Section 3.9 of the Israeli Tax Ordinance. The 2000 Plan has a term of
ten years and will terminate in November 2010. No award of options may be made after such
date.  </FONT></P>



<p align=center>
<font size=2>54</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Board of Directors and Option Committee, which was appointed by the board of directors,
administer the 2000 Plan. Subject to the provisions of the 2000 Plan and applicable law,
the Option Committee has the authority, in its sole discretion, to:  </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Propose
to grant awards under the 2000 Plan and recommend to the board of directors the persons
to whom such awards be granted; </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Determine
the form, terms and conditions of the written stock option agreement evidencing the
option, including (but not limited to) the type of option and the number of shares to
which it pertains, the option price, the option period and its vesting schedule, and
exercisability of the option in special cases (such as death, retirement, disability and
change of control); </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Prescribe
the form and provisions of the               notice of exercise and payment of the option;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Nominate
a trustee for options issued               under Section 102 of the Israeli Tax
Ordinance, in accordance with the provisions of such               Section 102;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Adjust
any or all of the number and type of shares that thereafter may be made the subject of
options, the number and type of shares subject to outstanding options, and the grant or
exercise price with respect to any option, or, if deemed appropriate, make provision for
a cash payment to the holder of any outstanding option in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available under the
2000 Plan in the event of any dividend or other distribution, recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of shares or other securities; </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Interpret
the provisions of the 2000 Plan;               and</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT size="2" face="Wingdings 2">&#151;</font></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Prescribe,
amend, and rescind rules and regulations relating to the 2000 Plan or any award
thereunder as it may deem necessary or advisable. </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither
the board of directors nor the Option Committee may, without the consent of the optionee,
alter or in any way impair the rights of such optionee under any award previously
granted. Neither the termination of the 2000 Plan nor the change of control of our
company (except to the extent provided in the 2000 Plan) will affect any option
previously granted.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the 2000 Plan, the option price per share may not be less than 65% of the fair market
value (as such term is defined in the 2000 Plan) of such share on the date of the award;
except that, that in the case of an award of an incentive stock option made to a 10%
owner (as such term is defined in the 2000 Plan), the option price per share may not be
less than 110% of the fair market value of such share on the date of the award.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
option may not be exercisable after the expiration of ten years from the date of its
award, except that in case of an incentive stock option made to a 10% owner (as such term
is defined in the 2000 Plan), such option may not be exercisable after the expiration of
five years from its date of award. No option may be exercised after the expiration of its
term.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options
are not assignable or transferable by the optionee, other than by will or the laws of
descent and distribution, and may be exercised during the lifetime of the optionee only
by the optionee or his guardian or legal representative; provided, however, that during
the optionee&#146;s lifetime, the optionee may, with the consent of the Option Committee
transfer without consideration all or any portion of his options to members of the
optionee&#146;s immediate family, a trust established for the exclusive benefit of
members of the optionee&#146;s immediate family, or a limited liability company in which
all members are members of the optionee&#146;s immediate family.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2008, options to purchase 155,780 ordinary shares were exercised under the 2000 Plan at
an average exercise price of $1.23 per share. As of December 31, 2008, options to
purchase 1,681,742 ordinary shares were outstanding under the 2000 Plan having an average
exercise price of $2.45 per share. As of December 31, 2008, our executive officers and
directors as a group, then consisting of 11 persons, held options to purchase 193,155
ordinary shares under the 2000 Plan, having an average exercise price of $3.5 per share.  </FONT></P>

<p align=center>
<font size=2>55</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December 29, 2005, our Board of Directors resolved to accelerate the vesting period of
all of the outstanding unvested options as of such date, for the purchase of an aggregate
611,517 ordinary shares, with vesting periods from January 1, 2006 through March 2009, so
that these options became fully vested. These options had an average exercise price of
$3.46 per share. All of the accelerated options had an exercise price exceeding our
market price on such date. The ordinary shares that may be purchased upon exercise of the
accelerated options shall be subject to a holding period, according to which the
optionees will be entitled to sell the purchased shares over a three year period, 1/36 of
the purchased shares per month. Our foregoing decision to accelerate the vesting of such
options and to grant fully vested options in the future was primarily due to the issuance
of SFAS No. 123 (revised 2004), &#147;<I>Share-Based Payment</I>,&#148; which requires
all unvested stock options to be treated as a compensation expense as of January 1, 2006.  </FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>2007 Incentive
Compensation Plan.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2007, we adopted our 2007 Incentive Compensation Plan, or the 2007 Plan, under which we
may grant options, restricted shares, restricted share units and performance awards to
employees, officers, directors and consultants of our company and its subsidiaries. The
shares subject to the 2007 Plan may be either authorized and unissued shares or
previously issued shares acquired by our company or any of its subsidiaries. The total
number of shares that may be delivered pursuant to awards under the 2007 Plan shall not
exceed 1,500,000 shares in the aggregate. If any award shall expire, terminate, be
cancelled or forfeited without having been fully exercised or satisfied by the issuance
of shares, then the shares subject to such award shall be available again for delivery in
connection with future awards under the 2007 Plan.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
2007 Plan commenced on August 8, 2007 and will terminate upon the earliest of (i) the
expiration of its ten year period, or (ii) the termination of all outstanding awards in
connection with a corporate transaction, or (iii) in connection with, and as a result of,
any other relevant event, including the 2007 Plan&#146;s termination by the Board of
Directors.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the 2007 Plan, the option committee shall have full discretionary authority to grant or,
when so restricted by applicable law, recommend the Board of Directors to grant, pursuant
to the terms of the 2007 Plan, options and restricted shares and restricted share units
to those individuals who are eligible to receive awards under the 2007 Plan.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
2007 Plan provides that each option will expire on the date stated in the award
agreement, which will not be more than ten years from its date of grant. The exercise
price of an option shall be determined by the option committee of the Board of Directors
and set forth in the award agreement. Unless determined otherwise by the Board of
Directors, the exercise price shall be equal to, or higher than, the fair market value of
our company&#146;s shares on the date of grant.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the 2007 Plan, restricted shares and restricted share units shall not be purchased for
less than the ordinary share&#146;s par value, unless determined otherwise by the Board
of Directors.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Board of Directors may, from time to time, alter, amend, suspend or terminate the 2007
Plan, with respect to awards that have not been granted, subject to shareholder approval,
if and to the extent required by applicable law. In addition, no such amendment,
alteration, suspension or termination of the 2007 Plan or any award theretofore granted,
shall be made which would materially impair the previously accrued rights of a
participant under any outstanding award without the written consent of such participant,
provided, however, that the Board of Directors may amend or alter the 2007 Plan and the
option committee may amend or alter any award, including any agreement, either
retroactively or prospectively, without the consent of the applicable participant, (1) so
as to preserve or come within any exemptions from liability under any law or the rules
and releases promulgated by the SEC, or (2) if the Board of Directors or the option
committee determines in its discretion that such amendment or alteration either (I) is
required or advisable for us, the 2007 Plan or the award to satisfy, comply with or meet
the requirements of any law, regulation, rule or accounting standard or (II) is not
reasonably likely to significantly diminish the benefits provided under such award, or
that such diminishment has been or will be adequately compensated.  </FONT></P>


<p align=center>
<font size=2>56</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2008, options to purchase 145,000 ordinary shares were granted under the 2007 Plan, having
an average exercise price of $1.12 per share and options to purchase 160,000 ordinary
shares were exercised at an average exercise price of $0 per share under the 2007 Plan. As
of December 31, 2008, options to purchase 645,000 ordinary shares were outstanding under
the 2007 Plan having an average exercise price of $1.78 per share. As of December 31,
2008, our executive officers and directors as a group, then consisting of 11 persons, held
options to purchase 175,000 ordinary shares under the 2007 Plan, having an average
exercise price of $1.97 per share. </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 7.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>



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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>A.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>MAJOR
SHAREHOLDERS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Formula
Systems, an Israeli company traded on the NASDAQ Global Market and the TASE, holds
18,560,352 or 58.2% of our outstanding ordinary shares. Formula Systems is controlled by
Emblaze, an Israeli company traded on the London Stock Exchange, which holds 51.7% of the
ordinary shares of Formula Systems. Accordingly, Emblaze ultimately controls our company. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth certain information as of April 2, 2009 regarding the
beneficial ownership by all shareholders known to us to own beneficially 5.0% or more of
our ordinary shares: </FONT></P>







<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN="3" ALIGN="Left"><FONT FACE="Times New Roman" SIZE=1>Name</FONT><HR WIDTH="95%" SIZE="1" COLOR="Black" ALIGN="Left"></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Number of Ordinary Shares<BR>
Beneficially Owned(1)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Percentage of<BR>
Ownership (2)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=69% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Emblaze Ltd. (3)</FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>18,560,352</FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>58.2</FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Formula Systems (1985) Ltd. (4)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>18,560,352</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>58.2</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
</TABLE>
<BR>


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<HR SIZE=1 NOSHADE WIDTH=15% ALIGN=LEFT>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Beneficial
ownership is determined in accordance with the rules of the                Securities and
Exchange Commission and generally includes voting or investment                power with
respect to securities. Ordinary shares relating to options currently
               exercisable or exercisable within 60 days of the date of this table are
deemed                outstanding for computing the percentage of the person holding such
securities                but are not deemed outstanding for computing the percentage of
any other person.                Except as indicated by footnote, and subject to
community property laws where                applicable, the persons named in the table
above have sole voting and investment                power with respect to all shares
shown as beneficially owned by them. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
percentages shown are based on 31,893,880 ordinary shares issued and
               outstanding as of April 2, 2009. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Includes
18,560,352 ordinary shares held directly by Formula Systems, which is
               51.7% controlled by Emblaze. As such, Emblaze may be deemed to be the
beneficial                owner of the aggregate 18,560,352 ordinary shares held directly
by Formula                Systems. The address of Emblaze is 1 Emblaze Square, Industrial
Area,                Ra&#146;anana 43662, Israel. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Formula
Systems is 51.7% controlled by Emblaze. As such, Emblaze may be deemed                to
be the beneficial owner of the aggregate 18,560,352 ordinary shares held
               directly by Formula Systems. The address of Formula Systems is 3 Abba Even
               Street, Herzliya Pituach, Israel. </FONT></TD>
</TR>
</TABLE>
<BR>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Significant Changes in
the Ownership of Major Shareholders </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September 2006, the controlling interest in Formula Systems, our controlling shareholder,
was sold. Our former principal shareholder, FIMGold Limited Partnership, an entity owned
in equal parts by Dan Goldstein, the former chairman of our board of directors, and FIMI
Opportunity Fund and parties related to it, entered into an agreement to sell its entire
shareholding in Formula Systems to Emblaze. Under the agreement, Emblaze acquired a 33.4%
interest in Formula Systems. During 2007 and 2008, Emblaze increased its ownership
interest in Formula Systems from 33.4% to 51.7% in open-market transactions. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2008, our parent company Formula Systems purchased an additional 2,392,531 of our ordinary
shares in open-market transactions, increasing its ownership interest in our company from
51.2% to 58.2%. </FONT></P>

<p align=center>
<font size=2>57</font></p>
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<page>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Major Shareholders
Voting Rights </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
major shareholders do not have different voting rights. </FONT></P>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on a review of the information provided to us by our U.S. transfer agent, as of April 1,
2009, there were approximately 96 record holders, of which 77 record holders holding
approximately 47.74% of our ordinary shares had registered addresses in the United States.
These numbers are not representative of the number of beneficial holders of our shares nor
are they representative of where such beneficial holders reside, since many of these
ordinary shares were held of record by brokers or other nominees (including one U.S.
nominee company, CEDE &amp; Co., which held approximately 47.67% of our outstanding
ordinary shares as of such date). </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>B.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>RELATED
PARTY TRANSACTIONS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Not
applicable.  </FONT></P>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>C.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>INTERESTS
OF EXPERTS AND COUNSEL</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable. </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 8.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
FINANCIAL INFORMATION</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>A.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>CONSOLIDATED
STATEMENTS AND OTHERFINANCIAL INFORMATION</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See
the consolidated financial statements, including the notes thereto, included in Item 18. </FONT></P>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our export
sales constitute a significant portion of our total sales volume. See Note 19 to our
consolidated financial statements. </FONT></P>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
received final tax assessments for the years 1997 to 2002 from the Israeli tax authorities
and have submitted an appeal to the District Court of Tel Aviv-Jaffa with respect to such
tax assessments. As of March 2009, one open issue remains to be settled by the court,
while all other issues were resolved with no additional taxes to be paid by us. Our
management believes, based on the advice of its legal advisors, that the probability of an
unfavorable outcome to our company on this matter is remote; therefore no provision was
recorded in our consolidated financial statements in respect of this matter. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June 2004, an Israeli company filed a lawsuit against us in the District Court of Tel Aviv
&#150; Jaffa seeking NIS 8.0 million (approximately $2.1 million), with an option to
increase this amount to approximately NIS 17.0 million (approximately $4.5 million), for
recovery of damages allegedly caused by our failure to integrate a software application.
During the last three years, the parties tried to settle the case with an external
mediator. This attempt failed in late 2008 and the parties returned to the court to
proceed with the court proceedings. Preliminary court proceedings have commenced, such as
disclosure of documents and questionnaires. Due to the preliminary stage of the
litigation, our management, based on the advice of its legal advisors, believes that it
cannot predict the outcome of this lawsuit nor can it estimate the amount of damages,
therefore no provision was recorded in our consolidated financial statements in respect of
this matter. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
May 2005, a former client of our subsidiary Magic Software Enterprises (Israel) Ltd. filed
a lawsuit against the subsidiary claiming an alleged breach of the agreement between the
parties. The plaintiff is seeking damages in the amount of $361,000. The claim was moved
to arbitration. Due to the preliminary stage of this litigation, our management is unable
to assess the outcome of this lawsuit nor can it make an estimate of the amount of
damages; therefore, no provision has been made for the lawsuit. </FONT></P>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March 2006, a client of our Magic solution partner in France filed a lawsuit against the
Magic solution partner and our subsidiary Magic Software Enterprises (France) S.A.R.L. in
the commercial court in Paris claiming an alleged breach of the agreement between the
parties. The plaintiff is seeking damages in the amount of 488,000 Euros (approximately
$680,000). Due to the preliminary stage of this litigation and based on the advice of our
legal advisors, our management is unable to assess the outcome of the lawsuit nor can it
estimate the amount of damages; therefore, no provision has been made for the lawsuit. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2006, a subcontractor of our Italian subsidiary filed a lawsuit against our subsidiary in
Milan, claiming an alleged breach of the agreement between the parties. The plaintiff is
seeking damages in the amount of 524,000 Euros (approximately $730,000). Our management,
based on its legal advisors opinion, recorded an appropriate provision to cover the
outcome of the claim. However, at this stage, we cannot predict our chances of success in
this matter. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
May 2007, the former chief executive officer of our subsidiary CarPro Systems Ltd. filed a
claim against the subsidiary claiming an alleged breach of the agreement between him and
CarPro Systems Ltd. The plaintiff is seeking damages in the amount of $438,000. The claim
was subsequently moved to arbitration, which commenced during 2008. The claim is in its
final stages. Based on our legal advisors opinion, we have recorded an appropriate
provision to cover the outcome of the claim. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
time to time, claims arising in the ordinary course of our business are brought against
us. In the opinion of our management, these claims will not have a material adverse effect
on our financial position, liquidity or results of operations. </FONT></P>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
February 2003, following receipt of the approval of the District Court of Tel Aviv, we
paid a cash dividend to our shareholders of $0.40 per ordinary share. The total dividend
amounted to approximately $11.8 million dollars. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
2003 we have not paid any cash dividends on our ordinary shares. Any future dividend
policy will be determined by the board of directors and will be based upon conditions then
existing, including our results of operations, financial condition, current and
anticipated cash needs, contractual restrictions and other conditions as the board of
directors may deem relevant. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According
to the Israeli Companies Law, a company may distribute dividends out of its profits
provided that there is no reasonable concern that such dividend distribution will prevent
the company from paying all its current and foreseeable obligations, as they become due.
Notwithstanding the foregoing, dividends may be paid with the approval of a court,
provided that there is no reasonable concern that such dividend distribution will prevent
the company from satisfying its current and foreseeable obligations, as they become due.
Profits, for purposes of the Israeli Companies Law, means the greater of retained earnings
or earnings accumulated during the preceding two years, after deducting previous
distributions that were not deducted from the surpluses. In the event cash dividends are
declared, such dividends will be paid in NIS. </FONT></P>

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

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>B. SIGNIFICANT CHANGES </FONT></H1>

<a name=zk211></a>
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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 9.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
THE OFFER AND LISTING</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>A.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>OFFER
AND LISTING DETAILS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth, for each of the years indicated, the range of high ask and low
bid prices of our ordinary shares on the NASDAQ Global Market and the Tel Aviv Stock
Exchange: </FONT></P>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman" SIZE=1>NASDAQ Global Market</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman" SIZE=1>Tel Aviv Stock Exchange*</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>High</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Low</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>High</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Low</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="41%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE="2"><U><B>Year</B></U> </FONT> </TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>2004</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 8.70</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 3.11</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 8.65</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 2.60</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>2005</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 3.56</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.45</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 3.49</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.41</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>2006</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 2.74</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.20</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 2.22</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.41</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>2007</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 2.97</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.72</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 2.87</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.74</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>2008</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 2.38</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 0.94</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 2.47</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 0.91</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>



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<HR SIZE=1 NOSHADE WIDTH=15% ALIGN=LEFT>

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<TR VALIGN=TOP>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
*
The U.S. dollar price of shares on the Tel Aviv Stock Exchange is determined by dividing
the price of an ordinary share in New Israeli Shekels by the representative exchange rate
of the New Israeli Shekel against the U.S. dollar on the same date.  </FONT></TD>
</TR>
</TABLE>
<BR>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth, for each of the financial quarters in the two most recent
financial years and subsequent period, the range of high ask and low bid prices of our
ordinary shares on the NASDAQ Global Market and the Tel Aviv Stock Exchange: </FONT></P>





<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman" SIZE=1>NASDAQ Global Market</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman" SIZE=1>Tel Aviv Stock Exchange*</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>High</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Low</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>High</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Low</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="41%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE="2"><U><B>2007</B></U> </FONT> </TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>First Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 3.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 2.16</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 2.87</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 2.35</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Second Quarter</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 3.47</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 2.21</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 2.45</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 2.29</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Third Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 2.88</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.75</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 2.38</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.88</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Fourth Quarter</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 2.36</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.85</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 2.09</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.74</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2"><U><B>2008</B></U> </FONT> </TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom  BGCOLOR="#cceeff">
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>First Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 2.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.47</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.92</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.52</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Second Quarter</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.85</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.45</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.89</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.19</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom  BGCOLOR="#cceeff">
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Third Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 2.38</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.12</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 2.47</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.16</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Fourth Quarter</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 2.05</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 0.94</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 2.19</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 0.91</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom  BGCOLOR="#cceeff">
     <TD ALIGN=LEFT colspan=13 ><FONT FACE="Times New Roman" SIZE="2"><U><B>2009</B></U> </FONT> </TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>First Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.46</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 0.98</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.45</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.04</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>








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<TR VALIGN=TOP>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
*
The U.S. dollar price of shares on the Tel Aviv Stock Exchange is determined by dividing
the price of an ordinary share in New Israeli Shekels by the representative exchange rate
of the New Israeli Shekel against the U.S. dollar on the same date.  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>60</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth, for the most recent six months, the range of high ask and low
bid prices of our ordinary shares on the NASDAQ Global Market and the Tel Aviv Stock
Exchange: </FONT></P>





<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman" SIZE=1>NASDAQ Global Market</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman" SIZE=1>Tel Aviv Stock Exchange*</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>High</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Low</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>High</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Low</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="41%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>October 2008</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 2.05</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.30</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.85</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.52</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>November 2008</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.95</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.08</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.93</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.18</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>December 2008</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.50</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 0.94</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.49</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 0.87</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>January 2009</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.64</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.04</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.52</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.15</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>February 2009</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.45</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.12</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.82</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 1.10</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>March 2009</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.16</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 0.98</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.16</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1.02</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>



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<HR SIZE=1 NOSHADE WIDTH=15% ALIGN=LEFT>

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<TR VALIGN=TOP>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
*
The U.S. dollar price of shares on the Tel Aviv Stock Exchange is determined by dividing
the price of an ordinary share in New Israeli Shekels by the representative exchange rate
of the New Israeli Shekel against the U.S. dollar on the same date.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>B.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>PLAN
OF DISTRIBUTION</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable. </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>C.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>MARKETS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
ordinary shares have been listed on the NASDAQ Global Market (symbol: MGIC) since our
initial public offering in the United States on August 16, 1991. Since November 16, 2000,
our ordinary shares have also traded on the Tel Aviv Stock Exchange. </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>D.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>SELLING
SHAREHOLDERS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable. </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>E.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>DILUTION</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable. </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>F.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>EXPENSE
OF THE ISSUE</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable. </FONT></P>

<a name=zk212></a>
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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 10.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
ADDITIONAL INFORMATION</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>A.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>SHARE
CAPITAL</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable. </FONT></P>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>B.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>MEMORANDUM
AND ARTICLES OF ASSOCIATION</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Set
out below is a description of certain provisions of our Articles of Association and of the
Israeli Companies Law related to such provisions. This description is only a summary and
does not purport to be complete and is qualified by reference to the full text of the
Articles of Association, which are incorporated by reference as exhibits to this Annual
Report, and to Israeli law.</I> </FONT></P>

<p align=center>
<font size=2>61</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Purposes and Objects of
the Company </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are a public company registered with the Israeli Companies Registry as Magic Software
Enterprises Ltd., registration number 52-003674-0. Section 2 of our memorandum of
association provides that we were established for the purpose of engaging in all fields of
the computer business and in any other lawful activity permissible under Israeli law. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Powers of the
Directors </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the provisions of the Israel Companies Law and our articles of association, subject to
specified exceptions, a director cannot participate in a meeting nor vote on a proposal,
arrangement or contract in which he or she is materially interested. In addition, our
directors cannot vote compensation to themselves or any members of their body without the
approval of our audit committee and our shareholders at a general meeting. See &#147;Item
6C. Directors, Senior Management and Employees &#150; Board Practices &#150; Approval of
Related Party Transactions Under Israeli Law.&#148; </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
authority of our directors to enter into borrowing arrangements on our behalf is not
limited, except in the same manner as any other transaction by us. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
our articles of association, retirement of directors from office is not subject to any age
limitation and our directors are not required to own shares in our company in order to
qualify to serve as directors. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Rights Attached to Shares </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
authorized share capital consists of 50,000,000 ordinary shares of a nominal value of NIS
0.1 each. All outstanding ordinary shares are validly issued, fully paid and
non-assessable. The rights attached to the ordinary shares are as follows: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dividend
rights. </I>  Holders of our ordinary shares are entitled to the full amount
of any cash or share dividend subsequently declared. The board of directors may declare
interim dividends and propose the final dividend with respect to any fiscal year only out
of the retained earnings, in accordance with the provisions of the Israeli Companies Law.
See &#147;Item 8A. Financial Information &#150; Consolidated and Other Financial
Information &#150; Dividend Distributions Policy.&#148; All unclaimed dividends or other
monies payable in respect of a share may be invested or otherwise made use of by the Board
of Directors for our benefit until claimed. Any dividend unclaimed after a period of three
years from the date of declaration of such dividend will be forfeited and will revert to
us; provided, however, that the Board of Directors may, at its discretion, cause us to pay
any such dividend to a person who would have been entitled thereto had the same not
reverted to us. We are not obligated to pay interest or linkage differentials on an
unclaimed dividend. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Voting
rights.</I> Holders of ordinary shares have one vote for each ordinary share held on all
matters submitted to a vote of shareholders. Such voting rights may be affected by the
grant of any special voting rights to the holders of a class of shares with preferential
rights that may be authorized in the future. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
quorum required at any meeting of shareholders consists of at least two shareholders
present in person or represented<B> </B>by proxy who hold or represent, in the aggregate,
at least one-third (33%) of the voting rights in the company. A meeting adjourned for lack
of a quorum is generally adjourned to the same day in the following week at the same time
and place or any time and place as the directors designate in a notice to the
shareholders. At the reconvened meeting, the required quorum consists of any two members
present in person or by proxy. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
our articles of association, all resolutions require approval of no less than a majority
of the voting rights represented at the meeting in person or by proxy and voting thereon. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to our articles of association, our directors (except outside directors) are elected at
our annual general meeting of shareholders by a vote of the holders of a majority of the
voting power represented and voting at such meeting and hold office until the next annual
general meeting of shareholders and until their successors have been elected. All the
members of our Board of Directors (except the outside directors) may be reelected upon
completion of their term of office. Emblaze, our controlling shareholder, and Formula
Systems, our parent company, will be able to exercise control over the election of our
directors (subject to a special majority required for the election of outside directors).
See &#147;Item 7A. Major Shareholders and Related Party Transactions &#150; Major
Shareholders.&#148; For information regarding the election of outside directors, see
&#147;Item 6C. Directors, Senior Management and Employees &#150; Board Practices &#150;
Election of Directors.&#148; </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Rights
to share in the company&#146;s profits.</I> Our shareholders have the right to share in
our profits distributed as a dividend and any other permitted distribution. See this Item
10B. &#147;Additional Information &#150; Memorandum and Articles of Association &#150;
Rights Attached to Shares &#150; Dividend Rights.&#148; </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Rights
to share in surplus in the event of liquidation.</I> In the event of our liquidation,
after satisfaction of liabilities to creditors, our assets will be distributed to the
holders of ordinary shares in proportion to the nominal value of their holdings. This
right may be affected by the grant of preferential dividend or distribution rights to the
holders of a class of shares with preferential rights that may be authorized in the
future. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Liability
to capital calls by the company. </I> Under our memorandum of association and the Israeli
Companies Law, the liability of our shareholders to provide us with additional funds is
limited to the par value of the shares held by them. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Limitations
on any existing or prospective major shareholder.</I> See Item 6C. &#147;Directors and
Senior Management &#150;Board Practices&nbsp;&#150; Approval of Related Party Transactions
Under Israeli Law.&#148; </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Changing Rights Attached
to Shares </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According
to our articles of association, the rights attached to any class of shares may be modified
or abrogated by us, subject to the consent in writing of, or sanction of a resolution
passed by, the holders of a majority of the issued shares of such class at a separate
general meeting of the holders of the shares of such class. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Annual and Extraordinary
Meetings </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Israeli Companies Law a company must convene an annual meeting of shareholders at
least once every calendar year and within fifteen months of the last annual meeting.
Depending on the matter to be voted upon, notice of at least 21 days or 35 days prior to
the date of the meeting is required. Our board of directors may, in its discretion,
convene additional meetings as &#147;special general meetings.&#148; With respect to
&#147;special general meetings,&#148; notice of at least 35 days prior to the date of the
meeting is required. In addition, the board must convene a special general meeting upon
the demand of two of the directors, 25% of the nominated directors, one or more
shareholders having at least 5% of the outstanding share capital and at least 1% of the
voting power in the company, or one or more shareholders having at least 5% of the voting
power in the company. See Item 10B. &#147;Additional Information &#150; Memorandum and
Articles of Association &#150; Rights Attached to Shares &#150; Voting Rights.&#148; </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Limitations on the
Rights to Own Securities in Our Company </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither
our memorandum of association or our articles of association nor the laws of the State of
Israel restrict in any way the ownership or voting of shares by non-residents, except with
respect to subjects of countries which are in a state of war with Israel. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Provisions Restricting
Change in Control of Our Company </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Israeli Companies Law requires that mergers between Israeli companies be approved by the
board of directors and general meeting of shareholders of both parties to the transaction.
The approval of the board of directors of both companies is subject to such boards&#146;
confirmation that there is no reasonable doubt that following the merger the surviving
company will be able to fulfill its obligations towards its creditors. Each company must
notify its creditors about the contemplated merger. Under the Israeli Companies Law, our
articles of association are deemed to include a requirement that such merger be approved
by an extraordinary resolution of the shareholders, as explained above. The approval of
the merger by the general meetings of shareholders of the companies is also subject to
additional approval requirements as specified in the Israeli Companies Law and regulations
promulgated thereunder. See also &#147;Item 6C. Directors, Senior Management and Employees
&#150; Board Practices&nbsp;&#150; &nbsp;&#150; Approval of Related Party Transactions
Under Israeli Law.&#148; </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Disclosure of
Shareholders Ownership </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Israeli Securities Law and the regulations promulgated thereunder require that a company
whose shares are traded on a stock exchange in Israel, as in the case of our company,
report the share ownership of its interested parties. An interested party is defined under
the Israeli Securities Law as any one of the following: (i) a person holding 5% or more of
the company&#146;s issued capital stock or voting power, or who is entitled to appoint one
or more of the company&#146;s directors or its general manager; or (ii) any person acting
as a director or general manager of the company; or (iii) any company, in which any of the
above persons either holds 25% or more of its capital stock or voting power or is entitled
to appoint 25% or more of its directors. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Changes in Our Capital </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes
in our capital are subject to the approval of the shareholders by a majority of the votes
of shareholders present at the meeting, in person or by proxy, and voting on the matter. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>C. MATERIAL CONTRACTS </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December 30, 2007, we entered into a stock purchase agreement with Fortissimo Capital Fund
GP LP, to sell our wholly-owned subsidiary, AAOD, a Florida corporation that develops and
markets application software targeted at the long-term care industry to Fortissimo Capital
for $17 million. $1 million of the proceeds was paid in December 2007 and $16 million in
the beginning of 2008. In addition, as part of the transaction, we entered into a three
years license agreement with AAOD according to which AAOD will continue to sell products
based on our platform in consideration for $3.0 million paid in equal payments over three
years starting in 2008. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While
we have numerous contracts with customers, resellers and distributors we do not deem any
such individual contract to be material. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>D.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>EXCHANGE
CONTROLS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Israeli
law and regulations do not impose any material foreign exchange restrictions on
non-Israeli holders of our ordinary shares. In May 1998, a new &#147;general permit&#148;
was issued under the Israeli Currency Control Law, 1978, which removed most of the
restrictions that previously existed under such law, and enabled Israeli citizens to
freely invest outside of Israel and freely convert Israeli currency into non-Israeli
currencies. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-residents
of Israel who purchase our ordinary shares will be able to convert dividends, if any,
thereon, and any amounts payable upon our dissolution, liquidation or winding up, as well
as the proceeds of any sale in Israel of our ordinary shares to an Israeli resident, into
freely repatriable dollars, at the exchange rate prevailing at the time of conversion,
provided that the Israeli income tax has been withheld (or paid) with respect to such
amounts or an exemption has been obtained. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>E.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>TAXATION</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following is a discussion of Israeli and United States tax consequences material to our
shareholders. To the extent that the discussion is based on new tax legislation which has
not been subject to judicial or administrative interpretation, we cannot assure you that
the views expressed in the discussion will be accepted by the appropriate tax authorities
or the courts. The discussion is not intended, and should not be construed, as legal or
professional tax advice and is not exhaustive of all possible tax considerations </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Holders
of our ordinary shares should consult their own tax advisors as to the United States,
Israeli or other tax consequences of the purchase, ownership and disposition of ordinary
shares, including, in particular, the effect of any foreign, state or local taxes.</B> </FONT></P>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following is a summary of some of the current tax law applicable to companies in Israel,
with special reference to its effect on us. The following also contains a discussion of
specified Israeli tax consequences to our shareholders and government programs benefiting
us. To the extent that the discussion is based on tax legislation that has not been
subject to judicial or administrative interpretation, there can be no assurance that the
views expressed in the discussion will be accepted by the tax authorities in question. The
discussion is not intended, and should not be construed, as legal or professional tax
advice and is not exhaustive of all possible tax considerations. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>General Corporate Tax
Structure </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Israeli
companies were generally subject to corporate tax at the rate of 27% of their taxable
income in 2008. The corporate tax was reduced to a rate of 26% in 2009 and will be further
reduced to 25% in 2010 and thereafter<B>.</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However,
the rate is effectively reduced for income derived from an approved enterprise and
beneficiary enterprise, as discussed below. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Income Tax Law (Adjustment for Inflation) 1985, income for tax purposes is generally
measured in terms of earnings in NIS adjusted for the increase in the Israeli CPI. This
law was repealed as of the end of 2007 and its provisions will not apply to us from tax
year 2008 and onward. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tax Benefits Under the
Law for the Encouragement of Capital Investments, 1959 </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Law for the Encouragement of Capital Investment, 1959, or the Investment Law, provides
that a proposed capital investment in production facilities or other eligible facilities
may be designated as an &#147;approved enterprise.&#148; To obtain &#147;approved
enterprise&#148; status, an application to the Investment Center of the Ministry of
Industry and Trade, or the Investment Center, needs to be submitted. Each instrument of
approval for an approved enterprise relates to a specific investment program that is
defined both by the financial scope of the investment, including sources of funds, and by
the physical characteristics of the facility or other assets. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
tax benefits available under any instrument of approval relate only to taxable profits
attributable to the specific program and are contingent upon meeting the criteria set out
in the instrument of approval. If a company has more than one approval or only a portion
of its capital investments are approved, its effective tax rate is the weighted average of
the applicable rates. As explained below, following the amendment of the Investment Law
which became effective on April 1, 2005, companies may receive tax benefits under the law
without applying for an approved enterprise status. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Tax Benefits for Income
from Approved Enterprises Approved Before April 1, 2005</I> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Before
April 1, 2005 an approved enterprise was entitled to either receive a grant from the
Government of Israel or an alternative package of tax benefits, or the Alternative
Benefits. We have elected to forego the entitlement to grants and have applied for the
Alternative Benefits, under which undistributed income that we generate from our approved
enterprises will be completely tax exempt. The period of such tax exemption for a company
electing the Alternative Benefits ranges between two and ten years, depending upon the
location within Israel and the type of the approved enterprise. &nbsp;Because we are
located in Or Yehuda, the period of tax exemption applicable is two to four years (as
described below). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
expiration of the exemption period, the approved enterprise would be eligible for
beneficial tax rates otherwise available for approved enterprises under the Investment Law
(for our company, a rate of 25%) for the remainder of the otherwise applicable benefits
period. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Alternative
Benefits are available until the earlier of (i) seven consecutive years, commencing in the
year in which the specific approved enterprise first generates taxable income, (ii) 12
years from commencement of production and (iii) 14 years from the date of approval of the
approved enterprise status. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends
paid out of income generated by an approved enterprise (or out of dividends received from
a company whose income is generated by an approved enterprise) are generally subject to
withholding tax at the rate of 15%. This withholding tax is deductible at source by the
approved enterprise. The 15% tax rate is limited to dividends and distributions out of
income derived during the benefits period and actually paid at any time up to 12 years
thereafter. Since we elected the Alternative Benefits track, we will be subject to payment
of corporate tax at the rate of 25% in respect of the gross amount of the dividend that we
may distribute out of profits which were exempt from corporate tax in accordance with the
provisions of the Alternative Benefits track. If we are also deemed to be a &#147;Foreign
Investors&#146; Company,&#148; or FIC, and if the FIC (the definition of which appears
below) is at least 49% owned by non-Israeli residents, the corporate tax rate paid by us
in respect of the dividend we may distribute from income derived by our approved
enterprises during the tax exemption period may be taxed at a lower rate. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
we have elected the Alternative Benefits package, we are not obliged to attribute any part
of dividends that we may distribute to exempt profits, and we may decide from which
year&#146;s profits to declare dividends. We currently intend to reinvest any income that
we may in the future derive from our approved enterprise programs and not to distribute
the income as a dividend. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we qualify as a FIC, our approved enterprises will be entitled to additional tax benefits.
Subject to certain conditions, a FIC is a company with a level of foreign investment of
more than 25%. The level of foreign investment is measured as the percentage of rights in
the company (in terms of shares, rights to profits, voting and appointment of directors),
and of combined share and loan capital, that are owned, directly or indirectly, by persons
who are not residents of Israel. Such a company will be eligible for an extension of the
period during which it is entitled to tax benefits under its approved enterprise status
(so that the benefit periods may be up to ten years) and for further tax benefits if the
level of foreign investment exceeds 49%. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Investment Center of the Ministry of Industry and Trade has granted approved enterprise
status under Israeli law to eight investment programs at our manufacturing facility. We
have elected the alternative package of benefits with respect to each of these approved
enterprise programs. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
benefits available to an approved enterprise are subject to the fulfillment of conditions
stipulated in the Investment Law and its regulations and the criteria in the specific
certificate of approval, as described above. If a company does not meet these conditions,
it would be required to refund the amount of tax benefits, together with consumer price
index linkage adjustment and interest. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Tax Benefits under an
Amendment that Became Effective on April&nbsp;1, 2005</I> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
April 1, 2005, an amendment to the Investment Law became effective. The Investment Law
provides that terms and benefits included in any certificate of approval that was granted
before the April 2005 amendment came into effect will remain subject to the provisions of
the Investment Law as they were on the date of such approval. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the April 2005 amendment, &#147;approved enterprise&#148; status will continue to be
granted by the Investment Center to qualifying investments. However, the amendment limits
the scope of enterprises which may be approved by the Investment Center by setting
criteria for the approval of a facility as an approved enterprise, such as provisions
generally requiring that at least 25% of the approved enterprise&#146;s income will be
derived from export. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
April 2005 amendment provides that approved enterprise status will only be necessary for
receiving grants. As a result, it is no longer necessary for a company to acquire approved
enterprise status in order to receive the tax benefits previously available under the
Alternative Benefits provisions. Rather, a company may claim the tax benefits offered by
the Investment Law directly in its tax returns, provided that its facilities meet the
criteria for tax benefits set out by the amendment. Companies are entitled to approach the
Israeli Tax Authority for a pre-ruling regarding their eligibility for benefits under the
amendment. </FONT></P>

<p align=center>
<font size=2>66</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax
benefits are available under the April 2005 amendment to production facilities (or other
eligible facilities), which are generally required to derive more than 25% of their
business income from export. In order to receive the tax benefits, the amendment states
that the company must make an investment which meets all the conditions set out in the
amendment for tax benefits and exceeds a minimum amount specified in the Investment Law.
Such investment allows the company to receive a &#147;benefited enterprise&#148; status,
and may be made over a period of no more than three years ending at the end of the year in
which the company requested to have the tax benefits apply to the benefited enterprise,
referred to as the Year of Election. Where the company requests to have the tax benefits
apply to an expansion of existing facilities, only the expansion will be considered to be
a benefited enterprise and the company&#146;s effective tax rate will be the weighted
average of the applicable rates. In this case, the minimum investment required in order to
qualify as a benefited enterprise is required to exceed a certain amount or certain
percentage of the value of the company&#146;s production assets before the expansion. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
extent of the tax benefits available under the April 2005 amendment to qualifying income
of a benefited enterprise are determined by the geographic location of the benefited
enterprise. The location will also determine the period for which tax benefits are
available. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends
paid out of income derived by a benefited enterprise will be treated similarly to payment
of dividends by an approved enterprise under the Alternative Benefits track. Therefore,
dividends paid out of income derived by a benefited enterprise (or out of dividends
received from a company whose income is derived from a benefited enterprise) are generally
subject to withholding tax at the rate of 15% (deductible at source). The reduced rate of
15% is limited to dividends and distributions out of income derived from a benefited
enterprise during the benefits period and actually paid at any time up to 12 years
thereafter. A company qualifying for tax benefits under the amendment which pays a
dividend out of income derived by its benefited enterprise during the tax exemption period
will be subject to tax in respect of the gross amount of the dividend at the otherwise
applicable rate of 25%, (or lower in the case of a qualified &#147;FIC&#148; which is at
least 49% owned by non-Israeli residents). The dividend recipient would be subject to tax
at the rate of 15% on the amount received which tax would be deducted at source. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a result of the April 2005 amendment, tax-exempt income generated under the provisions of
the new law will subject us to taxes upon distribution of the tax-exempt income to
shareholders or liquidation of the company, and we may be required to record a deferred
tax liability with respect to such tax-exempt income. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
April 2005 amendment sets a minimal amount of foreign investment required for a company to
be regarded a FIC. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tax Benefits and Grants
for Research and Development </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Israeli
tax law allows, under certain conditions, a tax deduction in the year incurred for
expenditures (including capital expenditures) in scientific research and development
projects if the expenditures are approved by the relevant Israeli government ministry
(determined by the field of research) and the research and development is for the
promotion of the enterprise and is carried out by or on behalf of the company seeking such
deduction. Expenditures not so approved are deductible over a three-year period. However,
expenditures made out of proceeds made available to us through government grants are not
deductible according to Israeli law. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Law for the
Encouragement of Industry (Taxes), 1969 </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following preferred corporate tax benefits, among others, are available to Industrial
Corporations, which may be applicable to us: </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amortization
of purchases of know-how and patents over eight years for tax purposes. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amortization
of expenses incurred in connection with certain public security issuances over a
three-year period. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>67</font></p>
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<page>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tax
exemption for shareholders who held shares before a public offering on capital gains
derived from the sale (as defined by law) of securities, if realized after more than five
years from the public issuance of additional securities of the company. (As of November
1994, this exemption was repealed, however, it applies to our shareholders pursuant to a
grand-fathering clause.) This exemption applies only to gains that accrued before January
1, 2003. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accelerated
depreciation rates on               equipment and buildings.</FONT></TD>
</TR>
</TABLE>
<BR>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Special Provisions
Relating to Taxation Under Inflationary Conditions </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Income Tax Law (Inflationary Adjustments), 1985, or the Inflationary Adjustments Law,
which was repealed effective January 1, 2008, represented an attempt to overcome the
problems presented to a traditional tax system by an economy undergoing rapid inflation.
The Inflationary Adjustments Law was highly complex. The features that were material to us
can be described as follows: </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>When
the value of a company&#146;s equity, as calculated under the Inflationary Adjustments
Law, exceeded the depreciated cost of its fixed assets (as defined in the Inflationary
Adjustments Law), a deduction from taxable income was permitted equal to the product of
the excess multiplied by the applicable annual rate of inflation. The maximum deduction
permitted in any single tax year was 70% of taxable income, with the unused portion
permitted to be carried forward, linked to the increase in the consumer price index. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>If
the depreciated cost of a company&#146;s fixed assets exceeded its equity, the product of
the excess multiplied by the applicable annual rate of inflation was added to taxable
income. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Subject
to certain limitations, depreciation deductions on fixed assets and losses carried
forward were adjusted for inflation based on the increase in the Israeli consumer price
index. </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
most of the provisions of the Inflationary Adjustments Law were repealed as of January 1,
2008, the above provisions were only applicable to the determination of our taxable income
for periods prior to the 2008 fiscal year. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Israeli Capital Gains Tax </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
individual is subject to a 20% tax rate on real capital gains derived from the sale of
shares, as long as the individual is not a &#147;substantial shareholder&#148; (generally
a shareholder with 10% or more of the right to profits, right to nominate a director and
voting rights) in the company issuing the shares. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
substantial shareholder will be subject to tax at a rate of 25% in respect of real capital
gains derived from the sale of shares issued by the company in which he or she is a
substantial shareholder. The determination of whether the individual is a substantial
shareholder will be made on the date that the securities are sold. In addition, the
individual will be deemed to be a substantial shareholder if at any time during the 12
months preceding this date he had been a substantial  shareholder.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-Israeli
residents are exempt from Israeli capital gains tax on any gains derived from the sale of
shares in an Israeli corporation publicly traded on the TASE and/or on a foreign stock
exchange, provided such gains do not derive from a permanent establishment of such
shareholders in Israel and that such shareholders did not acquire their shares prior to
the issuer&#146;s initial public offering. However, non-Israeli corporations will not be
entitled to such exemption if an Israeli resident (i) has a controlling interest of 25% or
more in such non-Israeli corporation, or (ii) is the beneficiary of or is entitled to 25%
or more of the revenues or profits of such non-Israeli corporation, whether directly or
indirectly<B> </B>. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
some instances where our shareholders may be liable to Israeli tax on the sale of their
ordinary shares, the payment of the consideration may be subject to the withholding of
Israeli tax at the source.  </FONT></P>

<p align=center>
<font size=2>68</font></p>
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<page>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the treaty between the governments of the United States and Israel with respect to
taxes on income, or the U.S.-Israel tax treaty, the sale, exchange or disposition of our
ordinary shares by a person who qualifies as a resident of the United States under the
treaty and who is entitled to claim the benefits afforded to him by the treaty, will
generally not be subject to Israeli capital gains tax. This exemption shall not apply to a
person who held, directly or indirectly, shares representing 10% or more of the voting
power in our company during any part of the 12 month period preceding the sale, exchange
or disposition, subject to certain conditions. A sale, exchange or disposition of our
shares by a U.S. resident qualified under the treaty, who held, directly or indirectly,
shares representing 10% or more of the voting power in our company at any time during the
preceding 12 month period would be subject to Israeli tax, to the extent applicable;
however, under the treaty, this U.S. resident would be permitted to claim a credit for
these taxes against the U.S. income tax with respect to the sale, exchange or disposition,
subject to the limitations in U.S. laws applicable to foreign tax credits<B>.</B> </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Israeli Tax on Dividend
Income </FONT></H1>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Taxation of Israeli
Residents</I> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Israeli
resident individuals are generally subject to Israeli income tax on the receipt of
dividends paid on our ordinary shares, other than bonus shares (share dividends) or stock
dividends, at the rate of 20%, or 25% for a shareholder that is considered a material
shareholder within the meaning of the Israeli Tax Ordinance, at any time during the
12-month period preceding such distribution. Dividends paid on our ordinary shares to
Israeli resident companies are exempt from such tax (except with respect to dividends that
are distributed from the income derived outside of Israel, which are subject to the 25%
tax rate). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trust
funds, pension funds and other institutions which are exempt from tax based on Section
9(2) of the Israeli Tax Ordinance are exempt from the tax on dividend distributions. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
withholding tax on dividends paid on our ordinary shares is 20% (including for a
shareholder considered a material shareholder within the meaning of the Israeli Tax
Ordinance). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends
paid from income derived from our approved enterprise or benefited enterprise are subject
to tax, which is withheld at the source at the rate of 15%, although we cannot assure you
that we will designate the profits that are being distributed in a way that will reduce
shareholders&#146; tax liability. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Taxation of Non-Israeli
Residents</I> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
Israeli tax law, a distribution of dividends from income attributable to an approved
enterprise will be subject to tax in Israel at the rate of 15%, which is withheld and paid
by the company paying the dividend, if the dividend is distributed during the benefits
period or within the following 12 years (but the 12-year limitation does not apply to a
Foreign Investors&#146; Company). Any distribution of dividends from income that is not
attributable to an approved enterprise will be subject to tax in Israel at the rate of
25%, except that dividends distributed on or after January 1, 2006 to an individual who is
deemed &#147;a non-substantial shareholder&#148; will be subject to tax at the rate of
20%. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the US-Israel Tax Treaty, Israeli withholding tax on dividends paid to a U.S. treaty
resident may not in general exceed 25%, or 15% in the case of dividends paid out of the
profits of an approved enterprise. Where the recipient is a U.S. corporation owning 10% or
more of the voting stock of the paying corporation and the dividend is not paid from the
profits of an approved enterprise, the Israeli tax withheld may not exceed 12.5%, subject
to certain conditions. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following is a summary of certain material U.S. federal income tax consequences that apply
to U.S. Holders who hold ordinary shares as capital assets. This summary is based on the
United States Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations
promulgated thereunder, judicial and administrative interpretations thereof, and the
U.S.-Israel Tax Treaty, all as in effect on the date hereof and all of which are subject
to change either prospectively or retroactively. This summary does not address all tax
considerations that may be relevant with respect to an investment in ordinary shares. This
summary does not account for the specific circumstances of any particular investor, such
as: </FONT></P>

<p align=center>
<font size=2>69</font></p>
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<page>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>broker-dealers,</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>financial
institutions,</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>certain
insurance companies,</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>investors
liable for alternative minimum               tax,</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>tax-exempt
organizations,</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>non-resident
aliens of the U.S. or               taxpayers whose functional currency is not the U.S.
dollar,</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>persons
who hold the ordinary shares               through partnerships or other pass-through
entities,</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>persons
who acquire their ordinary shares               through the exercise or cancellation of
employee stock options or otherwise as compensation               for services,</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>investors
that actually or constructively               own 10% or more of our voting shares, and</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>investors
holding ordinary shares as part of a straddle, or appreciated financial position or a
hedging or conversion transaction. </FONT></TD>
</TR>
</TABLE>
<BR>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
a partnership or an entity treated as a partnership for U.S. federal income tax purposes
owns ordinary shares, the U.S. federal income tax treatment of a partner in such a
partnership will generally depend upon the status of the partner and the activities of the
partnership. A partnership that owns ordinary shares and the partners in such partnership
should consult their tax advisors about the U.S. federal income tax consequences of
holding and disposing of ordinary shares. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
summary does not address the effect of any U.S. federal taxation other than U.S. federal
income and gift and estate taxation. In addition, this summary does not include any
discussion of state, local or foreign taxation. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
are urged to consult your tax advisors regarding the foreign and United States federal,
state and local tax considerations of an investment in ordinary shares. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
purposes of this summary, a U.S. Holder is: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>an
individual who is a citizen or, for               U.S. federal income tax purposes, a
resident of the United States;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a
corporation created or organized in or               under the laws of the United States
or any political subdivision thereof;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>an
estate whose income is subject to U.S.               federal income tax regardless of its
source; or</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a
trust that (a) is subject to the primary               supervision of a court within the
United States and the control of one or more U.S. persons               or (b) has a
valid election in effect under applicable U.S. Treasury regulations to be
              treated as a U.S. person.</FONT></TD>
</TR>
</TABLE>
<BR>


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

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
gross amount of any distributions received with respect to ordinary shares, including the
amount of any Israeli taxes withheld therefrom, will constitute dividends for U.S. federal
income tax purposes to the extent of our current and accumulated earnings and profits, as
determined for U.S. federal income tax purposes. You will be required to include this
amount of dividends in gross income as ordinary income. Distributions in excess of our
current and accumulated earnings and profits will be treated as a non-taxable return of
capital to the extent of your tax basis in the ordinary shares and any amount in excess of
your tax basis will be treated as gain from the sale of ordinary shares. See
&#147;-Disposition of Ordinary Shares&#148; below for the discussion on the taxation of
capital gains. Dividends will not qualify for the dividends-received deduction generally
available to corporations under Section 243 of the Code. </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends
that we pay in NIS, including the amount of any Israeli taxes withheld therefrom, will be
included in your income in a U.S. dollar amount calculated by reference to the exchange
rate in effect on the day such dividends are received. A U.S. Holder who receives payment
in NIS and converts NIS into U.S. dollars at an exchange rate other than the rate in
effect on such day may have a foreign currency exchange gain or loss that would be treated
as ordinary income or loss. U.S. Holders should consult their own tax advisors concerning
the U.S. tax consequences of acquiring, holding and disposing of NIS. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject
to complex limitations, any Israeli withholding tax imposed on such dividends will be a
foreign income tax eligible for credit against a U.S. Holder&#146;s U.S. federal income
tax liability (or, alternatively, for deduction against income in determining such tax
liability). The limitations set out in the Code include computational rules under which
foreign tax credits allowable with respect to specific classes of income cannot exceed the
U.S. federal income taxes otherwise payable with respect to each such class of income.
Dividends generally will be treated as foreign-source passive category income or, in the
case of certain U.S. Holders, general category income for United States foreign tax credit
purposes. Further, there are special rules for computing the foreign tax credit limitation
of a taxpayer who receives dividends subject to a reduced tax, see discussion below. A
U.S. Holder will be denied a foreign tax credit with respect to Israeli income tax
withheld from dividends received on the ordinary shares to the extent such U.S. Holder has
not held the ordinary shares for at least 16 days of the 31-day period beginning on the
date which is 15 days before the ex-dividend date or to the extent such U.S. Holder is
under an obligation to make related payments with respect to substantially similar or
related property. Any days during which a U.S. Holder has substantially diminished its
risk of loss on the ordinary shares are not counted toward meeting the 16-day holding
period required by the statute. The rules relating to the determination of the foreign tax
credit are complex, and you should consult with your personal tax advisors to determine
whether and to what extent you would be entitled to this credit. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject
to certain limitations, &#147;qualified dividend income&#148; received by a noncorporate
U.S. Holder in tax years beginning on or before December 31, 2010 will be subject to tax
at a reduced maximum tax rate of 15 percent. Distributions taxable as dividends paid on
the ordinary shares should qualify for the 15 percent rate provided that either: (i) we
are entitled to benefits under the income tax treaty between the Untied States and Israel,
or the Treaty, or (ii) the ordinary shares are readily tradable on an established
securities market in the United States and certain other requirements are met. We believe
that we are entitled to benefits under the Treaty and that the ordinary shares currently
are readily tradable on an established securities market in the United States. However, no
assurance can be given that the ordinary shares will remain readily tradable. The rate
reduction does not apply unless certain holding period requirements are satisfied. With
respect to the ordinary shares, the U.S. Holder must have held such shares for at least 61
days during the 121-day period beginning 60 days before the ex-dividend date. The rate
reduction also does not apply to dividends received from passive foreign investment
companies, see discussion below, or in respect of certain hedged positions or in certain
other situations. U.S. Holders of ordinary shares should consult their own tax advisors
regarding the effect of these rules in their particular circumstances. </FONT></P>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you sell or otherwise dispose of ordinary shares, you will recognize gain or loss for U.S.
federal income tax purposes in an amount equal to the difference between the amount
realized on the sale or other disposition and the adjusted tax basis in ordinary shares.
Subject to the discussion below under the heading &#147;Passive Foreign Investment
Companies,&#148; such gain or loss will generally be capital gain or loss and will be
long-term capital gain or loss if you have held the ordinary shares for more than one year
at the time of the sale or other disposition. In general, any gain that you recognize on
the sale or other disposition of ordinary shares will be U.S.-source for purposes of the
foreign tax credit limitation; losses will be generally allocated against U.S. source
income. Deduction of capital losses is subject to certain limitations under the Code. </FONT></P>

<p align=center>
<font size=2>71</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the case of a cash basis U.S. Holder who receives NIS in connection with the sale or
disposition of ordinary shares, the amount realized will be based on the U.S. dollar value
of the NIS received with respect to the ordinary shares as determined on the settlement
date of such exchange. A U.S. Holder who receives payment in NIS and converts NIS into
United States dollars at a conversion rate other than the rate in effect on the settlement
date may have a foreign currency exchange gain or loss that would be treated as ordinary
income or loss. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
accrual basis U.S. Holder may elect the same treatment required of cash basis taxpayers
with respect to a sale or disposition of ordinary shares, provided that the election is
applied consistently from year to year. Such election may not be changed without the
consent of the Internal Revenue Service, or the IRS. In the event that an accrual basis
U.S. Holder does not elect to be treated as a cash basis taxpayer (pursuant to the
Treasury regulations applicable to foreign currency transactions), such U.S. Holder may
have a foreign currency gain or loss for U.S. federal income tax purposes because of
differences between the U.S. dollar value of the currency received prevailing on the trade
date and the settlement date. Any such currency gain or loss would be treated as ordinary
income or loss and would be in addition to gain or loss, if any, recognized by such U.S.
Holder on the sale or disposition of such ordinary shares. </FONT></P>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
U.S. federal income tax purposes, we will be considered a passive foreign investment
company, or PFIC, for any taxable year in which either (i) 75% or more of our gross income
is passive income, or (ii) the average percentage of our assets for the taxable year which
are produced or held for the production of passive income is at least 50%. For this
purpose, passive income includes generally dividends, interest, royalties, rents,
annuities and the excess of gains over losses from the disposition of assets which produce
passive income. If we were determined to be a PFIC for U.S. federal income tax purposes,
highly complex rules would apply to U.S. Holders owning ordinary shares. Accordingly, you
are urged to consult your tax advisors regarding the application of such rules. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on our current and projected income, assets and activities, we believe that we are not
currently a PFIC nor do we expect to become a PFIC in the foreseeable future. However,
because the determination of whether we are a PFIC is based upon the composition of our
income and assets from time to time, there can be no assurances that we will not become a
PFIC for any future taxable year. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we are treated as a PFIC for any taxable year, dividends would not qualify for the reduced
maximum tax rate, discussed above, and, unless you elect either to treat your investment
in ordinary shares as an investment in a &#147;qualified electing fund&#148;, or a QEF
election, or to &#147;mark-to-market&#148; your ordinary shares, as described below, </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>you
would be required to allocate income recognized upon receiving certain dividends or gain
recognized upon the disposition of ordinary shares ratably over the holding period for
such ordinary shares, </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
amount allocated to each year during which we are considered a PFIC other than the year
of the dividend payment or disposition would be subject to tax at the highest individual
or corporate tax rate, as the case may be, and an interest charge would be imposed with
respect to the resulting tax liability allocated to each such year, </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
amount allocated to the current taxable year and any taxable year before we became a PFIC
would be taxable as ordinary income in the current year, and </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>you
would be required to make an annual return on IRS Form 8621 regarding distributions
received with respect to ordinary shares and any gain realized on your ordinary shares. </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you make either a timely QEF election or a timely mark-to-market election in respect of
your ordinary shares, you would not be subject to the rules described above. If you make a
timely QEF election, you would be required to include in your income for each taxable year
your pro rata share of our ordinary earnings as ordinary income and your pro rata share of
our net capital gain as long-term capital gain, whether or not such amounts are actually
distributed to you. You would not be eligible to make a QEF election unless we comply with
certain applicable information reporting requirements. We will provide U.S. Holders with
the information needed to report income and gain under a QEF election if we are classified
as a PFIC. </FONT></P>

<p align=center>
<font size=2>72</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Alternatively,
assuming the ordinary shares qualify as &#147;marketable stock&#148; within the meaning of
section 1296(e) of the Code, if you elect to &#147;mark-to-market&#148; your ordinary
shares, you will generally include in income, in each year in which we are considered a
PFIC, any excess of the fair market value of the ordinary shares at the close of each tax
year over your adjusted basis in the ordinary shares. If the fair market value of the
ordinary shares had depreciated below your adjusted basis at the close of the tax year,
you may generally deduct the excess of the adjusted basis of the ordinary shares over its
fair market value at that time. However, such deductions would generally be limited to the
net mark-to-market gains, if any, that you included in income with respect to such
ordinary shares in prior years. Income recognized and deductions allowed under the
mark-to-market provisions, as well as any gain or loss on the disposition of ordinary
shares with respect to which the mark-to-market election is made, is treated as ordinary
income or loss, except that in a year that we are not considered a PFIC, a gain or loss
will be treated as capital gain or loss. </FONT></P>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments
in respect of ordinary shares may be subject to information reporting to the U.S. Internal
Revenue Service and to U.S. backup withholding tax at a rate equal to the fourth lowest
income tax rate applicable to individuals, which, under current law, is 28%. Backup
withholding will not apply, however, if you (i) are a corporation or fall within certain
exempt categories, and demonstrate the fact when so required, or (ii) furnish a correct
taxpayer identification number and make any other required certification. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Backup
withholding is not an additional tax. Amounts withheld under the backup withholding rules
may be credited against a U.S. Holder&#146;s U.S. tax liability, and a U.S. Holder may
obtain a refund of any excess amounts withheld under the backup withholding rules by
filing the appropriate claim for refund with the IRS. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>U.S. Gift and Estate Tax </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
individual U.S. Holder of ordinary shares will generally be subject to U.S. gift and
estate taxes with respect to ordinary shares in the same manner and to the same extent as
with respect to other types of personal property. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>F.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>DIVIDENDS
AND PAYING AGENTS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Head Sub 3 Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>G.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>STATEMENT
BY EXPERTS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Head Sub 3 Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>H.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>DOCUMENTS
ON DISPLAY</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are subject to certain of the reporting requirements of the Securities and Exchange Act of
1934, as amended, or the Exchange Act, as applicable to &#147;foreign private
issuers&#148; as defined in Rule 3b-4 under the Exchange Act. As a foreign private issuer,
we are exempt from certain provisions of the Exchange Act. Accordingly, our proxy
solicitations are not subject to the disclosure and procedural requirements of Regulation
14A under the Exchange Act, and transactions in our equity securities by our officers and
directors are exempt from reporting and the &#147;short-swing&#148; profit recovery
provisions contained in Section 16 of the Exchange Act. In addition, we are not required
under the Exchange Act to file periodic reports and financial statements as frequently or
as promptly as U.S. companies whose securities are registered under the Exchange Act.
However, we file with the Securities and Exchange Commission an annual report on Form 20-F
containing financial statements audited by an independent accounting firm. We also submit
to the Securities and Exchange Commission reports on Form 6-K containing (among other
things) press releases and unaudited financial information. We post our annual report on
Form 20-F on our website (<U>www.magicsoftware.com</U>) promptly following the filing of
our annual report with the Securities and Exchange Commission. The information on our
website is not incorporated by reference into this annual report. </FONT></P>

<p align=center>
<font size=2>73</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
annual report and the exhibits thereto and any other document we file pursuant to the
Exchange Act may be inspected without charge and copied at prescribed rates at the
Securities and Exchange Commission public reference room at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You may obtain information on the operation of the Securities and
Exchange Commission&#146;s public reference room in Washington, D.C. by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Exchange Act file number for our
Securities and Exchange Commission filings is 000-19415. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Securities and Exchange Commission maintains a website at <U>www.sec.gov</U> that contains
reports, proxy and information statements, and other information regarding registrants
that make electronic filings with the Securities and Exchange Commission using its EDGAR
(Electronic Data Gathering, Analysis, and Retrieval) system. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
documents concerning our company that are referred to in this annual report may also be
inspected at our offices located at 5 Haplada Street, Or Yehuda 60218, Israel. </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>I.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>SUBSIDIARY
INFORMATION</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable. </FONT></P>

<a name=zk213></a>
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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 11.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are exposed to a variety of market risks, primarily changes in interest rates affecting
our investments in marketable securities and foreign currency fluctuations. </FONT></P>

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

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except
for our exposure to market risk for changes in interest rates relating to our investments
in marketable securities, we do not have any substantial risk which is derived from a
change in interest rates. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Foreign Currency
Exchange Risk </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
financial results may be negatively impacted by foreign currency fluctuations. Our foreign
operations are transacted through a global network of subsidiaries. As a result, these
sales and related expenses are denominated in currencies other than the U.S. dollar.
Because our financial results are reported in U.S. dollars, our results of operations may
be adversely impacted by fluctuations in the rates of exchange between the U.S. dollar and
such other currencies as the financial results of our foreign subsidiaries are converted
into U.S. dollars in consolidation. From time to time, we use derivative or hedge
instruments to cover part of our exposures. </FONT></P>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 12.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable. </FONT></P>

<a name=zk215></a>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART II </FONT></H1>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 13.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>



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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None. </FONT></P>

<a name=zk217></a>
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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 14.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable. </FONT></P>

<p align=center>
<font size=2>74</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<a name=zk218></a>
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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 15.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
CONTROLS AND PROCEDURES</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Disclosure Controls and
Procedures </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in its Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission&#146;s rules and forms, and that such information is accumulated and
communicated to our chief executive officer and chief financial officer to allow timely
decisions regarding required disclosure. Our management, including our chief executive
officer and chief financial officer, conducted an evaluation of our disclosure controls
and procedures, as defined under Exchange Act Rule 13a-15(e), as of the end of the period
covered by this Annual Report on Form 20-F. Based upon that evaluation, our chief
executive officer and chief financial officer have concluded that, as of such date, our
disclosure controls and procedures were effective. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Management&#146;s Annual
Report on Internal Control over Financial Reporting </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
management is responsible for establishing and maintaining adequate internal control over
our financial reporting. Internal control over financial reporting is defined in Rule
13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process
designed by, or under the supervision of, the company&#146;s principal executive and
principal financial officers and effected by the company&#146;s board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles and includes those policies
and procedures that: </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>pertain
to the maintenance of records that               in reasonable detail accurately and
fairly reflect the transaction and dispositions of the               assets of the
company;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>provide
reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use of disposition of the company&#146;s assets that could have a material
effect on the financial statements. </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
management assessed the effectiveness of our internal control over financial reporting as
of December 31, 2008. In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework. Based on that assessment, our management concluded
that as of December 31, 2008, our internal control over financial reporting was effective. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
annual report does not include an attestation report of our independent registered public
accounting firm regarding internal control over financial report. Management&#146;s report
was not subject to attestation by our independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that permit us to
provide only management&#146;s report in this annual report. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Changes in Internal
Control over Financial Reporting </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
was no change in our internal controls over financial reporting that occurred during the
period covered by this annual report that has materially affected, or is reasonably likely
to materially affect, our internal controls over financial reporting. </FONT></P>

<p align=center>
<font size=2>75</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<a name=zk219></a>
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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 16.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
RESERVED</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 16A.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
AUDIT COMMITTEE FINANCIAL EXPERT</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
board of directors has determined that Mr. Elan Penn, an outside director, meets the
definition of an audit committee financial expert, as defined by rules of the Securities
and Exchange Commission. For a brief listing of Mr. Penn&#146;s relevant experience, see
Item 6.A. &#147;Directors, Senior Management and Employees &#150; Directors and Senior
Management.&#148; </FONT></P>

<a name=zk221></a>
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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 16B.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
CODE OF ETHICS</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have adopted a code of ethics that applies to any chief executive officer and all senior
financial officers of our company, including the chief financial officer, chief accounting
officer or controller, or persons performing similar functions. The code of ethics is
publicly available on our website at <U>www.magicsoftware.com.</U> Written copies are
available upon request. If we make any substantive amendment to the code of ethics or
grant any waivers, including any implicit waiver, from a provision of the codes of ethics,
we will disclose the nature of such amendment or waiver on our website. </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 16C.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
PRINCIPAL ACCOUNTANT FEES AND SERVICES</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Fees Paid to Independent
Registered Public Accounting Firm </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth, for each of the years indicated, the fees paid to our
principal independent registered public accounting firm. All of such fees were
pre-approved by our Audit Committee. </FONT></P>





<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman" SIZE=1>Year Ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Services Rendered</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2007</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>2008</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="5%"> </TD>
     <TD WIDTH="64%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Audit (1)</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 179,000</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 141,000</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Audit-related (2)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>  10,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>  51,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Tax (3)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  27,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>  51,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Total</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 216,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2> 243,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>





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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 </FONT><HR SIZE=1 NOSHADE WIDTH=15% ALIGN=LEFT></TD>
</TR>
</TABLE>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Audit
fees relate to audit services provided for each of the years shown in the
               table, including fees associated with the annual audit, consultations on
various                accounting issues and audit services provided in connection with
other statutory                or regulatory filings. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Audit-related
fees for 2007 and 2008 relate primarily to consulting services                provided in
connection with the sale of AAOD. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tax
fees relate to services performed by the tax division for tax compliance,
               planning and advice. </FONT></TD>
</TR>
</TABLE>
<BR>



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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pre-Approval Policies
and Procedures </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Audit Committee has adopted a policy and procedures for the pre-approval of audit and
non-audit services rendered by our independent registered public accountants, Kost Forer
Gabbay &amp; Kasierer, a member of Ernst &amp; Young Global. Pre-approval of an audit or
non-audit service may be given as a general pre-approval, as part of the audit
committee&#146;s approval of the scope of the engagement of our independent auditor, or on
an individual basis. Any proposed services that exceed general pre-approved levels also
require specific pre-approval by our audit committee. The policy prohibits retention of
the independent public accountants to perform the prohibited non-audit functions defined
in Section 201 of the Sarbanes-Oxley Act of 2002 or the rules of the Securities and
Exchange Commission, and also requires the Audit Committee to consider whether proposed
services are compatible with the independence of the public accountants. </FONT></P>

<p align=center>
<font size=2>76</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 16D.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable. </FONT></P>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 16E.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2008, our parent company Formula Systems purchased an additional 2,392,531 of our ordinary
shares in open-market transactions, at a total purchase price of approximately $4,503,297,
increasing it ownership interest in our company from 51.2% to 58.2%. The purchases made by
Formula Systems were not made pursuant to a publicly announced plan or program. Such
purchases were made independent of our company. As of the date of this annual report,
Formula Systems has not acquired any shares of our company during 2009. </FONT></P>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 16F.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
CHANGES IN REGISTRANT&#146;S CERTIFYING ACCOUNTANT</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable. </FONT></P>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 16G.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
CORPORATE GOVERNANCE</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
NASDAQ Marketplace Rule 4350, or Rule 4350, foreign private issuers, such as our company,
are permitted to follow certain home country corporate governance practices instead of
certain provisions of Rule 4350, without the need to seek individual exemptions from
NASDAQ. A foreign private issuer that elects to follow a home country practice instead of
any of such provisions of Rule 4350, must submit to NASDAQ, in advance, a written
statement from an independent counsel in such issuer&#146;s home country certifying that
the issuer&#146;s practices are not prohibited by the home country&#146;s laws. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June 2005, we provided NASDAQ with a notice of non-compliance with respect to the NASDAQ
requirement that independent directors have regularly scheduled meetings at which only
independent directors are present. Instead, we follow Israel law and practice, under which
independent directors are not required to hold executive sessions. </FONT></P>

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

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 17.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
FINANCIAL STATEMENTS</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable. </FONT></P>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 18.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
FINANCIAL STATEMENTS</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="85%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Index to Financial Statements</FONT></TD>
     <TD WIDTH="15%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>F-1&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2> &nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Report of Independent Registered Public Accounting Firm</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>F-2&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2> &nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Consolidated Balance Sheets</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>F- 3 - F- 4&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2> &nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Consolidated Statements of Operations</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>F- 5&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2> &nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Statements of Changes in Shareholders' Equity</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>F- 6&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2> &nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Consolidated Statements of Cash Flows</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>F-7 - F-8&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2> &nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Notes to Consolidated Financial Statements</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>F-9- F- 35&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2> &nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Appendix A - Details of Subsidiaries and Affiliated Company</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>F- 36&nbsp;</FONT></TD></TR>
</TABLE>
<BR>

<p align=center>
<font size=2>77</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ITEM 19.</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>
EXHIBITS</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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


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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Exhibit</U> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Description</U> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.1  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Memorandum
of Association of the Registrant <SUP>1</SUP> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.2  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Articles
of Association of the Registrant<SUP>2</SUP> </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.1  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Specimen
of Ordinary Share Certificate <SUP>3</SUP> </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.1  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1991
Employee Stock Option Plan, as amended <SUP>4</SUP> </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.2  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2000
Employee Stock Option Plan <SUP>5</SUP> </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.3  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2007
Incentive Compensation Plan <SUP>6</SUP> </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.4  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Form
of Stock Purchase Agreement with Fortissimo Capital Fund GP LP  <SUP>7</SUP> </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>List
of Subsidiaries of the Registrant </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12.1  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act
of            1934, as amended </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12.2  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act
of            1934, as amended </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13.1  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification
of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906
           of the Sarbanes-Oxley Act of 2002 </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13.2  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification
of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906
           of the Sarbanes-Oxley Act of 2002 </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15.1  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent
of Kost Forer Gabbay &amp; Kasierer, a Member of Ernst &amp; Young Global </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15.2  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent
of Levy Cohen &amp; Co., Chartered Accountants (relating to Magic Software Enterprises (UK)
Limited) </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15.3  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent
of Levy Cohen &amp; Co., Chartered Accountants (relating to Hermes Logistics Technologies
Limited) </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15.4  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent
of KDA Audit Corporation (relating to Magic Software Japan K.K.) </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15.5  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent
of Verstegen accountants en adviseurs (relating to Magic Benelux B.V.) </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15.6  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent
of Maria Negyessy, Registered Auditors (relating to Magic (Onyx) Magyarorszag Szoftverhaz
Kft.) </FONT></TD>
</TR>
</TABLE>
<BR>




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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Filed
as Exhibit 3.2 to the registrant&#146;s registration statement on Form
                    F-1, registration number 33-41486, and incorporated herein by
reference. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>78</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Filed
as Exhibit 3.1 to the registrant&#146;s registration statement on Form
                    F-1, registration number 33-41486, and incorporated herein by
reference. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Filed
as Exhibit 4.1 to the registrant&#146;s registration statement on Form
                    F-1, registration number 33-41486, and incorporated herein by
reference. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Filed
as Exhibit 10.1 to the registrant&#146;s annual report on Form 20-F for
                    the year ended December 31, 2000, and incorporated herein by
reference. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Filed
as Exhibit 10.2 to the registrant&#146;s annual report on Form 20-F for
                    the year ended December 31, 2000, and incorporated herein by
reference. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Filed
as Exhibit 4.3 to the registrant&#146;s annual report on Form 20-F for the
                    year ended December 31, 2007, and incorporated herein by reference. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(7)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Filed
as Exhibit 4.4 to the registrant&#146;s annual report on Form 20-F for the
                    year ended December 31, 2007, and incorporated herein by reference. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>79</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>



<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>MAGIC SOFTWARE ENTERPRISES LTD. AND ITS SUBSIDIARIES</B></FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>CONSOLIDATED FINANCIAL STATEMENTS </B></FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>AS OF DECEMBER 31, 2008</B></FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>IN U.S. DOLLARS</B></FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>INDEX</B></FONT></P>
<TABLE width="100%" border="0" cellPadding="0" cellSpacing="0">
  <TR>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
    <TD vAlign=top><P align=center><font size="1" face="Times New Roman"><B>Page</B></font></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
    <TD vAlign=top><HR align=center width="100%" color=black noShade SIZE=1></TD>
  </TR>
  <TR>
    <TD vAlign=top>&nbsp;</TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top><P><font size="2" face="Times New Roman"><B><a href="#a101">Report of Independent Registered Public Accounting Firm</a></B></font></P></TD>
    <TD vAlign=top><P align=center><font size="2" face="Times New Roman"><B>F-2</B></font></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><font size="2" face="Times New Roman"><B><a href="#a102">Consolidated Balance Sheets</a></B></font></P></TD>
    <TD width=10% vAlign=top><P align=center><font size="2" face="Times New Roman"><B>F-3 - F-4 </B></font></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><font size="2" face="Times New Roman"><B><a href="#a103">Consolidated Statements of Operations</a></B></font></P></TD>
    <TD vAlign=top><P align=center><font size="2" face="Times New Roman"><B>F-5</B></font></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><font size="2" face="Times New Roman"><B><a href="#a104">Statements of Changes in Shareholders&#146; Equity</a></B></font></P></TD>
    <TD vAlign=top><P align=center><font size="2" face="Times New Roman"><B>F-6 </B></font></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><font size="2" face="Times New Roman"><B><a href="#a105">Consolidated Statements of Cash Flows</a></B></font></P></TD>
    <TD vAlign=top><P align=center><font size="2" face="Times New Roman"><B>F-7 - F-8</B></font></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><font size="2" face="Times New Roman"><B><a href="#a106">Notes to Consolidated Financial Statements</a></B></font></P></TD>
    <TD vAlign=top><P align=center><font size="2" face="Times New Roman"><B>F-9 - F-35</B></font></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
    <TD vAlign=top><font size="2" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><font size="2" face="Times New Roman"><B><a href="#a107">Details Of Subsidiaries And Affiliate</a></B></font></P></TD>
    <TD vAlign=top><P align=center><font size="2" face="Times New Roman"><B>F-36</B></font></P></TD>
  </TR>
</TABLE>
<BR>

<P align=center><font size="2" face="Times New Roman">F - 1</font></P>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD width="75%" vAlign=top>&nbsp;</TD>
    <TD width="25%" vAlign=bottom>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top><P><img src="ey.jpg" width="400" height="118"></P></TD>
    <TD vAlign=bottom><P><FONT size=1><BR>
              <BR>
              <BR>
              <BR>
    </FONT></P></TD>
  </TR>
</TABLE>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B><a name="a101"></a>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B></FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>To the Shareholders and the Board of Directors of</B></FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>MAGIC SOFTWARE ENTERPRISES LTD. </B></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have audited the accompanying
consolidated balance sheets of Magic Software Enterprises Ltd. (the &#147;Company&#148;) and its
subsidiaries as of December 31, 2007 and 2008, and the related consolidated statements of operations,
changes in shareholders&#146; equity <FONT style="LETTER-SPACING: -0.2pt">and cash flows for each of the three years in the period ended December</FONT> &nbsp;31, 2008. These financial statements are the responsibility of Company&#146;s management. Our
responsibility is to express an opinion on these financial statements based on our audits. We did
not audit the financial statements of certain subsidiaries, which statements reflect total assets
of 15% and 15% as of December&nbsp;31, 2007 and 2008, respectively, and total revenues of 37%, 36%
and 39% for each of the three years in the period ended December 31, 2008 of the related consolidated
totals. Those statements were audited by other auditors whose reports have been furnished to us,
and our opinion, insofar as it relates to the amounts included for those subsidiaries, is based solely
on the reports of the other auditors. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conducted our audits
in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were not engaged to perform an audit
of the Company&#146;s internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company&#146;s internal control over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. We believe that our audits
and the reports of other auditors provide a reasonable basis for our opinion.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As discussed in Note
2 to the consolidated financial statements, in 2007 the Company adopted FASB interpretation No. 48
&#147;Accounting for Uncertainty in Income Taxes - An Interpretation of FASB No. 109&#148;, effective
January 1, 2007.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our opinion, based
on our audits and the reports of the other auditors, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial position of the Company
and its subsidiaries at December 31, 2007 and 2008, and the related
consolidated results of their operations and their cash flows for each of the three years in the
period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.</FONT></P>






<TABLE width=100% border="0" cellPadding="0" cellSpacing="0">
  <TR>
    <TD vAlign=bottom>&nbsp;</TD>
    <TD align="right" vAlign=bottom>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=bottom>&nbsp;</TD>
    <TD align="right" vAlign=bottom>&nbsp;</TD>
  </TR>
  <TR>
    <TD width=50% vAlign=bottom><P><font size="2" face="Times New Roman">Tel-Aviv, Israel</font></P></TD>
    <TD width=50% align="right" vAlign=bottom><P><FONT size="2" face="Times New Roman" style="FONT-WEIGHT: normal">/s/ Kost Forer Gabbay &amp; Kasierer<BR>
&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>KOST FORER GABBAY &amp; KASIERER</FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=bottom><P align=left><font size="2" face="Times New Roman">April 2, 2009</font></P></TD>
    <TD align="right" vAlign=bottom><P><font size="2" face="Times New Roman">A Member of Ernst &amp; Young Global</font></P></TD>
  </TR>
</TABLE>
<p align=center><font size=2>F - 2 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD. <BR>
      AND ITS SUBSIDIARIES</FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT size=2><B><a name="a102"></a>CONSOLIDATED BALANCE SHEETS</B></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT size=2><B>U.S. dollars in thousands</B></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ASSETS</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>CURRENT ASSETS:</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Cash and cash equivalents</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 12,178</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 27,309</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Short-term bank deposits</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>89</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,810</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Available for sale marketable securities (Note 4)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4,179</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,469</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Trade receivables (net of allowance for doubtful accounts of $&nbsp;1,829 and<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;2,143 at December 31, 2007 and 2008,&nbsp;&nbsp;respectively)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>12,941</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>13,140</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Other accounts receivable and prepaid expenses (Note 6)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,915</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,933</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Receivables from a sale of subsidiary (Note 3a)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>16,000</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Current assets of discontinued operations (Note 18)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>41</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>31</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><u>Total</u> current assets</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>47,343</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>47,692</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>LONG-TERM INVESTMENTS:</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Long-term lease deposits</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>383</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>290</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Investments in an affiliated company</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>222</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Severance pay fund</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,925</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,753</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><u>Total</u> long-term investments</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,530</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,043</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>PROPERTY AND EQUIPMENT, NET (Note 7)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>5,758</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>5,436</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>OTHER INTANGIBLE ASSETS, NET (Note 8)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>10,681</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>10,656</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>GOODWILL (Note 9)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>15,986</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>16,829</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 82,298</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 82,656</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
</TABLE>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>The accompanying notes are an integral part of the consolidated financial statements.</FONT></P>
<p align=center><font size=2>F - 3 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD. <BR>
      AND ITS SUBSIDIARIES</FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT size=2><B>CONSOLIDATED BALANCE SHEETS</B></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><B>U.S. dollars in thousands (except share and per share data)</B></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LIABILITIES AND SHAREHOLDERS&#146; EQUITY</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>CURRENT LIABILITIES:</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Short-term credit and current maturities of long-term loans (Note 10)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 3,621</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 147</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Trade payables</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,999</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,988</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Accrued expenses and other accounts payable (Note 11)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>9,169</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>8,779</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Deferred revenues</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,314</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,643</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Current liabilities of discontinued operations (Note 18)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>503</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>372</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><u>Total</u> current liabilities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>18,606</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>13,929</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>ACCRUED SEVERANCE PAY</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,316</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,939</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>LONG-TERM LOANS (Note 12)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>132</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>33</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>COMMITMENTS AND CONTINGENTIES (Note 16)</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>SHAREHOLDERS&#146; EQUITY (Note 14):</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Share capital:</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Authorized: 50,000,000 Ordinary shares of NIS 0.1 par value at <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December&nbsp;31, 2007 and 2008; Issued 32,817,418 and 33,359,248 shares <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; at December 31, 2007 and 2008, respectively; Outstanding: 31,542,050<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and 31,893,880 shares at December 31, 2007 and 2008, respectively</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>838</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>845</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Additional paid-in capital</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>107,052</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>107,521</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Accumulated other comprehensive income (loss)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(496</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>31</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Treasury shares, at cost: 1,275,368 and 1,465,368 Ordinary shares at <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; December 31, 2007 and 2008, respectively.</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(6,772</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(6,772</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Accumulated deficit</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(39,378</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(34,870</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><u>Total</u> shareholders&#146; equity</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>61,244</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>66,755</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 82,298</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 82,656</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>The accompanying notes are an integral part of the consolidated financial statements.</FONT></P>
<p align=center><font size=2>F - 4 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD. <BR>
      AND ITS SUBSIDIARIES</FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><B><a name="a103"></a>CONSOLIDATED STATEMENTS OF OPERATIONS</B></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><B>U.S. dollars in thousands </B> <B>(except per share data)</B></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="8"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Year ended December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="8"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2006</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Revenues (Note 19):</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Software</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 18,788</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 17,707</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 20,913</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Maintenance and technical support</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>11,531</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>12,605</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>14,530</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Consulting services</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>22,252</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>28,116</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>26,537</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><u>Total</u> revenues</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>52,571</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>58,428</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>61,980</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Cost of revenues:</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Software</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>5,433</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4,557</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4,898</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Maintenance and technical support</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,873</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,602</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,263</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Consulting services</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>16,862</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>21,181</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>19,978</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><u>Total</u> cost of revenues</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>25,168</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>27,340</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>27,139</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Gross profit</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>27,403</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>31,088</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>34,841</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Operating costs and expenses:</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Research and development, net (Note 15a)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,462</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,716</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,350</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Selling and marketing</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>15,712</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>15,558</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>17,357</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;General and administrative</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>13,784</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>11,532</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>10,867</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Restructuring and impairment (Note 15c)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,157</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><u>Total</u> operating expenses, net</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>34,115</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>29,806</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>30,574</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Operating income (loss)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(6,712</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,282</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4,267</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Financial income , net (Note 15b)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>332</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>161</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>448</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Other income, net</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>278</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>170</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Income (loss) before taxes on income</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(6,102</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,613</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4,715</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Taxes on income (Note 13)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>310</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>362</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>199</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Income (loss) after taxes on income</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(6,412</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,251</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4,516</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Equity in earnings (losses) of affiliates</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>15</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(86</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(8</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Minority interest in loss (earnings) of subsidiaries</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>71</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(22</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net income (loss) from continued operation</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(6,326</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,143</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4,508</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net income from discontinued operation (Note 18)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,320</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>11,465</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net income (loss)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> (5,006</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 12,608</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 4,508</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Income (loss) per share (Note 17)</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Basic:</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Income (loss) from continuing operations</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> (0.20</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 0.04</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 0.14</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Income from discontinued operations</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>0.04</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>0.36</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Net income (loss) per share</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> (0.16</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 0.40</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 0.14</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Diluted :</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Income (loss) from continuing operations</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> (0.20</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 0.04</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 0.14</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Income from discontinued operations</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>0.04</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>0.35</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Net income (loss) per share</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> (0.16</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 0.39</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 0.14</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>The accompanying notes are an integral part of the consolidated financial statements.</FONT></P>
<p align=center><font size=2>F - 5 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD. <BR>
      AND ITS SUBSIDIARIES</FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><B><a name="a104"></a>STATEMENTS OF CHANGES IN SHAREHOLDERS&#146; EQUITY</B></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><B>U.S. dollars in thousands</B></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1> Share <br>
      capital<br>
      (Number)</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1> Share <br>
      capital <br>
      (Amount)</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Additional<br>
      paid-in <br>
      capital </FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1> Accumulated <br>
      other <br>
      comprehensive<br>
      income (loss)</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Treasury <br>
      shares <br>
      at cost </FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1> Accumulated<br>
      deficit </FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Comprehensive<br>
      income <br>
      (loss) </FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1> Total <br>
      shareholders&#146;<br>
      equity </FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Balance as of January 1, 2006</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>31,070,499</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 829</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 106,072</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> (1,514</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> (6,772</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> (46,310</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 52,305</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Effect of SAB 108</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(140</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(140</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(46,450</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>52,165</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Exercise of stock options</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>253,346</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>5</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>276</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>281</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Stock-based compensation <br>
&nbsp;&nbsp;&nbsp;&nbsp; expenses</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>27</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">27</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Realized losses from <br>
&nbsp;&nbsp;&nbsp;&nbsp; available-for-sale securities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>5</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>5</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Other comprehensive loss:</FONT></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;Foreign currency translation<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;adjustments</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>22</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>22</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>22</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;Unrealized gain from <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; available-for-sale <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; securities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>150</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>150</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>150</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;Net loss</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(5,006</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(5,006</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(5,006</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Total comprehensive loss</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> (4,834</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Balance as of <br>
&nbsp;&nbsp;&nbsp;&nbsp; December 31, 2006</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>31,323,845</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>834</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>106,375</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(1,337</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(6,772</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(51,456</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>47,644</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Exercise of stock options</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>218,205</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>4</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>243</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>247</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Stock-based compensation<br>
&nbsp;&nbsp;&nbsp;&nbsp; expenses</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>434</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>434</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Realized gain from <br>
&nbsp;&nbsp;&nbsp;&nbsp; available-for-sale securities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>2</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>2</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Other comprehensive income:</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;Foreign currency translation<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;adjustments</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>673</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>673</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>673</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;Cumulative effect of<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; changes in accounting <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; for &nbsp;uncertainties<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;in income taxes (FIN 48)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(530</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(530</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(530</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;Unrealized gain from <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; available-for-sale<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;securities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>166</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>166</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>166</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;Net income</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>12,608</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>12,608</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>12,608</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Total comprehensive income</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 12,917</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
  </TR>
  <TR>
    <TD COLSPAN=2><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Balance as of <br>
&nbsp;&nbsp;&nbsp;&nbsp; December 31, 2007</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>31,542,050</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>838</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>107,052</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(496</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(6,772</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(39,378</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>61,244</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Exercise of stock options</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>351,830</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>7</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>225</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>232</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Stock-based compensation <br>
&nbsp;&nbsp;&nbsp;&nbsp; expenses</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>244</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>244</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Other comprehensive income:</FONT></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;Foreign currency translation<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;adjustments</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>519</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>519</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>519</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;Other than temporary <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; impairment on<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;marketable securities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>47</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>47</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>47</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;Realized and unrealized <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; gain from <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;available-for-sale <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;securities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(39</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(39</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(39</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;Net income</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>4,508</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>4,508</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>4,508</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Total comprehensive income</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 5,035</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
  </TR>
  <TR>
    <TD COLSPAN=2><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=3><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Balance as of <br>
&nbsp;&nbsp;&nbsp;&nbsp; December 31, 2008</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>31,893,880</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 845</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 107,521</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 31</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> (6,772</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> (34,870</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 66,755</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
  </TR>
</TABLE>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>The accompanying notes are an integral part of the consolidated financial statements.</FONT></P>
<p align=center><font size=2>F - 6 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD. <BR>
      AND ITS SUBSIDIARIES</FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><B><a name="a105"></a>CONSOLIDATED STATEMENTS OF CASH FLOWS</B></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><B>U.S. dollars in thousands</B></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="8"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Year ended December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="8"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2006</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><u>Cash flows from operating activities:</u></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Net income (loss)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> (5,006</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 12,608</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 4,508</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Less: Net income from discontinued operation</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(1,320</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(11,465</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Net income (loss) from continuing operation</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(6,326</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,143</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4,508</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Adjustments to reconcile net income (loss) from continuing operations to net<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;cash provided by operating activities from continuing operations:</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>5,182</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,798</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,615</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity in losses (earnings) of affiliates</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(15</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>86</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>8</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Minority interest in earnings (losses) of subsidiaries</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(71</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>22</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued severance pay, net</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(69</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>68</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(205</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss (gain) on sale of property and equipment</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>56</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(7</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation expenses</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>27</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>434</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>244</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of marketable securities premium ,<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;accretion of discount and other than temporary losses, net</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>55</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>57</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>211</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss (gain) on sale of marketable securities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>10</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(8</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(53</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on sale of subsidiary&#146;s operation</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(278</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(170</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(170</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss on sale of affiliated company</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>61</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment of intangible asset</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>309</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decrease (increase) in trade receivables</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,852</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(102</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(395</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decrease in other accounts receivable and prepaid expenses</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,537</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,253</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>87</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decrease in trade payables</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(77</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(599</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(82</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase in accrued expenses and other accounts payable</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>856</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,620</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>525</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase (decrease) in deferred revenues</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(610</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>621</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(660</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net cash provided by operating activities from continuing operations</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,438</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>9,216</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>7,694</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net cash provided by (used in) operating activities from discontinued operations</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>393</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(1,656</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(21</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net cash provided by operating activities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,831</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>7,560</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>7,673</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><u>Cash flows from investing activities:</u></FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Capitalized software development costs</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(3,482</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(3,027</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(2,577</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Purchase of property and equipment</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(961</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(769</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(737</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Proceeds from sale of subsidiary&#146;s operation</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>900</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>170</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>170</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Proceeds from sale of affiliated company</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>150</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Proceeds from sale of property and equipment</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>97</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>74</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Proceeds from sale of marketable securities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>226</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>680</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,182</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Proceeds from maturity of marketable securities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>410</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Investment in marketable securities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(408</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(1,032</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Change in short-term and long-term deposits</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>477</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>30</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>174</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Investment in short-term bank deposit</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(1,810</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net cash used in investing activities from continuing operations</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(3,151</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(2,842</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(4,070</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net cash provided by (used in) investing activities from discontinued operations</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(2,034</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>451</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>15,336</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net cash provided by (used in) investing activities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(5,185</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(2,391</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>11,266</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
</TABLE>
<p align=center><font size=2>F - 7 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD. <BR>
      AND ITS SUBSIDIARIES</FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><B>U.S. dollars in thousands</B></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="8"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Year ended December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="8"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2006</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><u>Cash flows from financing activities:</u></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from exercise of stock options</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>281</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>247</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>232</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Short-term credit, net</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>334</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(906</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(3,432</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Repayment of long-term loans</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(122</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(111</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(171</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from long-term loans</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>185</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>14</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;Net cash provided by (used in) financing activities from continuing operations</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>678</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(756</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(3,371</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;Net cash used in financing activities from discontinued operations</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(6</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;Net cash provided by (used in) financing activities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>672</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(756</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(3,371</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;Effect of exchange rate changes on cash and cash equivalents <br>
&nbsp;&nbsp;&nbsp;&nbsp;from continuing operations</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(272</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(375</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(458</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;Increase in cash and cash equivalents from continuing operations</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>693</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>5,243</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>15,131</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;Cash and cash equivalents at the beginning of the year</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>5,424</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>6,935</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>12,178</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;Cash and cash equivalents at end of the year</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 6,935</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 12,178</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 27,309</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><u>Non-cash activities related to discontinued operation:</u></FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Receivables from a sale of subsidiary (see Note 3a)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> &#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 16,000</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> &#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><u>Supplemental disclosure of cash flow activities:</u></FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>Cash paid during the year for:</u></FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 433</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 238</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 534</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 265</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 503</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 15</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>The accompanying notes are an integral part of the consolidated financial statements.</FONT></P>
<p align=center><font size=2>F - 8 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2><a name="a106"></a>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 1:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GENERAL</B></FONT></TD>
</TR>
<TR>
<TD width="76" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Magic Software Enterprises Ltd. (the &#147;Company&#148;), an Israeli company, and its subsidiaries
(&#147;the Group&#148;) develop, market and support software development and deployment technology
(&#147;the Magic technology&#148;) and applications developed using this Magic technology. Magic
technology enables enterprises to accelerate the process of building and deploying software applications
that can be rapidly customized and integrated with existing systems. The principal markets of the
Group are Europe, United States, Japan and Israel (see Note 19).</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>For information about the Company&#146;s holdings in subsidiaries and affiliated company, see Page
F-36.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 2: -&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SIGNIFICANT ACCOUNTING POLICIES</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (&#147;U.S. GAAP&#148;), applied on a consistent basis, as follows:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Use of estimates</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The preparation of the consolidated financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ from those estimates.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Financial statements in United States dollars</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>A substantial portion of the revenues of the Company and certain of its subsidiaries is generated in
U.S. dollars (&#147;dollar&#148;). In addition, a substantial portion of the Company&#146;s costs
is incurred in dollars. The Company&#146;s management believes that the dollar is the currency of
the primary economic environment in which the Company and its subsidiaries operate. Thus, the functional
and reporting currency of the Company and certain of its subsidiaries is the dollar.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into dollars
in accordance with SFAS No. 52, &#147;Foreign Currency Translation&#148; (&#147;SFAS No. 52&#148;).
All transaction gains and losses of the remeasurement of monetary balance sheet items are reflected
in the statements of operations as financial income or expenses, as appropriate.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The financial statements of foreign subsidiaries and of certain entities that are accounted for using
the equity method of accounting, whose functional currency is not the U.S. dollar, have been translated
into dollars. All balance sheet amounts have been translated using the exchange rates in effect at
each balance sheet dates. Statement of operations amounts have been translated using the average
exchange rate prevailing during each year. Such translation adjustments are reported as a component
of accumulated other comprehensive income (loss) in shareholders&#146; equity.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Principles of consolidation</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The consolidated financial statements include the accounts of the Company and its wholly-owned and
majority-owned subsidiaries. Intercompany balances and transactions, including profit from intercompany
sales not yet realized outside the Group, have been eliminated upon consolidation.</FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 9 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 2: - &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Cash and cash equivalents:</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Cash and cash equivalents include short-term highly liquid investments that are readily convertible
to cash with original maturities of three months or less, at the date acquired.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Short-term deposits</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Short-term deposits include deposits with maturities of more than three months and less than one year,
which are presented at cost, including accrued interest. The deposits as of December 31, 2007 are
in Japanese Yen and bore interest at an average annual rate of 0.03%. The deposits as of December
31, 2008 are in U.S. dollars and bear interest at an average annual rate of 3.12%.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Marketable securities</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company accounts for investments in marketable securities in accordance with SFAS No. 115, &#147;Accounting
for Certain Investments in Debt and Equity Securities&#148; (&#147;SFAS No. 115&#148;). Management
determines the appropriate classification of its investments in marketable debt and equity securities
at the time of purchase and reevaluates such determinations at each balance sheet date. Debt and
equity securities are classified as available - for - sale and reported at fair value. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Debt and equity securities that are designated as available-for-sale are stated at fair value, with
unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate
component of shareholders&#146; equity. Realized gains and losses on sales of investments, as determined
on a specific identification basis, are included in financial income, net. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In accordance with the Company&#146;s policy and the Financial Accounting Standard Board (the &#147;FASB&#148;)
Staff Position (&#147;FSP&#148;) No. SFAS 115-1 (&#147;FSP 115-1&#148;) and SAB Topic 5M, &#147;The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments&#148;, the
Company recognizes an impairment charge when a decline in the fair value of its investments below
the cost basis is judged to be other-than-temporary. The Company considers various factors in determining
whether to recognize an impairment charge, including the Company&#146;s intent and ability to hold
the investment for a period of time sufficient to allow for any anticipated recovery in market value,
the length of time and extent to which the fair value has been less than the cost basis, the credit
ratings of the securities and the financial condition and near-term prospects of the issuers. During
2008, other than temporary impairment on marketable securities of $ 131 was recorded. See further
details in Note 4.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Investments in affiliated company</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In these financial statements, an affiliated company is a company held to the extent of 20% or more
(which are not subsidiaries), where the Company can exercise significant influence over operating
and financial policy of the affiliate. The investment in an affiliated company was accounted for
by the equity method, in accordance with Accounting Principle Board Opinion No. 18, &#147;The Equity
Method of Accounting for Investments in Common Stock.&#148; Profits on inter-company sales, not realized
outside the Group, were eliminated. On June, 2008, the Company sold its entire interest in its affiliated
company resulting in a loss of $61.</FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 10 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 2: - &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Property and equipment, net</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated
by the straight-line method over the estimated useful lives of the assets, at the following annual
rates:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH><font size="1" face="Times New Roman"></font></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>Years</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><font size="1" face="Times New Roman"></font></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><font size="1" face="Times New Roman"></font></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=5% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Buildings</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=25% ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>25</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=10% ALIGN=LEFT bgcolor="#FFFFFF"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Computers and peripheral equipment</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>3</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Office furniture and equipment</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>7 &ndash; 15 (mainly 7)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT bgcolor="#FFFFFF"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Motor vehicles</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>7</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Software for internal use</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>3</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT bgcolor="#FFFFFF"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Leasehold improvements</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>Over the shorter of the lease term or useful<br>
    economic life</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Impairment of long-lived assets</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company&#146;s long-lived assets are reviewed for impairment in accordance with SFAS No. 144, &#147;Accounting
for the Impairment or Disposal of Long-Lived Assets&#148; (&#147;SFAS No. 144&#148;) whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of
an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets
are considered to be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. During the years ended December
31, 2007 and 2008, no impairment indicators were identified. For the year 2006, see Note 15c.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Other intangible assets</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Intangible assets are comprised of distribution rights, acquired technology and customer relations,
and are amortized over their useful life using a method of amortization that reflects the pattern
in which the economic benefits of the intangible assets are consumed or otherwise used up. Distribution
rights, acquired technology and customer relations were amortized on a straight line basis over a
period of five years.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Goodwill</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Goodwill has been recorded as a result of acquisitions. Goodwill represents the excess of the purchase
price in a business combination over the fair value of net tangible and intangible assets acquired.
Goodwill is not amortized, but rather is subject to an annual impairment test. The Company performs
an annual impairment test during December of each fiscal year, or more frequently if impairment indicators
are present. The Company operates in one operating segment, and this segment is comprised of its
two reporting units. </FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 11 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 2:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company then compares the fair value of each reporting unit to its carrying value, including goodwill.
The Company estimates the fair value of each reporting unit by estimating the present value of the
reporting unit&#146;s discounted cash flows. The discounted cash flow calculations use projections
that are based on management&#146;s estimations. If the fair value exceeds the carrying value, no
impairment loss is recognized. The Company evaluates the reasonableness of the fair value calculations
of its reporting units by reconciling the total of the fair values of all of its reporting units
to the total market capitalization, and adjusting for an appropriate control premium. If the carrying
value exceeds the fair value, the goodwill of the reporting unit is considered potentially impaired
and the second step is completed in order to measure the impairment loss. Under the second step goodwill
is reduced to its implied fair value through an adjustment to the goodwill balance, resulting in
an impairment charge. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Since the fair value of the Company&#146;s two reporting units exceeded their carrying amount, no impairment
losses were identified in 2008, 2007 or 2006.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Revenue recognition</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company derives its revenues mainly from licensing the rights to use its software, maintenance
and technical support and professional services. The Company sells its products primarily through
its direct sales force and indirectly through distributors.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company accounts for its software sales in accordance with Statement of Position (SOP) No. 97-2,
&#147;Software Revenue Recognition,&#148; as amended by SOP&nbsp;No. 98-9, &#147;Modification of
SOP&nbsp;No. 97-2, Software Revenue Recognition, With Respect to Certain Transactions&#148;&nbsp;(collectively
&#147;SOP 97-2&#148;). Software license revenue is recognized when persuasive evidence of an arrangement
exists, delivery has occurred, the vendor&#146;s fee is fixed or determinable, no further obligation
exists and collectability is probable.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>As required by SOP&nbsp;97-2, the Company determines the value of the software component of&nbsp;its
multiple-element arrangements using the residual method when vendor specific objective evidence (&#147;VSOE&#148;)
of fair value exists for the undelivered elements of the support and maintenance agreements. VSOE
is based on the price charged when an element is sold separately or renewed. Under the residual method,
the fair value of the undelivered elements is deferred and the remaining portion of the arrangement
fee is allocated to the delivered elements and is recognized as revenue. Maintenance and support
revenue is deferred and recognized on a straight-line basis over the term of the maintenance and
support agreement. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company generally does not grant a right of return to its customers. When a right of return exists,
the Company defers revenue until the right of return expires, at which time revenue is recognized
provided that all other revenue recognition criteria are met.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Revenue from consulting services consists of billable hours for services provided, and are recognized
as the services are rendered.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Arrangements that include consulting services are evaluated to determine whether those services are
essential to the functionality of other elements of the arrangement. When services are considered
essential, revenues under the arrangement are recognized using contract accounting based on Statement
of Position No. 81-1, &#147;Accounting for Performance of Construction-Type and Certain Production-Type
Contracts&#148; (&#147;SOP 81-1&#148;) on a percentage of completion method based on inputs measures.
Provisions for estimated losses on uncompleted contracts are made in the period in which such losses
are first determined, in the amount of the estimated loss for the entire contract. During the years
ended December&nbsp;31, 2006, 2007 and 2008, no such estimated losses were identified.</FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 12 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 2: - &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>When consulting services are not considered essential, the revenues allocable to the consulting services
are recognized as the services are performed. In most cases, the Company has determined that the
services are not considered essential to the functionality of other elements of the arrangement. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Deferred revenue includes unearned amounts received under maintenance and support contracts, and amounts
received from customers but not yet recognized as revenues.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Research and development costs</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Research and development costs incurred in the process of software development before establishment
of technological feasibility are charged to expenses as incurred. Costs incurred subsequent to the
establishment of technological feasibility are capitalized according to the principles set forth
in Statement of Financial Accounting Standards No. 86, &#147;Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed&#148; (&#147;SFAS No. 86&#148;).</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company&#146;s and its subsidiaries&#146; technological feasibility is established upon completion
of a detailed program design and working model.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Research and development costs incurred in the process of developing product improvements are generally
charged to expenses as incurred.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Capitalized software costs are amortized on a product by product basis. Amortization equals the greater
of the amount computed using the: (i) ratio that current gross revenues from sales of the software
to the total of current and anticipated future gross revenues from sales of that software, or (ii)
the straight-line method over the estimated useful life of the product (three to five years). The
Company assesses the recoverability of these intangible assets on a regular basis by determining
whether the amortization of the asset over its remaining life can be recovered through undiscounted
future operating cash flows from the specific software product sold. During the years ended December
31, 2006, 2007 and 2008, no impairment losses were identified.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Severance pay</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company&#146;s and its Israeli subsidiary&#146;s liability for severance pay with respect to their
Israeli employees (for the period for which the employees were not included under Section 14 of the
Severance Pay Law -1963), is calculated pursuant to Israeli severance pay law and employee agreements
based on the most recent salary of the employees. The Company&#146;s liability for all of its Israeli
employees is fully provided for by monthly deposits with insurance policies and by an accrual. The
value of these policies is recorded as an asset in the Company&#146;s balance sheet.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company&#146;s and its Israeli subsidiary&#146;s agreements with their Israeli employees are in
accordance with Section 14 of the Severance Pay Law -1963, under which the Company&#146;s contributions
for severance pay shall be instead of severance compensation. Upon release of the policy to the employee,
no additional liability exists between the parties regarding the matter of severance pay and no additional
payments shall be made by the Company to the employee. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The carrying value of deposited funds include profits (losses) accumulated up to the balance sheet
date. The deposited funds may be withdrawn only upon the fulfillment of the obligations pursuant
to Israeli severance pay law or labor agreements. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Severance expenses for the years ended December 31, 2006, 2007 and 2008 amounted to approximately $
463, $ 617 and $&nbsp;584, respectively. </FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 13 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 2:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Advertising expenses</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Advertising expenses are charged to selling and marketing expenses, as incurred. Advertising expenses
for the years ended December 31, 2006, 2007 and 2008 amounted to $ 87 $&nbsp;305 and $&nbsp;225,
respectively.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Income taxes</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company and its subsidiaries account for income taxes in accordance with SFAS No. 109, &#147;Accounting
for Income Taxes&#148; (&#147;SFAS No. 109&#148;). The Statement prescribes the use of the liability
method whereby deferred tax assets and liability account balances are determined based on differences
between financial reporting and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to reverse. The Company
and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to
their estimated realizable value.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>On January&nbsp;1, 2007, the Company adopted FASB Interpretation No. 48, &#147;Accounting for Uncertainty
in Income Taxes, an Interpretation of FASB Statement No. 109&#148; (&#147;FIN 48&#148;). FIN 48 contains
a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance
with SFAS No. 109. The first step is to evaluate the tax position taken or expected to be taken in
a tax return by determining if the weight of available evidence indicates that it is more likely
than not that, on an evaluation of the technical merits, the tax position will be sustained on audit,
including resolution of any related appeals or litigation processes. The second step is to measure
the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.
The adoption of FIN 48, on January 1, 2007, resulted in a charge of $ 530 to the Company&#146;s accumulated
deficit. The Company accrued interest and penalties related to unrecognized tax benefits in its projection
for income taxes. The total amount of gross unrecognized tax benefits as of December 31, 2007 and
2008 were $ 50 and $ 16, respectively.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Treasury shares</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company repurchases its Ordinary shares from time to time in the open market or in other transactions
and holds such shares as treasury shares. The Company applies the &#147;cost method&#148; and presents
the cost to repurchase such shares as a reduction in shareholders&#146; equity. As of December 31,
2008, the Company has not resold any of the repurchased shares.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Basic and diluted net earnings (loss) per share</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Basic net earnings (loss) per share is computed based on the weighted average number of Ordinary shares
outstanding during each year. Diluted earnings (loss) per share is computed based on the weighted
average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary
shares considered outstanding during the year, in accordance with SFAS No. 128, &#147;Earnings Per
Share&#148; (&#147;SFAS No. 128&#148;). </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Part of the outstanding stock options and warrants has been excluded from the calculation of the diluted
earnings (loss) per share because such securities are anti-dilutive. The total weighted average number
of Ordinary shares related to the outstanding options and warrants excluded from the calculations
of diluted earnings (loss) per share was 883,884, 839,045 and 1,397,389 for the years ended December
31, 2006, 2007 and 2008, respectively.</FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 14 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 2:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Accounting for stock-based compensation</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting
Standards No. 123 (revised 2004), &#147;Share-Based Payment&#148; (&#147;SFAS 123(R)&#148;).</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>SFAS 123(R) requires companies to estimate the fair value of equity-based payment awards on the date
of grant using an option-pricing model. The value of the portion of the award that is ultimately
expected to vest is recognized as an expense over the requisite service periods in the Company&#146;s
consolidated statement of operations. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company recognizes compensation expenses for the value of its awards, which have graded vesting
based on the accelerated method over the requisite service period of each of the awards, net of estimated
forfeitures. Estimated forfeitures are based on actual historical pre-vesting forfeitures.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company used the Black-Scholes option-pricing model through December 31, 2006 and the Binomial
option-pricing model (&#147;The Binomial model&#148;) for options granted thereafter, excluding a
grant to a consultant of the Company that was calculated in 2006 based on the Black-Scholes option-pricing
model and was granted in 2007. The impact of the option grant to the consultant on the basic and
diluted net income (loss) per share, had the Company accounted for such share-based compensation
using the Binomial model option pricing model instead of the Black-Scholes option-pricing model,
would not have been significant.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>For these reasons, the Company believes that the Binomial model provides a fair value that is more
representative of actual experience and future expected experience than that calculated using the
Black-Scholes model.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The fair value for the Company&#146;s stock options granted to employees and directors was estimated
using the following weighted-average assumptions:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In the Black-Scholes options pricing Model for the year:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>2006</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=5% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Dividend yield</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>0%</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=25% ALIGN=LEFT bgcolor="#FFFFFF"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Expected volatility</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>64%</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Risk-free interest rate</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>4.7%</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT bgcolor="#FFFFFF"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Expected forfeiture (employees)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>11%</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;Expected life (in years)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>5 years </FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT bgcolor="#FFFFFF"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Contractual term of up to</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2>10 years</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Black-Scholes option-pricing model requires a number of assumptions, of which the most significant
are expected stock price volatility and the expected option term. Expected stock price volatility
was calculated based upon actual historical stock price movements over the most recent periods ending
on the grant date, equal to the expected option term. The expected option term represents the period
that the Company&#146;s stock options are expected to be outstanding and was determined based on
historical experience of similar options, giving consideration to the contractual terms of the stock
options. The Company has not paid any cash dividend since 2003 and has no foreseeable plans to issue
dividends. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds
with an equivalent term to the expected life of the options.</FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 15 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 2:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In the Binomial Model for the years:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=5% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, serif" SIZE=2>Dividend yield</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=13% ALIGN=CENTER><FONT FACE="Times New Roman, Times, serif" SIZE=2>0%</FONT></TD>
    <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, serif" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=13% ALIGN=center><FONT FACE="Times New Roman, Times, serif" SIZE=2>0%</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, serif" SIZE=2>Expected volatility</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><font size="2" face="Times New Roman, Times, serif"> 51%-73% </font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><font size="2" face="Times New Roman, Times, serif"> 56%-65% </font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, serif" SIZE=2>Risk-free interest rate</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><font size="2" face="Times New Roman, Times, serif"> 3.46%-5.05% </font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><font size="2" face="Times New Roman, Times, serif"> 1.83% </font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, serif" SIZE=2>Expected forfeiture (employees)</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><font size="2" face="Times New Roman, Times, serif"> 11% </font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><font size="2" face="Times New Roman, Times, serif"> 11% </font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><font size="2" face="Times New Roman, Times, serif"> Expected forfeiture (executives) </font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><font size="2" face="Times New Roman, Times, serif"> 8% </font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><font size="2" face="Times New Roman, Times, serif"> 8% </font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, serif" SIZE=2>Contractual term of up to</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, serif" SIZE=2>10 years</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman, Times, serif" SIZE=2>10 years</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><font size="2" face="Times New Roman, Times, serif"> Suboptimal exercise multiple (employees) </font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=CENTER><font size="2" face="Times New Roman, Times, serif"> 2.48 </font></TD>
    <TD ALIGN=LEFT><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></TD>
    <TD ALIGN=center><font size="2" face="Times New Roman, Times, serif"> 2.48 </font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="2" face="Times New Roman, Times, serif"> Suboptimal exercise multiple (executives) </font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=CENTER><font size="2" face="Times New Roman, Times, serif"> 3 </font></TD>
    <TD ALIGN=LEFT><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></TD>
    <TD ALIGN=center><font size="2" face="Times New Roman, Times, serif"> 3 </font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The&nbsp;Binomial model for option pricing requires a number of assumptions, of which&nbsp;the most
significant are the suboptimal exercise factor and expected stock price volatility. The suboptimal
exercise factor is estimated using historical option exercise information. The suboptimal exercise
factor is the ratio by which the stock price must increase over the exercise price before employees
are expected to exercise their stock options. Expected volatility is based upon actual historical&nbsp;stock
price movements and was calculated as of the grant dates for different periods, since the Binomial
model can be used for different expected volatilities for different periods. The risk-free interest
rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term to the contractual
term of the options.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>During the years ended December 31, 2006, 2007 and 2008, the Company recognized stock-based compensation
expense related to employee stock options in the amount of $ 27, $ 434 and $&nbsp;244, respectively,
as follows:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="8"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Year ended December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="8"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>2006</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#CCEEFF">
    <TD WIDTH=5% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Cost of revenue</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><font size="2" face="Times New Roman">$</font></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> &#150;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><font size="2" face="Times New Roman">$</font></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 35</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><font size="2" face="Times New Roman">$</font></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 20</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Research and development</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>47</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>13</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#CCEEFF">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Selling and marketing</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>132</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>112</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>General and administrative</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>27</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>220</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>99</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#CCEEFF">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Total stock-based compensation expense</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><font size="2" face="Times New Roman">$</font></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 27</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><font size="2" face="Times New Roman">$</font></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 434</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><font size="2" face="Times New Roman">$</font></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 244</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD colspan="2" ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD colspan="2" ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD colspan="2" ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company accounts for stock option and warrant grants issued to non-employee using the guidance
of SFAS No. 123(R), &#147;Accounting for Stock-Based Compensation&#148; and EITF No. 96-18: &#147;Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services,&#148; whereby the fair value of such option and warrant grants is determined
using the Black-Scholes model at the earlier of the date at which the non-employee&#146;s performance
is completed or a performance commitment is reached. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Concentrations of credit risk</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Financial instruments that potentially subject the Company and its subsidiaries to concentration of
credit risk consist principally of cash and cash equivalents, short-term deposits, marketable securities
and trade receivables. </FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 16 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 2:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company&#146;s cash and cash equivalents and short-term deposits are invested primarily in deposits
with major banks worldwide, mainly in the United&nbsp;&nbsp;States and Israel, however, such cash
and cash equivalents and short-term deposits in the United States may be in excess of insured limits
and are not insured in other jurisdictions. Generally, these deposits may be redeemed upon demand
and, therefore, bear low risk. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company&#146;s marketable securities include investments in debentures of corporations, foreign
banks, governments and commercial debentures. Management believes that those corporations and governments
are financially sound and that the portfolios are well-diversified, and accordingly, low risk exists
with respect to these marketable securities.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Trade receivables of the Company and its subsidiaries are derived from sales to customers located primarily
in the United States, Europe, Japan and Israel. The Company performs ongoing credit evaluations of
its customers and to date, has not experienced any material losses. An allowance for doubtful accounts
is determined with respect to those amounts that the Company has determined to be doubtful of collection.
The doubtful accounts expense for the years ended December 31, 2006, 2007 and 2008 was $ 582, $ 255
and $&nbsp;444, respectively. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Discontinued operations</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Under SFAS No. 144, &#147;Accounting for the Impairment or Disposal of Long-Lived Assets,&#148; when
a component of an entity, as defined in SFAS 144, has been disposed of or is classified as held for
sale, the results of its operations, including the gain or loss on the disposed component, should
be classified as discontinued operations and the assets and liabilities of such component should
be classified as assets and liabilities attributed to discontinued operations; that is, provided
that the operations, assets and liabilities and cash flows of the component have been eliminated
from the Company&#146;s consolidated operations and the Company will no longer have any significant
continuing involvement in the operations of the component.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Comprehensive income (loss)</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company accounts for comprehensive income (loss) in accordance with SFAS No. 130, &#147;Reporting
Comprehensive Income.&#148; This statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose financial statements. Comprehensive
income (loss) generally represents all changes in shareholders&#146; equity during the period except
those resulting from investments by, or distributions to, stockholders. The Company determined that
its items of other comprehensive income (loss) relates to gain and loss on foreign currency translation
adjustments and unrealized gain and loss on available-for-sale marketable securities. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Derivative instruments</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company accounts for derivatives based on Statement of Financial Accounting Standard No. 133, &#147;Accounting
for Derivative Instruments and Hedging Activities&#148; (&#147;SFAS No. 133&#148;). SFAS No. 133
requires the company to recognize all derivatives on the balance sheet at fair value with changes
in the fair value carried to the statements of income included in the financial expenses.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>During 2006, 2007 and 2008, the Company recorded net income of $ 6, net loss of $ 89 and net loss of
$ 4, respectively, related to speculative forward transactions. </FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 17 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 2:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Besides the aforementioned foreign exchange contracts, the Company and its subsidiaries have no off-balance-sheet
concentration of credit risk such as option contracts or other foreign hedging arrangements.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Impact of recently issued Accounting Standards:</B></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In December 2007, the FASB issued SFAS No. 141 (revised 2007), &#147;Business Combinations&#148; (&#147;SFAS&nbsp;141R&#148;).
SFAS&nbsp;141R establishes principles and requirements for how an acquirer recognizes and measures
in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling
interest in the acquiree and the goodwill acquired. SFAS&nbsp;141R also establishes disclosure requirements
to enable the evaluation of the nature and financial effects of the business combination. SFAS&nbsp;141R
is effective for fiscal years beginning after December&nbsp;15, 2008. Earlier adoption is prohibited.
The impact of SFAS&nbsp;141R on the Company&#146;s consolidated results of operations and financial
condition will depend on the nature and size of acquisitions, if any, subsequent to the effective date. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In December 2007, the FASB issued SFAS No. 160, &#147;Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51.&#148; SFAS No. 160 establishes accounting and reporting standards
that require that the ownership interests in subsidiaries held by parties other than the parent be
clearly identified, labeled, and presented in the consolidated statement of financial position within
equity, but separate from the parent&#146;s equity; the amount of consolidated net income attributable
to the parent and to the noncontrolling interest be clearly identified and presented on the face
of the consolidated statement of income; and changes in a parent&#146;s ownership interest while
the parent retains its controlling financial interest in its subsidiary be accounted for consistently.
SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning
on or after December&nbsp;15, 2008. The Company does not expect the adoption of SFAS No. 160 to have
a significant impact on its consolidated financial statement.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In February 2008, the FASB issued FSP FAS No. 157-2, &#147;Effective Date of FASB Statement No. 157&#148;
(&#147;FSP FAS 157-2&#148;), to delay the effective date of FASB Statement 157 for one year for certain
nonfinancial assets and nonfinancial liabilities, excluding those that are recognized or disclosed
in financial statements at fair value on a recurring basis (that is, at least annually). For purposes
of applying the FSP FAS 157-2, nonfinancial assets and nonfinancial liabilities include all assets
and liabilities other than those meeting the definition of a financial asset or a financial liability
in FASB Statement 159. FSP FAS 157-2 defers the effective date of Statement 157 to fiscal years beginning
after November 15, 2008, and interim periods within those fiscal years for items within the scope
of this FSP FAS 157-2. The Company does not expect the adoption of FAS 157 with respect to certain
nonfinancial assets and nonfinancial liabilities, excluding those that are recognized or disclosed
in financial statements at fair value on a recurring basis (that is, at least annually)&nbsp;&nbsp;to
have a material impact on its financial position, results of operations or cash flows.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In April 2008, the FASB issued FSP FAS&nbsp;No. 142-3, &#147;Determination of the Useful Life of Intangible
Assets.&#148; FSP FAS No. 142-3 amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized intangible asset under
FASB Statement No. 142, &#147;Goodwill and Other Intangible Assets.&#148; FSP FAS No. 142-3 is effective
for fiscal years beginning after December&nbsp;15, 2008 and early adoption is prohibited. The adoption
of FAS&nbsp;No. 142-3 will not have an impact on the Company&#146;s consolidated financial statements. </FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 18 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE  3:-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; BUSINESS COMBINATION, SIGNIFICANT TRANSACTION AND SALE
OF BUSINESS</B></FONT></TD>
</TR>
<TR>
<TD width="38" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>a. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>As of January 2006, the Company held an 83.89% equity interest in Advanced Answer on Demand Holdings
Corp. (&#147;AAOD&#148;), a private Florida-based company that provides integrated software solutions
for the long-term healthcare industry. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In February 2006, in consideration of $ 1,910, the Company purchased the remaining 16.11% equity interest
in AAOD. As a result, the Company&#146;s interest in AAOD&#146;s share capital increased to 100%.
The purchase price was allocated, as follows:</FONT></TD></TR>
</TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#CCEEFF">
    <TD WIDTH=10% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Customer relations</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 314</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT>&nbsp;</TD>
    <TD WIDTH=30% ALIGN=LEFT bgcolor="#FFFFFF"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Acquired technology</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>216</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#CCEEFF">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Goodwill</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>990</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT bgcolor="#FFFFFF"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Minority interest</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>390</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#CCEEFF">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Total net assets acquired</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1,910</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT bgcolor="#FFFFFF"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>On December 30, 2007, the Company sold its entire holdings in AAOD in consideration of $&nbsp;17,000,
of which of $ 1,000 was received in December 2007 and $&nbsp;16,000 was received in March 2008. As
a result of the sale, the Company recorded a net gain of approximately $&nbsp;9,300 in 2007. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>AAOD&#146;s results have been classified as discontinued operations for the years ended December 31,
2006 and 2007 (see also Note 18).</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>b. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In December 2006, the Company sold CarPro Systems Ltd&#146;s (&#147;CarPro&#148;), a 90.48% owned Israeli-based
company, assets and liabilities, including the intellectual property (the RentPro and LeasePro software)
and its customer base, to its distributor CarPro Systems International B.V. (the &#147;Buyer&#148;).
Additionally, the Company sold to the Buyer a substantial number of licenses for the Company&#146;s
products for continued use in the ongoing maintenance and enhancement of the CarPro software products.
The aggregate sales price was $ 1,750 to be paid over a period of five years. The Company recognizes
the consideration from the sale of CarPro&#146;s operations on a cash basis and net of related expenses
(including goodwill and other intangible assets write-offs). Due to immateriality, CarPro&#146;s
results were not classified as discontinued operations.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>c. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In 2007, the Company decided to liquidate its Italian subsidiary. Consequently, Magic Software Enterprises
Italy S.r.l&#146;s (&#147;Magic Italy&#148;) results have been classified as discontinued operations
for the years ended December 31, 2006, 2007 and 2008 (see also Note 18). In March 2009, a liquidator
was appointed by the Company for Magic Italy. </FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 19 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE  4:-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; MARKETABLE SECURITIES</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Group invests in marketable debt and equity securities, which are classified as available-for-sale.
The following is a summary of marketable securities:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="23"><FONT FACE="Times New Roman" SIZE=1>December 31,</FONT></TH>

    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="23"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="11"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="11"><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="11"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="11"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">Amortized<br>
      cost </font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">Unrealized<br>
      losses </font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">Unrealized<br>
      gains </font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">Market<br>
      value</font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">Amortized<br>
      cost </font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">Unrealized <br>
      losses </font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">Unrealized <br>
      gains </font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">Market <br>
      value </font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=5% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1><u>Available-for-sale:</u></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Governmental<br>
&nbsp;&nbsp;&nbsp;&nbsp;debentures</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 1,306</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> (2</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 59</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 1,363</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 952</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> &#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 59</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 1,011</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Commercial<br>
&nbsp;&nbsp;&nbsp;&nbsp;debentures</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>2,540</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(16</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>90</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>2,614</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>2,306</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(10</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>44</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>2,340</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>Equity funds</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>249</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>(47</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>202</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>118</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>118</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1><u>Total</u><br>
&nbsp;&nbsp;&nbsp;&nbsp;available-for-sale<br>
&nbsp;&nbsp;&nbsp;&nbsp;marketable<br>
&nbsp;&nbsp;&nbsp;&nbsp;securities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 4,095</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> (65</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 149</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 4,179</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 3,376</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> (10</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 103</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=1> 3,469</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD><font size="1">&nbsp;</font></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The amortized costs of available-for-sale debt securities at December&nbsp;31, 2008, by contractual
maturities, are shown below<I>:</I></FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Unrealized gains (losses)</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Amortized cost</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Gains</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Losses</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Estimated<br>
      fair
      value </FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=5% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Due in one year or less</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1,460</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 3</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> (7</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1,456</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Due between one year to five years</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,221</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>44</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(3</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,262</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Due in more than five years</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>577</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>56</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>633</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 3,258</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 103</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> (10</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 3,351</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The actual maturity dates may differ from the contractual maturities because debtors may have the right
to call or prepay obligations without penalties.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In 2008, unrealized losses from debt securities are primarily attributable to the recent credit crisis
in capital markets. It is expected that the securities would not be settled at a price less than
the amortized cost of the Company&#146;s investment. Based on the ability of the Company to hold
these investments until recovery, the debentures were not considered to be other than temporarily
impaired at December&nbsp;31, 2008. During 2008, an other than temporary impairment on marketable
securities in the amount of $ 131 was recorded.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 5:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FAIR VALUE MEASURMENTS </B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Effective January&nbsp;1, 2008, the Company adopted SFAS 157 and effective October&nbsp;10, 2008, the
Company adopted FSP FAS No. 157-3, &#147;Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active, &#147;&nbsp;except as it applies to the nonfinancial assets
and nonfinancial liabilities subject to FSP FAS No. 157-2. SFAS 157 clarifies that fair value is
an exit price, representing the amount that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants. As such, fair value is a market-based
measurement that should be determined based on assumptions that market participants would use in
pricing an asset or a liability. As a basis for considering such assumptions, SFAS 157 establishes
a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in
measuring fair value: </FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 20 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 5:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FAIR VALUE MEASURMENTS (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Level&nbsp;1</B>- Observable inputs&nbsp;that reflect quoted prices (unadjusted) for identical assets or liabilities
in active markets. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Level&nbsp;2</B>- Includes other inputs that are directly or indirectly observable in the marketplace. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>Level&nbsp;3</B>- Unobservable&nbsp;inputs&nbsp;which are supported by little or no market activity.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In accordance with SFAS 157, the Company measures its cash equivalents, short-term deposits and marketable
securities at fair value. Cash equivalents, short-term deposits and marketable securities are classified
within Level 1. This is because these assets are valued using quoted market prices.</FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company&#146;s financial assets measured at fair value on a recurring basis, excluding accrued
interest components; consisted of the following types of instruments as of December 31, 2008:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="11"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Fair value measurements using input type</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="11"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Level 1</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>Level 2 </FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>Level 3 </FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Total</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=5% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><strong>Cash equivalents:</strong></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Money market funds</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 371</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> &#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> &#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 371</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><strong><FONT FACE="Times New Roman" SIZE=2>Short-term deposits</FONT></strong></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,810</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,810</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><strong><FONT FACE="Times New Roman" SIZE=2>Marketable securities:</FONT></strong></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Government and corporate debentures - fixed<br>
&nbsp;&nbsp;&nbsp;interest rate</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,351</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,351</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Equity Fund</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>118</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>118</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT>&nbsp;</TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT>&nbsp;</TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT>&nbsp;</TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT>&nbsp;</TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2><strong>Total Financials Assets</strong></FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 5,650</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> &#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> &#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 5,650</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD width=5% vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 6: - &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES</B></FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=5% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Short-term deposits and other accounts receivable</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 670</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 761</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Prepaid expenses</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>674</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>558</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Government authorities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>488</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>531</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Employee loans</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>53</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>40</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Other</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>30</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>43</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1,915</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1,933</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<p align=center><font size=2>F - 21 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 7:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PROPERTY AND EQUIPMENT</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=5% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Cost:</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Buildings and leasehold improvements</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 6,665</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 6,780</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Computers and peripheral equipment</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>9,861</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>9,955</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Office furniture and equipment</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,083</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,119</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Motor vehicles</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>196</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>145</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Software for internal use</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,264</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,455</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>22,069</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>21,454</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Accumulated depreciation:</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Buildings and leasehold improvements</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,943</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,201</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Computers and peripheral equipment</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>9,113</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>9,329</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Office furniture and equipment</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,508</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,670</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Motor vehicles</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>132</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>117</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Software for internal use</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,615</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,701</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>16,311</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>16,018</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Depreciated cost</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 5,758</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 5,436</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Depreciation expenses amounted to $ 1,232, $&nbsp;1,090 and $&nbsp;1,015 for the years ended December
31, 2006, 2007 and 2008, respectively. As for charges, see Note 16c.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 8:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;OTHER INTANGIBLE ASSETS</B></FONT></TD>
</TR>
<TR>
  <TD width="5%" vAlign=top></TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>a. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Intangible assets:</FONT></TD>
</TR>
<TR>
  <TD vAlign=top>&nbsp;</TD>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
</TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><font size="2" face="Times New Roman, Times, serif">Original amounts:</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD WIDTH=5% ALIGN=LEFT>&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Capitalized software costs</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 34,692</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 37,578</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Acquired technology and other</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,593</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,961</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>36,285</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>39,539</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Accumulated amortization:</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Capitalized software costs</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>24,087</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>26,922</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Acquired technology and other</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,517</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,961</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>25,604</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>28,883</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Amortized cost</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 10,681</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 10,656</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top></TD>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>b. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Amortization expenses amounted to $ 3,965, $&nbsp;2,708 and $&nbsp;2,600 for the years ended December&nbsp;31,
2006, 2007 and 2008, respectively.</FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 22 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 8:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;OTHER INTANGIBLE ASSETS (Cont.) </B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>c. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The estimated future amortization expense of other intangible assets as of December 31, 2008 is as
follows:</FONT></TD></TR>
</TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=10% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>2009</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 3,463</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT>&nbsp;</TD>
    <TD WIDTH=40% ALIGN=LEFT bgcolor="#FFFFFF"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>2010</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,772</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>2011</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2,049</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT bgcolor="#FFFFFF"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>2012</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,483</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>2013</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>845</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT bgcolor="#FFFFFF"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>2014 and thereafter</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>44</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT bgcolor="#FFFFFF"><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT bgcolor="#FFFFFF"><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT bgcolor="#FFFFFF"><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT bgcolor="#FFFFFF"><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT bgcolor="#FFFFFF"><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT bgcolor="#FFFFFF"><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT bgcolor="#cceeff"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT bgcolor="#cceeff"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT bgcolor="#cceeff"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT bgcolor="#cceeff"><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT bgcolor="#cceeff"><FONT FACE="Times New Roman" SIZE=2> 10,656</FONT></TD>
    <TD ALIGN=LEFT bgcolor="#cceeff"><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD colspan="2" vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 9:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GOODWILL</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The changes in the carrying amount of goodwill for the two years ended December 31, 2008 are as follows:</FONT></TD></TR>
</TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=5% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Balance as of December 31, 2006</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 15,693</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Foreign currency translation adjustments</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>293</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Balance as of December 31, 2007</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>15,986</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Foreign currency translation adjustments</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>843</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Balance as of December 31, 2008</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 16,829</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD width=5% vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 10:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SHORT-TERM CREDIT AND CURRENT MATURITIES OF LONG-TERM LOANS</B></FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>a. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Classified by currency, linkage terms and interest rates, the credit and loans are as follows:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Interest rate</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">2007</font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">2008</font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">2007</font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">2008</font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>%</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=10% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Short-term bank loans:</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;In, or linked to, U.S. dollars</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>6.48</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1,250</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> &#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;In, or linked to, Euro</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>5.63</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,479</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;In other currencies</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>5.25</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>705</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3 align="center"></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3 align="center"></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD></TD>
  </TR>
  <TR bgcolor="#cceeff">
    <TD bgcolor="#FFFFFF"></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3 align="center"></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font face="Times New Roman" size=2>3,434</font></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font face="Times New Roman" size=2>&#150;</font></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3 align="center"></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Short-term bank credit:</FONT></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=center><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=center><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=center><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=center><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;In other currencies</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>16</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>2</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3 align="center"></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3 align="center"></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3 align="center"></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font face="Times New Roman" size=2>&#150;</font></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font face="Times New Roman" size=2>2</font></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3 align="center"></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR bgcolor="#cceeff">
    <TD bgcolor="#FFFFFF">&nbsp;</TD>
    <TD><FONT FACE="Times New Roman" SIZE=2>Short-term credit :</FONT></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD align="center"></TD>
    <TD align="center"></TD>
    <TD align="center"></TD>
    <TD align="center"></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;In, or linked to, U.S. dollar</FONT></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD align="center"><FONT FACE="Times New Roman" SIZE=2>6.11-6.64</FONT></TD>
    <TD align="center"></TD>
    <TD align="center"></TD>
    <TD align="center"><FONT FACE="Times New Roman" SIZE=2>6.11-6.64</FONT></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font face="Times New Roman" size=2>117</font></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font face="Times New Roman" size=2>80</font></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD></TD>
  </TR>
  <TR bgcolor="#cceeff">
    <TD bgcolor="#FFFFFF"></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font face="Times New Roman" size=2>117</font></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font face="Times New Roman" size=2>80</font></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD><FONT FACE="Times New Roman" SIZE=2>Current maturities of long-term loans</FONT></TD>
    <TD></TD>
    <TD></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font face="Times New Roman" size=2>70</font></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font face="Times New Roman" size=2>65</font></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD></TD>
  </TR>
  <TR bgcolor="#cceeff">
    <TD bgcolor="#FFFFFF"></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD ALIGN=left><font face="Times New Roman" size=2>$</font></TD>
    <TD ALIGN=RIGHT><font face="Times New Roman" size=2>3,621</font></TD>
    <TD></TD>
    <TD ALIGN=left><font face="Times New Roman" size=2>$</font></TD>
    <TD ALIGN=RIGHT><font face="Times New Roman" size=2>147</font></TD>
    <TD></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<p align=center><font size=2>F - 23 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 10:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SHORT-TERM CREDIT AND CURRENT MATURITIES OF LONG-TERM LOANS (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>b.&nbsp;</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Credit line:</FONT></TD></TR>
<TR>
  <TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>As of December 31, 2008, the Company did not use any of its credit facilities with The First International
Bank of Israel Ltd. and Bank Hapoalim Ltd. As of December&nbsp;31, 2008, the Company has an unutilized
credit line of $&nbsp;210 and $&nbsp;132 at The First International Bank of Israel Ltd. and Bank
Hapoalim Ltd., respectively.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 11:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=5% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Employees and payroll accruals</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 3,468</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 3,956</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Accrued expenses</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4,267</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,475</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Government authorities and other</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,434</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,348</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 9,169</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 8,779</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD width=5% vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 12:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LONG-TERM LOANS</B></FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Long-term loans are composed as follows:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Interest rate</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">2007</font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">2008</font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">2007</font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
    <TH colspan="2"><font size="1" face="Times New Roman, Times, serif">2008</font></TH>
    <TH><font size="1" face="Times New Roman, Times, serif"></font></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH>&nbsp;</TH>
    <TH>&nbsp;</TH>
    <TH>&nbsp;</TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>%</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH>&nbsp;</TH>
    <TH>&nbsp;</TH>
    <TH>&nbsp;</TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=5% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>In U.S. dollar</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=center><FONT FACE="Times New Roman" SIZE=2>6.1-6.6</FONT></TD>
    <TD WIDTH=2% ALIGN=center>&nbsp;</TD>
    <TD WIDTH=1% ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&#150;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 56</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> &#150;</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>In Japanese Yen</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>3.23</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>2.59</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>117</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>88</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>In other currencies</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>5.5</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=center><FONT FACE="Times New Roman" SIZE=2>6.5</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>29</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>10</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Less - current maturities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(70</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(65</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 132</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 33</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=3></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD width=5% vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 13:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TAXES ON INCOME</B></FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>a. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Israeli Taxation:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>1. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Tax rates: </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=15%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Taxable income of Israeli companies is subject to tax at the rate of 31% in 2006, 29% in 2007, 27%
in 2008, 26% in 2009 and 25% in 2010 and thereafter. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>2. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Measurement of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=15%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>According to the Income Tax (Inflationary Adjustments) Law, 1985, until 2007, the results for tax purposes
were measured adjusted for changes in the Israeli consumer price index.</FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 24 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 13:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TAXES ON INCOME (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=15%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In February 2008, the Israeli parliament passed an amendment to the Income Tax (Inflationary Adjustments)
Law, 1985, which limits the scope of the law starting 2008 and thereafter. Starting 2008, the results
for tax purposes are measured in nominal values, excluding certain adjustments for changes in the
Israeli consumer price index carried out in the period up to December 31, 2007. The amendment to
the law includes, among other things, the elimination of the inflationary additions and deductions
and the additional deduction for depreciation starting 2008</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>3. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the &#147;Law&#148;):
</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=15%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Certain production and development facilities of the Company have been granted &#147;Approved Enterprise&#148;
status pursuant to the Law, which provides certain tax benefits to its investment programs. For these
programs, the Company has elected the alternative benefits track, waiving grants in return for tax
exemptions. Pursuant thereto, the income of the Company derived from the &#147;Approved Enterprise&#148;
programs is tax-exempt for periods of two to four years and will be eligible for reduced tax rates
for additional periods of five to eight years (such reduced tax rates are dependent on the level
of foreign investments in the Company).</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=15%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The period of benefits for those expansions has not yet commenced.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=15%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The tax benefit periods provided end at the earlier of 12 years from the commencement of production
or 14 years from receipt of the approval for the Approved Enterprise. As the Company currently has
no taxable income in Israel, these benefits have not yet commenced. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=15%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The benefits available to an Approved Enterprise are conditional upon the fulfillment of conditions
stipulated in the Law and its regulations and the criteria set forth in the specific letters of approval.
In the opinion of the Company&#146;s management, the Company has been in full compliance with the
conditions of the above programs through December&nbsp;31, 2008.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=15%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>If dividends were to be distributed out of tax-exempt profits deriving from an &#147;Approved Enterprise,&#148;
the Company would be liable for corporate tax at a rate of 25%. The Company does not anticipate paying
dividends in the foreseeable future.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=15%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>On April 1, 2005, an amendment to the Investment Law came into effect (&#147;the Amendment&#148;) that
has significantly changed the provisions of the Investment Law. The Amendment limits the scope of
enterprises that may be approved by the Investment Center by setting criteria for the approval of
a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of
the Approved Enterprise&#146;s income will be derived from export. Additionally, the Amendment enacted
major changes in the manner in which tax benefits are awarded under the Investment Law so that companies
no longer require Investment Center approval in order to qualify for tax benefits.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>4. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company has final tax assessments through the year 1996.</FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 25 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 13:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TAXES ON INCOME (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>b. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Net operating loss carryforwards:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>As of December 31, 2008, the Company and its Israeli subsidiaries had operating loss carryforwards
of approximately $ 40,602, which can be carried forward and offset against taxable income in the
future for an indefinite period.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company&#146;s subsidiaries in Europe and Japan had estimated total available tax loss carryforwards
of $ 10,835 and $&nbsp;2,304 in 2008, respectively, to offset against future taxable income for 15-20
years and two years, respectively.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>c.&nbsp;</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Income (loss) before taxes on income:</FONT></TD></TR>
<TR>
  <TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="8"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Year ended December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="8"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2006</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD width="10%" ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Domestic</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> (2,414</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> (2,735</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1,370</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Foreign</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(3,688</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>4,348</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>3,345</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> (6,102</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1,613</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 4,715</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
  <TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>d.</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Taxes on income:</FONT></TD></TR>
<TR>
  <TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Taxes on income consist of the following:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="8"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1>Year ended December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="8"><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><FONT FACE="Times New Roman" SIZE=1></FONT><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2006</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH>&nbsp;</TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=10% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Current:</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2></FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Domestic</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 1</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> &#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 16</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;&nbsp;&nbsp;Foreign</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>309</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>362</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>183</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Taxes on income</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 310</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 362</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 199</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
  <TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>e.</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Deferred income taxes:</FONT></TD></TR>
<TR>
  <TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company and its subsidiaries deferred tax assets are as follows:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
  <TR VALIGN=Bottom>
    <TH><font size="1" face="Times New Roman"></font></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5"><FONT FACE="Times New Roman" SIZE=1>December 31,</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><font size="1" face="Times New Roman"></font></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="5">
    <HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><font size="1" face="Times New Roman"></font></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>2007</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2"><FONT FACE="Times New Roman" SIZE=1>2008</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><font size="1" face="Times New Roman"></font></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2">
    <HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH colspan="2">
    <HR NOSHADE COLOR=#000000 SIZE=1></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom>
    <TH><font size="1" face="Times New Roman"></font></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
    <TH><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD WIDTH=10% ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net operating loss carryforwards</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 14,859</FONT></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> 13,922</FONT></TD>
    <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Allowances and reserves</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>1,283</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>687</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>16,142</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>14,609</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Less: valuation allowance</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(16,142</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>(14,609</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=RIGHT><font size="1" face="Times New Roman">&nbsp;</font></TD>
    <TD ALIGN=LEFT><font size="1" face="Times New Roman">&nbsp;</font></TD>
  </TR>
  <TR VALIGN=Bottom bgcolor="#cceeff">
    <TD ALIGN=LEFT bgcolor="#FFFFFF">&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Net deferred tax assets</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> &#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>$</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2> &#150;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=4></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
    <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD>
    <TD></TD>
  </TR>
</TABLE>
<p align=center><font size=2>F - 26 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 13:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TAXES ON INCOME (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company and its subsidiaries provided a 100% valuation allowance against the deferred tax assets&nbsp;relating
to its tax loss carryforwards and other temporary differences due to uncertainty concerning its ability
to realize these deferred tax assets in the foreseeable future.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>f. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Reconciliation of the theoretical tax expense to the actual tax expense:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The main reconciling items of the statutory tax rate of the Company (2006 - 31%, 2007 - 29% and 2008-
27%) to the effective tax rate (0%, 22% and 4%, respectively) are valuation allowances provided for
deferred tax assets (in all reported periods).</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Tax expenses mainly represent taxes for a limited number of subsidiaries that do not have net operating
loss carryforwards. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>No tax asset was recorded since the Company&#146;s management currently believes it is more likely
than not those deferred tax assets will not be realized in the foreseeable future. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>g. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company adopted the provisions of FIN 48 as of January 1, 2007. The impact of adopting FIN 48 is
estimated at $ 530 on the Company&#146;s shareholder&#146;s equity and an impact of $ 50 and $ 16
on the Company&#146;s tax expenses during the year ended December 31, 2007 and 2008, respectively. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Interest associated with uncertain income tax positions and penalties expense are classified as income&nbsp;tax
expenses. The Company has not recorded any material interest or penalties during any of the years
presented.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>A reconciliation&nbsp;of the beginning and ending balances of the total amounts of gross unrecognized
tax benefits is as follows:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Gross unrecognized tax positions at January&nbsp;1, 2008 </font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="10%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 580 </font></td>
    <td width="1%" valign="top" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%" valign="top" bgcolor="#FFFFFF">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> &nbsp;&nbsp;&nbsp;Increases in tax positions for prior years </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 12 </font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> &nbsp;&nbsp;&nbsp;Increases in tax positions for current years </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 4 </font></td>
    <td valign="top" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top" bgcolor="#FFFFFF">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="top"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="top"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> &nbsp;&nbsp;&nbsp;Gross unrecognized tax benefits at December&nbsp;31, 2008 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 596 </font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 noshade COLOR=#808080></td>
    <td valign="top">&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
</table>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top></TD>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Increase in tax positions for prior years is a result of interest and penalties.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 14:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SHAREHOLDERS&#146; EQUITY</B></FONT></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>a. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Ordinary shares of the Company are listed on the NASDAQ Global Market in the United States and
are traded on the Tel-Aviv Stock Exchange in Israel.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>b. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Treasury shares</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company&#146;s Board of Directors resolved to authorize the Company to repurchase its shares, from
time to time, in the open market or in other transactions. Accordingly, through the end of 2008,
the Company repurchased 1,465,368 of its Ordinary shares for an aggregate amount of $ 6,772.</FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 27 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="3" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 14:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SHAREHOLDERS&#146; EQUITY (Cont.)</B></FONT></TD>
</TR>
<TR>
  <TD vAlign=top></TD>
  <TD vAlign=top></TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
  <TD width="5%" vAlign=top></TD>
<TD width="5%" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>c.</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Stock Option Plan:</FONT></TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Under the Company&#146;s 1991, 2000 and 2007 Stock Option Plans, as amended (collectively, the &#147;plans&#148;),
options may be granted to employees, officers, directors and consultants of the Company and its subsidiaries.
Pursuant to the plans, the Company reserved for issuance 6,750,000, 4,600,000 and 1,500,000 Ordinary
shares, respectively. As of December 31, 2008, an aggregate of 1,628,703 Ordinary shares of the Company
are still available for future grants. Each option granted under the plans is exercisable for a period
of ten years from the date of the grant of the option. The 2000 plan will expire on May 5, 2010 and
the 2007 plan will expire on August 1, 2017. No options were granted under the 1999 plan after July
31, 2001. The option&#146;s exercise price for each option shall be determined by the Board of directors
and set forth in the Company&#146;s award agreement. Unless determined otherwise by the Board of
directors, the option exercise price shall be equal to, or higher than the share market price at
the grant date. The options generally vest over three years. Any option that is forfeited or canceled
before expiration becomes available for future grants under the plans.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>A summary of employee option activity under the Company&#146;s stock option plans as of December 31, 2008 and changes during the year ended December 31, 2008 are as follows:</FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Number </strong> <strong> <br>
      of options </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Weighted <br>
      average <br>
      exercise <br>
      price </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Weighted <br>
      average <br>
      remaining <br>
      contractual <br>
      term </strong> <strong> <br>
      (in years) </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Aggregate<br>
      intrinsic value <br>
      (in thousands) </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Outstanding at the January 1, 2008 </font></td>
    <td width="2%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 3,673,528 </font></td>
    <td width="2%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2.22 </font></td>
    <td width="2%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="2%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Granted </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 145,000 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 1.12 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Exercised </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> (351,830</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">)</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 0.65 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Forfeited </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> (1,076,653</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">) </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 2.35 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Outstanding at December 31, 2008 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2,390,045 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2.31 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 6.4 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 109 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Exercisable at December 31, 2008 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 1,581,051 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 2.53 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 5.12 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 86 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Vested and expected to vest at December 31, 2008 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2,113,510 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2.37 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 6.07 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 105 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>A summary of employee option activity under the Company&#146;s stock option plans as of December 31,
2008 whose vesting is contingent upon meeting various departmental and companywide performance goals,
including revenue growth and net gain index is as follows:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Number </strong> <strong> <br>
      of options </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Weighted <br>
      average <br>
      exercise <br>
      price </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Weighted <br>
      average <br>
      remaining contractual <br>
      term </strong> <strong> <br>
      (in years) </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Aggregate<br>
      intrinsic value <br>
      (in thousands) </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 noshade COLOR=#000000></td>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 noshade COLOR=#000000></td>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 noshade COLOR=#000000></td>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 noshade COLOR=#000000></td>
    <td valign="bottom"><font face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Outstanding at the January 1, 2008 </font></td>
    <td width="2%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">713,334</font></td>
    <td width="2%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2.08</font></td>
    <td width="2%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="2%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Granted </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">100,000</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 1.12</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Exercised </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&#150;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff">&nbsp;</td>
    <td valign="bottom" bgcolor="#cceeff">&nbsp;</td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&#150;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Forfeited </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> (88,333</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">) </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">2.35</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 noshade COLOR=#808080></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 noshade COLOR=#808080></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Outstanding at December 31, 2008 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">725,001</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">1.76</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">8.9</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 16</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Exercisable at December 31, 2008 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 219,334 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 2.04</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">8.8</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> &#150;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Vested and expected to vest at December 31, 2008 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 463,576 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">1.92</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">8.9</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> -13</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<p align=center><font size=2>F - 28 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 14:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SHAREHOLDERS&#146; EQUITY (Cont.)</B></FONT></P>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>A summary of employee option activity under the Company&#146;s stock option plans as of December 31,
2006 and 2007 and changes during the years ended on those dates, are as follows:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="2%" valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="11" valign="bottom"><font size="1" face="Times New Roman, Times, serif"> <strong>Year ended December 31, </strong></font></td>
    <td width="1%" valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="11" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong>2006 </strong></font></td>
    <td width="2%" valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong>2007 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="5" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="5" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Number </strong> <strong> <br>
      of options </strong></font></td>
    <td width="2%" valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Weighted <br>
      average <br>
      exercise <br>
      price </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Number </strong> <strong> <br>
      of options </strong></font></td>
    <td width="2%" valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Weighted <br>
      average <br>
      exercise <br>
      price </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Outstanding at the beginning of the year </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 3,061,216 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2.62 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2,352,632 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2.52 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Granted </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 62,000 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 1.69 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 1,773,332 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 1.78 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Exercised </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> (253,346</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">)</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 1.11 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> (218,205</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">)</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 1.18 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Forfeited </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> (517,238</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">)</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 3.41 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> (234,231</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">)</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 2.98 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 noshade COLOR=#808080></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 noshade COLOR=#808080></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 noshade COLOR=#808080></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 noshade COLOR=#808080></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Outstanding at the end of the year </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2,352,632 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2.52 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 3,673,528 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2.22 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Exercisable at the end of the year </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 2,290,632 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 2.54 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 2,407,532 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 2.22 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
</table>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>During 2007 and 2008, the Company granted selected executives and other key employees options to purchase
825,000 Ordinary Shares and 100,000 Ordinary Shares, respectively, with vesting contingent upon meeting
various departmental and companywide performance goals, including revenue growth and net gain index.
The options have an exercise price equal to the fair market value of the Company&#146;s Ordinary
Shares on the date of the grants, contingently vest over a period of four years, and are for a term
of ten years. The fair value of those options was estimated on the date of grant using the same option
valuation model used for the other options granted. If such goals are not met, no compensation cost
is recognized and any recognized compensation cost is reversed. The inputs for expected volatility,
expected dividends, expected term and risk-free rate used in estimating those options&#146; fair
value are the same as those noted in the table related to options issued under the plans. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The weighted-average grant-date fair value of options granted during the year ended December 31, 2006,
2007 and 2008 were $ 0.98, $&nbsp;1.31 and $&nbsp;0.68, respectively. The aggregate intrinsic value
in the table above represents the total intrinsic value that would have been received by the option
holders had all option holders exercised their options on December&nbsp;31, 2008. This amount is
changed based on the fair market value of the Company&#146;s shares. Total intrinsic value of options
exercised for the year ended December 31, 2006, 2007 and 2008 were $&nbsp;161, $&nbsp;168 and $&nbsp;383,
respectively. As of December 31, 2008, there was $&nbsp;218 of total unrecognized compensation cost
related to non-vested share-based compensation arrangements granted under the Company&#146;s stock
option plans. This cost is expected to be recognized over a period of approximately three years. </FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 29 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
</TABLE>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 14:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SHAREHOLDERS&#146; EQUITY (Cont.)</B></FONT></P>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The options outstanding as of December 31, 2008, have been separated into ranges of exercise price
categories, as follows:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Exercise price </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> &nbsp;</strong></font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Options <br>
      outstanding </strong> <strong> <br>
      as of </strong> <strong> <br>
      December 31, <br>
      2008 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> &nbsp;</strong></font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Weighted <br>
      average <br>
      remaining <br>
      contractual life <br>
      (years) </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> &nbsp;</strong></font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Weighted <br>
      average <br>
      exercise <br>
      price </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> &nbsp;</strong></font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Options <br>
      exercisable </strong> <strong> <br>
      as of </strong> <strong> <br>
      December 31, <br>
      2008 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> &nbsp;</strong></font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Weighted <br>
      average <br>
      exercise <br>
      price </strong> <strong> of <br>
      exercisable<br>
    </strong> <strong> options </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="2%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="10%" align="center" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 0-1 </font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="10%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 106,938 </font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="10%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 4 </font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="10%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 0.89 </font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="10%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 106,938 </font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="10%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 0.89 </font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 1-2 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 1,451,132 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 7 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 1.55 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 802,132 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 1.37 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="center" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2-3 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 251,999 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 8 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2.35 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 92,005 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2.35 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 3-4 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 292,196 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 5 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 3.86 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 292,196 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 3.86 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="center" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 4-5 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 176,169 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 5 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 4.08 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 176,169 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 4.08 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 5-6 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 92,500 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 5 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 5.95 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 92,500 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 5.95 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="center" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 6-7 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 711 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 1 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 6.14 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 711 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 6.14 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 10-11 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 18,400 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 1 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 10.16 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 18,400 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 10.16 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td align="right" valign="bottom">&nbsp;</td>
    <td align="left" valign="bottom">&nbsp;</td>
    <td colspan="2" align="left" valign="bottom">&nbsp;</td>
    <td align="left" valign="bottom">&nbsp;</td>
    <td align="left" valign="bottom">&nbsp;</td>
    <td align="right" valign="bottom">&nbsp;</td>
    <td align="left" valign="bottom">&nbsp;</td>
    <td align="left" valign="bottom">&nbsp;</td>
    <td align="right" valign="bottom">&nbsp;</td>
    <td align="left" valign="bottom">&nbsp;</td>
    <td colspan="2" align="left" valign="bottom">&nbsp;</td>
    <td align="left" valign="bottom">&nbsp;</td>
    <td align="left" valign="bottom">&nbsp;</td>
    <td align="right" valign="bottom">&nbsp;</td>
    <td align="left" valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2,390,045 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 6 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2.31 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 1,581,051 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2.53 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
</table>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Stock-based compensation expense, recognized as general and administrative expense, for options granted
to non employees amounted to $ 19 for the year ended December 31, 2007.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>d. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Accumulated other comprehensive income (loss)</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><strong><font size="1" face="Times New Roman, Times, serif"> &nbsp;</font></strong></td>
    <td colspan="5" valign="bottom"><strong><font size="1" face="Times New Roman, Times, serif"> Year ended December 31, </font></strong></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><strong><font size="1" face="Times New Roman, Times, serif"> &nbsp;&nbsp;</font></strong></td>
    <td colspan="2" valign="bottom"><strong><font size="1" face="Times New Roman, Times, serif"> 2007 </font></strong></td>
    <td valign="bottom"><strong><font size="1" face="Times New Roman, Times, serif"> &nbsp;&nbsp;</font></strong></td>
    <td colspan="2" valign="bottom"><strong><font size="1" face="Times New Roman, Times, serif"> 2008 </font></strong></td>
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">Accumulated realized and unrealized gain on available-for-sale securities, net </font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 85 </font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 93 </font></td>
    <td width="1%" align="left" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">Accumulated foreign currency translation adjustments </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">(581</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">)</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">(62</font></td>
    <td align="left"><font size="2" face="Times New Roman, Times, serif">)</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade>
    </td>
    <td align="left"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Total other comprehensive income (loss) </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> (496</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">)</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 31 </font></td>
    <td align="left" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD width=5% vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 15:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SELECTED STATEMENTS OF OPERATIONS DATA</B></FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>a. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Research and development costs, net:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr align="center">
    <td valign="bottom"><font size="1">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="8" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Year ended December 31,</strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1">&nbsp;</font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="8" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong>2006 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2007 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> &nbsp;&nbsp;</strong></font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2008 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Total costs </font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 5,944 </font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 5,743 </font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 4,927 </font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Less - capitalized software costs </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> (3,482</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">)</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> (3,027</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">)</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> (2,577</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">)</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Research and development, net </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2,462 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2,716 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2,350 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top></TD>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>b. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Financial income, net:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Interest and bank charges </font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> (127</font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">)</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> (12</font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">)</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 485 </font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Other than temporary losses of Marketable Securities </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> &#150;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> &#150;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> (131</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">)</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Gain arising from foreign currency transactions </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 459 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 173 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 94 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Financial income, net </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 332 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 161 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 448 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<p align=center><font size=2>F - 30</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 15:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>c. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>On August 16, 2006, the Company&#146;s board of directors approved a comprehensive global restructuring
plan (the &#147;Plan&#148;). The Plan establishes the terms of the benefit arrangement, including
the benefits that employees will receive upon termination. In accordance with Statement of Financial
Accounting Standard No. 146, &#147;Accounting for Costs Associated with Exit or Disposal Activities&#148;
(&#147;SFAS No. 146&#148;) the Company recorded $ 1,365 related to one-time termination benefits
provided to terminated employees in 2006. As of December 31, 2006, all termination benefits were
paid and substantially all terminated employees no longer provide services to the Company. In addition,
during 2006, the Company wrote- off certain intangible assets related to the restructuring plan and
incurred other exit costs in the amounts of $&nbsp;309 and $&nbsp;483, respectively. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 16:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;COMMITMENTS AND CONTINGENTIES</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>a. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Lease commitments:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Certain of the facilities, motor vehicles and equipment of the Company and its subsidiaries are rented
under long-term operating lease agreements. Future minimum lease commitments under non-cancelable
operating leases as of December 31, 2008, are as follows:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2009 </font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2,250 </font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="15%" valign="bottom" bgcolor="#FFFFFF">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 2010 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 791 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2011 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 359 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#FFFFFF">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 2012 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 11 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2013 and thereafter </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 10 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#FFFFFF">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 3,421 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
  </tr>
</table>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Rent expenses for the years ended December 31, 2006, 2007 and 2008, were approximately $&nbsp;1,274,
$&nbsp;1,116&nbsp;and $&nbsp;1,198, respectively.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>b. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Guarantees:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company has provided two of its clients with bank guarantees totaling $ 64, which is linked to
the New Israeli Shekel and valid through&nbsp;November 2009.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>c. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Charges:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In respect of a lease agreement, the Company placed a lien on the leased computer equipment.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>d. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Legal proceedings:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Lawsuits have been brought against the Company in the ordinary course of business. The Company intends
to defend itself vigorously against those lawsuits.</FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 31</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 16:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;COMMITMENTS AND CONTINGENTIES (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>1. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In June 2004, an Israeli company filed a lawsuit against the Company in the Tel-Aviv District Court
seeking damages of NIS 8 million (approximately $ 2,104), with a possibility to increase the amount
sought to approximately NIS 17 million (approximately $ 4,471), for recovery of alleged damages caused
to the plaintiff by the Company&#146;s failure to integrate a software system. During the last three
years, the parties tried to settle the case with an external mediator. This attempt failed in late
2008 and the parties returned to the court to proceed with the court proceedings. Preliminary court
proceedings have commenced, such as disclosure of documents and questionnaires. As of December 31,
2008, the Company&#146;s management, due to the preliminary stage of the litigation, and based on
its legal advisors opinion, cannot predict the outcome of the lawsuit nor can they make any estimate
of the amount of damages; therefore, no provision has been made for the lawsuit.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=10%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>2. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In May 2005, a former client of the Company&#146;s subsidiary, Magic Software Enterprises (Israel)
Ltd., filed a lawsuit against the subsidiary claiming an alleged breach of the agreement between
the parties. The plaintiff is seeking damages in the amount of $ 361. The claim was moved to arbitration.
The Company&#146;s management, due to the preliminary stage of this litigation and based on its legal
advisors opinion, cannot predict the outcome of the lawsuit nor can they make any estimate of the
amount of damages; therefore, no provision has been made for the lawsuit.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=10%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>3. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In March 2006, a client of the Company&#146;s subsidiary, Magic Software Enterprises France, filed
a lawsuit against the subsidiary in the commercial court in Paris claiming an alleged breach of the
agreement between the parties. The plaintiff is seeking damages in the amount of &#128;&nbsp;488
(approximately $ 680). The Company&#146;s management, due to the preliminary stage of this litigation
and based on its legal advisors opinion, cannot predict the outcome of the lawsuit nor can they make
any estimate of the amount of damages; therefore, no provision has been made for the lawsuit.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=10%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>4. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In May 2007, a former CEO of the Company&#146;s subsidiary filed a lawsuit against the subsidiary&nbsp;claiming an alleged breach of the agreement between him and the Company&#146;s subsidiary, and he is
seeking damages in the amount of $ 438. The claim had been moved to arbitration, which commenced
during 2008. The claim is in its final stages. The Company, based on its legal advisors opinion,
recorded an appropriate provision to cover the outcome of the claim.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=10%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>5. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In 2006, a subcontractor of the Company&#146;s Italian subsidiary filed a lawsuit against the subsidiary
in the court of Milan, claiming an alleged breach of the agreement between the parties. The plaintiff
is seeking damages in the amount of &#128; 524 (approximately $&nbsp;730). The Company&#146;s management,
based on its legal advisors opinion, recorded an appropriate provision to cover the outcome of the
claim. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>e. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Royalty commitments:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>1. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Government of Israel, through the Fund for the Encouragement of Marketing Activities (&#147;the
Fund&#148;), awarded the Company grants for participation in its foreign marketing expenses. The
Company received an aggregate amount of grants of $ 1,526 for the years up to and including 2005.
The Company is committed to pay royalties at the rate of 3% of the increase in exports, up to the
amount of the grants. As of December 31, 2008, the remaining contingent obligation of the Company
amounted to $&nbsp;341.</FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 32</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 16:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;COMMITMENTS AND CONTINGENTIES (Cont.)</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>2. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company was committed to pay royalties to Enformia Software Ltd. (&#147;Enformia&#148;) equal to
40% of any sale of products related to the intellectual property purchased from Enformia and to comply
with all of the terms required by the Office of the Chief Scientist (&#147;OCS&#148;) in connection
with its research and development grants awarded to Enformia. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=15%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>As of December 31, 2008, the aggregate liability to the OCS for Enformia products amounted to $&nbsp;5.
During the years ended December 31, 2007 and 2008, the Company has paid and accrued royalties to
Enformia relating to sales of its product in the amount of $ 11 and $ 38, respectively. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=15%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>In January 2007, the Company sold the above mentioned intellectual property to Axcepia Technologies
Ltd. (&#147;Axcepia&#148;). Under the agreement, in consideration for the transfer and assignment
of the Company&#146;s rights in and to the Enformia technology, Axcepia agreed to pay the Company
a commission equal to 50% of its revenues derived from sales to customers who held licenses to use
the technology for a period of five years as of the date of the agreement. In addition, commencing
as of six months from the date of the agreement, Axcepia agreed to pay the Company a commission equal
to 20% of the revenues it derived from the provision of maintenance and support services relating
to the iBOLT Portal technology, for a period of five years from the date of the agreement. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=10%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>3. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Group is committed to pay royalties of 1.75% of gross sales of the Hermes application, including
license fees and all services fees to Menzies Aviation Plc (Menzies) for a period of five years until
mid of 2009. For the year ended December 31, 2008, the Group has paid and accrued royalties to Menzies
relating to sales of the product in the amount of $65.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="3" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 17:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NET EARNINGS (LOSS) PER SHARE</B></FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The following table sets forth the computation of basic and diluted net earnings (loss) per share:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="center" valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="8" align="center" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Year ended December 31, </strong></font></td>
    <td align="center" valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1">&nbsp;</font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="8" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="center" valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2006 </strong></font></td>
    <td align="center" valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2007 </strong></font></td>
    <td align="center" valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2008 </strong></font></td>
    <td align="center" valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Numerator for basic and diluted earnings (loss) per <br>
&nbsp;&nbsp; share - net income (loss) available to shareholders </font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> (5,006</font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">)</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 12,608 </font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 4,508 </font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Weighted average shares outstanding: </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Denominator for basic net earnings (loss) per share </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 31,184 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 31,443 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 31,769 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Effect of dilutive securities </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> *) &#150; </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 580 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 263 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Denominator for diluted net earnings (loss) per share </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 31,184 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 32,023 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 32,032 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Basic net earnings (loss) per share </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> (0.16</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">) </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 0.40 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 0.14 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Diluted net earnings (loss) per share </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff">&nbsp;</td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> (0.16</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">) </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 0.39 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 0.14 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade>
    </td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top></TD>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=10%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>*) </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Anti dilutive.</FONT></TD></TR></TABLE>
<p align=center><font size=2>F - 33</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE  18:-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; DISCONTINUED OPERATIONS</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>During 2007, the Company disposed two of its subsidiaries (AAOD and Magic Italy), which met the definition
of a component under SFAS 144. Accordingly, the results of operations of these subsidiaries and businesses
and the gain resulting from the disposals have been classified as discontinued operations in the
statement of operations and prior periods results have been reclassified accordingly. In addition,
comparative data of the assets and liabilities attributed to the discontinued operations have been
reclassified in the balance sheet. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>a. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The following are the results of discontinued operations for the years ended December 31, 2006, 2007.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Year ended December 31 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="5" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1">&nbsp;&nbsp;&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2006 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2007 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Revenues </font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 9,415 </font></td>
    <td width="3%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 11,650 </font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Cost of revenues </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 3,577 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 4,349 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Gross profit </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 5,838 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 7,301 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom">&nbsp;</td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Operating expenses, net </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 4,329 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 5,099 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Operating income </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 1,509 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2,202 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom">&nbsp;</td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Other income (expenses) </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> (174 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">)</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 9,281 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Taxes on income </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 15 </font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 18 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Net income </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 1,320 </font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 11,465 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=10%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Revenues relating to discontinued operations for the years ended December 31, 2006, 2007 were as follows:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Year ended December 31 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="5" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1">&nbsp;&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2006 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2007 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> AAOD </font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 9,241 </font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 11,611 </font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Magic Italy </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 174 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 39 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 9,415 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 11,650 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top></TD>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top width=5%><FONT face="Times New Roman, Times, Serif" size=2>b. </FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The breakdown of assets and liabilities attributed to discontinued operations of the Company as of
December 31, 2007 and 2008 was as follows:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr align="center" valign="bottom">
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="5"><font size="1" face="Times New Roman, Times, serif"><strong> December 31</strong></font></td>
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td colspan="5"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td>&nbsp;</td>
  </tr>
  <tr align="center" valign="bottom">
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="1">&nbsp;&nbsp;</font></td>
    <td colspan="2"><font size="1" face="Times New Roman, Times, serif"><strong> 2007</strong></font></td>
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="1" face="Times New Roman, Times, serif"><strong> 2008</strong></font></td>
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center" valign="bottom">
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td width="10%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Assets: </font></td>
    <td width="3%" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="9%" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="3%" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="9%" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents </font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif"> 22 </font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif"> 1 </font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade receivables, net </font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 9 </font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 4 </font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other receivables and prepaid expenses </font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif"> 9 </font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif"> 25 </font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment, net </font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 1 </font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 1 </font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td align="left"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif"> 41 </font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif"> 31 </font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Liabilities: </font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade payables </font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif"> 250 </font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif"> 237 </font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other payables and accrued expenses </font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 253 </font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 135 </font></td>
    <td bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td align="left"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif"> 503 </font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right"><font size="2" face="Times New Roman, Times, serif"> 372 </font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td align="left"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<p align=center><font size=2>F - 34</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO FINANCIAL STATEMENTS</FONT></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></P></TD>
  </TR>
</TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD colspan="2" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><B>NOTE 19:- &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GEOGRAPHIC INFORMATION</B></FONT></TD>
</TR>
<TR>
<TD width="5%" vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Summary information about geographic areas:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company manages its business on the basis of one reportable segment (see Note 1 for a brief description
of the Company&#146;s business). The Company&#146;s business is divided into the following geographic
areas: Israel, Europe, the United States, Japan and other regions. Total revenues are attributed
to geographic areas based on the location of the customers.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>This data is presented in accordance with SFAS No. 131, &#147;Disclosures about Segments of an Enterprise
and Related Information&#148; (&#147;SFAS No. 131&#148;).</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The following table presents total revenues classified according to geographical destination for the
years ended December 31, 2006, 2007 and 2008:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="8" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> Year ended December 31, </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="8" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2006 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2007 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2008 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Israel </font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 4,307 </font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 4,471 </font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 4,760 </font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Europe </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 21,713 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 24,916 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 25,359 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> United States </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 13,995 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 18,612 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 20,096 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Japan </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 10,223 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 9,080 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 10,110 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Other </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 2,333 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 1,349 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 1,655 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 52,571 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 58,428 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 61,980 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<TABLE  cellSpacing="0" cellPadding="0" border="0" width="100%">

<TR>
  <TD vAlign=top></TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>The Company&#146;s long-lived assets are located as follows:</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="5" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong>December 31, </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="5" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr align="center">
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2007 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><font size="1" face="Times New Roman, Times, serif"><strong> 2008 </strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td width="10%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Israel </font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 19,444 </font></td>
    <td width="3%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="1%" align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td width="9%" align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 19,440 </font></td>
    <td width="1%" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Europe </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 2,319 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 1,848 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> United States </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 5,177 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 5,195 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Japan </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 4,979 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 5,975 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> Other </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 506 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif"> 463 </font></td>
    <td valign="bottom" bgcolor="#cceeff"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" valign="bottom"><HR SIZE=1 COLOR=#808080 noshade></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="center">
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 32,425 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif">$</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 32,921 </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" align="left" valign="bottom"><HR SIZE=3 COLOR=#808080 noshade></td>
    <td valign="bottom">&nbsp;</td>
  </tr>
</table>
<p align=center><font size=2>F - 35 </font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<TABLE cellSpacing=0 cellPadding=0 width="100%" align=center border=0>
  <TR>
    <TD align="right" vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD width="100%" align="right" vAlign=top><b><FONT face="Times New Roman, Times, Serif" size=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR>
      AND ITS SUBSIDIARIES
    </FONT></b></TD>
  </TR>
  <TR>
    <TD vAlign=top><P><FONT face="Times New Roman, Times, Serif" size=2><b>APPENDIX TO FINANCIAL STATEMENTS</b><b></b></FONT></P></TD>
  </TR>
  <TR>
    <TD vAlign=top><HR align=center width="100%" color=gray noShade SIZE=1>
    </TD>
  </TR>
</TABLE>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B><a name="a107"></a>DETAILS OF SUBSIDIARIES AND AFFILIATE</B></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>Details of the percentage of control of the share capital and voting rights of subsidiaries and an
affiliated company as of December 31, 2008:</FONT></P>
<table width="100%" cellpadding="0" cellspacing="0">
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman"><strong> Name of Company</strong></font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font size="1" face="Times New Roman"><strong> Percentage of <br>
      ownership and <br>
      control </strong></font></td>
    <td align="center" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="center" valign="bottom"><font size="1" face="Times New Roman"><strong> Place of <br>
      incorporation </strong></font></td>
  </tr>
  <tr>
    <td valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td align="center" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="center" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><font size="1" face="Times New Roman"><strong> % </strong></font></td>
    <td align="center" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="center" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td colspan="2" align="center" valign="bottom"><HR SIZE=1 COLOR=#000000 noshade></td>
    <td align="center" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
    <td align="center" valign="bottom"><font size="1" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td colspan="2" align="center" valign="bottom">&nbsp;</td>
    <td align="center" valign="bottom">&nbsp;</td>
    <td align="center" valign="bottom">&nbsp;</td>
  </tr>
  <tr bgcolor="#cceeff">
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Magic Software Japan K.K. </font></td>
    <td width="6%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="9%" align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td width="5%" valign="bottom">&nbsp;</td>
    <td width="6%" valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="14%" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Japan </font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Magic Software Enterprises Inc. </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> U.S.A. </font></td>
  </tr>
  <tr bgcolor="#cceeff">
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Magic Software Enterprises (UK) Ltd. </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> U.K. </font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Hermes Logistics Technologies Limited </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> U.K. </font></td>
  </tr>
  <tr bgcolor="#cceeff">
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Magic Software Enterprises Spain Ltd. </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Spain </font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Coretech Consulting Group Inc. </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> U.S.A </font></td>
  </tr>
  <tr bgcolor="#cceeff">
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Coretech Consulting Group LLC </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> U.S.A </font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Magic Software Enterprises (Israel) Ltd. </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Israel </font></td>
  </tr>
  <tr bgcolor="#cceeff">
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Magic Software Enterprises Italy S.r.l. </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Italy </font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Magic Software Enterprises Netherlands B.V. </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Netherlands </font></td>
  </tr>
  <tr bgcolor="#cceeff">
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Magic Software Enterprises France </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> France </font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Magic Beheer B.V. </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Netherlands </font></td>
  </tr>
  <tr bgcolor="#cceeff">
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Magic Benelux B.V. </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Netherlands </font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Magic Software Enterprises GMBH </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Germany </font></td>
  </tr>
  <tr bgcolor="#cceeff">
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Magic Software Enterprises India Pvt. Ltd. </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> India </font></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Onyx Magyarorszag Szsoftverhaz </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> 100 </font></td>
    <td valign="bottom">&nbsp;</td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Hungary </font></td>
  </tr>
  <tr bgcolor="#cceeff">
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> CarPro Systems Ltd. </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2" face="Times New Roman, Times, serif">90.48</font></td>
    <td align="left" valign="bottom"><font size="2" face="Times New Roman, Times, serif"> </font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="bottom"><font size="2" face="Times New Roman, Times, serif"> Israel </font></td>
  </tr>
</table>
<p align=center><font size=2>F - 36 </font></p>
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    <td align="center">&nbsp;</td>
  </tr>
  <tr>
    <td align="center"><font size="2" face="Times New Roman"><B>L</B><I>evy</I> &nbsp;<B>C</B><I>ohen &amp; Co.</I></font></td>
  </tr>
  <tr>
    <td><HR width="160" SIZE=1 NOSHADE COLOR=#808080></td>
  </tr>
  <tr>
    <td align="center"><font size="2" face="Times New Roman"><I>R e g i s t e r e d &nbsp;A u d i t o r s</I></font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
  </tr>
</table>
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  <tr>
    <td width="50%"><font size="2" face="Times New Roman"><I>37 Broadhurst Gardens, London NW6 3QT</I></font></td>
    <td width="50%" align="right"><font size="2" face="Times New Roman"><I>Tel: 020 - 7624 2251&nbsp;&nbsp;&nbsp; Fax: 020-7372 2328</I></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td align="right"><font size="2" face="Times New Roman"><I>E - mail: lc@levy-cohen.co.uk&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</I></font></td>
  </tr>
  <tr>
    <td colspan="2"><HR width="100%" SIZE=1 NOSHADE COLOR=#808080></td>
  </tr>
  <tr>
    <td height="23">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td height="23">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>

<TABLE  cellSpacing="0" cellPadding="0" border="0">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD align="center" vAlign=top><font size="2" face="Times New Roman"><B><U>To the Board of Directors and Shareholders of <br>
          <BR>
Magic Software Enterprises (UK) Limited</U></B></font></TD>
</TR>
<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">We have audited the accompanying balance sheet of Magic Software Enterprises (UK) Limited as of December 31, 2008 and 2007, and the related statements of operations, changes in shareholders&#146; equity for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company&#146;s management. Our responsibility is to express an opinion on these financial statements based on our audit.</font></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company&#146;s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company&#146;s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.</font></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2008 and 2007, and the related statements of operations, changes in shareholders&#146; equity for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.</font></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
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  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="50%">&nbsp;</td>
    <td width="50%">&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman"><img src="img101.jpg" width="155" height="39"></font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman">LEVY COHEN &amp; CO. </font></td>
    <td><font size="2" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman">Certified Public Accountants</font></td>
    <td align="right"><font size="2" face="Times New Roman">21 January 2009</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
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    <td colspan="2"><HR width="100%" SIZE=1 NOSHADE COLOR=#808080></td>
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    <td><font size="2" face="Times New Roman">J. Cohen C.P.A. (ISR)</font></td>
    <td width="25%" align="left" nowrap><font size="2" face="Times New Roman">Registered by The Institute of Chartered Accountants in</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman">R. Shahmoon ACA</font></td>
    <td align="left" nowrap><font size="2" face="Times New Roman">England and Wales to carry out Company Audit work</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<p align=center><font size=2>F - 37 </font></p>
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    <td align="center">&nbsp;</td>
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  <tr>
    <td align="center"><font size="2" face="Times New Roman"><B>L</B><I>evy</I> &nbsp;<B>C</B><I>ohen &amp; Co.</I></font></td>
  </tr>
  <tr>
    <td><HR width="160" SIZE=1 NOSHADE COLOR=#808080></td>
  </tr>
  <tr>
    <td align="center"><font size="2" face="Times New Roman"><I>R e g i s t e r e d &nbsp;A u d i t o r s</I></font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="50%"><font size="2" face="Times New Roman"><I>37 Broadhurst Gardens, London NW6 3QT</I></font></td>
    <td width="50%" align="right"><font size="2" face="Times New Roman"><I>Tel: 020 - 7624 2251&nbsp;&nbsp;&nbsp; Fax: 020-7372 2328</I></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman">&nbsp;</font></td>
    <td align="right"><font size="2" face="Times New Roman"><I>E - mail: lc@levy-cohen.co.uk&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</I></font></td>
  </tr>
  <tr>
    <td colspan="2"><HR width="100%" SIZE=1 NOSHADE COLOR=#808080></td>
  </tr>
  <tr>
    <td height="23">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td height="23">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>

<TABLE  cellSpacing="0" cellPadding="0" border="0">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD align="center" vAlign=top><font size="2" face="Times New Roman"><B><U>To the Board of Directors and Shareholders of <br>
          <BR>
Hermes Logistics Technologies Limited</U></B></font></TD>
</TR>
<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">We have audited the accompanying balance sheet of Hermes Logistics Technologies Limited as of December 31, 2008 and 2007, and the related statements of operations, changes in shareholders&#146; equity for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company&#146;s management. Our responsibility is to express an opinion on these financial statements based on our audit.</font></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company&#146;s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company&#146;s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.</font></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2008 and 2007, and the related statements of operations, changes in shareholders&#146; equity for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.</font></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR></TABLE>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="50%">&nbsp;</td>
    <td width="50%">&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman"><img src="img102.jpg" width="283" height="46"></font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman">LEVY COHEN &amp; CO. </font></td>
    <td><font size="2" face="Times New Roman">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman">Certified Public Accountants</font></td>
    <td align="right"><font size="2" face="Times New Roman">11 February  2009</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
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    <td colspan="2"><HR width="100%" SIZE=1 NOSHADE COLOR=#808080></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman">J. Cohen C.P.A. (ISR)</font></td>
    <td width="25%" align="left" nowrap><font size="2" face="Times New Roman">Registered by The Institute of Chartered Accountants in</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman">R. Shahmoon ACA</font></td>
    <td align="left" nowrap><font size="2" face="Times New Roman">England and Wales to carry out Company Audit work&nbsp;</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<p align=center><font size=2>F - 38 </font></p>
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<P align=center><font size="2" face="Times New Roman"><B><U>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</U></B></font></P>
<P align=center><font size="2" face="Times New Roman"><B>To the Board of Directors and Shareholders of <BR>
Magic Software Japan K. K.</B></font></P>
<P><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have audited the accompanying balance sheets of Magic Software Japan K.K. (the &#147;Company&#148;) as of December 31, 2008, 2007 and 2006, and the related statements of operations and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company&#146;s management. Our responsibility is to express an opinion on these financial statements based on our audits.</font></P>
<P><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company&#146;s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company&#146;s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.</font></P>
<P><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2008, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.</font></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
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    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="50%">&nbsp;</td>
    <td width="50%">&nbsp;</td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman">Tokyo, Japan</font></td>
    <td align="center"><img src="img103.jpg" width="366" height="67"></td>
  </tr>
  <tr>
    <td valign="bottom"><font size="2" face="Times New Roman">January 30, 2009</font></td>
    <td align="center"><font size="2" face="Times New Roman">KDA Audit Corporation</font></td>
  </tr>
</table>
<p align=center><font size=2>F - 39 </font></p>
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<TABLE  cellSpacing="0" cellPadding="0" border="0">

<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
  <TD colspan="2" vAlign=top><font size="2" face="Times New Roman"><img src="img104.jpg" width="64" height="63"></font></TD>
  </TR>
<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman"><B><U>Magic Benelux B.V.</U></B></font></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman"><B><I>Auditor&#146;s report</I></B></font></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman"><B>Report on the financial statements</B></font></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">We have audited the accompanying balance sheets as at December 31, 2008 and 2007 and the related statements of operations for each of the three years in the period ended December 31, 2008 of Magic Benelux B.V., Houten.</font></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman"><I>Management&#146;s responsibility</I></font></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">Management is responsible for the preparation and fair presentation of the financial statements and for the preparation of the management board report, both in conformity with U.S. generally accepted accounting principles. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.</font></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman"><I>Auditor&#146;s responsibility</I></font></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with Dutch law. This law requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.</font></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor&#146;s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity&#146;s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity&#146;s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.</font></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.</font></TD></TR></TABLE>

<p align=center><font size=2>F - 40 </font></p>
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<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
  <TD colspan="2" vAlign=top><font size="2" face="Times New Roman"><img src="img104.jpg" width="64" height="63"></font></TD>
  </TR>
<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman"><B><U>Magic Benelux B.V.</U></b></font></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman"><I>Opinion</I></font></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">In our opinion, the financial statements give a true and fair view of the financial position of Magic Benelux B.V. as at December 31, 2008 and 2007, and of its related statements of operations for each of the three years in the period ended December 31, 2008 in conformity with U.S. generally accepted accounting principles.</font></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">Dordrecht, January 30, 2009</font></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">Verstegen accountants en adviseurs</font></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top><font size="2" face="Times New Roman"><img src="img106.jpg" width="194" height="100"></font></TD>
</TR>

<TR>
<TD vAlign=top width=5%>&nbsp;</TD>
<TD vAlign=top><font size="2" face="Times New Roman">Drs. L.K. Hoogendoorn RA MGA</font></TD></TR></TABLE>

<p align=center><font size=2>F - 41 </font></p>
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<hr size="4" noshade  style="margin-top: -10px">
<PAGE>
<P align=center><font size="2" face="Times New Roman">To the Board of Directors and Shareholders of <br>
  Magic (Onyx) Magyarorsz&#225;g Szoftverh&#225;z Kft.</font></P>
<P><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have audited the accompanying balance sheet of Magic (Onyx) Szoftverh&#225;z Kft. (the &#147;Company&#148;) as of December 31, 2008 and 2007, and the related statements of operations, changes in shareholders&#146; equity and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company&#146;s management. Our responsibility is to express an opinion on these financial statements based on our audit.</font></P>
<P><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company&#146;s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company&#146;s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing, the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.</font></P>
<P><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and at December 31, 2008 and 2007, and the related statements of operations, changes in shareholders&#146; equity and cash flows for each of the three years in the period ended December 31, 2008 in conformity with U.S. generally accepted accounting principles. </font></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
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    <td>&nbsp;</td>
    <td align="center">&nbsp;</td>
  </tr>
  <tr>
    <td width="50%">&nbsp;</td>
    <td width="50%" align="center"><font size="2" face="Times New Roman"><img src="img107.jpg" width="177" height="75"></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman">February 25,&nbsp; 2009</font></td>
    <td align="center"><font size="2" face="Times New Roman">&nbsp;Maria Negyessy</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="center"><font size="2" face="Times New Roman">Reg. Auditor</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="center">&nbsp;</td>
  </tr>
</table>

<p align=center><font size=2>F - 42 </font></p>
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<a name=zk231></a>
<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>S I G N A T U R E S</U> </FONT> </H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
registrant hereby certifies that it meets all of the requirements for filing on
Form&nbsp;20-F and that it has duly caused and authorized the undersigned to sign this
annual report on its behalf. </FONT></P>







<!-- MARKER FORMAT-SHEET="Signature (Single)" FSL="Workstation" -->
<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>MAGIC SOFTWARE ENTERPRISES LTD.<BR><BR>
<BR>By: /s/ Guy Bernstein<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Guy Bernstein<BR>Chairman of the Board of Directors</FONT></TD>
</TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dated: April 2, 2009 </FONT></P>

<p align=center>
<font size=2>80</font></p>
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end
</TEXT>
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<SEQUENCE>9
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end
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-8
<SEQUENCE>10
<FILENAME>exhibit_8.htm
<TEXT>
<HTML>
<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+) -->
     <!-- Project:        F:\EDGAR Filing\Magic Software Enterprises Ltd\96546\a96546.eep  -->
     <!-- Control Number: 96546                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Magic Software Enterprises Ltd                                   -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
<BODY>

<!-- MARKER FORMAT-SHEET="Scotch Rule Top-TNR" FSL="Workstation" -->
<HR ALIGN=LEFT WIDTH=100% SIZE=4 NOSHADE STYLE="margin-top: -5px">
<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE STYLE="margin-top: -10px">




<!-- MARKER FORMAT-SHEET="Head Right-TNR" FSL="Workstation" -->
<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B>Exhibit 8</B></U> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>List of Subsidiaries
and Affiliates of the Registrant</U> </FONT> </H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table sets forth the
legal name, location and country of incorporation and percentage ownership of each of the
registrant&#146;s subsidiaries and affiliated companies: </FONT></P>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN="3" ALIGN="Left"><FONT FACE="Times New Roman" SIZE=1>Subsidiary/Affiliate Name</FONT><HR WIDTH="95%" SIZE="1" COLOR="Black" ALIGN="Left"></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Country of Incorporation</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>Ownership Percentage</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="5%"> </TD>
     <TD WIDTH="64%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Software Japan K.K</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="11%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Japan</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises Inc.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>United States</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises (UK) Ltd.</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>United Kingdom</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Hermes Logistics Technologies Limited</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>United Kingdom</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises Spain Ltd.</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Spain</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Coretech Consulting Group Inc.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>United States</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Coretech Consulting Group LLC</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>United States</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises (Israel) Ltd.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Israel</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises Italy S.r.l.*</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Italy</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises Netherlands B.V</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Netherlands</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises France</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>France</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Magic Beheer B.V</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Netherlands</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Benelux B.V</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Netherlands</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises GMBH</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Germany</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Magic Software Enterprises India Pvt. Ltd.</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>India</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Onyx Magyarorszag Szsoftverhaz</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>Hungary</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman" SIZE=2>100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>CarPro Systems Ltd.</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>Israel</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman" SIZE=2>90.48</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman" SIZE=2>%</FONT></TD></TR>
</TABLE>
<BR>



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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT>
<HR SIZE=1 NOSHADE WIDTH=15% ALIGN=LEFT> </TD>
</TR>
</TABLE>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
(1)        In
March 2009, a liquidator was appointed for Magic Software Enterprises Italy
          S.r.l.  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2></font></p>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.1
<SEQUENCE>11
<FILENAME>exhibit_12-1.htm
<TEXT>

<HTML>
<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+) -->
     <!-- Project:        F:\EDGAR Filing\Magic Software Enterprises Ltd\96546\a96546.eep  -->
     <!-- Control Number: 96546                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Magic Software Enterprises Ltd                                   -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B>Exhibit 12.1</B></U> </FONT> </P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CERTIFICATION OF CHIEF
EXECUTIVE OFFICER <BR>Pursuant
to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.  </FONT></h1>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>I, Guy Bernstein, certify
that: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.
          I have reviewed this annual report on Form 20-F of Magic Software Enterprises
          Ltd.; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.
          Based on my knowledge, this report does not contain any untrue statement of a
          material fact or omit to state a material fact necessary to make the statements
          made, in light of the circumstances under which such statements were made, not
          misleading with respect to the period covered by this report; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.
          Based on my knowledge, the financial statements, and other financial information
          included in this report, fairly present in all material respects the financial
          condition, results of operations and cash flows of the company as of, and for,
          the periods presented in this report; </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.
          The company&#146;s other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13(a)-15(e) and 15d-15(e)) and internal control over
          financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
          for the company and have: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a)           Designed such
disclosure controls and procedures, or caused such disclosure           controls and
procedures to be designed under our supervision, to ensure that           material
information relating to the company, including its consolidated           subsidiaries,
is made known to us by others within those entities, particularly           during the
period in which this report is being prepared;  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) Designed such           internal
control over financial reporting, or caused such internal control over
          financial reporting to be designed under our supervision, to provide reasonable
          assurance regarding the reliability of financial reporting and the preparation
          of financial statements for external purposes in accordance with generally
          accepted accounting principles;  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c) Evaluated the effectiveness of
the           company&#146;s disclosure controls and procedures and presented in this
report           our conclusions about the effectiveness of the disclosure controls and
          procedures, as of the end of the period covered by this report based on such
          evaluation; and  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(d) Disclosed in this report any
change in the company&#146;s           internal control over financial reporting that
occurred during the period           covered by the annual report that has materially
affected, or is reasonably           likely to materially affect, the company&#146;s
internal control over financial           reporting; and  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.           The company&#146;s
other certifying officer and I have disclosed, based on our           most recent
evaluation of internal control over financial reporting, to the           company&#146;s
auditors and the audit committee of the company&#146;s board of           directors (or
persons performing the equivalent function):  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) All significant
          deficiencies and material weaknesses in the design or operation of internal
          control over financial reporting which are reasonably likely to adversely
affect           the company&#146;s ability to record, process, summarize and report
financial           information; and  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) Any fraud, whether or not
material, that involves           management or other employees who have a significant
role in the company&#146;s           internal control over financial reporting.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date: April 2, 2009 </FONT></P>

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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
/s/ Guy Bernstein<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Guy Bernstein *<BR>Chairman of the Board of Directors</FONT></TD>
</TR>
</TABLE>
<BR>




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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>* The originally executed copy of
this Certification will be maintained at the Company&#146;s offices and will be made
available for inspection upon request. </FONT></P>

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

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<DOCUMENT>
<TYPE>EX-12.2
<SEQUENCE>12
<FILENAME>exhibit_12-2.htm
<TEXT>
<HTML>
<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+) -->
     <!-- Project:        F:\EDGAR Filing\Magic Software Enterprises Ltd\96546\a96546.eep  -->
     <!-- Control Number: 96546                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Magic Software Enterprises Ltd                                   -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
<BODY>

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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B>Exhibit 12.2</B></U> </FONT> </P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CERTIFICATION OF CHIEF
FINANCIAL OFFICER<BR>Pursuant
to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.  </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>I, Hadas Gazit Kaiser, certify that: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.
          I have reviewed this annual report on Form 20-F of Magic Software Enterprises
          Ltd.; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.
          Based on my knowledge, this report does not contain any untrue statement of a
          material fact or omit to state a material fact necessary to make the statements
          made, in light of the circumstances under which such statements were made, not
          misleading with respect to the period covered by this report; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.
          Based on my knowledge, the financial statements, and other financial information
          included in this report, fairly present in all material respects the financial
          condition, results of operations and cash flows of the company as of, and for,
          the periods presented in this report; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.
          The company&#146;s other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13(a)-15(e) and 15d-15(e)) and internal control over
          financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
          for the company and have: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a)           Designed such
disclosure controls and procedures, or caused such disclosure           controls and
procedures to be designed under our supervision, to ensure that           material
information relating to the company, including its consolidated           Subsidiaries,
is made known to us by others within those entities, particularly           during the
period in which this report is being prepared;  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) Designed such           internal
control over financial reporting, or caused such internal control over
          financial reporting to be designed under our supervision, to provide reasonable
          assurance regarding the reliability of financial reporting and the preparation
          of financial statements for external purposes in accordance with generally
          accepted accounting principles;  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c) Evaluated the effectiveness of
the           company&#146;s disclosure controls and procedures and presented in this
report           our conclusions about the effectiveness of the disclosure controls and
          procedures, as of the end of the period covered by this report based on such
          evaluation; and  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(d) Disclosed in this report any
change in the company&#146;s           internal control over financial reporting that
occurred during the period           covered by the annual report that has materially
affected, or is reasonably           likely to materially affect, the company&#146;s
internal control over financial           reporting; and  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.           The company&#146;s
other certifying officer and I have disclosed, based on our           most recent
evaluation of internal control over financial reporting, to the           company&#146;s
auditors and the audit committee of the company&#146;s board of           directors (or
persons performing the equivalent function):  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) All significant
          deficiencies and material weaknesses in the design or operation of internal
          control over financial reporting which are reasonably likely to adversely
affect           the company&#146;s ability to record, process, summarize and report
financial           information; and  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) Any fraud, whether or not
material, that involves           management or other employees who have a significant
role in the company&#146;s           internal control over financial reporting  </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date: April 2, 2009 </FONT></P>




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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
/s/ Hadas Gazit Kaiser<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Hadas Gazit Kaiser *<BR>Chief Financial Officer</FONT></TD>
</TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>* The originally executed copy of
this Certification will be maintained at the Company&#146;s offices and will be made
available for inspection upon request. </FONT></P>


<p align=center>
<font size=2></font></p>
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<DOCUMENT>
<TYPE>EX-13.1
<SEQUENCE>13
<FILENAME>exhibit_13-1.htm
<TEXT>
<HTML>
<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+) -->
     <!-- Project:        F:\EDGAR Filing\Magic Software Enterprises Ltd\96546\a96546.eep  -->
     <!-- Control Number: 96546                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Magic Software Enterprises Ltd                                   -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
<BODY>

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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B>Exhibit 13.1</B></U> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CERTIFICATION PURSUANT
TO <BR>18 U.S.C. SECTION 1350<BR>AS ADOPTED PURSUANT TO<BR>SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002 </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In connection with the Annual Report
of Magic Software Enterprises Ltd. (the &#147;Company&#148;) on Form 20-F for the period
ending December 31, 2008 as filed with the Securities and Exchange Commission on the date
hereof (the &#147;Report&#148;), I, Guy Bernstein, Acting Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. &sect; 1350, as adopted pursuant to &sect; 906 of
the Sarbanes-Oxley Act of 2002, that: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          The Report fully complies with the requirements of section 13(a) or 15(d) of the
          Securities Exchange Act of 1934; and </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Default" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          The information contained in the Report fairly presents, in all material
          respects, the financial condition and result of operations of the Company. </FONT></P>





<!-- MARKER FORMAT-SHEET="Signature (Single)" FSL="Workstation" -->
<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
/s/ Guy Bernstein<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Guy Bernstein *<BR>Active Chairman of the Board of Directors</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>April 2, 2009 </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>* The originally executed copy of
this Certification will be maintained at the Company&#146;s offices and will be made
available for inspection upon request. </FONT></P>

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

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.2
<SEQUENCE>14
<FILENAME>exhibit_13-2.htm
<TEXT>
<HTML>
<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+) -->
     <!-- Project:        F:\EDGAR Filing\Magic Software Enterprises Ltd\96546\a96546.eep  -->
     <!-- Control Number: 96546                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Magic Software Enterprises Ltd                                   -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
<BODY>

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<HR ALIGN=LEFT WIDTH=100% SIZE=4 NOSHADE STYLE="margin-top: -5px">
<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE STYLE="margin-top: -10px">

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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B>Exhibit 13.2</B></U> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CERTIFICATION PURSUANT
TO<BR>18 U.S.C. SECTION 1350 <BR>AS ADOPTED PURSUANT TO <BR>SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002 </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In connection with the Annual Report
of Magic Software Enterprises Ltd. (the &#147;Company&#148;) on Form 20-F for the period
ending December 31, 2008 as filed with the Securities and Exchange Commission on the date
hereof (the &#147;Report&#148;), I, Hadas Gazit Kaiser, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. &sect; 1350, as adopted pursuant to &sect; 906 of
the Sarbanes-Oxley Act of 2002, that: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          The Report fully complies with the requirements of section 13(a) or 15(d) of the
          Securities Exchange Act of 1934; and </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Default" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          The information contained in the Report fairly presents, in all material
          respects, the financial condition and result of operations of the Company. </FONT></P>

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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
/s/ Hadas Gazit Kaiser<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Hadas Gazit Kaiser * <BR>Chief Financial Officer</FONT></TD>
</TR>
</TABLE>
<BR>




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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>April 2, 2009 </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>* The originally executed copy of
this Certification will be maintained at the Company&#146;s offices and will be made
available for inspection upon request. </FONT></P>

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<font size=2></font></p>
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<DOCUMENT>
<TYPE>EX-15.1
<SEQUENCE>15
<FILENAME>exhibit_15-1.htm
<TEXT>

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     <!-- Created by EDGAR Ease Plus (EDGAR Ease+) -->
     <!-- Project:        F:\EDGAR Filing\Magic Software Enterprises Ltd\96546\a96546.eep  -->
     <!-- Control Number: 96546                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Magic Software Enterprises Ltd                                   -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B>Exhibit 15.1</B></U> </FONT> </P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CONSENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
consent to the incorporation by reference in the Registration Statements on Form S-8 (File
Nos. 333-13270, 333-11220, 333-1946, 333-10794, 333-113552, 333-132221 and 333-149553) of
Magic Software Enterprises Ltd. (the &#147;Company&#148;), of our report dated
April 2, 2009 with respect to the consolidated financial statements of the Company as
of December 31, 2008, which report appears in the Company&#146;s Annual Report on Form 20-F for the
year ended December 31, 2008. </FONT></P>

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<TD WIDTH=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Kost Forer Gabbay &amp; Kasierer<BR>
KOST FORER GABBAY &amp; KASIERER<BR>A Member of Ernst &amp; Young Global</FONT></TD>
</TR>
</TABLE>
<BR>





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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tel Aviv, Israel<BR>April 2, 2009  </FONT></P>


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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-15.2
<SEQUENCE>16
<FILENAME>exhibit_15-2.htm
<TEXT>
<HTML>
<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+) -->
     <!-- Project:        F:\EDGAR Filing\Magic Software Enterprises Ltd\96546\a96546.eep  -->
     <!-- Control Number: 96546                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Magic Software Enterprises Ltd                                   -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
<BODY>

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<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE STYLE="margin-top: -10px">


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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B>Exhibit 15.2</B></U> </FONT> </P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CONSENT OF INDEPENDENT
REGISTERED PUBLIC <BR>ACCOUNTING FIRM </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
consent to the incorporation by reference in the Registration Statements on Form S-8 (File
Nos. 333-13270, 333-11220, 333-1946, 333-10794, 333-113552, 333-132221 and 333-149553) of
Magic Software Enterprises Ltd., of our report dated 21 January 2009, with respect to the
financial statements of Magic Software Enterprises UK Limited as of December 31, 2008,
which report appears in the Annual Report on Form 20-F of Magic Software Enterprises Ltd.
for the year ended December 31, 2008. </FONT></P>





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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
/s/ LEVY COHEN &amp; CO.<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
LEVY COHEN &amp; CO<BR>Registered Auditors</FONT></TD>
</TR>
</TABLE>
<BR>


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<P ALIGN="Right"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31 March 2009 </FONT></P>


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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-15.3
<SEQUENCE>17
<FILENAME>exhibit_15-3.htm
<TEXT>
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<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+) -->
     <!-- Project:        F:\EDGAR Filing\Magic Software Enterprises Ltd\96546\a96546.eep  -->
     <!-- Control Number: 96546                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Magic Software Enterprises Ltd                                   -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
<BODY>

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<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE STYLE="margin-top: -10px">


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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B>Exhibit 15.3</B></U> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CONSENT OF INDEPENDENT
REGISTERED PUBLIC <BR>ACCOUNTING FIRM </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
consent to the incorporation by reference in the Registration Statements on Form S-8 (File
Nos. 333-13270, 333-11220, 333-1946, 333-10794, 333-113552, 333-132221 and 333-149553) of
Magic Software Enterprises Ltd., of our report dated 11 February 2009, with respect to the
financial statements of Hermes Logistics Technologies Limited as of December 31, 2008,
which report appears in the Annual Report on Form 20-F of Magic Software Enterprises Ltd.
for the year ended December 31, 2008. </FONT></P>









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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
/s/ LEVY COHEN &amp; CO.<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
LEVY COHEN &amp; CO.<BR>Registered Auditors</FONT></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="Right"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31 March 2009 </FONT></P>



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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-15.4
<SEQUENCE>18
<FILENAME>exhibit_15-4.htm
<TEXT>
<HTML>
<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+) -->
     <!-- Project:        F:\EDGAR Filing\Magic Software Enterprises Ltd\96546\a96546.eep  -->
     <!-- Control Number: 96546                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Magic Software Enterprises Ltd                                   -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
<BODY>

<!-- MARKER FORMAT-SHEET="Scotch Rule Top-TNR" FSL="Workstation" -->
<HR ALIGN=LEFT WIDTH=100% SIZE=4 NOSHADE STYLE="margin-top: -5px">
<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE STYLE="margin-top: -10px">

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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B>Exhibit 15.4</B></U> </FONT> </P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CONSENT OF INDEPENDENT
AUDITORS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
consent to the incorporation by reference in the Registration Statements on Form S-8 (File
Nos. 333-13270, 333-11220, 333-1946, 333-10794, 333-113552, 333-132221 and 333-149553) of
Magic Software Enterprises Ltd., of our report dated Januay 30, 2009 with respect to the
financial statements of Magic Software Japan K.K. as of December 31, 2008, which report
appears in the Annual Report on Form 20-F of Magic Software Enterprises Ltd. for the year
ended December 31, 2008. </FONT></P>







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<TR VALIGN=TOP>
<TD WIDTH=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
/s/ KDA Audit Corporation<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
KDA Audit Corporation<BR>  Registered Auditors</FONT></TD>
</TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tokyo, Japan<BR>March 31, 2009 </FONT></P>


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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-15.5
<SEQUENCE>19
<FILENAME>exhibit_15-5.htm
<TEXT>
<HTML>
<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+) -->
     <!-- Project:        F:\EDGAR Filing\Magic Software Enterprises Ltd\96546\a96546.eep  -->
     <!-- Control Number: 96546                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Magic Software Enterprises Ltd                                   -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
<BODY>

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<HR ALIGN=LEFT WIDTH=100% SIZE=4 NOSHADE STYLE="margin-top: -5px">
<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE STYLE="margin-top: -10px">

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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B>Exhibit 15.5</B></U> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>To the board of Management of <BR>Magic Benelux B.V. <BR>5 Haplada Street<BR>Or Yehuda<BR>ISRAEL </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dordrecht, March 31, 2009 </FONT></P>

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

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CONSENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM </FONT></H1>

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

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We consent to the incorporation by
reference in the Registration Statements on Form S-8 (File Nos. 333-13270, 333-11220,
333-1946, 333-10794, 333-113552, 333-132221 and 333-149553) of Magic Software Enterprises
Ltd., of our report dated January 31, 2009 with respect to the financial statements of
Magic Benelux B.V. as of December 31, 2008, which report appears in the Annual Report on
Form 20-F of Magic Software Enterprises Ltd. for the year ended December 31, 2008. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On behalf of Verstegen accountants en
adviseurs, </FONT></P>

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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
/s/ Drs L.K. Hoogerdoorn RA MGA.<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
<BR>Drs L.K. Hoogerdoorn RA MGA.</FONT></TD>
</TR>
</TABLE>
<BR>






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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-15.6
<SEQUENCE>20
<FILENAME>exhibit_15-6.htm
<TEXT>
<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 3.2 Final//EN">
<HTML>
<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+) -->
     <!-- Project:        F:\EDGAR Filing\Magic Software Enterprises Ltd\96546\a96546.eep  -->
     <!-- Control Number: 96546                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Magic Software Enterprises Ltd                                   -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
<BODY>

<!-- MARKER FORMAT-SHEET="Scotch Rule Top-TNR" FSL="Workstation" -->
<HR ALIGN=LEFT WIDTH=100% SIZE=4 NOSHADE STYLE="margin-top: -5px">
<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE STYLE="margin-top: -10px">

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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B>Exhibit 15.6</B></U> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CONSENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
consent to the incorporation by reference in the Registration Statements on Form S-8 (File
Nos. 333-13270, 333-11220, 333-1946, 333-10794, 333-113552, 333-132221 and 333-149553) of
Magic Software Enterprises Ltd., of our report dated February 25, 2009 with respect to the
financial statements of Magic (Onyx) Magyarorsz&aacute;g Szoftverh&aacute;z Kft. as of
December 31, 2008, which report appears in the Annual Report on Form 20-F of Magic
Software Enterprises Ltd. for the year ended December 31, 2008. </FONT></P>








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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ M&aacute;ria N&eacute;gyessy <BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
M&aacute;ria N&eacute;gyessy<BR>Registered Auditors</FONT></TD>
</TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Budapest, 31 March, 2009 </FONT></P>



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