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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 20-F

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

FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2004        COMMISSION FILE NUMBER 1  12666

ROBOMATIX TECHNOLOGIES LTD.(Exact name of Registrant as specified in its charter and
translation of Registrants name into English)

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Israel
(Jurisdiction of incorporation or organization)

1
Azrieli Center, Tel Aviv 67021, Israel
(Address of principal executive offices)

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

None

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

Ordinary Shares,
Par Value NIS 1.46 Per Share
(Title of Class)

Securities
for which there is reporting obligation pursuant to section 15(d) of the act:

None

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(Title of Class)

|                                                                                                                                                                                                                                                                                                                                                                 
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Indicate the number of outstanding shares of each of
  the Issuers classes of capital or common stock as of the close of the period
  covered by the annual report: 13,599,626 Ordinary Shares                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                 
|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 proceeding 12 months (or for such
  shorter period that the Registrant was required to file such reports), and
  (2) has been subject to such filing requirements for the past 90 days.
|Yes x     No
o                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                 
|Indicate by check mark which financial statement
  item the Registration has elected to follow:                                                                                                                                                                                                                                                                  
|Item 17. o     Item 18. x                                                                                                                                                                                                                                                                                                                                        

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This
annual report on Form 20-F includes certain forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934. The use of the words projects,
expects,
may, plans or intends, or words of similar import, identifies a statement
as forward-looking. There can be no
assurance, however, that actual results will not differ materially from our
expectations or projections. Factors
that could cause actual results to differ from our expectations or projections
include the risks and uncertainties relating to our business described in this
annual report at Item 3. Risk Factors.

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We
have prepared our consolidated financial statements in United States dollars
and in accordance with accounting principles generally accepted in the United
States (GAAP). All references herein to dollars or $ are to United States
dollars, all references to Shekels or NIS are to New Israeli Shekels and
all references to Euro or  are to the currency of the European Economic and
Monetary Union (EMU).

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As
used herein, Robomatix, the Company, we or us refer to Robomatix
Technologies Ltd. and its consolidated and significant subsidiaries, unless the
context suggests otherwise or when we refer to a specific subsidiary.

1

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TABLE
OF CONTENTS

|                                                                                          |    | 
|----------------------------------------------------------------------------------------- | -- | 
|PART 1                                                                                    | 3  | 
|                                                                                          |    | 
|Item
  1: Identity of Directors, Senior Management and Advisers                           | 3  | 
|Item
  2: Offer Statistics and Expected Timetable                                         | 3  | 
|Item
  3: Key Information                                                                 | 3  | 
|Item
  4: Information on the Company                                                      | 14 | 
|Item
  5: Operating and Financial Review and Prospects                                    | 30 | 
|Item
  6: Directors, Senior Management and Employees                                      | 40 | 
|Item
  7: Major Shareholders and Related Party Transactions                               | 48 | 
|Item
  8: Financial Information                                                           | 50 | 
|Item
  9: The Offer and Listing                                                           | 51 | 
|Item
  10: Additional Information                                                         | 52 | 
|Item
  11: Quantitative and Qualitative Disclosure about Market Risk                      | 65 | 
|Item
  12: Description of Securities Other Than Equity Securities                         | 65 | 
|                                                                                          |    | 
|PART 2                                                                                    | 65 | 
|                                                                                          |    | 
|Item
  13: Defaults, Dividend Arrearages and Delinquencies                                | 65 | 
|Item
  14: Material Modifications to the Rights of Security Holders and Use of
  Proceeds | 65 | 
|Item 15: Controls and Procedures                                                          | 66 | 
|Item
  16: [reserved]                                                                     | 66 | 
|Item
  16A: Audit Committed Financial Expert                                              | 66 | 
|Item
  16B: Code of Ethics                                                                | 66 | 
|Item
  16C: Principal Accountant Fees and Services                                        | 66 | 
|Item
  16D: Exemption from the Listing Standards for Audit Committees                     | 67 | 
|Item
  16E: Purchases of Equity Securities by the Issuer and Affiliated Purchasers        | 67 | 
|                                                                                          |    | 
|PART 3                                                                                    | 67 | 
|                                                                                          |    | 
|Item
  17: Financial Statements                                                           | 67 | 
|Item
  18: Financial Statements                                                           | 67 | 
|Item
  19: Exhibits                                                                       | 68 | 

2

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PART 1

|        |                                                        
|------- | -------------------------------------------------------
|Item 1: | Identity of Directors, Senior
  Management and Advisers

Not
applicable.

|        |                                          
|------- | -----------------------------------------
|Item 2: | Offer Statistics and Expected
  Timetable

Not
applicable.

|        |                
|------- | ---------------
|Item 3: | Key Information

Selected Financial Data.The following
selected financial data has been derived from our audited consolidated
financial statements for the periods, which have been prepared in accordance
with United States GAAP. Our audited consolidated financial statements include,
in the opinion of management, all adjustments necessary to fairly present the
financial position and results of operations of our Company for those
periods. Our selected consolidated
statements of operations data for the years ended December 31, 2002, 2003 and
2004 and our selected consolidated balance sheet data as of December 31, 2003
and 2004 have been derived from our consolidated financial statements, which
are included elsewhere in this report.
Our selected balance sheet data for the years ended December 31, 2000,
2001 and 2002 have been derived from our consolidated financial statements not
included in this report.

The
financial data set forth below should be read in conjunction with our
consolidated financial statements and the notes thereto and the other financial
information appearing elsewhere in this annual report.

|                                                                                           |  |                             |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|------------------------------------------------------------------------------------------ |  | --------------------------- | ------ | ---- |  | ------ | - | ---- | ------ | ---- |  | ------ | - |  | ------ | -
|                                                                                           |  | Year ended December 31,     |       
|                                                                                           |  |                             |       
|Consolidated  Statement of Operations                                                      |  | 2000                        |        | 2001 |  | 2002   |   | 2003 |        | 2004 | 
|                                                                                           |  |                             |        |      |  |        |   |      |        |      | 
|                                                                                           |  | (U.S. dollars in thousands) |       
|Sales                                                                                      |  |                             |       |      |  | 8,235  |   |      | 8,704  |      |  | 12,493 |   |  | 23,597 |  
|Cost of Sales                                                                              |  |                             |       |      |  | 6,322  |   |      | 6,708  |      |  | 9,649  |   |  | 16,627 |  
|Gross Profit                                                                               |  |                             |       |      |  | 1913   |   |      | 1,996  |      |  | 2,844  |   |  | 5,970  |  
|Selling and
  marketing expenses                                                           |  |                             |       |      |  | (575   | ) |      | (655   | )    |  | (946   | ) |  | (1,455 | )
|General and
  administrative expenses                                                      |  |                             | (751   | )    |  | (1762  | ) |      | (1,471 | )    |  | (1,949 | ) |  | (2,741 | )
|                                                                                           |  |                             |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|                                                                                           |  |                             |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|                                                                                           |  |                             |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|Operating income
  (loss)                                                                  |  |                             | (751   | )    |  | (424   | ) |      | (130   | )    |  | (51    | ) |  | 1,774  |  
|Other income                                                                               |  |                             | 50     |      |  | 362    |   |      | 257    |      |  | 1,045  |   |  | 142    |  
|Impairment on
  long-term investment                                                       |  |                             | (2,079 | )    |  | (1,390 | ) |      |       |      |  |       |   |  | (2,218 | )
|Impairment of
  available-for-sale marketable securities                                   |  |                             |       |      |  |       |   |      |       |      |  |       |   |  | (572   | )
|Financial income
  (expenses), net                                                         |  |                             | 285    |      |  | (284   | ) |      | (191   | )    |  | (10    | ) |  | (388   | )
|Income (loss)
  before taxes on income                                                     |  |                             | (2,495 | )    |  | (1,736 | ) |      | (64    | )    |  | 984    |   |  | (1,262 | )
|Taxes on income                                                                            |  |                             |       |      |  | 88     |   |      | 378    |      |  | 195    |   |  | 332    |  
|                                                                                           |  |                             |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|                                                                                           |  |                             |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|Gain (loss) from
  continuing operations                                                   |  |                             | (2,495 | )    |  | (1,824 | ) |      | (442   | )    |  | 789    |   |  | (1,594 | )
|Equity in
  earnings of an affiliate                                                       |  |                             |       |      |  |       |   |      |       |      |  | 481    |   |  | 6      |  
|Net income
  (loss)                                                                        |  |                             | (2,495 | )    |  | (1,824 | ) |      | (442   | )    |  | 1,270  |   |  | (1,588 | )
|Basic and
  diluted net earnings (loss) per share                                          |  |                             | (0.21  | )    |  | (0.13  | ) |      | (0.03  | )    |  | 0.09   |   |  | (0.12  | )
|                                                                                           |  |                             |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|                                                                                           |  |                             |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|Weighted average
  number of shares used in computing basic net earnings (loss) per share  |  |                             | 11,862 |      |  | 13,521 |   |      | 13,600 |      |  | 13,600 |   |  | 13,600 |  
|                                                                                           |  |                             |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|                                                                                           |  |                             |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|Weighted average
  number of shares used in computing diluted net earning (loss) per share |  |                             | 11,862 |      |  | 13,521 |   |      | 13,600 |      |  | 13,600 |   |  | 13,600 |  
|                                                                                           |  |                             |        |      |  |        |   |      |        |      |  |        |   |  |        |  

3

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|                     |  |                                      |       |      |  |        |  |      |        |      |  |        |  |  |        | 
|-------------------- |  | ------------------------------------ | ----- | ---- |  | ------ |  | ---- | ------ | ---- |  | ------ |  |  | ------ | 
|                     |  | December 31,                         |      
|                     |  |                                      |      
|Balance Sheet Data   |  | 2000                                 |       | 2001 |  | 2002   |  | 2003 |        | 2004 | 
|                     |  |                                      |       |      |  |        |  |      |        |      | 
|                     |  | (United States dollars in thousands) |      
|Working capital      |  |                                      | 952   |      |  | 872    |  |      | 1,468  |      |  | 3,934  |  |  | 1,486  | 
|Total assets         |  |                                      | 6,130 |      |  | 12,926 |  |      | 14,414 |      |  | 16,732 |  |  | 26,037 | 
|Total liabilities    |  |                                      | 966   |      |  | 7,576  |  |      | 8,864  |      |  | 9,364  |  |  | 19,662 | 
|Shareholders equity |  |                                      | 5,164 |      |  | 5,350  |  |      | 5,550  |      |  | 7,368  |  |  | 6,375  | 

4

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Risk
Factors

This
annual report, and statements that we may make from time to time, may contain
forward-looking information. There can
be no assurance that actual results will not differ materially from our
expectations, statements or projections.
Factors that could cause actual results to differ from our expectations,
statements or projections include the risks and uncertainties relating to our
business described below.

General Risks Affecting our Business

We may not be able to successfully
implement our development and growth plans, and as a result, the market price
of our ordinary shares could decline.  As of the date of this report, we primarily
hold direct and indirect interests in two active companies.  We plan to acquire additional interests in
operating companies and businesses, in technology and other fields. We believe
that our success is dependent not only upon the success of the companies in
which we already hold interests but also upon our ability to successfully
invest in other companies and implement our development plans in existing and new
investments.  The market price of our
ordinary shares has been volatile and if the companies in which we hold an
interest are not successful or if we are unable to accomplish our development
goals, the market price of our shares could decline.  A decline in the value of our Company would prevent us from being
financially able to acquire interests in other technology companies and prevent
us from implementing our development and growth plans, further devaluing the
price of our ordinary shares.

Our recent
acquisition may be unsuccessful.  On October 6, 2004, we consummated a
transaction for the acquisition of the assets and liabilities of the service,
maintenance, sales and marketing divisions in Israel of Tadiran Telecom Ltd. or
Tadiran Telecom (known at the time of the transaction as Tadiran Telecom
Business Systems Ltd.). This transaction was conducted through a partnership,
Tadiran Telecom Communication Services in Israel  Limited Partnership, or
Telecom Israel, in which at present, we are a limited partner and hold the
majority interest constituting 90% of the partnership equity and in which Marc
Zalcman or a company controlled by him, holds 10% of the partnership equity.
The general partner of Telecom Israel at present is Tadiran Telecom  Communication
Services in Israel Ltd., a private company, registered in Israel, of which
Robomatix holds 90% of the issued share capital and of which Marc Zalcman, or a
company controlled by him, holds 10% of the issued share capital following an
oral agreement with us in the first quarter of 2005. Telecom Israels business
may not meet our revenue, cash flow and profitability expectations. To the
extent that Telecom Israel loses value, or does not succeed, we may lose part
or all of our investment. We may also have to write-down the value of our
investment in our financial statements to the extent that the carrying value
exceeds its fair market value.

We must successfully manage and integrate
transactions.  We
hope to expand through the acquisition of additional interests in operating
companies and businesses in technology and other fields. There is no assurance
that we will successfully complete future acquisitions. In addition, some of
our intended acquisitions may be of interests in early-stage companies with limited
operating histories and limited or no revenues.  We may not be able to successfully develop these young companies
or generate meaningful revenues from acquisitions of such interests.  Any failure in managing and integrating
future acquisitions would cause us to be unsuccessful in achieving our goals
and could reduce the value of our investments and our ordinary share market
price.

5

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If we are unable to repay the loan we took
from Bank Hapoalim in order to finance our acquisitions, we could be forced to
discontinue our operations. Our acquisition of the share capital of Franz Kalff was financed
through a loan from Israeli bank Bank Hapoalim Ltd., or Bank Hapoalim. We also
borrowed additional funds in connection with our passive investments. Under the
loan agreement, Bank Hapoalim has a security interest in all of our assets,
whether now owned or later acquired. In addition, our acquisition of the assets and liabilities of the service, maintenance,
sales and marketing divisions in Israel of Tadiran Telecom through Telecom
Israel, was financed through a loan from Bank Hapoalim. Therefore, if we
are unable to repay the loans, Bank Hapoalim would be entitled foreclose on our
assets in order to recover any balance still owed under the loans, which could
force us to discontinue operations. For more information, see Item 4:
Information on the Company  History and Development  Changes of Ownership and Capital Structure.

As long as there is a balance due on the
loan that we took from Bank Hapoalim, we are limited in our ability to utilize
revenues generated by our investments, which could impair our ability to grow.  Our loan agreement with Bank
Hapoalim
provides that payments of dividends, management fees or any other amount paid
to us will be deposited in our bank account and will be used to repay our loan
to Bank Hapoalim.  Similar restrictions
as well as financial covenants apply with respect to the loan we received in
connection with the acquisition of Tadiran Telecoms Israeli assets. Therefore,
even if we receive funds from our investments, we will not be able to utilize
these funds until the balance on our loan from Bank Hapoalim is repaid.  This lack of liquidity could impair our
ability to grow if we are not able to raise funds from other sources.  For more information, see Item 4:
Information on the Company  History and Development  Changes of Ownership and Capital Structure.

Fluctuations in
interest rates and the currency exchange rate could result in a material
increase in the expenses incurred in connection with the loans that we took
from Bank Hapoalim. The
loans we took from Bank Hapoalim in order to finance our acquisitions and
investments may be denominated in different currencies and linked to variable
interest rates, such as the EUROBOR, LIBOR and indexes. Upward fluctuations in
the exchange rates or in the value of the currency in which the loans are
denominated, could result in a material increase in expenses incurred in
connection with the loan and, consequently, a decrease in liquidity and an
inability to grow our business according to our business plan.

If Franz Kalff loses any of its customers,
its revenues may decline and it may have difficulty fulfilling its obligations. Franz
Kalff markets and sells its products to retail stores and car
manufacturers.  Its revenues from sales
to its five largest customers constitute approximately 55.32% of its total
revenues in 2004.  If Franz Kalffs
business relations with one or more of these five customers is terminated,
Franz Kalffs sales revenues could decline. In the event that its revenues
decline significantly, Franz Kalff could have difficulty fulfilling its
financial obligations, including the payment of its annual rent and payments
under a consulting and management services agreement with us, which may have an
adverse effect on our revenues and profitability. See Item 4: Information on
the Company  Business Overview.

6

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If Franz Kalff is unable to maintain a
competitive edge, it may not continue to be profitable. The market for first aid kits is
a competitive market and is expected to become even more competitive as
non-European manufacturers enter and increase their market share in this field.
If Franz Kalff is unable to maintain its current competitive edge, develop its
business and expand its range of products including retail and automotive sales
it may not continue to be profitable in the future, which may have an adverse
effect on our revenues and hinder our ability to repay our loan to Bank
Hapoalim. See Item 4: Information on the Company  Business Overview.

Changes in European legislation could
impact the market for Franz Kalffs products. To a large extent, Franz Kalffs sales
are a result of legislative requirements for first aid kits. The market for
Franz Kalffs products could be greatly reduced as a result of modifications to
these requirements. In addition, if Franz Kalff is unable to adapt to any
changes in the requirements, its sales would be reduced, which would have an adverse effect on our revenues and profitability.
See Item 4: Information on the Company 
Business Overview.

If damages are caused by its products,
Franz Kalff could be subject to liability, which may damage its reputation and
reduce its profitability. Franz Kalff could be subject to liability for damages caused by
its products.  Product liability claims
are common as a result of failures of products in the first aid kit
industry.  Franz Kalff is insured against
product liability and to our knowledge, no product liability claims were raised against Franz Kalff in the
past.  However, in the event that such
claims are brought against Franz Kalff, it could cause its reputation and our
reputation to be tarnished and orders of its products to be cancelled or
reduced, which may have an adverse effect on both Franz Kalffs and our
revenues and profitability.  See Item
4: Information on the Company  Business Overview.

Renewed weakness
in the telecommunications market may have a material adverse effect on Telecom
Israels business, operating results and financial condition, and cause us to
incur net losses in the future. Telecom Israels business is
sensitive to market conditions in the telecommunications industry. Capital
spending for telecommunications equipment and related services depends upon the
extent of existing unused capacity and the growth rate in voice and data
traffic levels, including growth in Internet and electronic commerce generated
traffic. If this capital spending does not maintain its current level or does
not increase from current levels, the market for our products may decline or
fail to develop as expected. This would result in reduced sales and may result
in our incurring net losses in the future.

Telecom Israel
depends on Tadiran Telecom Ltd. as a single source for its business. Any
reduction or disruption in Telecom Israels receipt of products from Tadiran
Telecom will negatively affect our gross margins and profitability. If Tadiran Telecom were to breach its obligations under its agreements with us,
close down or downsize its business, experience manufacturing or yield problems
or delays for any reason, including difficulty in obtaining sufficient raw
materials, work stoppages, excessive demand for its manufacturing capacity or
other causes, this could materially harm Telecom Israels business which may in
turn decrease our gross margins and adversely affect our profitability.

7

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If Tadiran
Telecom fails to keep pace with changes in technology, Telecom Israels
business could suffer. Technology in the
telecommunications industry continues to advance at a rapid pace.

Because Tadiran Telecom is a single source supplier,

failure to
introduce or develop new products and technologies in a timely manner or
failure to respond to changes in market demand may harm Telecom Israels
business, which may in turn decrease our gross margins and adversely affect our
profitability.

Telecom Israel
faces intensive competition in its industry. Telecom
Israel engages in telecommunication services in Israel, which is highly
competitive in Israel. Telecom Israel faces competition from various importers
and suppliers of business systems in Israel, such as EuroCom, BezeqCall,
Nortel, Telrad, Avaya and Alcatel. In addition, Telecom Israel faces
competition from various operators of communications applications contact
centers in Israel, such as Genesis, and Avaya on the high end, meaning
operation of contact centers with over 150 agents, and CT-Ware, EasyRun, Nortel
and Cisco on the low end, meaning operation of contact centers with up to 150
agents, usually with technology developed in Israel. While we believe that the
features and functions of the Tadiran Telecom products sold and the services
offered by Telecom Israel are favorably distinguishable from those of the
competitors, we cannot be certain that Telecom Israel will be able to further expand
its market share or that be able to maintain its current market share. Many of
Telecom Israels competitors have substantially greater capital resources,
activities, marketing and distribution networks and name recognition as well as
more extensive customer bases. In this regard, in todays economy,
telecommunication equipment purchases are being made more and more by IT
managers, who may be more familiar and accustomed to manufacturers of computer
equipment that have also entered the telecommunication market. We cannot
guarantee that Telecom Israel will successfully differentiate its products from
those of its competitors or that the marketplace will consider Telecom Israels
products superior to those of its competitors. Telecom Israel also faces significant
competition in the support services market.

The successof Franz Kalff and of Telecom Israel depends
on the protection of their intellectual property rights.  The success of Franz Kalff and of Telecom
Israel and their ability to compete depend to a significant degree on
their proprietary technology. The measures they have taken to protect our
proprietary technology afford only limited protection, and accordingly, there
can be no assurance that such steps will be adequate to prevent misappropriation
of their technology or the independent development of similar technologies by
others. Despite our efforts and those of Franz
Kalff and of Telecom Israel, unauthorized parties may attempt to copy
aspects of Franz Kalff and of Telecom
Israels products and develop similar hardware or software or to obtain
and use information that we regard as proprietary.

We,Franz Kalff or Telecom Israel may
become involved in litigation. From time to time, we, Franz Kalff and/or Telecom Israel may
be subject to various claims and lawsuits by competitors, customers, or other
parties arising in the ordinary course of business. Such matters can be
time-consuming, divert managements attention and resources, and cause us to
incur significant expenses. Furthermore, there can be no assurance that the
results of any of these actions will not have a material adverse effect on our
operating results.

We have stopped
purchasing insurance for manufacturing defects in products that we manufactured
in the past. We could be held liable for manufacturing
defects in products that we or our subsidiaries manufactured in the past.
Although, to the best of our knowledge, no claims of manufacturing defects have
been raised as of the date of this report and use of these products is limited,
there is still a risk that such claims will be raised in the future and we
could be forced to pay out significant sums of money to satisfy claims. See
Item 4: Information on the Company  History and Development.

8

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We may not be
able to prevent others from claiming that we have infringed their proprietary
rights. We cannot guarantee that one or more parties will not assert infringement claims
against us, Franz Kalff or Telecom Israel. The cost of responding to claims
could be significant, regardless of whether the claims have merit. Significant
and protracted litigation may be necessary to determine the scope of the
proprietary rights of others or to defend against claims of infringement,
regardless of whether the claims have merit. Although we believe that all the
products of Franz Kalff and of Telecom Israel use only our or their own
intellectual property, or intellectual property which is properly licensed to
us or them, in the event that any infringement claim is brought against us or
Franz Kalff or Telecom Israel and infringement is proven, we could be required
to discontinue the use of the relevant technology, to cease the manufacture,
use and sale of infringing products, to incur significant litigation damages,
costs and expenses, to develop non-infringing technology or to obtain licenses
to the alleged infringing technology and to pay royalties to use such licenses.
There can be no assurance that Franz Kalff and Telecom Israel would be able to
develop any such alternative technologies or obtain any such licenses on terms
commercially acceptable to them. Any infringement claim or other litigation
against us could seriously harm our business, operating results and financial
condition. While there are no lawsuits
or other claims currently pending against us or Franz Kalff or Telecom
Israel regarding the infringement of
patents or intellectual property rights of others, we may be party to such
claims in the future.

The success of
Franz Kalff and of Telecom Israel depends on key personnel, the loss of whom could
disrupt their business. The success of Franz Kalff and of Telecom
Israel greatly depends on the continued contributions of our and their senior
management and other key research and development, sales, finance, marketing
and operations personnel. We cannot assure you that we, Franz Kalff or
Telecom Israel will be successful in retaining its key personnel. Any loss of
the services of these key personnel could adversely affect business and our
profitability, at least until a suitable replacement is identified, hired and
acclimated.

Franz Kalff and
Telecom Israel will not be able to sustain continued growth unless they are
successful in attracting and retaining additional qualified personnel. The
success of Franz Kalff and Telecom Israels business depends on their ability
to attract and retain highly qualified management, technical, finance, and
sales and marketing personnel. Individuals who possess these qualifications are
in high demand, and they may not be successful in attracting, integrating and
retaining them when and as needed.

If we are deemed to be an investment
company, we will be subject to certain restrictions that may prevent us from
conducting our business as currently conducted. We may incur significant costs and suffer
other adverse consequences if we are deemed to be an investment company under
the United States Investment Company Act of 1940, as amended.  A company may be deemed to be an investment
company if it owns investment securities with a value exceeding 40% of its
total assets, subject to certain exclusions.
Investment companies are subject to registration under, and compliance
with, the United States Investment Company Act of 1940 unless a particular
exclusion or safe harbor exemption applies.
If we were to be deemed an investment company, we would become subject
to the requirements of the United States Investment Company Act of 1940.  As a consequence, we would be prohibited
from engaging in business, offering for sale, selling or issuing our securities
by the use of the mails or any means or instrumentality of interstate commerce
and might be subject to civil and criminal penalties for noncompliance. In
addition, our contracts with our affiliates might be voidable.

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In 2000, following the sale of all of our past operating
activities and the purchase of the assets of Silverboim Technology (1999) Ltd.,
a wholly owned subsidiary of Silverboim Holdings Ltd, we became exposed to the
risk of being deemed an investment company.
On March 23, 2000, our board of directors resolved that we conduct our
business activities, absent exemptive or other relief from the Securities and
Exchange Commission, in a manner that does not cause us to be deemed an
investment company requiring registration under the United States Investment
Company Act of 1940.  We strive to and
believe that we currently meet certain safe harbor requirements under the
United States Investment Company Act of 1940, so that we are not deemed an
investment company.  However, there is a
risk that we could fail to meet the safe harbor requirements and be deemed an
investment company in the future.
Moreover, because we would like to avoid investment company status in
the future, we may also be unable to freely purchase investment securities in
additional companies that may be important to our operating strategy.

If we are
characterized as a passive foreign investment company for U.S. federal income
tax purposes, our U.S. shareholders may suffer adverse tax consequences. We will be considered  a passive
foreign investment company, or
PFIC, if 75% or more of our gross income in a taxable year, including our pro
rata share of the gross income of any company, U.S. or foreign, in which we are
considered to own, directly or indirectly, 25% or more of the shares by value, is
passive income. Alternatively, we will be considered to be a PFIC if at least
50% of our assets in a taxable year, averaged over the year and ordinarily
determined based on fair market value and including our pro rata share of the
assets of any company in which we are considered to own, directly or
indirectly, 25% or more of the shares by value, are held for the production of,
or produce, passive income. If we were to be a PFIC, and a U.S. Holder does not
make an election to treat us as a qualified electing fund, or QEF, or a mark
to market election, excess distributions to a U.S. Holder, and any gain
recognized by a U.S. Holder on a disposition or our ordinary shares, would be
taxed in an unfavorable way. Among other consequences, our dividends, to the
extent that they constituted excess distributions, would be taxed at the
regular rates applicable to ordinary income, rather than the 15% maximum rate
applicable to certain dividends received by an individual from a qualified
foreign corporation, and certain interest charges may apply. In addition,
gains on the sale of our shares would be treated in the same way
as excess distributions. The tests for determining PFIC status are applied
annually and it is difficult to make accurate predictions of future income and
assets, which are relevant to the determination of PFIC status. In addition,
under the applicable statutory and regulatory provisions, it is unclear whether
we would be permitted to use a gross loss from sales (sales less cost of goods
sold) to offset our passive income in the calculation of gross income. In light
of the uncertainties described above, no assurance can be given that we will
not be a PFIC in any year. If we determine that we have become a PFIC, we will
then notify our U.S. Holders and provide them with the information necessary to
comply with the QEF rules. A U.S. Holder who makes a QEF election is taxed
currently on such holders proportionate share of our earnings. If the IRS
determines that we are a PFIC for a year with respect to which we have
determined that we were not a PFIC, however, it might be too late for a U.S.
Holder to make a timely QEF election, unless the U.S. Holder qualifies under
the applicable Treasury regulations to make a retroactive (late) election. U.S.
Holders who hold ordinary shares during a period when we are a PFIC will be
subject to the foregoing rules, even if we cease to be a PFIC, subject to
exceptions for U.S. Holders who made a timely QEF or mark-to-market election,
or certain other elections.

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Exchange rate fluctuations and
international risks could increase the cost of our operations. Sales
of our subsidiaries are predominantly denominated in Euros and New Israeli
Shekel (NIS) and may be subject to government controls and other risks, including,
in some cases, export licenses, federal restrictions on export, currency
fluctuations, political instability, trade restrictions, and changes in tariffs
and freight rates. We believe that the rate of inflation in Israel and exchange
rate fluctuations between the NIS and the Euro have had a minor effect on our
business to date. However, our Euro costs in Israel will increase if inflation
in Israel exceeds the devaluation of the NIS against the  Euro, if the timing of such devaluation lags
behind inflation in Israel or if the Euro devaluates against the NIS. See Item
5: Operating and Financial Review and Prospects  Inflation in Israel and Currency Fluctuations.

The Office of the Israeli Chief Scientist
could require us to pay back previously granted funds, which could affect our
profitability. In
the past, we received approximately $4.4 million in grants from the Office of
the Israeli Chief Scientist for projects relating to research and development.
Because we discontinued operations and/or sold all of our operating businesses
and research projects, there is a risk that the Office of the Israeli Chief
Scientist will require us to repay some or all of the grants previously
received, with interest, which could affect our profitability.   Edco Technologies 1993 Ltd., formerly
Associative Computing Ltd., which we sold in 2003, received $0.3 million in
grants from the Israeli Chief Scientist.
Upon sale of substantially all of its assets to NeoMagic Israel Ltd.,
NeoMagic Israel Ltd. undertook to pay any royalties owed by Edco Technologies
to the Israeli Chief Scientist with respect to grants received by Associative
Computing.  In the event that NeoMagic
Israel Ltd. or its parent, NeoMagic Corporation, fails to comply with the
requirements of the law or fails to pay royalties, there is a risk that the
Israeli Chief Scientist will require Edco Technologies to pay any royalties
owed. Although we no longer own any shares in Edco Technologies, we agreed to
indemnify the purchaser of Edco Technologies for any obligation to pay such
royalties.

Risks Related to the Public Market for Our Ordinary
Shares

There is only a limited public market for
our ordinary shares, which limits the liquidity of our ordinary shares and may
make it difficult to sell our ordinary shares. Currently, the only public market for our
ordinary shares is the over-the-counter bulletin board.  The over-the-counter bulletin board
generally has a more limited trading market than other stock markets. On
October 13, 2004, we announced that our Board of Directors resolved to take all
steps required to meet the NASDAQ Smallcap Market listing requirements for
listing our shares on the NASDAQ SmallCap Market and following the amendment to
the Israeli regulations regarding dual listing, to take all steps required to
perform a dual listing such that our shares will also be listed on the Tel Aviv
Stock Exchange. However, there is no guarantee that we will meet the said
listing requirements of the NASDAQ SmallCap Market and succeed in listing our
shares on the NASDAQ SmallCap Market, or on the Tel Aviv Stock Exchange.
Furthermore, there are very few transactions in connection with our ordinary
shares and there is a large gap between the bid and ask prices. There can be no
assurance that a broad public market for our ordinary shares will develop in
the future. These factors make it difficult for our shareholders to sell our
ordinary shares which could sustain their low value.  See Item 9: The Offer and Listing  Price History and Market
Information.

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Our ordinary shares have recently become
subject to a third party tender offer. On June 14, 2005, WorldGroup Holdings Ltd., a public Israeli company traded on the
Tel Aviv Stock Exchange, published a tender offer for the purchase of all of
the issued and outstanding shares of Robomatix, at a price per share of $1.00.
Worldgroup Holdings is indirectly controlled by Silverboim Holdings Ltd., which
is also our controlling shareholder. Together with entities directly and
indirectly controlling Worldgroup Holdings, Worldgroup Holdings currently own
approximately 61.62% of our outstanding ordinary shares.  If Worldgroup Holdings acquires up to 90% or
more than 95% of our outstanding ordinary shares in the offer, it will
consummate the tender offer. If there are fewer than 300 holders of record of
our ordinary shares resident in the U.S., Worldgroup Holdings intends to cause
the delisting of our ordinary shares and there will no longer be any public
market for our ordinary shares. Conversely, failure of the tender offer may
also have a negative impact on the price and trading volume of our ordinary
shares.

Since there is a limited public market for
our ordinary shares, future issuance of equity or equity-linked securities
could result in a decrease of the value of our ordinary shares. If a broader public market for our
ordinary shares does not develop and we do not succeed in our efforts to list
on the NASDAQ SmallCap Market, subsequent issuance of equity or equity-linked
securities could saturate the market and depress the value of our ordinary
shares.

The exercise of
our options may dilute shareholdings and the large number of shares available
for future sale could adversely affect the price of our ordinary shares. As
of June 15, 2005, 13,599,626 of our shares were outstanding. In addition, as
part of the consideration for our acquisition of Tadiran Telecom we issued to
Tadiran Telecom Ltd. options to purchase an
aggregate of 1,674,403 of our ordinary shares, at an exercise price of $0.70
per share, which as of June 15, 2005, constituted 8.24% of our fully diluted
share capital, and in addition, we also we issued to the officers of Tadiran
Telecom Ltd. (who continued their employment in  Telecom Israel) with options to purchase an aggregate of 4,035,577 of our ordinary
shares, at an exercise price of $0.77 per share, which as of June 15, 2005,
constituted 19.87% of our fully diluted share capital.  We have also issued our directors, past
directors, employees and consultants, with options to purchase an aggregate of
1,000,000 or our ordinary shares, which as of June 15, 2005, constituted 4.7%
of our fully diluted share capital. Any exercise of options may dilute the
current holding of our shareholders.

Our controlling shareholders may sell a
substantial number of their shares or cease their direct participation in the
development of our business and we may be unable to successfully locate future
investments. Our controlling shareholders actively participate and direct our
fundraising and investment activity. In the event that our controlling
shareholders sell their controlling block of our ordinary shares, there is a
risk that without their expertise we would be unable to succeed in our business
plans as we could be unable to identify future profitable investments.

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Since ownership of our ordinary shares is
concentrated, our principal shareholders have a significant effect on important
decisions regarding our business and they may be able to prevent takeover
attempts that could be advantageous to other shareholders and our other
shareholders ability to affect our activities could be limited. As
of June 15 2005, Silverboim Holdings Ltd., or Silverboim Holdings beneficially
owned approximately 60.21% of our issued and outstanding share capital and
Gilex Holdings B.V. beneficially owned 20.43% of our issued and outstanding
share capital.  Silverboim Holdings also
provides us with management and consulting services. Therefore, Silverboim
Holdings and Gilex may be able to significantly affect important decisions
regarding our business, as well as prevent corporate transactions such as
mergers, consolidations or a sale of substantially all of our assets, which
might be favorable from our standpoint or that of other shareholders.  The ability of our other shareholders to
affect our activities could be limited. See Item 7: Major Shareholders and
Related Party Transactions.

We are affected by volatility in the
securities markets. Due to the recent downturn in the world economy,
the securities markets in general have recently experienced volatility which
has particularly affected the securities of many high-technology companies and
particularly those in the fields of communications, software and hardware,
including companies that have a significant presence in Israel. This volatility
has often been unrelated to the operating performance of these companies and
may cause difficulties in raising additional financing required to effectively
operate and grow their businesses. Such difficulties and the volatility of the
securities markets in general may affect our
financial results.

Risks Related to our Operations in Israel

Security, political and economic
instability in Israel may harm our business. We
are incorporated under the laws of the State of Israel and our offices are
located in Israel. In addition, we have holdings in Israeli companies.
Accordingly, we are directly affected by economic, political and military
conditions in Israel.  Since the
establishment of the State of Israel in 1948, a number of armed conflicts have
taken place between Israel and its Arab neighbors and a state of hostility,
varying from time to time in intensity and degree, has led to security and
economic problems for Israel.  There has
been an increase in hostilities, civil unrest, terrorist activities and military
action, which began in September 2000 and which have continued with varying
levels of severity into 2005. This or any future instability could result in
our inability to maintain or develop our business. Since the beginning of 2005, negotiations between
Israel and the Palestinian Authority have been renewed and hostilities have
diminished. While such development has calmed the region and while previous
hostilities did not have a material adverse impact on our business, we cannot
guarantee that hostilities will not be renewed and have such an effect in the
future. The political and
security situation in Israel may result in parties with whom we have contracts
claiming that they are not obligated to perform their commitments under those
agreements pursuant to force majeure provisions. Any hostilities involving
Israel or the interruption or curtailment of trade between Israel and its
present trading partners could adversely affect our operations and could make
it more difficult for us to raise capital. Furthermore, our management and that
of Telecom Israel are located in Israel. Since we do not have a detailed
disaster recovery plan that would allow us to quickly resume business activity,
we, our Israeli subsidiaries and Telecom Israel could experience serious
disruptions if acts associated with this conflict result in any serious damage
to our facilities and those of our subsidiaries and of Telecom Israel. In
addition, certain countries, companies and other organizations continue to
boycott Israeli firms and others doing business in Israel or with Israeli
companies, which limits the scope of our business activities.  Furthermore, Israels economy is still in
the process of recovering from a recession. Although the government has
proposed a significant economic plan, there is uncertainty as to the
effectiveness of the plan and the timing of any economic recovery.

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If a substantial number of our officers and
directors were called for military duty, our management resources, and as a
result, our operations, could be compromised. If our chief executive officer or a
substantial number of our directors, or those of Franz Kalff or of Telecom
Israel were called for military duty, our management resources, and as a
result, our operations, could be compromised.
All nonexempt male adult citizens of Israel are obligated to perform
military reserve duty every year and may be called for active duty under
emergency circumstances. As of the date of this report, our chief executive
officer and most of our directors and those of Franz Kalff and of Telecom
Israel are subject to military reserve duty.

Service of process and enforcement of
judgments on our officers and directors may be impossible. Our officers and directors  and many of those of
Franz Kalff and of
Telecom Israel reside outside of the United States.  Therefore, even if our shareholders were able to obtain a
judgment against us or any of our officers and directors in the United States,
this judgment could be difficult, both legally and financially, to enforce.  Our shareholders may not be able to enforce
civil actions under United States securities laws if they file a lawsuit in
Israel.  If a foreign judgment is
enforced by an Israeli court, it will be payable in Israeli currency.

|        |                           
|------- | --------------------------
|Item 4: | Information on the Company

Overview

We
are a holding company.  We currently
hold, through a wholly owned subsidiary, all of the outstanding share capital
of Franz Kalff GmbH, a German company engaged in the business of manufacturing
through contractors, marketing and sale of first aid kits primarily for the
automotive industry and mainly in Germany.
Our other significant holding is in the field of communications
systems.  On October 6, 2004, we
consummated the acquisition, through Telecom Israel, a partnership  in which we own a majority, directly and
indirectly,  of the assets and
liabilities of the service, maintenance, sales and marketing divisions in
Israel of Tadiran Telecom. We plan to acquire interests in other companies or businesses.  We also hold publicly traded
securities and
minority interests in private companies.

We
were incorporated under the laws of the State of Israel in 1982.  Our ordinary shares are listed on the
over-the-counter bulletin board under the symbol RBMXF.OB. There is no
non-United States trading market for our shares. The address and phone number of our principal executive office
is:

1 Azrieli Center 
Tel-Aviv 67021, Israel
Tel.: 972-3-696-9222

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A.     History
and Development

Our Past Activities

We
were originally engaged in the fields of laser-based robotic components and
standardized on-line quality assurance systems. We designed, developed, manufactured, marketed and provided support
for standard and customized systems, which employed proprietary software to
integrate and control diverse combinations of robotics, laser, ultrasound,
imaging and vision technologies. Such
comprehensive automated systems offered solution systems for laser cutting,
measurement and inspection in aerospace, automotive and metal industries.

We
are no longer engaged in any of our original areas of activities. In 1996, we discontinued or sold our
activities in the field of laser-based robotic components and standardized
on-line quality assurance systems. In November 1997, we sold our holdings in
D.D.I.S. (Israel) Ltd., and in February 1999 another subsidiary of ours,
Associative Computing Ltd., sold substantially all of its activities in the
field of parallel image processing of color images for the video and multivideo
industry. During 1997 and 1998, we were
primarily engaged in providing maintenance services and technical support for
systems sold by us in previous years. We no longer provide such services.

Changes of Ownership and Capital
Structure

On
December 30, 1999, Silverboim Holdings Ltd., an Israeli company that acquires
publicly traded companies in need of new activities, purchased the controlling
block of our ordinary shares and several of our previous controlling
shareholders. After this change of
control we focused our efforts on raising the required capital to allow us to
explore new business opportunities. We then started, and plan to continue, to
utilize our capital and resources primarily to acquire substantial interests in
promising technology-based, Internet, communication or other operating
companies or businesses. We have two
employees and Silverboim Holdings, our principal shareholder, also provides us
with management and support services.
The following description elaborates on our activities following the
discontinuation and sale of our remaining original operations.

See
Item 6: Directors, Senior Management and Employees and Item 7: Major Shareholders
and Related Party Transactions.

On
January 31, 2000, we issued an aggregate of 1,750,000 ordinary shares to
certain investors for an aggregate purchase price of $3,500,000. On March 9, 2000, we issued an aggregate of
857,150 ordinary shares to certain investors for the aggregate purchase price
of approximately $3,000,000. Under each of the share purchase agreements, we
agreed to take all necessary actions in order to register these shares for
resale under the Securities Act of 1933.
Our registration statement on Form F-3 for the registration for resale
of 5,083,952 of our ordinary shares became effective on July 11, 2000.

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On
November 15, 2000, we entered into a consultation and management agreement with
Silverboim Holdings, effective January 1, 2000, pursuant to which Silverboim
Holdings provides management, consulting and support services for Robomatix in
consideration for monthly payments of $10,000 plus VAT and reimbursement of
reasonable expenses. Additionally, on
October 2000, our shareholders approved a services agreement with Silverboim
Holdings, effective January 1, 2000, pursuant to which Silverboim Holdings
provides us support and administrative services, including secretarial and
computer services, office space and the payment of related expenses. The service fees under this agreement are
based on actual expenses up to $5,000 per month. In 2001 and 2002, we made no actual payment to Silverboim
Holdings for support, services and office space and management and consulting
services, (except for actual out of pocket expenses in connection with the
management and consulting agreement in an amount of $10,914) but recorded in
our 2001 and in our 2002 financial statements $60,000 for support, services and
office space and $120,000 for management and consulting services. In 2003, we
paid Silverboim Holdings $104,000 on account of our outstanding debt. In 2004,
we made no payments on account of the ongoing arrangement with Silverboim
Holdings, but recorded in our 2004 financial statements $60,000 for support,
services and office space and $120,000 for management and consulting services.

On
January 24, 2001, we issued to Gilex Holding B.V. 1,200,000 of our ordinary
shares as partial consideration for the purchase from Gilex, through Mersa, of
Franz Kalff, for an aggregate amount of approximately $2,079. Since the trading volume of our shares was
low, the price per share was a result of negotiations and does not reflect the
public share price of Robomatixs shares.
The total purchase price was fully paid.

On
June 14, 2005, WorldGroup Holdings Ltd., a public Israeli company traded on the
Tel Aviv Stock Exchange, published a tender offer for the purchase of all of
the issued and outstanding shares of Robomatix, at a price per share of $1.00.
Worldgroup Holdings is indirectly controlled by Silverboim Holdings Ltd., which
is also our controlling shareholder. Together with entities directly and
indirectly controlling Worldgroup Holdings, Worldgroup Holdings currently own
approximately 61.62% of our outstanding ordinary shares. If Worldgroup Holdings acquires up to 90% or
more than 95% of our outstanding ordinary shares in the offer, it will
consummate of the tender offer. If there are fewer than 300 holders of record
of our ordinary shares resident in the U.S., Worldgroup Holdings intends to
cause the delisting of our ordinary shares and there will no longer be any
public market for our ordinary shares. On June 21, 2005, Shaul Ashkenazi, who
is a director in and holds approximately 31.5% of Worldgroup Holdingss issued
share capital, filed a claim against Worldgroup Holdings, Zvika Barinboim, Siverboim Holdings Ltd., Gilex
Holdings B.V., Ariel Levi and Marc Zalcman, in which he petitioned the
Tel Aviv District Court in Israel to declare the tender offer invalid. The claim alleges that Worldgroup
Holdingss tender offer is inadvisable
to Worldgroup Holdings because
the price per share in the offer is too high, and alleges that the offer was
not duly authorized by the shareholders of Worldgroup Holdings. As
of the date of this annual report, Worldgroup
Holdings has not yet filed a response.
See Item 7: Major Shareholders and Related Party Transactions.

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Recent Capital Expenditures

Acquisition
of Tadiran Telecoms Israeli Business

Tadiran
Telecom Ltd. offers enterprises complete, cost-effective converged
communications solutions that support voice, data, video and advanced
applications. On July 19, 2004, we entered into an asset purchase agreement and
a distribution agreement with Tadiran Telecom Ltd. for the purchase of the
assets and liabilities of its service, maintenance, sales and marketing
divisions in Israel as of March 31, 2004, in consideration for $6.7 million, to
be paid as follows: (i) $3.8 million at the closing; (ii) an amount of $1.5
million after twelve months; (iii) an amount of $1 million after twenty four
months; and (iv) an amount of $500,000 after thirty six months. The acquisition
was consummated on October 6, 2004, through Tadiran Telecom Communication
Services in Israel  Limited Partnership, or Telecom Israel, a partnership that
on the acquisition date, was wholly-owned, directly and indirectly, by us. We
are currently a limited partner in Telecom Israel and hold 90% of the partnership
equity together with Marc Zalcman or a company controlled by him, who holds 10%
of its issued share capital following an oral agreement with us in the first
quarter of 2005. The general partner of Telecom Israel is Tadiran Telecom 
Communication Services in Israel Ltd., a private company, registered in Israel,
of which Robomatix holds 90% of its issued share capital together with Marc
Zalcman or a company controlled by him, who holds 10% of its issued share
capital following an oral agreement with us in the first quarter of 2005. (For
more information regarding the sale of our shareholdings in Telecom Israel to
Marc Zalcman, see Item 7: Financial Information  Significant Changes).
Pursuant to our acquisition agreement with Telecom Israel, we are entitled to
all net income from March 31, 2004 through September 30, 2004. The amount of
$1.8 million was reduced from the purchase price. Part of the consideration,
approximately $3,000,000, was financed through a loan from Bank Hapoalim. This
loan requires Telecom Israel to maintain certain financial covenants. Telecom
Israel also absorbed all of the employees of the former Tadiran Telecom
activity under terms substantially the same as their previous terms of
employment. In addition to the cash consideration,
 we granted to Tadiran Telecom options to purchase 10%
of the issued share capital of Robomatix (on a fully diluted basis) for a price
per share of $0.70, for a period of three years from the closing date of the
transaction. See Item 7: Major Shareholders and Related Party Transactions 
Major Shareholders.

The
distribution agreement provided for the sale and provision of services by
Telecom Israel for Tadiran Telecom products in Israel. Telecom Israel may sell
the products through its own distributors and is obligated sell the products to
distributors that were already contracted by Tadiran Telecom under active
distribution agreements. The distribution agreement also included a mutual
exclusivity provision according to which Telecom Israel may only market and
sell Tadiran Telecom products, and Tadiran Telecom may only sell its products
in Israel through Telecom Israel (except for product that are not competitive
for Tadirans products). The mutual exclusivity provision is valid for a
seven-year period and may be extended and terminated earlier by the parties
according to the conditions of the distribution agreement. Additionally, the
distribution agreement sets forth that Telecom Israel will provide technical
support for projects and development of Tadiran Telecoms Composit contact
center products in Israel, on an exclusive basis until December 31, 2005, and
Telecom Israel will also provide technical support for Tadiran Telecoms Aspect
contact center products on a non-exclusive basis. See Item 4: Information on
the Company  Business Overview  Tadiran Telecom Communication Services in
Israel  Limited Partnership.

The
purchased assets include the assets and liabilities related to Tadiran
Telecoms Israeli activities, including among others, agreements with the
customers, distribution agreements, fixed assets, inventory, a license to use
intellectual property related to the acquired operations and liabilities in
connection with certain employees of Tadiran Telecom that were transferred to
Telecom Israel within the framework of the transaction.

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Upon
the consummation of the transaction on October 6, 2004, Tadiran Telecom
transferred the aforesaid assets and liabilities to Telecom Israel. In
addition, upon consummation of the transaction, Telecom Israel entered into
other agreements with Tadiran Telecom, namely a

distribution


agreement
granting Telecom Israel the exclusive marketing rights for Tadiran Telecom
products in Israel, a service agreement for products and support in research
and development, a sub-leasing and services agreement, an agreement for the
transfer of rights and liabilities of Tadiran Telecoms leasing vehicles, a
license agreement for use of Tadiran Telecom name and trademark and an
agreement for the marketing and sale of contact center products. In addition,
we also entered into an option agreement with Tadiran Telecom on October 6,
2004 for the grant of options to purchase 1,674,403 ordinary shares in our
Company at an exercise price of $0.70, which as of June 15, 2005, constitute
8.24% of our issued share capital (on a fully diluted basis). The options
granted under the option agreement may be exercised until October 6, 2007. See
Item 7: Major Shareholders and Related Party Transactions  Major
Shareholders.

Other Recent Principal Capital Expenditures
and Divestments

In
November 2002, we entered into two agreements with the Israel Land Development
Insurance Holdings Ltd. for the purchase of minority shareholdings in two of
its subsidiary insurance companies, Israel Land Development Insurance Company
Ltd. and ICIC  The Israel Credit Insurance Company Ltd. Israel Land
Development Insurance Holdings is part of the Israel Land Development group,
which maintains a diversified portfolio of business enterprise, with activities
in publishing and other media, real estate development and property management,
leisure products, insurance and hotels.

In
an agreement with the Israel Land Development Insurance Holdings Ltd. we
purchased for $1,238,000 approximately 2.4% of the shares of the Israel Land
Development Insurance Company Ltd., at the time a private multi-line insurance
company. As of May 2004, the shares of Israel Land Development Insurance
Company are listed on the Tel Aviv Stock Exchange. In connection with the
public offering, call and put options contained in the original agreement as
well as a voting agreement were terminated. As a result of the offering, our
shares in Israel Land Development Insurance Holdings Ltd. became freely
tradeable. During 2005, we sold a
portion our holdings in Israel Land Development Insurance Ltd, for a total
consideration of $865,000, leaving us with an aggregate of 198,793 shares which
were valued at approximately $135,000 on June 15, 2005.

Simultaneously
with the investment, we entered into a consulting agreement with Israel Land
Development Insurance Company Ltd.
According to the consulting agreement, we will provide Israel Land
Development Insurance Company with financial consulting services in return for
approximately $57,000 in NIS, per year, until the end of 2009.

In
addition, we purchased for $825,000 approximately 5.33% of the shares of ICIC 
The Israel Credit Insurance Company Ltd., which insures credit-based export and
local transactions. In June 2004, we sold these shares for approximately
$767,000.

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Our
shares in Israel Land Development Insurance Company Ltd. are pledged to Bank
Hapoalim B.M. as security for a credit facility provided by the bank for these
transactions.

Robomatix
(Israel) Ltd., which we sold in 2002, was originally engaged in the production
of inspection and measurement systems.
Its former United Kingdom subsidiary, Robomatix (U.K.) Ltd., provided
maintenance services to customers who bought certain systems manufactured by
Robomatix Israel. During 1997 and 1998
Robomatix Israel eliminated its base of operations in Germany and discontinued
production of the inspection and measurement systems. In March 1999, it sold its holdings in the United Kingdom subsidiary
to the general manager of the United Kingdom subsidiary for one-pound
sterling. The capital loss on this
sale, taking into account the waiver of the balance of the current account with
the United Kingdom subsidiary as of the transaction date, was $28,000. The former United Kingdom subsidiary agreed
to continue to provide services to customers of Robomatix Israel as of the date
of the transaction in Europe, North America and the Far East.

In
September 2002, we entered into an agreement for the sale of our entire share
holdings in Robomatix (Israel) Ltd. to SPL Software Ltd., an Israeli company
also held by Silverboim Holdings Ltd., one of our principle shareholders. In
accordance with the agreement, SPL Softwarepaid us approximately $570,000 in
consideration for our holdings in Robomatix (Israel) Ltd.

Commencing
in December 2002 we entered into a series of agreements in connection with
Associative Computing Ltd., concluding in April 2003 with the sale of all our
shareholdings in Associative Computing and its debt to us, for the aggregate
amount of approximately $1,083,000, net of expenses. In December 2002, we and
Associative Computing entered into a share purchase agreement with Benny
Konstantin, the sole shareholder of Edco Electronics Ltd. In accordance with
the agreement, Associative Computing issued to Konstantin shares constituting
50% of its share capital. In addition, we agreed to refinance the debt owed to
us by Associative Computing and we assigned to Konstantin approximately
$2,000,000 out of the aggregate debt of approximately $2,800,000 owed to us by
Associative Computing. In January 2003, in a separate agreement, Associative
Computing purchased some of the assets and activities of Edco Electronics Ltd.
for the aggregate amount of approximately $2,600,000. Following this
transaction, Associative Computing changed its name to Edco Technologies (1993)
Ltd.

In
March 2003, we entered an agreement with Berger Holdings 1 (1992) Ltd.
according to which we sold to Berger Holdings all of our shares in Edco
Technologies Ltd and assigned the remaining debt as well as all of our rights
under the shareholders agreement and the management and consulting services
agreement. In consideration, we received a gross payment of approximately
$850,000 at the closing of the transaction and an additional gross sum of
approximately $425,000 will be paid in six equal quarterly installments, in NIS
linked to the Israeli consumer price index.

19

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B.     Business Overview

As
a holding company our business is conducted through our subsidiaries and other
companies in which we hold substantial interests. We wholly own Franz Kalff GmbH, which is an operating company. We also
own, directly and indirectly, a
majority of Telecom Israel, an operating partnership which owns the assets and liabilities of the service,
maintenance, sales and marketing divisions in Israel of Tadiran Telecom. We do
not hold controlling interests in other businesses and therefore our business
related discussion throughout this report focuses on the business of Franz
Kalff and that of Telecom Israel.

Franz Kalff GmbH

In
January 2001, Mersa Holdings B.V., a Dutch company that is one of our
wholly-owned subsidiaries, purchased all of the outstanding share capital of
Franz Kalff from Gilex Holdings B.V. Franz Kalff is a German company engaged in
the business of manufacturing through contractors, marketing and sale of first
aid kits primarily for the automotive industry. At the time of the closing, Gilex
held 7.98% of the issued and outstanding ordinary shares of Silverboim
Holdings, and 29.8% of the share capital of Silverboim Holdings, on a fully
diluted basis. Additionally, Gilex has
one representative on the board of directors of Silverboim Holdings. For the current percentage of holdings of
Gilex in Silverboim Holdings, see Item 7: Major Shareholders and Related Party
Transactions.

Franz
Kalff was incorporated under the laws of Germany in 1883 and was originally
engaged in the processing of cotton and production of bandages. In the late 1980s the share capital of
Franz Kalff was purchased by Gilex, at which time Franz Kalff has already been
engaged in the business of manufacturing and selling first aid kits. In 1996, following several unprofitable
years, Franz Kalff decided to discontinue the in-house manufacturing of first
aid kits and focus on marketing and sale while engaging outside contractors and
suppliers to manufacture the first aid kits.
As a result, approximately 150 employees were released and portions of
the production facilities and warehouses were leased to third parties. In 2002, Franz Kalff sold its land and
leased it back from the buyer of the land. Since 1997, Franz Kalff has shown profit.

Today,
Franz Kalff is among the leading suppliers of first aid kits in Germany. The
market for first aid kits in Germany is one of the largest in the world because
of legislation requiring all car owners to keep an adequate first aid kit in
their vehicles. Franz Kalffs growth potential is based, in part, on similar
legislation being enacted in the future in other member countries of the
European Union.

Since
first aid products are subject to rigid quality standards, this industry does
not present many opportunities to achieve a competitive edge. However, Franz Kalff has achieved its
competitive edge through its patented inner design of the kits and its long
lasting business relations in the market place.

The
address and phone number of Franz Kalffs registered office and principal place
of business is:

Franz Kalff GmbH
Dechant-Wolfgarten-Strabe 85
D-53881 Euskirchen, Germany
Tel: (49-2) 251-6260

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Franz
Kalff engages two contractors who are responsible for the packaging of the
first aid kits according to its specific instructions. The contractors receive
the items comprising the first aid kits and their casings from Franz Kalff,
which purchases them from various suppliers, depending, among other things, on
the items quality requirements. Franz Kalffs customers consist of chain
retail stores and automobile manufacturers. It has approximately 200 customers
with approximately 6,000 points of sale. Franz Kalff has had continuing
relations with most of its principal customers, which include Metro-Group,
Aldi-Group, REWE-Group, LIDL-Group (leading retail stores in Germany),
Ford-Group and BMW. Revenues from sales to its five principal customers in the
year 2004 constituted approximately 55.32% of Franz Kalffs total revenues. Germany is the principal market place for
Franz Kalffs first aid kits (86.5% of sales) although Franz Kalff has marketed
and sold its products in other member countries of the European Union. Sales
outside Germany are made through outside distributors and independent
agents.

Products.
Franz Kalff manufactures through contractors, markets and sells approximately
20 types of first aid kits. The principal differences between the various types
of first aid kits relate to the intended use of the kit. The first aid kits
that are required to be kept in every car and motorcycle must meet very
specific standards that are set by the German Institute for Norms, the Deutsche
Institut fur Normung. The German Institute specifies not only what items should
be in each kit and their quantity but also their quality. For example, the
German Institute specifies the length, width and material of every required
bandage dressing in the kit. First aid kits intended for use in places of
business are also subject to specifications.

Under
German law, there are various kinds of certifications required in order to
market and sell first aid kits. Franz Kalff was certified under ISO 9002 and EN
46002. As of the date of this report, Franz Kalff is certified under the new
standards DIN-ISO 9001:2000, EN-ISO 13485, 9342 EWG and ISO 14001 standards.
The contents of other first aid kits which are not subject to specification are
also determined by their intended use. For example, the first aid kits intended
for use in a household contain more items than the kits intended for cars and
motorcycles, in order to provide for more risk related situations not
encountered on the road. The casing of the first aid kits is the other
difference between the various types of kits. The kits are offered in plastic
boxes or nylon bags, in various colors and with different designs of the inner
bags. Franz Kalff has a patent with respect to several inner bag designs, which
contain visible separate compartments for each item and appropriate
illustrations on each compartment.

The
percentages of total revenues of Franz Kalff in the last three years by type of
first aid kits are set forth in the following table:

|                                                                           |  |                       |                       |                       |  |       |   |  |       |   | 
|-------------------------------------------------------------------------- |  | --------------------- | --------------------- | --------------------- |  | ----- | - |  | ----- | - | 
|Type of First Aid Kit                                                      |  | 2002                  | 2003                  | 2004                  | 
|                                                                           |  |                       |                       |                       |  |       |   | 
|                                                                           |  | % of total
  revenues | % of total
  revenues | % of total
  revenues | 
|                                                                           |  |                       |                       |                       |  |       |   |  |       |  
|First aid kits
  meeting the German Institute standards                    |  |                       | 90                    | %                     |  | 88    | % |  | 92.5  | % | 
|First aid kits
  not meeting the German Institute standards                |  |                       | 7                     | %                     |  | 8     | % |  | 6     | % | 
|First-aid
  blanket                                                        |  |                       |                      |                       |  |      |   |  |      |   | 
|First aid kits
  meeting the German Institute standards for industrial use |  |                       | 3                     | %                     |  | 4     | % |  | 1.5   | % | 
|                                                                           |  |                       |                       |                       |  |       |   |  |       |   | 
|Total                                                                      |  |                       | 100.0                 |                       |  | 100.0 |   |  | 100.0 |   | 

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Franz
Kalff purchases the items for the first aid kits and empty casings from
approximately 17 suppliers in Germany and outside of Germany. German suppliers
primarily provide products that are required to be sterile. Other products are
purchased from, among other entities, Asian suppliers. Casings for the first
aid kits are purchased from suppliers from the Netherlands and Poland. In the
year 2004, Franz Kalff had one principal suppliers providing 11% or more of the
total items purchased by Franz Kalff (two suppliers providing approximately 12%
of the total items purchased, one supplier providing approximately 11% of the
total items purchased and one supplier providing approximately 18% of the total
items purchased). Although Franz Kalff continually seeks to diversify its pool
of suppliers, it believes that it is not dependant on any particular supplier
because there are other alternative suppliers that can provide the required
items for similar prices. Since many items comprising the first aid kits are
subject to German Institute specifications, Franz Kalff is required to purchase
these items from suppliers that are properly certified to provide them. In
addition to the verification that the suppliers are certified to provide the
items, the quality assurance personnel at Franz Kalff make regular visits to
the production facilities of its suppliers to confirm that they meet the
industry requirements.

Usually,
Franz Kalff does not enter into written long-term agreements with its suppliers
to allow for flexibility in quantities according to market conditions. At the
beginning of the engagement, Franz Kalff estimates what would be the scopes of
its orders for the contract period, which is a year at most, and the supplier
sets its prices according to such estimates.

The
prices of the first aid kits items are not inherently volatile. Other than the
effect of crude oil prices and cellulose prices, such prices are principally
affected by general economic conditions. Crude oil is used for the production
of the nylon bags that Franz Kalff purchases for the casing of the first aid
kits. General economic conditions in
Germany effect not only the prices of items purchased from German suppliers but
also the exchange rate of the U.S. dollar and British pound, which effect the
cost of items purchased from non-Euro zone suppliers.

Patents
and Trademarks. Franz Kalff has 22
registrations of patents and registered designs and 26 of A4 registrations of
trademarks, which protect its inner bag designs and brand names within several
European countries, such as Germany, England, Spain, Switzerland, France, Italy,
The Netherlands and Portugal. Franz Kalff is partially dependent on the
continued use of the name Kalff because of the positive goodwill associated
with this name. Its patented inner bags provide Franz Kalff a competitive
advantage and sales of first aid kits in which items are packaged in such
patented inner bags have increased over the past few years.

Packaging. Franz Kalff engages two
contractors to
package its first aid kits. The kits are packaged pursuant to specifications of
quality, quantity and inventory provided, and regularly observed, by Franz
Kalff. The contractor that performs approximately two thirds of the packaging
for Franz Kalff also uses operational space in the Franz Kalff facilities.
Although Franz Kalff works with only these two contractors, it is not dependent
on them because it believes that it could efficiently create a packaging
department within Franz Kalff or engage another contractor that is located in
the vicinity of its place of business. Franz Kalff has a contract with each of
its contractors for a term of one year to be extended automatically each year
for an additional one year period each unless terminated by a six months prior
notice.

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Selling
and Marketing. Franz Kalff markets
and sells its first aid kits to retail stores and car manufacturers. It is the
leading supplier of first aid kits to retail stores in Germany, selling
approximately 75% of the first aid products in this market. The German market for first aid kits is
affected by the law requiring that a standard first aid kit be kept in every
car. In the event that a first aid kit is not provided by the car manufacturer,
every owner of a new car needs to purchase a first aid kit that meets the
German Institute specifications. The law requires that the sterile items of
every first aid kit be replaced every five years. In 1998 and 1999, the demand
for first aid kits substantially increased as a result of changes to the German
Institute specifications applicable to these first aid kits. This change forced
all owners of new cars to purchase first aid kits that would meet the new
specifications. Other car owners also purchased new first aid kits in order to
carry the best available item.

The
percentages of total revenues of Franz Kalff in the last three years by
marketing channels are set forth in the following table:

| |                    |  |                       |       |                       |  |                       |   |  |       |  | 
| | ------------------ |  | --------------------- | ----- | --------------------- |  | --------------------- | - |  | ----- |  | 
| |                    |  | 2002                  |       | 2003                  |  | 2004                  |   | 
| |                    |  |                       |       |                       |  |                       |   | 
| | Marketing Channels |  | % of total
  revenues |       | % of total
  revenues |  | % of total
  revenues |   | 
| |                    |  |                       |       |                       |  |                       |   | 
| | Retail stores      |  |                       | 63.4  |                       |  | 63.7                  | % |  | 67.3  |  | 
| |                    |  |                       |       |                       |  |                       |   |  |       |  | 
| | Car manufacturers  |  |                       | 36.6  |                       |  | 36.3                  | % |  | 32.7  |  | 
| |                    |  |                       |       |                       |  |                       |   |  |       |  | 
| |                    |  |                       |       |                       |  |                       |   |  |       |  | 
| | Total              |  |                       | 100.0 |                       |  | 100.0                 |   |  | 100.0 |  | 
| |                    |  |                       |       |                       |  |                       |   |  |       |  | 

The
percentages of total revenues of Franz Kalff in the last three years by
geographic markets are set forth in the following table:

| |                   |  |                       |       |                       |  |                       |   |  |       |  | 
| | ----------------- |  | --------------------- | ----- | --------------------- |  | --------------------- | - |  | ----- |  | 
| |                   |  | 2002                  |       | 2003                  |  | 2004                  |   | 
| |                   |  |                       |       |                       |  |                       |   | 
| | Geographical Area |  | % of total
  revenues |       | % of total
  revenues |  | % of total
  revenues |   | 
| |                   |  |                       |       |                       |  |                       |   | 
| |                   |  |                       |       |                       |  |                       |   |  |       |  | 
| | Germany           |  |                       | 82.0  | %                     |  | 81.9                  | % |  | 86.5  |  | 
| | Export            |  |                       | 18.0  | %                     |  | 18.1                  | % |  | 13.5  |  | 
| |                   |  |                       |       |                       |  |                       |   |  |       |  | 
| |                   |  |                       |       |                       |  |                       |   |  |       |  | 
| | Total             |  |                       | 100.0 |                       |  | 100.0                 |   |  | 100.0 |  | 
| |                   |  |                       |       |                       |  |                       |   |  |       |  | 

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The
principal retail store customers of Franz Kalff are Metro-Group, Aldi Nord,
Aldi Sud, REWE-Group and Lidl-Group, and the principal car manufacturers
customers of Franz Kalff are BMW, Ford-Group and VW (Audi). Generally, retail stores use only one
provider and car manufacturer use one provider for a specific car model. Agreements with retail stores are usually
for a term of one to three years, providing for a target quantity, the type of
products to be purchased and the terms of payment. Customers are generally provided with a credit period of 30 to 90
days. The retail stores typically
assume responsibility for the promotion of the products. Agreements with car manufacturers relate to
the period of production of a specific car model and they customarily provide
for a 30 days credit period. Franz
Kalffs revenues from sales to its five principal customers in the year 2004
constituted approximately 55.32% of its total revenues and therefore Franz
Kalffs business is dependent on the continuation of these relations.

Sales
during the first six months of the years 2000 through 2004 have been higher
than sales during the later six months of these years because retail stores
normally conduct promotions and provide discounts with respect to first aid
kits products during the first six months of each year.

Sales
outside of Germany and to certain car manufacturers are made through outside
distributors who receive commissions at varying percentages of the
consideration received from the sale of the kits. Agreements between Franz Kalff and its distributors are in some
cases verbal and terminable at will, and in most cases, written and terminable
by a three months prior notice.
Agreements with entities outside of Germany would ordinarily provide for
a single order of kits.

Competition. Franz Kalff is among the
leading providers
of first aid kits for cars in Germany. Its major competitors are Paul Hartman
AG, Holthaus Medical, Leina Werke and Hans Hepp GmbH.

According
to Franz Kalffs estimates, first aid kits that are designed for use in cars
and meet the required German Institute specifications are sold primarily
through retail stores (approximately 42%), car manufacturers (approximately
34%) and other stores, such as supermarkets, department stores and car
accessories stores (approximately 24%).
Sales of first aid kits for cars constitute approximately 85% of the
total sales of first aid kits while sales of first aid kits for the household
sector, industrial sector and recreational activities constitute approximately
7%, 4% and 4%, of the total sales of first aid kits, respectively. However, due to their accessibility, more
than half of the first aid kits that are designed for use in cars, are used by
consumers in other circumstances, such as in the household, in work places or
during recreational activities.

In
the year 2004, Franz Kalff was a dominant provider of first aid kits for cars
to retail stores in Germany and its leading products were the first aid kits
for cars and recreational activities. It is difficult to estimate the share market percentages of each
competitor in each sector, but based on Franz Kalffs knowledge of the German
market for first aid kits, it has estimated that sales of its first aid kits
constitute more that a third of the total sales of first aid kits for cars in
the German market. Franz Kalff has
further estimated that, in the retail stores level, sales of its first aid kits
constitute more than three quarters of the sales of first aid kits for cars.

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Although
there are several companies competing in the German market for first aid kits,
most companies are dominant only in certain sectors. Franz Kalff has maintained its competitive edge by developing
its unique inner bag designs and casings and thereby creating a distinguishable
product, and by maintaining high quality products. Its continuous success depends not only on its ability to
penetrate into other sectors of the market, but also on its ability to expand
its range of products to be sold to both the retail and car markets where it
already has a foothold and to enter into market cooperation and merger
agreements with companies already servicing these two markets. Additionally, continuous success depends on
its ability to maintain the quality of its products and the level of its
customer service.

Subsidiaries. In 2002, Franz Kalff
merged with its
limited partnership subsidiary, Franz Kalff GmbH & Co.
Industrieanlagen-Kommanditgesellschaft. Pursuant to the court order, the assets
of the limited partnership accrued to Franz Kalff without liquidation. In
addition, Franz Kalff is the sole shareholder of Primacura Verwaltungs GmbH, a
German corporation. Primacura was
originally engaged in the distribution of certain products of Franz Kalff.

Property,
Plants and Equipment. Through its
subsidiaries, Franz Kalff was the owner of land in Euskirchen, Germany where
its offices and production and warehouse facilities are located. In 2002, as a
result of the court approved merger, Franz Kalff became the direct owner of the
land, which has a total surface area of 63,245 square meters, of which 15,003
square meters contain buildings and other facilities. Franz Kalff uses only a
small portion of these land and facilities for storage and its offices. Other portions are sub-leased to third
parties. In December 2002, following transfer of the land from the subsidiaries
to Franz Kalff, Franz Kalff entered into an agreement for the sale of the land
to the Israel Land Development Insurance Company Ltd. for $3,500,000.
Simultaneously, Israel Land Development Insurance Company leased back to Franz
Kalff the facilities for a fifteen year period, for annual rent of $350,000. In
connection with the leaseback of the land, we obtained a bank guarantee for the
sum of $350,000 from Bank Hapoalim. In addition, Silverboim gave the purchaser
(lessor) an independent guarantee in connection with the lease. The annual
income from these sub-leases is approximately $127,000.

Some
of the materials used by one of the tenants of Franz Kalff, Franz Kalff
Vliesstoffe GmbH, are considered environmentally hazardous. Liability for environmental damages to the
land under German law rests with both the owner of the damaged land and the
person who caused the damage. Franz
Kalff is insured against environmental liability.

Tadiran Telecom
Communication Services in Israel  Limited Partnership

The
operations of Tadiran Telecom Communication Services in Israel  Limited
Partnership, or Telecom Israel, are the sole result of its recent acquisition
of the assets and liabilities related to Tadiran Telecom Ltd.s Israeli
activities, including, among others, the agreements with Tadiran Telecoms
customers, its distribution agreements, fixed assets and inventory, and Tadiran
Telecoms the license to use intellectual property related to the acquired
operations and liabilities in connection with certain employees of Tadiran
Telecom.

Tadiran
Telecom Ltd. is a private company, owned by Ron Bregman and Africa-Israel
Communication Ltd, headquartered in Petach Tikva, Israel, with regional head
offices in Port Washington, NY, USA, Moscow Russia, Beijing, China and Delhi,
India. Through its agreements with Tadiran Telecom, Telecom Israel markets and
sells communications solutions that support voice, data, video and advanced applications.
Tadiran Telecoms products and solutions include the Coral FlexiCom and the
Coral IPx families of products that include comprehensive contact centers,
end-to-end IP networking, and value-added services.

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Telecom
Israel owns assets of Tadiran Telecom concerning its Israeli operations,
including its licenses, its assets and liabilities, its license to use the
information of the services, the databases of Tadiran Telecoms Israeli
clients, its rights to indemnification from ECI Telecom Ltd., its contracts and
arrangements with its Israeli customers excluding leasing agreements, supplier
contracts, all of Tadiran Telecoms distribution agreements with Israeli
interests for the distribution, marketing and sale of its products.

The
address and phone number of Telecom Israels registered office and principal
place of business is:

Tadiran Telecom Communication Services in Israel  Limited Partnership
18 Hasivim Street, PO Box 7692
Petah Tikva, 49170 Israel
Tel. +972-3-926 2000
Fax. +972-3-926 2310

Activities. Telecom Israel is active in the
marketing,
sale, distribution, integration, installation, support and service of Coral
switchboards in Israel and handles the exclusive distribution in Israel of
Tadiran Telecoms products, including terminals, contact centers, CTI
applications and interactive voice recording applications (IVR).

Telecom Israels main areas of activity include
marketing and sale of business systems and contact centers, maintenance
services for Tadiran Telecoms products, sale, operation and support of CT and
IP applications, sale, integration and support for contact centers, operation
of wired endpoints in buildings and industrial parks.

Marketing
and Sale of Business Systems and Contact Centers.  In the framework of its acquired activities,
Telecom Israel received the exclusive right to sell, market, distribute and
install the acquired terminal activities in Israel. Telecom Israel markets and
sells systems designed to serve business systems in both large and small
organizations. The systems include switchboards of all sizes ranging from those
with only a few lines to those with thousands of lines. Sale of these terminals
is usually accompanies by sale of complementary products including mail and
call logging systems, IVR systems and many other products acquired by Telecom
Israel from domestic companies.

Maintenance
Services for Tadiran Telecom Products. Included in the activities acquired by
Telecom Israel from Tadiran Telecom were maintenance services and contact
centers for Tadiran Telecom products. Telecom Israel also acquired a contact
center including about 30 service operators and about 40 field specialists
through which it supplies solutions to problems, changes and copies of the
terminals, and installations of terminals newly acquired through the Telecom
Israels equipment and application sales activities in Israel. This department
supports about 4500 terminals, complementary systems and various applications.
The contact center serves the customers of Telecom Israel that include a large
proportion of Israels public sector and business community. Telecom Israel has
adopted a one point of contact strategy with customers, meaning that products
and applications supplied by Telecom Israel to a customer will receive
technical support services from Telecom Israel.

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Sale
and Operation of IP and CTI Applications. CTI and IP applications are one of the
fast-developing areas of business communications. These applications integrate
within voice systems, data systems and new applications that IP Telephony
allows to be applied with more voices. Examples of these applications are
interactive voice recording (IVR), systems for alerting screens upon answering
customers, facilitation of operators to be located further away from the
contact centers and work from home.

Sale,
Integration and Support for Contact Centers. Telecom Israel markets and sells two
different technologies in this area. The first is the family of Composit
contact center products, which are produced by Tadiran Telecom, and the second
is the family of ASPECT contact center products, which are represented by
Tadiran Telecom in Israel, and include the sale of integration services with
CRM systems and DB systems of the customer. Telecom Israel employs specialists
in the professional services dealing with the operation and support of these
systems. The telephone call centers specialize in the preservation of customers
and in telemarketing, and serve as information and service centers for
electronic commerce, the conducting of surveys and an advanced system of
telephone support.

Operation
of Wired Endpoints in Buildings and Parks. Telecom Israel recently entered the area of
operating wired endpoints in parks. In the framework of these activities,
Telecom Israel offers the end-user cutting-edge equipment of the terminals
whereby all maintenance activities, acquisition and payment to equipments
suppliers and telephone bills are the responsibility of Telecom Israel. In
considerations for this service, the customer is billed at a fixed monthly rate
for the equipments, and per usage by unit of the telephone services. Telecom
Israel is currently operating a pilot project for this service. Telecom Israel
will decide whether or not to expand this area of activity based on the results
if the pilot.

Products. Telecom Israel markets and sells
the
following of Tadiran Telecoms products:

IP
Telephony. Telecom
Israel offers the use of IP networks for both telephony applications and data
communication, tailored to organizations of any size that have employees that
work from home or from remote or regional offices, allowing them to reduce
telecommunications costs by rerouting inter-office traffic over LAN/WAN.
Services and applications may be enhanced by using IP network solutions for,
amongst others, collaborative applications, conferencing, one-number calling,
unified messaging, call centers, web call centers, video applications and
network integration with the front office and back office databases.

Telephony
Products and Contact Centers. Telecom Israel offers IP telephony products enabling
high-performance converged communications. Telecom Israels telephony servers
include Coral Flexicom servers and Coral IPx servers that operate in a
converged system and are tailored to the needs of organizations of any size,
from 20 to 6000 ports. Telecom Israels terminals include a wide range of Coral
FlexSet terminals, the Coral FlexSet IP telephone and Coral FlexIP Softphone.
For wireless communications, Telecom Israel offers the Coral FlexAIR DECT
system that can support hundreds of base stations and thousands of handsets.
Telecom Israels IP telephony products incorporate a comprehensive set of
applications, with full voice and data security. The Composite Contact Center
also leverages IP telephony, providing a multimedia contact center for all
customer interactions, including email, voice, IVR, chat and Tadiran Telecom
callback.

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Coral
IPx.The Coral IPx line
of products uses converged communications in a modular platform. Coral
IPx offers ACD and call center applications, integrated voicemail and wireless
capabilities. The forward and backward-compatible Coral IPx includes all the features
of the Coral® system in modular units that can be rack or wall mounted. Each
model can be used as a traditional switch, a VoIP telephony server or both,
adapting easily as your companys needs change. Scalable from a few wired
endpoints to more than 4,000, the Coral IPx migrates telephones, trunk and
station cards, voice messaging, database and common control elements from the
smallest to the largest systems.

Coral
IPx 500 is
designed for small to mid-size systems. The high-density, small footprint
design of the Coral IPx 500 uses a smaller card that packs all the power of a
full-blown Coral server into a space-saving unit. It comes equipped with 8
universal card slots for both legacy and IP gateways and two 10 universal card
slot expansion cabinets, for a total of 448 wired endpoints.

Coral
IPx 800 is
designed for mid-size systems and branch locations, and features full-size
Coral cards that deliver a total converged solution for mid-size businesses.
The Coral IPx 800 base unit can accommodate two expansion units, for a total of
720 wired endpoints.

Coral
IPx 3000 is
designed for mid to large systems, and for businesses requiring up to 3,000
wired endpoints, the Coral IPx offers expansion capabilities by adding up to 16
rack-mounted cabinets. The Coral IPx 3000is
fully scalable and features MEX and 4GC common control.

Coral
IPx 4000 is designed for large enterprise systems. The Coral
IPx 4000 is intended as a complete communications solution for large enterprises
needing 4,000+ wired endpoints, such as banks and hospitals. Designed for
mission-critical, high-traffic operations, the Coral IPx 4000 features MCP-ATS
and 32GC common control, optional hot standby, and duplicate power support.

Coral
FlexiCom Servers. Coral FlexiCom is a fully
featured, open system, which is designed to provide a comprehensive solution
for basic dependable communications, with the capability to implement advanced
services as needed. The Coral FlexiCom may serve any location, from small
offices requiring as few as 20 ports to large enterprises needing thousands of
ports, the Coral FlexiCom family supports the full range of traditional switch
telephony and IP Telephony applications.

Emerald
ICE  Digital Key System. The Emerald Integrated Communications Exchange (ICE) is a fully
integrated digital phone system loaded with sophisticated features designed for
small businesses. The Emerald ICE has hundreds of standard and advanced
features, and is designed to combine functionality and value, allowing
businesses to add new capabilities and capacity as their needs grow.

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Telecom
Israel has ISO-9002 certification for all of its activities, and its management
and service staff implement TQM policies at all stages of development
and manufacturing.

Purchasing
and Supplier Information. Based on
its distribution agreement with Tadiran Telecom, the majority of Telecom
Israels sales of products originate with Tadiran Telecom, which constitutes
the main supplier of Telecom Israel. The total sales of Telecom Israel from
Tadiran Telecom constitute 47% of its total sales.

Agreements
with Suppliers. Telecom Israels
only material supplier agreement is with Tadiran Telecom and is based on the
distribution agreement in which purchase prices of products were established,
including variable discounts according to the distribution agreement. The
credit terms under the agreement stand at fixed plus 90 days.

Patents
and Trademarks. According to the
asset purchase agreement between Telecom Israel and Tadiran Telecom, Telecom
Israel has the right to use the name and trademark of Tadiran Telecom for a
period of 7 years.

Selling
and Marketing. Telecom Israel sells
and markets its products through its sales department and distributors
operating in the market.

Competition. Telecom Israel faces
competition from
various importers and suppliers of business systems in Israel, such as EuroCom,
BezeqCall, Nortel, Telrad, Avaya and Alcatel. In addition, Telecom Israel faces
competition from various operators of communications applications contact
centers in Israel, such as Genesis, and Avaya on the high end, meaning
operation of contact centers with over 150 agents, and CT-Ware, EasyRun, Nortel
and Cisco on the low end, meaning operation of contact centers with up to 150
agents, usually with technology developed in Israel.

Property,
Plants and Equipment. The offices of Telecom Israel are located at
18 Hasivim Street, Petah Tikva, Israel.
Telecom Israel leases its offices under a 3-year lease agreement with an
option to extend the lease for a further 2 years. Under the lease agreement,
Telecom Israel pays its annual rent fee at a rate of $7.32 per foot for
approximately 18,000 square feet, which equals approximately $132,000.

C.     Organizational Structure

Robomatix
is a member of the Silverboim Group of companies, which is a diversified
group of companies in Israel, including high-technology and real estate companies.
See Item 7: Major Shareholders and Related Party Transactions for details of
Silverboims holdings in Robomatix.

See
Exhibit 8.1 for a list of our significant subsidiaries.

29

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D.      Property,
Plants and Equipment

Our
offices are located at 1 Azrieli Center, Tel-Aviv, Israel, where the offices of
Silverboim Holdings, our principal shareholder, are located. On October 2000, our shareholders approved a
services agreement with Silverboim Holdings, effective January 1, 2000,
pursuant to which Silverboim Holdings provides us with support and
administrative services, including secretarial and computer services, office
space and the payment of related expenses.
The service fees under this agreement are based on actual expenses up to
$5,000 per month. In 2000 and 2001, we
did not pay Silverboim Holdings any amount under the services agreement but
allocated $60,000 in our 2001 and in our 2002 financial statements. In 2003, we
paid Silverboim Holdings $104,000 on account of our outstanding debt. In 2004,
we made no payments on account of the ongoing arrangement with Silverboim
Holdings, but recorded in our 2004 financial statements $60,000 for support,
services and office space. We believe that this is the fair market value of the
services that we receive from Silverboim and the office space that we occupy.

We
believe that our offices are adequate to serve our needs for the foreseeable
future.

For
the property of Franz Kalff and of Telecom Israel, see Item 4: Information on
the Company  Business Overview  Property, Plants and Equipment.

|        |                                               
|------- | ----------------------------------------------
|Item 5: | Operating and Financial Review and
  Prospects

A.     Operating Results

Managements Discussion and Analysis of Financial Condition
and Results of Operations

The information
contained in this section should be read in conjunction with our consolidated
financial statements and related notes and the information contained elsewhere
in this annual report. Our financial statements have been prepared in
accordance with United States generally accepted accounting principles (GAAP).

Overview

The
following discussion should be read in conjunction with selected financial data
included in Item 3: Key Financial Information above, our Consolidated
Financial Statements and the related Notes thereto included in this report and
incorporated herein by reference and Item 4: Information on the Company.

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We
were originally engaged in the fields of laser-based robotic components,
standardized on-line quality assurance systems and parallel associative
computing. However, by February 1999,
all of our operating activities in these fields were either sold or
discontinued. Pursuant to United States GAAP, the results of operations of our
sold or discontinued operations are reflected as losses from discontinued
operations. In 2000 we implemented our
new business objectives and raised funds and purchased interests principally in
eLady Ltd. and Dirad. Due to market
conditions and the difficulties being experienced by start-up companies in
raising funds for their operations, we provided in our financial statements as
of December 31, 2000 for impairment losses from long-term investments
aggregating approximately $2,079,000 and impairment losses from long-term
investments aggregating approximately $1,390,000 in our financial statements as
of December 31, 2001. We purchased the
shares of Franz Kalff on January 24, 2001 and therefore Franz Kalffs financial
statements are only consolidated for the year 2001. We acquired Tadiran Telecoms Israeli activity in the last
quarter of 2004, therefore this activity, carried out through Telecom Israel
are only consolidated for the fourth quarter of 2004.

Our results of operations for the years 1998 and 1999
were significantly affected by the gradual discontinuation and sale of our
original activities. We therefore believe that they are not indicative of our
future results of operations and that they are not comparable to our results of
operations for the years 2002, 2003 and 2004.

Critical Accounting Policies

The
preparation of financial statements requires management to make estimates,
assumptions, and judgments that affect both (1) the reported amounts of assets
and liabilities and the disclosure of contingent liabilities as of the date of
the financial statements, and (2) the reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, management evaluates its
estimates, assumptions, and judgments. Management bases its estimates, assumptions,
and judgments on historical experience and on various other factors that it
believes to be reasonable under the circumstances, some of which may not be
readily apparent from other sources. Under different estimates, assumptions,
judgments, factors or circumstances, results might differ from the results that
were reported.

Our
financial statements are prepared in accordance with accounting principles, and
audited annually in accordance with auditing standards, generally accepted in
the United States (U.S. GAAP). A
discussion of the significant accounting policies which we follow in preparing
our financial statements is set forth in Note 2 to our consolidated financial
statements included elsewhere in this annual report and incorporated herein by
reference. The following is a summary
of certain principles which have a substantial impact upon our financial
statements and, we believe, are most important to keep in mind in assessing our
financial condition and operating results:

Revenue
recognition. The
Company through its subsidiary, Franz Kalff, generates revenues mainly from
sales of first-aid kits. The Company sells its products primarily through
retail stores and car manufacturers in Germany. Additionally, the Company,
through Telecom Israel, generates revenues from sales of contact centers, as
well as maintenance services. Revenues from product sales are recognized in
accordance with Staff Accounting Bulletin No. 101 Revenue Recognition in
Financial Statements (SAB No. 101), as amended by SAB No. 104, when delivery
has occurred, persuasive evidence of an agreement exists, the vendors fee is
fixed or determinable and collectibility is probable. A major component of
service revenues are maintenance services, which are recognized ratably over
the term of the maintenance period.

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Investments. We classify our marketable
securities as
available-for-sale. Available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses on available-for-sale securities are
excluded from earnings and are reported as a separate component of other
comprehensive income, until realized. A decline in the market value of any
available-for-sale security below cost, that is deemed to be other than
temporary, results in a reduction in carrying amount to fair value. The
impairment is charged to earnings and a new cost basis for the security is
established. Non-marketable securities are presented at cost, less any decline
in value that is not of a temporary nature.

Impairment
of long-lived assets. The
Company and its subsidiaries long-lived assets are reviewed for impairment in
accordance with Statement of Financial Accounting Standard No. 144 Accounting
for the Impairment of Disposal of Long-lived Assets (SFAS No. 144) whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the future
undiscounted cash flows expected to be generated by the assets. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. As of December 31, 2004, no impairment losses have been identified.

Recent Accounting Pronouncements under
U.S. GAAP as They Apply to Us

SFAS No. 123 (Revised 2004) Share Based Payments. In December 2004, the FASB issued SFAS No. 123 (revised 2004) Share Based
Payments (SFAS 123(R)). This Statement is a revision of FASB Statement No.
123, Accounting for Stock-Based Compensation, which supersedes APB Opinion
No. 25, Accounting for Stock Issued Employees and its authoritative
interpretations. SFAS 123(R) establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services; focuses primarily on accounting for transactions in which an entity
obtains employee and directors services in share-based payment transactions;
and does not change the accounting guidance for share-based payment
transactions with parties other than employees. SFAS 123(R) eliminates the
alternative to use APB 25s intrinsic value method of accounting that was
provided in SFAS 123 as originally issued and requires the measuring of the
cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. The
fair-value-based method in this Statement is similar to the fair-value-based
method in SFAS 123 in most respects. The costs associated with the awards will
be recognized over the period during which an employee is required to provide
service in exchange for the award- the requisite service period (usually the
vesting period). The grant-dates fair value of employee share options and
similar instruments will be estimated using option-pricing models adjusted for
the unique characteristics of those instruments (unless observable market
prices for the same or similar instruments are available). If an equity award
is modified after the grant date, incremental compensation cost will be
recognized in an amount equal to the excess of the fair value of the modified
award over the fair value of the original award immediately before the modification.

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The provisions of SFAS 123(R) apply to all awards to
be granted by the Company after June 30, 2005 and to awards modified,
repurchased, or cancelled after that date. When initially applying the
provisions of SFAS 123(R), in the first quarter of 2006, the Company will be
required to elect between using either the modified prospective method or the
modified retrospective method. Under the modified prospective method, the
Company is required to recognize compensation cost for all awards granted after
the adoption of SFAS 123(R) and for the unvested portion of previously granted
awards that are outstanding on that date. Under the modified retrospective
method, the Company is required to restate its previously issued financial
statements to recognize the amounts previously calculated and reported on a pro
forma basis, as if the original provisions of SFAS 123 had been adopted. Under
both methods, it is permitted to use either a straight line or an accelerated
method to amortize the cost as an expense for awards with graded vesting.
Management has recently commenced identifying the potential future impact of
applying the provisions of SFAS 123(R), including each of its proposed
transition methods, yet is currently unable to fully quantify the effect of
this Standard on the Companys future financial position and results of
operations in accordance with U.S. GAAP. Nonetheless, it is expected that the
adoption of SFAS 123(R) will increase the stock-based-award expenses the
Company is to record in the future in comparison to the expenses recorded under
the guidance currently applied by the Company.

SFAS 153, Exchange of Non-Monetary Assets. In December 2004, the FASB issued SFAS No.
153, Exchanges of Non-monetary Assets an amendment of APB No. 29. This
Statement amends Opinion 29 to eliminate the exception for non-monetary
exchanges of similar productive assets and replaces it with a general exception
for exchanges of non-monetary assets that do not have commercial substance. The
Statement specifies that a non-monetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly as a
result of the exchange. This Statement is effective for non-monetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier
application is permitted for non-monetary asset exchanges occurring in fiscal
periods beginning after the date this Statement is issued. Retroactive
application is not permitted. The Company does not expect the adoption of SFAS
153 to have a material effect on the Companys results of operations.

33

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FASB Statement No. 151, Inventory Costs, an amendment to ARB
43 (SFAS 151) In November 2004, the FASB issued FASB
Statement No. 151, Inventory Costs,an
amendment to ARB 43,
Chapter 4 (SFAS 151). The amendment made by SFAS 151 clarify that abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage) should be recognized as current-period charges, and also require the
allocation of fixed production overhead inventory based on the normal capacity
of the production facilities. The guidance is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. Earlier application
is permitted for inventory costs incurred during fiscal years beginning after
November 23, 2004. The provision of SFAS 151 should be applied prospectively.
The Company does not expect the adoption of SFAS 151 to have a material effect
on the Companys results of operations.

Results of Operations

You should read the following discussion and analysis
of our financial condition and results of operations in conjunction with the
financial statements and the related notes thereto included in this annual
report. The following table sets forth certain statement of operations data as
a percentage of sales for the years indicated.

|                                                         |  |                           |      |      |  |      |   |  |       |  
|-------------------------------------------------------- |  | ------------------------- | ---- | ---- |  | ---- | - |  | ----- | -
|                                                         |  | Year Ended
  December 31, |     
|                                                         |  |                           |     
|                                                         |  | 2002                      |      | 2003 |  | 2004 |  
|                                                         |  |                           |      |      |  |      |  
|Statement
  of Operations Data:                          |  |                           |      |      |  |      |   |  |       |  
|Sales                                                    |  |                           | 100  | %    |  | 100  | % |  | 100   | %
|Cost of sales                                            |  |                           | 77.1 |      |  | 77.2 |   |  | 70.46 |  
|Gross profit                                             |  |                           | 22.9 |      |  | 22.8 |   |  | 25.3  |  
|Research and development expenses, net                   |  |                           |     |      |  |     |   |  |      |  
|Marketing, general and administrative expenses           |  |                           | 24.4 |      |  | 23.2 |   |  | 17.8  |  
|Operating income (loss)                                  |  |                           | (1.5 | )    |  | (0.4 | ) |  | 7.5   |  
|Other income (expense)                                   |  |                           | 3.0  |      |  | 8.4  |   |  | 0.6   |  
|Impairment of long term investment                       |  |                           |     |      |  |     |   |  | (9.4  | )
|Impairment of available-for-sale marketable
  securities |  |                           |      |      |  |      |   |  | (2.4  | )
|Financial income (expense), net                          |  |                           | (2.2 | )    |  | (0.1 | ) |  | (1.6  | )
|Income (loss) before taxes on income                     |  |                           | (0.7 | )    |  | 7.9  |   |  | (5.3  | )
|Taxes on income                                          |  |                           | 4.3  |      |  | 1.6  |   |  | 1.4   |  
|Equity in earnings of an affiliate                       |  |                           |     |      |  | 3.9  |   |  |      |  
|Net income (loss)                                        |  |                           | (5.1 | )    |  | 10.2 |   |  | (6.7  | )

Year Ended December 31, 2004 Compared To Year Ended December
31, 2003

Sales. Sales in 2004 increased to $23,597,000 compared to $12,493,000
in 2003. This increase is a result of our consolidation of the activities of
Telecom Israel into our financial results beginning from the fourth quarter of
2004 and the resulting inclusion of Telecom Israels fourth quarter sales
constituting approximately $5,800,000. The increase in sales is also a result
of an increase in sales by Franz Kalff due to the expansion of its product
lines and growing demands from its customers, and in addition, Franz Kalffs sales are in Euro, whose value
increased against the U.S. dollar, while our financial statements are in U.S.
dollars.

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Cost
of Sales. Costs of sales in 2004 increased to $16,627,000 compared to $9,649,000 in 2004 as a result of the increase in sales
by Franz Kalff and the high Euro/Dollar exchange rate and our consolidation of
the activities of Telecom Israel into our financial results beginning from the
fourth quarter of 2004, resulting in the inclusion of Telecom Israels fourth
quarter cost of sales constituting approximately $2,480,000.

Gross
Profit. Gross
profit in 2003 was $5,970,000 compared with a gross profit of $2,844,000 for
2003. The difference is a result of increased sales by Franz Kalff, a higher
Euro/Dollar exchange rate and the fact the Franz Kalffs sales are in Euro and
our financial statements are in dollars and our incorporation of the activities
of Telecom Israel into our financial results beginning from the fourth quarter
of 2004.

Research
and Development Expenses, Net. Following the
discontinuation of our previous business, we ceased research and development
activities. Therefore, for the years 2004, and 2003 we had no research and
development expenses.

Selling
and Marketing Expenses, General and Administrative Expenses.
Marketing, general and administrative expenses in 2004 were $4,196,000 as
compared to $2,895,000 in 2003. The increase is a result of growth in turnover
in Franz Kalff and the start of property lease expenses for Franz Kalff and our
incorporation of the activities of Telecom Israel into our financial results beginning from the fourth
quarter of 2004.

Operating
Loss/Income. Operating income in 2004 was $1,774,000 compared to a loss of $51,000 in 2003.
The change from loss to profit in 2004 was due to improvement in the
profitability of Franz Kalff and our consolidation of the activities of Telecom
Israel into our financial results beginning from the fourth quarter of 2004.

Financial
Expenses, net.
Financial expenses for the year 2004 were $388,000 compared to $10,000 in 2003.
The increase in financial expenses in 2004 is attributable to exchange rate
differentials between the Dollar and the Swiss Franc, which was the
denomination of some of our acquisition-financing loans.

Impairment
of long term investment. In 2004 we recorded an impairment loss of approximately $2,218,000
with respect of our holdings in eLady Ltd.

Impairment
of available for sale marketable securities. In
2004 we recorded an impairment loss of $572,000 with respect of our holdings in
availablefor-sale marketable securities.

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Other
Income (Expenses), net. Other income, net, in 2004
was $142,000 compared to other income, net, of $1,045,000 in 2003. Other
income, net, for the year 2004 was primarily attributable to rent income of
Franz Kalff and in 2003 to the sale of our holdings in Edco Technologies.

Taxes
on Income. Taxes
on income in 2004 were $332,000 compared to $195,000 in 2003. Taxes on income
in 2004 and in 2003 were primarily due to deferred taxes of Franz Kalff.

Equity
in Earnings of an Affiliate. Equity in earnings
was $6,000 in 2004 compared to $481,000 in 2003.

Net
Income (Loss). For the year 2004, we had a net loss of
$1,588,000 compared with a net income of $1,270,000 in 2003. The loss was
primarily due to the write-off of long-term investments and marketable
securities which offset the profits from our consolidated companies.

Year Ended December 31, 2003 Compared To Year Ended December
31, 2002

Sales. Sales in 2003 increased to $12,493,000 compared to
$8,704,000 in 2002. This increase is a result of an increase in sales by Franz
Kalff due to the expansion of its product lines and growing demands from its
customers. In addition, Franz Kalffs sales are in Euro, whose value increased
against the Dollar, while our financial statements are in dollars.

Cost
of Sales. Costs of sales in 2003 increased to
$9,649,000 compared to $6,708,000 2002 as a result of the increase in sales by
Franz Kalff and the high Euro/Dollar exchange rate.

Gross
Profit. Gross
profit in 2003 was 2,844,000 compared with a gross profit of $1,996,000 for
2002. The difference is a result of increased sales by Franz Kalff, a higher
Euro/Dollar exchange rate and the fact the Franz Kalffs sales are in Euro and
our financial statements are in dollars.

Research
and Development Expenses, Net. Following the
discontinuation of our previous business, we ceased research and development
activities. Therefore, for the years 2003, and 2002 we had no research and
development expenses.

Marketing,
General and Administrative Expenses. Marketing, general
and administrative expenses in 2003 were $2,895,000 as compared to $2,126,000
in 2002. The increase is a result of growth in turnover in Franz Kalff and the
start of property lease expenses for Franz Kalff.

Operating
Loss. Operating loss in 2003 was $51,000 compared to
$130,000 in 2002. The decreased loss in 2003 was due to the higher
profitability of Franz Kalff in 2003.

Financial
Income (expenses), net. Financial expenses for the year
2003 were $10,000 compared to $191,000 in 2002. The decrease in financial
expenses in 2003 is attributable to exchange rate differentials between the
Euro and the Swiss Franc.

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Other
Income (Expenses), net.
Other income, net, in 2003 was $1,045,000 compared to other income, net,
of $257,000 in 2002. Other income, net for the year 2003 was primarily
attributable to the sale of our holdings in Edco Technologies and in 2002 to
lease income received by Franz Kalff.

Taxes on Income. Taxes
on income in 2003 were $195,000 compared to $378,000 in 2002. Taxes on income
in 2003 were primarily due to deferred taxes of Franz Kalff and in 2002 to
taxes on non-deductable expenses.

Equity
in Earnings of an Affiliate. Equity in earnings was $481,000 in 2003. This
was attributable to our share in Edco Technologies prior to its sale in March
2003.

Net
Income (Loss). For
the year 2003, we had a net income of $1,270,000 compared with a net loss of $442,000 in 2002. The income was primarily due to the sale of Edco Technologies.

Impact of Inflation and Currency
Fluctuations on Results of Operations, Liabilities and Assets

Euro
Currency Fluctuations

With
respect to our operating results, the operating results of Franz Kalff play a
material role. The Euro is the operating currency of Franz Kalff. Consequently,
if the value of the Euro increases against the U.S. dollar, because our
financial statements are in U.S. dollars, we will experience an increase in
revenues, and vice versa.

Inflation
in Israel and Currency Fluctuations

For
many years prior to 1986, the Israeli economy was characterized by high rates
of inflation and devaluation of the Israeli currency against the U.S. dollar
and other currencies. However, since
the institution by the Israeli government of an economic recovery program in
1985, inflation, while continuing, has been significantly reduced and until
recently the rate of devaluation has substantially diminished. Inflation and
U.S. dollar exchange rate fluctuations, however, have some effect on our
expenses and, as a result, on our net income/loss. The cost of our Israel operations, as expressed in U.S. dollars,
is influenced by the extent to which any increase in the rate of inflation in
Israel is not offset (or is offset on a lagging basis) by a devaluation of the
NIS in relation to the U.S. dollar. With respect to our operating results, the
operating results of Telecom Israel play a material role. The NIS is the
operating currency of Telecom Israel. As a result, if the value of the U.S
dollar increases against the NIS, because our financial statements are in U.S.
dollars, we will experience a decrease in revenues, and vice versa.

The
exchange rate between NIS and the U.S. dollar has fluctuated from December 2004
through May 2005 from a low of NIS 4.299 to the dollar to a high of NIS 4.634
to the dollar. The high and low
exchange rates between the NIS and U.S. dollar during the six most recent
months, as published by the Bank of Israel, were as follows:

37

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|                    |  |                      |  |       |  |  |  |                 | 
|------------------- |  | -------------------- |  | ----- |  |  |  | --------------- | 
|LOW 1 U.S. dollar = |  | HIGH 1 U.S. dollar = |  | MONTH | 
|                    |  |                      |  |       | 
|4.308               |  |                      |  | 4.367 |  |  |  | December
  2004 | 
|4.352               |  |                      |  | 4.414 |  |  |  | January
  2005  | 
|4.357               |  |                      |  | 4.392 |  |  |  | February
  2005 | 
|4.299               |  |                      |  | 4.379 |  |  |  | March
  2005    | 
|4.36                |  |                      |  | 4.395 |  |  |  | April
  2005    | 
|4.348               |  |                      |  | 4.416 |  |  |  | May
  2005      | 

The
average exchange rate, using the average of the exchange rates on the last day
of each month during the period, for each of the five most recent fiscal years,
was as follows:

|              |  |        |                                       | 
|------------- |  | ------ | ------------------------------------- | 
|Exchange Rate |  | Period |                                      
|              |  |        |                                      
|              |  |        |                                       | 
|4.067 NIS/$1  |  |        | January
  1, 2000  December 31, 2000 | 
|4.219 NIS/$1  |  |        | January
  1, 2001  December 31, 2001 | 
|4.7378 NIS/$1 |  |        | January
  1, 2002  December 31, 2002 | 
|4.5442 NIS/$1 |  |        | January
  1, 2003  December 31, 2003 | 
|4.483NIS/$1   |  |        | January
  1, 2004  December 31, 2004 | 

As
of the date of this report, increases or decreases in the value of the NIS in
relation to the dollar do not materially affect our operating results. However, it could affect our financial
expenses.

B.      Liquidity and
Capital Resources

Our
cash and cash equivalents aggregated $535,000, $1,742,000 and $381,000 as of
December 31, 2004, December 31, 2003 and December 31, 2002, respectively.

Net
cash used in operating activity for the year ended December 31, 2004 was $1,656,000as compared
with net cash used in operating activity of $596,000 for the year ended December
31, 2003 and net cash used in operating activity of $270,000 for the year ended
December 31, 2002.

Net
cash used in investing activities for the year ended December 31, 2004 was $709,000 as compared with net cash provided
by investing activities for
the year ended December 31, 2003 of $2,280,000 as compared with net cash
provided by investing activities for the year ended December 31, 2002 of
$180,000. The net cash used in investing activities for 2004 was attributed
mostly to the acquisition of Tadiran Telecoms Israeli assets. The net cash
provided by investing activities for 2003 was attributed mostly to the sale of
the property of Franz Kalff. In 2002, our cash flow stemmed from the sale of
our holdings in our inactive subsidiary Robomatix (Israel) Ltd.

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Net
cash provided by financing activities for the year ended December 31, 2004 was
$1,157,000 as compared with net cash used in financing activities of
$396,000 for the year ended December 31, 2003 and as compared to net cash
provided by financing activities of $65,000 for the year ended December 31,
2002. In 2002 and 2003, we sold our
shareholdings in inactive subsidiaries. In addition, in 2003 we returned part
of the loan used to finance the purchase of Franz Kalff but we borrowed funds
from Bank Hapoalim again to invest in two privately held insurance companies,
one of which has since gone public and the other we sold in 2004. The net cash used in financing activities in
2003 was due to partial repayment of loans from Bank Hapoalim offset by the
loans received from Bank Hapoalim. In 2004, the net cash provided by financing
activities was attributed mostly to the acquisition of the Telecom Israeli
assets. For more information, see Item 4: Information on the Company  History
and Development  Changes of Ownership and Capital Structure.

As
of December 31, 2004, our aggregate outstanding liabilities were approximately
$19,662,000. Currently, part of the
loans we took from Bank Hapoalim to finance our acquisitions is repayable
through November 2007 and bears interest at 3.5% per annum for the loan
denominated in Swiss Francs and 6.29% per annum for the loan denominated in
NIS. We believe that our working capital is sufficient for our present
requirements but in order to expand our investment portfolio we expect that we
will either realize certain of our investments or will need to obtain
additional debt financing in the future.
We expect to derive cash flow from future returns on existing
investments, repayment of loans and payment of dividends from our operating
companies. We expect these sources to be sufficient to meet our cash
obligations.

Impairment
Losses. In our financial
statements as of December 31, 2004, we recorded an impairment loss on our
investment in eLady Ltd. of $2,218,000 and impairment losses on
available-for-sale marketable securities of $572,000. In our financial
statements as of December 31, 2003 and December 31, 2002 we did not record
impairment losses.

C.      Research and Development,
Patents and Licenses

As
part of past operations, we invested in research and development and registered
trademarks and patents. Currently, as a
holding company, we do not invest in research and development nor in the
registration of patents and licenses, except for extension of certain existing
patents.

D.      Trend Information

In 2004, we were not materially influenced by any identifiable trends. Franz
Kalff did experience a certain  increase in demand for its products but it is
difficult to attribute this to any particular trend. In addition, due to the
volatility in the securities markets, we may have to continue to reduce the
book value of a certain number of our holdings.

With respect to Telecom Israel, the
world communications market has evolved substantially in the past three years
towards greater technological convergence and equipment variability. New
technologies for the in-premise as well as out of premise telecommunications
have emerged and have revolutionized the way we communicate. Wireless
communications have tightened their grip and their share in the total volume
and VoIP has made its debut as a new and evolving means of voice transport.

39

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The
Coral FlexiCom family of products has evolved in concert with these trends. We
believe that Coral FlexiCom offers a growing variety of IP products and
facilities to take advantage of this trend and provides several benefits and
advantages by combining stability and dependability with the Voice over IP
transmission interfaces and user equipment types.

E.      Off-Balance
Sheet Arrangements

We
are not a party to any material off-balance sheet arrangements. In addition, we
have no unconsolidated special purpose financing or partnership entities that
are likely to create material contingent obligations.

F.      Tabular
Disclosure of Contractual Obligations

The
following table summarizes our contractual obligations and commercial
commitments as of December 31, 2004:

|                            |  |  |       |  |  |                     |  |  |           |  |  |           |  |  |                         | 
|--------------------------- |  |  | ----- |  |  | ------------------- |  |  | --------- |  |  | --------- |  |  | ----------------------- | 
|Payments
  Due by Period    | 
|                            | 
|(in
  thousands)            | 
|Contractual Obligation      |  |  | Total |  |  | Less than 
  1 Year |  |  | 13 Years |  |  | 35 Years |  |  | More 
  Than 5 
  Years | 
|                            |  |  |       |  |  |                     |  |  |           |  |  |           |  |  |                         | 
|Long-Term Debt Obligations  |  |  | 5,214 |  |  | 2,097               |  |  | 3,117     |  |  |          |  |  |                        | 
|                            |  |  |       |  |  |                     |  |  |           |  |  |           |  |  |                         | 
|Operating Lease Obligations |  |  | 4,775 |  |  | 436                 |  |  | 825       |  |  | 724       |  |  | 2,790                   | 
|                            |  |  |       |  |  |                     |  |  |           |  |  |           |  |  |                         | 
|                            |  |  |       |  |  |                     |  |  |           |  |  |           |  |  |                         | 
|                           
|Total                       |  |  | 9,989 |  |  | 2,533               |  |  | 3,942     |  |  | 724       |  |  | 2,790                   | 

|        |                                             
|------- | --------------------------------------------
|Item 6: | Directors, Senior Management and
  Employees

A.      Directors and Senior
Management

The
following persons are the executive officers and directors of Robomatix, Franz
Kalff and Telecom Israel:

|                |  |     |  |                                                     
|--------------- |  | --- |  | ----------------------------------------------------
|Name            |  | Age |  | Position                                            
|                |  |     |  |                                                     
|                |  |     |  |                                                     
|Zvika Barinboim |  | 34  |  | Chairman of the Board of Directors                  
|Yitzhak Oz      |  | 38  |  | Director                                            
|Ariel Levi      |  | 36  |  | Director                                            
|Ruth Breger     |  | 57  |  | External Director                                   
|Nir Reshef      |  | 39  |  | External Director                                   
|Amit Goldwasser |  | 38  |  | Chief Executive Officer                             
|Ram Keren       |  | 42  |  | Managing Director of Franz Kalff                    
|Moshe Avraham   |  | 50  |  | Chairman of the Board of Directors of Telecom Israel
|Yaacov Bantay   |  | 58  |  | Chief Executive Officer of Telecom Israel           

40

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Zvika
Barinboim has served as chairman of our board of
directors since December 30, 1999. A real estate entrepreneur and a manager of
investment companies, Mr. Barinboim serves as a director of World Group
Holdings Ltd., Polgat Ltd. and Bagir Ltd., all publicly traded companies in
which Silverboim Holdings holds substantial interests, and also serves as a director of other private companies.

Yitzhak
Oz has served as a director since December
30, 1999. Since its incorporation in March 1998, Mr. Oz has owned the issued
shares of Oz Insurance Agency Ltd. and currently serves as a director of Oz  Life Insurance Agency Ltd., Gevim General Insurance Ltd. and as the CEO of Agam
Leaderim Insurance Agency (2001) Ltd. Mr. Oz served as a director of Bari-trust Investments Ltd. and has a
Bachelors degree in Economics and a Masters degree in Business
Administration.

Ariel
Levi has served as a director since December
30, 1999. Between October 1999 and
December 2004, Mr. Levi was the administrative manger of Silverboim Holdings,
our principal shareholder, and has served as a director of both World Group
Holdings Ltd. and Silverboim Holdings Ltd. since March 2003. As of January 2005, Mr. Levi is a vice
president and the secretary of Worldgroup Holdings.

Ruth
Breger has served as an outside director since September
12, 2000. Ms. Breger is an accountant
with more than twenty years of experience in corporate financing and
investments. Ms. Breger also serves as an external director of Emblaze Systems
Ltd. She has been a board member of
technology-based Israeli companies and the former deputy to the General Manager
of an investment company of Industrial Development Bank, Israel.

Nir
Reshef  has served as an outside director since December
20, 2000. Mr. Reshef is a lawyer who in
November 2000 founded his own private practice, specializing in the fields of
taxes, securities and criminal law.
Prior to working in his private practice, Mr. Reshef served for four
years as a prosecutor in the Tel-Aviv District Attorneys office. In addition, Mr. Reshef worked as auctioneer
in the Tel-Aviv Stock Exchange. Mr.
Reshef has a Bachelors degree in Economics and a Bachelor of Law degree from
Tel-Aviv University.

Amit
Goldwasser has served as Chief Exective Officer of
Robomatix since June 2002. Mr. Goldwasser has nearly 10 years of experience in
investment management, financial markets and corporate management. Mr.
Goldwasser is a certified public accountant and has a Bachelors degrees in
Economics and Accounting

41

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Ram
Keren has
served as the managing director of Franz Kalff since January 2005. Between 1990
and 1994, Mr. Keren led the engineering department at the Dead Sea Factories
Ltd., and between 1994 and 1996, Mr. Keren served as the technical manager of
the Berom Dead Sea Company Ltd. Mr. Keren then served for 5 years as VP of
operations at the Magnesium Company and served as the CEO of Ortal Die Casting
Ltd. prior to joining Franz Kalff. Mr. Keren holds a Bachelors degree in
Mechanical Engineering and a Masters degree in Business Administration, both
from Ben-Gurion University and serves as the commander of an armored corps.
battalion in the IDF reserves.

Moshe
Avraham has served as the chairman of the board of
directors of Telecom Israel since December 2004. Mr. Avraham was a
business consultant and then served as the manager of the Israeli market of
Telrad Communications Industries. Following this, Mr. Avraham served as the
deputy CEO of Rav Bariach Investments Ltd. and then as the manager of the
vehicle and electronics division of Rav Bariach Ltd. Mr. Avraham also serves as
chairman of the board of directors of Satcom Ltd. Mr. Avraham holds a
Bachelors degree in Industrial Engineering and Management and a Masters
degree in Business Administration.

Yaacov
Bantay has served as
the Chief Executive Officer of Telecom Israel since October, 2004. Between
October, 2001 and October, 2004 Mr. Bantay served as the chief operations
officer and deputy chief executive officer of Telecom Israel.

There
are no family relations between any of the persons named above.

Zvika
Barinboim, Yitzhak Oz and Ariel Levi were appointed by the previous members of
our board of directors on December 31, 1999, pursuant to the agreement with the
former controlling shareholders of Robomatix and in accordance with the
provisions of our articles of association allowing for an appointment by
members of the Board in order to fill vacancies. The appointing directors
resigned from the Board immediately after the appointment of Zvika Barinboim,
Yizhak Oz and Ariel Levi. These
directors were later elected by our shareholders at the general meeting of our
shareholders that was held on September 12, 2000, and all directors were
reelected at the general meeting of our shareholders held on May 24, 2004.

Mr.
Amit Goldwasser, our Chief Executive Officer, has expressed his intention to
resign from his position in Robomatix upon the earlier of September 1, 2004 and
the consummation of a sale of our shares under the present tender offer issued by Worldgroup Holdings Ltd. For more
information about the tender offer, see Item 7: Major Shareholders and Related
Party Transactions..

B.      Compensation

The aggregate direct compensation paid to, or accrued
for, the account of all of the officers and directors of Robomatix as a group
during the 2004 fiscal year was approximately $20,314. This amount includes
directors fees, officers compensation, bonuses, directors and officers
insurance and expenses for which directors and officers were reimbursed. In
addition, approximately $180,000 was paid to, or accrued for, the account of
Silverboim Holdings pursuant to our consultation and management agreement with
Silverboim Holdings. This amount
includes management fees, administrative costs and travel expenses for which
Silverboim Holdings was reimbursed. For more information, see Item 4:
Information on the Company  History and Development  Changes of Ownership and Capital Structure. We also issued
options to purchase an
aggregate of 360,000 of our ordinary shares to all of our officers and directors as a group during the 2004 fiscal
year. For more information on options issued to our officers and
directors, see Item 6: Directors, Senior Management and Employees  Share
Ownership.

42

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The
aggregate direct compensation paid to or accrued for the account of all
officers as a group of Franz Kalff during the 2004 fiscal year was
approximately $990,000. In
addition, Mr. Schuftan, the former Managing Director of Franz Kalff until
January 2005, is also entitled to receive from Franz Kalff a percentage of
revenues generated by Franz Kalff, in accordance with different revenue
thresholds. Additionally, the current Managing Director of Franz Kalff from
January 2005, is also entitled to receive from Franz Kalff a percentage of
revenues generated by Franz Kalff, in accordance with different revenue
thresholds.

The
aggregate direct compensation paid to or accrued for the account of all
officers as a group of Telecom Israel during the last quarter of 2004 was
approximately $271,000.
We also issued options to purchase an aggregate of 4,035,577 of our ordinary
shares to the officers and directors of
Telecom Israel as a group during the 2004 fiscal year. For more
information on options issued to our officers and directors, see Item 6:
Directors, Senior Management and Employees  Share Ownership.

C.      Board
Practices

Our
articles of association provide that the board of directors shall consist of
not less than four and not more that nine members. Each director, other than as outside director, is elected to
serve until the next annual general meeting of shareholders and until his or
her successor has been elected. Officers serve at the discretion of the board
of directors. The Israeli Companies Law-1999 which entered into effect on
February 1, 2000 and was amended most recently in March 2005, requires the board
of directors of a public company to determine the number of directors who shall
possess accounting and financial expertise. This requirement is subject to
promulgation of regulations by the Israeli Minister of Justice. Such
regulations have not yet been published. The Articles of Association of the
Company provide that any director may, by written notice to the Company,
appoint another person to serve as a substitute director and may cancel such
appointment. Under the Israeli Companies Law-1999, a person who is already
serving as a director will not be permitted to act as a substitute director.
Additionally, the Israeli Companies Law-1999 also prohibits a person from
serving as a substitute director for more than one director. Appointment of a
substitute director for a member of a board committee is only permitted if the
substitute is a member of the board of directors and does not regularly serve
as a member of such committee. If the committee member being substituted is an
outside director, the substitute may only be another outside director who
possesses accounting and financial expertise. An outside director may only be
substituted in his or her capacity as a member of a board committee. The
members of the board of directors are elected at the annual meeting of our
shareholders by regular majority. None of our directors or officers have
service contracts with us that provide for special benefits upon termination of
employment.  The consultation and management
agreement and services agreement between Robomatix and Silverboim Holdings are
each for a term of five years commencing on January 1, 2000. These agreements do not provide for their
termination. For more information, see Item 4:
Information on the Company  History and Development  Changes of Ownership and Capital Structure.

43

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Pursuant
to Israeli law we are required to appoint no less than two outside directors.
These directors must be unaffiliated with us and our principals. Any committee
of the Board of Directors which is authorized to exercise any function of the
board must include at least one outside director. A person shall be qualified to serve as an outside director only if he
or she possesses accounting and financial expertise or professional
qualifications. At least one outside director must posses accounting and
financial expertise. The conditions and criteria for possessing accounting and
financial expertise or professional qualifications are to be determined in
regulations promulgated by the Israeli Minister of Justice in consultation with
the Israeli Securities Authority. These regulations have not yet been
published.

Outside
directors are to be elected by a majority vote at a shareholders meeting,
provided that such majority includes at least one-third of the shares held by
non-controlling shareholders voted at the meeting; or the total number of
shares held by non-controlling shareholders voted against the election of the
director does not exceed one percent of the aggregate voting rights in the
Company.

The
initial term of an outside director is three years and may be extended for an
additional three-year term. Outside directors may be removed 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 or if they violate their duty of loyalty
to the Company.

An
outside director is entitled to compensation as provided in regulations adopted
under the Israeli Companies Law  1999 and is otherwise prohibited from
receiving any other compensation, directly or indirectly, in connection with
service provided as an outside director.

The
Israeli Companies Law requires public companies to appoint an audit committee.
The responsibilities of the audit committee include identifying irregularities
in the management of the Companys business and approving related party
transactions as required by law. An audit committee must consist of at least
three directors, including the outside directors of the Company. The chairman
of the board of directors, any director employed by or otherwise providing
services to the Company, and a controlling shareholder or any relative of a
controlling shareholder, may not be a member of the audit committee.

Under
the Israeli Companies Law, the board of directors must appoint an internal
auditor, recommended by the audit committee. The role of the internal auditor
is to examine, among other matters, whether the Companys actions comply with
the law and orderly business procedure. Under the Companies Law, the internal
auditor may be an employee of the Company but not an office holder, or an
affiliate, or a relative of an office holder or affiliate, and he may not be
the Companys independent accountant or its representative.

The
terms of both Ms. Breger and Mr. Reshef will expire in December 2006. Both Ms.
Breger and Mr. Reshef serve on our Audit Committee.

Franz
Kalff. The board of directors of Franz Kalff
consists of Ram Keren the managing director, Zvika Barinboim, chairman of the
board of directors of Robomatix and Amit Goldwasser, Robomatixs chief
executive officer. The officers of Franz Kalff do not have service agreements
with Franz Kalff that provide for benefits upon termination of employment.

44

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Telecom
Israel.

The
board of directors of Telecom Israel consists of Moshe Avraham, who is chairman
of the board of directors, Ehud Cnaani, Michal Even Chen, Yochanan Korman, Marc
Zalcman, Yariv Porat, and Amit Ben Yehuda. The officers of Telecom Israel do
not have service agreements with Telecom Israel that provide for benefits upon
termination of employment

|   |          
|-- | ---------
|D. | Employees

In
each of the fiscal years ended December 31, 2002, 2003 and 2004, we had two employees.
These employees are located in Israel and engage in management and internal
accounting.

Franz Kalff. The following table sets forth for
the last three
fiscal years the number of Franz Kalffs employees engaged in the specified
activities:

| |                                                     |  |      |  |      |  |      |  |  |    |  |  |  |  |    |  | 
| | --------------------------------------------------- |  | ---- |  | ---- |  | ---- |  |  | -- |  |  |  |  | -- |  | 
| | Year Ended December 31,                             |  | 2004 |  | 2003 |  | 2002 | 
| |                                                     |  |      |  |      |  |      |  |  |    | 
| | Administration and accounting                       |  |      |  | 6    |  |      |  |  | 6  |  |  |  |  | 6  |  | 
| | Product development and quality
  control           |  |      |  | 3    |  |      |  |  | 3  |  |  |  |  | 3  |  | 
| | Customer service, marketing and
  back-office sales |  |      |  | 6    |  |      |  |  | 5  |  |  |  |  | 5  |  | 
| | Purchase                                            |  |      |  | 1    |  |      |  |  | 1  |  |  |  |  | 1  |  | 
| | Warehouse and disposition of
  material             |  |      |  | 4    |  |      |  |  | 3  |  |  |  |  | 3  |  | 
| |                                                     |  |      |  |      |  |      |  |  |    |  |  |  |  |    |  | 
| | Total                                               |  |      |  | 20   |  |      |  |  | 18 |  |  |  |  | 18 |  | 

Since the end of fiscal year 2004, there has not been a
significant change in that number. There are three managers other than Mr. Ram Keren, who is the Managing Director, at Franz
Kalff: Mr. Gunther Sief, Administration Manager, Mr. Christof Gehlen, Quality
Systems Manager and Mr. Erich Golles, Key Account Manager. In addition, pursuant
to the requirements of the German law with respect to pharmaceuticals sales,
Mr. Franz Kalff, the founder and a former owner of Franz Kalff, serves as an
outside advisor.

Franz Kalff is a member of the Employers Federation
(Arbeitgeberverband) VIV-Duren, an association of approximately sixty local
companies, which provides information on various issues of interest to its
members.  Franz Kalff is also a member
of the North-Rhine-Westphalian Textile Industry Association. This membership
requires that the wages paid by Franz Kalff to its employees comply with the
wages fixed by the association.

Pursuant to German law, every four years, the
employees of
Franz Kalff appoint members to a work council within Franz Kalff. The work
council ensures the implementation of employees rights under the German law
and they represent the employees interests before the management of Franz
Kalff. Management also informs them before it hires or releases employees.

45

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Telecom
Israel. The following table sets forth for the last
fiscal year the number of Telecom Israels employees engaged in the specified
activities, since its acquisition of Tadiran Telecom:

| |                               |  |      |     | 
| | ----------------------------- |  | ---- | --- | 
| | Year Ended December 31,       |  | 2004 |    
| |                               |  |      |    
| | Administration and accounting |  |      | 12  | 
| | Management                    |  |      | 5   | 
| | Customer service              |  |      | 90  | 
| | Marketing                     |  |      | 21  | 
|
| |                               |  |      |     | 
| | Total                         |  |      | 128 | 

|   |                  
|-- | -----------------
|E. | Share
  Ownership

The
following table sets forth, as of June 15, 2005, the share ownership of our and
our subsidiaries directors and executives, known to us to beneficially own
more than one percent of our ordinary shares. All of the information with
respect to beneficial ownership by our directors and executive officers has
been furnished by the respective director or executive officer, as the case may
be. Except as otherwise stated, we believe that the persons named in this table
have sole voting and investment power with respect to the ordinary shares
indicated:

|                           |  |                                                      |  |                                                   |  |                                  |  |  |         |  |  |  |  |       |   | 
|-------------------------- |  | ---------------------------------------------------- |  | ------------------------------------------------- |  | -------------------------------- |  |  | ------- |  |  |  |  | ----- | - | 
|Name of
  Director/Officer |  | Number of Ordinary
  Shares Beneficially
  Owned (1) |  | Number of Options
  Exercisable within 
  60 days |  | Percentage of Total
  Shares (2) | 
|                           |  |                                                      |  |                                                   |  |                                  | 
|                          
|Zvika Barinboim(3)         |  |                                                      |  | 8,335,350                                         |  |                                  |  |  | 60,000  |  |  |  |  | 61.29 | % | 
|Amit Goldwasser            |  |                                                      |  | 240,000                                           |  |                                  |  |  | 240,000 |  |  |  |  | 1.73  | % | 
|Moshe Avraham              |  |                                                      |  | 333,333                                           |  |                                  |  |  | 333,333 |  |  |  |  | 2.39  | % | 
|Yaacov Bantay              |  |                                                      |  | 448,868                                           |  |                                  |  |  | 448,868 |  |  |  |  | 3.20  | % | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(1) | The number of ordinary shares beneficially owned in
  this column includes options to purchase our ordinary shares that are
  exercisable within 60 days.                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(2) | Percentages in this column are based on the
  proportion of the number of ordinary shares beneficially owned by the
  indicated person out of the 13,599,626 ordinary shares outstanding as of June
  15, 2005, plus the number of underlying shares as the indicated person has
  the right to receive upon the exercise of options/warrants which are
  exercisable within 60 days of June 15, 2005.                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 
|    | In addition, as of June 15, 2005, other directors
  and executives of Robomatix and our subsidiaries were known to us to
  beneficially own less than one percent of our ordinary shares, including our
  directors Ariel Levi and Yitzchak Oz, our external directors Nir Reshef and
  Ruth Berger, as well as officers of Telecom Israel, Michal Even Chaim, Amit
  Ben Yehuda, Yochanan Korman, Udi Cnaani, Yariv Porat, David Doron and
  Yitzchak Kanti.

46

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(2) | Includes 87,200 shares held directly by Zvika
  Barinboim and 8,188,150 shares held by Silverboim Holdings. The options to
  purchase 60,000 of our ordinary shares are held by Zvika Barinboim at an
  exercise price of $0.70 per ordinary share. Silverboim Holdings is a
  privately held company whose outstanding shares are held by Zvika Barinboim
  (20.68%), Barhoz Holdings Ltd. (22.38%), Zvi Bar-Nes Nisensohn and a company
  under his control (17.02%), Gilex Holding B.V (19.27%), Shrem, Fudim, Kelner
  & Co. Ltd. (9.57%) and Hapoalim Assets (Shares) Ltd. (11.08%). Zvika
  Barinboim holds, primarily through a wholly-owned company, 51% of the voting
  rights and 26.92% of the capital stock of Barhoz Holdings Ltd. On March 11,
  2002, Poalim Nehasim Ltd. granted Zvika Barinboim an irrevocable power of
  attorney for a period of three years under which Zvika Barinboim will be
  entitled to exercise all of the voting rights of Poalim Nehasim in Silverboim
  Holdings for the election of directors.As a result, Zvika Barinboim holds, directly and indirectly,
  approximately 43.18% of the voting rights of Silverboim Holdings. Certain
  shareholders of Silverboim Holdings hold options to purchase ordinary shares
  of Silverboim Holdings and the numbers presented above do not represent
  percentages of holdings on a fully diluted basis. | 
|    | Yitzhak Oz holds, through a company under his
  control, approximately 15% of the voting rights and 15% of the capital stock
  of Barhoz Holdings Ltd., which holds 22.38% of the share capital of
  Silverboim Holdings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 

As
of June 15, 2005, neither our or our subsidiaries directors nor our or our
subsidiaries chief executive officer have exercised any options.

The
new employees and directors option plan was adopted by our board of directors
and audit committee on May 21, 2001 and approved by our shareholders on July
12, 2001. The plan authorizes the issuance of options to purchase a total of
1,500,000 ordinary shares to our employees, directors and service providers.
The term of this option plan is for ten years from the date of adoption. As of
the date of this report, options to purchase 910,000 ordinary shares have been
allocated under the 2001 employee and directors option plan.

Other
Employees Options Plans. On August 8, 1999, our shareholders approved the
adoption of an employee option plan authorizing the allocation of options to
purchase a total of 750,000 ordinary shares at a minimum exercise price of NIS
1.46 per share to our future employees and consultants. Although our board of
directors did not adopt a formal employee option plan pursuant to that
shareholders resolution, it has granted options in accordance with it. As of
the date of this report, the board of directors has granted options to purchase
220,000 ordinary shares in accordance with the shareholders resolution, of
which options to purchase 20,000 have been exercised.

In
2004, our audit committee, board of directors, and shareholders (as applicable)
approved the grant of 240,000 options to Amit Goldwasser, 60,000 options to
Yitzhak Oz and 60,000 options to Ariel Levi at an exercise price of $0.40. On
June 27, 2004, our Board of Directors approved the new option plan which will
govern these new options, and we subsequently filed the plan with the Israeli
Income Tax Authority.

47

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In
connection with our acquisition of Tadiran Telecom we issued the employees of
Tadiran Telecom Ltd., whose employment continued in Telecom Israel, with
options to purchase an aggregate of 4,035,577 of our ordinary shares, at an
exercise price of $0.77 per share, which as of June 15, 2005, constituted
19.87% of our fully diluted share capital. These options vest in equal amounts
every year over a period of four years beginning in 2004, on December 30 of
every year. The exercise period of the options is five years from the date of
grant. The vesting periods shall be accelerated in the event of change of
control in the Company.

|        |                                                    
|------- | ---------------------------------------------------
|Item 7: | Major Shareholders and Related
  Party Transactions

|   |                     
|-- | --------------------
|A. | Major
  Shareholders

The
following table sets forth, as of June 15, 2005, the number of ordinary shares
owned beneficially by all shareholders known to us to beneficially own more
than five percent of our ordinary shares. The information presented was
provided to us by the named shareholders. Robomatix is not directly or
indirectly owned or controlled by any other corporation or by a government. The
named shareholders in this table do not have different voting rights with
respect to the ordinary shares indicated.

|                            |  |                                                      |           |                                                    |  |                                                           |  |           |  |  |  |  |  |       |   | 
|--------------------------- |  | ---------------------------------------------------- | --------- | -------------------------------------------------- |  | --------------------------------------------------------- |  | --------- |  |  |  |  |  | ----- | - | 
|Name                        |  | Number of
  Ordinary Shares
  Beneficially Owned (1) |           | Number of
  Options
  Exercisable
  within 60 days |  | Percent of Total
  Shares and
  Exercisable
  Options (2) | 
|                            |  |                                                      |           |                                                    |  |                                                           | 
|Silverboim Holdings Ltd.(3) |  |                                                      | 8,188,150 |                                                    |  |                                                           |  |          |  |  |  |  |  | 60.21 | % | 
|Mr. Zvika Barinboim(4)      |  |                                                      | 8,235,350 |                                                    |  |                                                           |  | 60,000    |  |  |  |  |  | 61.29 | % | 
|Gilex Holdings B.V.(5)      |  |                                                      | 2,758,587 |                                                    |  |                                                           |  |          |  |  |  |  |  | 20.43 | % | 
|Tadiran Telecom Ltd. (6)    |  |                                                      | 1,674,403 |                                                    |  |                                                           |  | 1,674,403 |  |  |  |  |  | 10.96 | % | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The number of ordinary shares beneficially owned in
  this column includes options to purchase our ordinary shares that are
  exercisable within 60 days.                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                     
|(2) | Percentages in this column are based on the
  proportion of the number of ordinary shares beneficially owned by the
  indicated person out of the 13,599,626 ordinary shares outstanding as of June
  15, 2005 plus such number of ordinary shares as the indicated person or group
  has the right to receive upon the exercise of options which are exercisable
  within 60 days of June 15, 2005.
|    |                                                                                                                                                                                                                                                                                                                                                                                                     
|(3) | Includes shares held by Silverboim Holdings only.
  Zvika Barinboim, the chairman of our board of directors, who holds, directly
  and indirectly, approximately 43.18% of the voting rights of Silverboim
  Holdings, holds 87,200 of our ordinary shares.                                                                                                                                         

48

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | The shares includes 87,200 ordinary shares held by
  Zvika Barinboim and 8,188,150 shares held by Silverboim Holdings. The options
  to purchase 60,000 of our ordinary shares are held by Zvika Barinboim
  exercisable as long as he continues to serve as a director of the company at
  an exercise price of $0.70 per ordinary share. Silverboim Holdings is a
  privately held company whose outstanding shares are held by Zvika Barinboim
  (20.68%), Barhoz Holdings Ltd. (22.38%), Zvi Bar-Nes Nisensohn and a company
  under his control (17.02%), Gilex Holding B.V (19.27%), Shrem, Fudim, Kelner
  & Co. Ltd. (9.57%) and Hapoalim Assets (Shares) Ltd. (11.08%). Zvika
  Barinboim holds, primarily through a wholly owned company, 51% of the voting
  rights and 26.92% of the capital stock of Barhoz Holdings Ltd. On March 11,
  2002, Poalim Nehasim Ltd. granted Zvika Barinboim an irrevocable power of
  attorney for a period of three years under which Zvika Barinboim will be
  entitled to exercise all of the voting rights of Poalim Nehasim in Silverboim
  Holdings for the election of directors. As a result, Zvika Barinboim holds,
  directly and indirectly, approximately 43.18% of the voting rights of
  Silverboim Holdings. Certain shareholders of Silverboim Holdings hold options
  to purchase ordinary shares of Silverboim Holdings and the numbers presented
  above do not represent percentages of holdings on a fully diluted basis.
  Zvika Barinboim disclaims beneficial ownership of the securities owned by
  Silverboim Holdings, except to the extent of his pecuniary interest in those
  securities.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(5) | Includes 1,577,857 shares held by Silverboim
  Holdings. Gilex holds 19.27% of the outstanding ordinary shares of Silverboim
  Holdings and has a representative on its board of directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(6) | These options to purchase our ordinary shares are
  exercisable at a price per share of $0.70, for a period of three years from
  the closing date of the acquisition, October 6, 2004, and were granted to
  Tadiran Telecom Ltd. in connection with our acquisition of the assets and liabilities of the service,
  maintenance, sales and marketing divisions in Israel of Tadiran Telecom Ltd.
  through our subsidiary, Telecom Israel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Silverboim
Holdings purchased the controlling block of our ordinary shares on December 30,
1999. On January 24, 2001, we issued 1,200,000 of our ordinary shares to Gilex
as part of the transaction in which Mersa, our wholly owned subsidiary,
purchased the share capital of Franz Kalff. For a detailed description of these
transactions, see Item 4: Information on the Company  History and
Development.

As
of June 15, 2005, there were 339 stockholders of record holding 13,599,626 of
our ordinary shares. To the best of our knowledge, 234 of these stockholders,
holding 4,178,977 of our ordinary shares constituting 30.73% of our issued and
outstanding share capital, reside or have offices in the United States,
including the American Stock Transfer & Trust Company.

49

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|   |                             
|-- | ----------------------------
|B. | Related
  Party Transactions

On
January 1, 2004, we entered into a Consulting and Management Services Agreement
with Franz Kalff GmbH, a private German company, which is wholly-owned by one
of our wholly-owned subsidiaries, Mersa Holdings B.V., a private Dutch company.
According to the terms of the Consulting and Management Services Agreement,
Franz Kalff retains our consulting and management services to assist with
expansion into new markets, financing, organizational restructuring, obtaining
new products for sale related to the Franz Kalffs business, and development of
business relationships with export countries. In consideration for our
performance of these management services, Franz Kalff pays us management fees
at a rate of approximately fifteen thousand U.S. dollars per month. The
management fees for the year 2004 were paid on March 30, 2005 and the
management fees for the year 2005 and thereafter are payable in quarterly
installments of forty-five thousand U.S. dollars. The Consulting and Management
Services Agreement shall remain in effect as long as we are the controlling
shareholder of Franz Kalff.

On
June 14, 2005, WorldGroup Holdings Ltd., a public Israeli company traded on the
Tel Aviv Stock Exchange, published a tender offer for the purchase of all of
the issued and outstanding shares of Robomatix, at a price per share of $1.00.
Worldgroup Holdings is indirectly controlled by Silverboim Holdings Ltd., which
is also our controlling shareholder. Together with entities directly and
indirectly controlling Worldgroup Holdings, Worldgroup Holdings currently own
approximately 61.62% of our outstanding ordinary shares. If Worldgroup Holdings
acquires up to 90% or more than 95% of our outstanding ordinary shares in the
offer, it will consummate of the tender offer there are fewer than 300 holders
of record of our ordinary shares resident in the U.S., Worldgroup Holdings
intends to cause the delisting of our ordinary shares and there will no longer
be any public market for our ordinary shares. On June 21, 2005, Shaul
Ashkenazi, who is a director in and holds approximately 31.5% of Worldgroup
Holdingss issued share capital, filed a claim against Worldgroup, Zvika Barinboim, Siverboim Holdings Ltd., Gilex
Holdings B.V., Ariel Levi and Marc Zalcman, in which he petitioned the
Tel Aviv District Court in Israel to declare the tender offer invalid. The claim alleges that Worldgroups tender
offer is inadvisable to Worldgroup because the price per share in the offer is
too high, and alleges that the offer was not duly authorized by the
shareholders of Worldgroup. As of the date of this annual report, Worldgroup has not yet filed a response. For
more information, see Item 4: Information on the Company  History and
Development  Changes
of Ownership and Capital Structure.

|   |                                   
|-- | ----------------------------------
|C. | Interests
  of Experts and Counsel
|   |                                   
|   | Not required.                     

|        |                      
|------- | ---------------------
|Item 8: | Financial Information

|   |                                                          
|-- | ---------------------------------------------------------
|A. | Consolidated
  Statements and Other Financial Information

Financial
Statements

Our
consolidated financial statements are incorporated herein by reference to pages
F-1 to F-37.

Legal
Proceedings

None.

50

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|   |                      
|-- | ---------------------
|B. | Significant
  Changes

During
the first quarter of 2005, we entered into an oral agreement with Marc Zalcman
according to which we sold him 10% of our holdings in Tadiran Telecom
Communication Services in Israel  Limited Partnership, or Telecom Israel,
through which we acquired the assets and liabilities of the service,
maintenance, sales and marketing divisions in Israel of Tadiran Telecom Ltd.
Additionally, we sold to Mr. Zalcman 10% of our holdings in Tadiran
Telecom  Communication Services in Israel Ltd., which was the general partner and 10%
stakeholder in Telecom Israel. Under the terms of the share purchase, Mr.
Zalcman shall have the same rights and obligations as held by us, pro rata, in
the activities of Telecom Israel, in consideration for his payment of 10% of
our consideration to Tadiran Telecom Ltd. Following this purchase, our direct
and indirect holdings in Telecom Israel were reduced to 89.1% (For more
information regarding our acquisition of Telecom Israel, see Item 4:
Information on the Company  Recent Capital Expenditures.). Mr. Zalcman also has an interest in
Worldgroup Holdings Ltd., which published on June 14, 2004, a tender offer for
the purchase of all of our issued and outstanding shares (For more information
regarding Worldgroup Holdingss tender offer, see Item 7: Major
Shareholders and Related Party Transactions).

|        |                      
|------- | ---------------------
|Item 9: | The Offer and Listing

Price History and Market Information

In
January 1994, we consummated an initial public offering in the United States of
1,750,000 of our ordinary shares. In late 1994, our shares were de-listed from
Nasdaq and the Pacific Stock Exchange. As of the date of this report our
ordinary shares are listed on the over-the-counter bulletin board under the
Symbol RBMXF.OB. There is no non-United States trading market for our
ordinary shares.

The
following sets forth the high and low sales prices for our ordinary shares as
quoted on the over-the-counter bulletin board for the periods indicated:

|               |  |      |      |     |   |      | 
|-------------- |  | ---- | ---- | --- | - | ---- | 
|               |  | High |      | Low |  
|               |  |      |      |     |  
|Annually       |  |      |      |     |   |      | 
|Fiscal 2000    |  | $    | 5.00 |     | $ | 0.65 | 
|Fiscal 2001    |  | $    | 1.03 |     | $ | 0.15 | 
|Fiscal 2002    |  | $    | 0.25 |     | $ | 0.06 | 
|Fiscal 2003    |  | $    | 0.25 |     | $ | 0.06 | 
|Fiscal 2004    |  | $    | 0.70 |     | $ | 0.25 | 
|Quarterly      |  |      |      |     |   |      | 
|Fiscal 2002:   |  |      |      |     |   |      | 
|First Quarter  |  | $    | 0.20 |     | $ | 0.10 | 
|Second Quarter |  | $    | 0.23 |     | $ | 0.10 | 
|Third Quarter  |  | $    | 0.25 |     | $ | 0.06 | 
|Fourth Quarter |  | $    | 0.25 |     | $ | 0.06 | 
|Fiscal 2003    |  |      |      |     |   |      | 
|First Quarter  |  | $    | 0.50 |     | $ | 0.05 | 
|Second Quarter |  | $    | 0.28 |     | $ | 0.13 | 
|Third Quarter  |  | $    | 0.35 |     | $ | 0.15 | 
|Fourth Quarter |  | $    | 0.50 |     | $ | 0.22 | 
|Fiscal 2004    |  |      |      |     |   |      | 
|First Quarter  |  | $    | 0.35 |     | $ | 0.25 | 
|Second Quarter |  | $    | 0.28 |     | $ | 0.25 | 
|Third Quarter  |  | $    | 0.43 |     | $ | 0.25 | 
|Fourth Quarter |  | $    | 0.80 |     | $ | 0.30 | 
|Fiscal 2005    |  |      |      |     |   |      | 
|First Quarter  |  | $    | 0.70 |     | $ | 0.40 | 
|Monthly        |  |      |      |     |   |      | 
|December 2004  |  | $    | 0.80 |     | $ | 0.50 | 
|January 2005   |  | $    | 0.55 |     | $ | 0.40 | 
|February 2005  |  | $    | 0.65 |     | $ | 0.50 | 
|March 2005     |  | $    | 0.70 |     | $ | 0.45 | 
|April 2005     |  | $    | 0.77 |     | $ | 0.70 | 
|May 2005       |  | $    | 0.96 |     | $ | 0.74 | 

51

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The
foregoing closing bid quotations reflect inter-dealer quotations without retail
mark-ups, markdowns or commissions and may not represent actual transactions.

|         |                       
|-------- | ----------------------
|Item 10: | Additional Information

|               |                                         
|-------------- | ----------------------------------------
|A.             | Share
  Capital                         
|               |                                         
|Not Applicable
|               |                                         
|B.             | Memorandum
  and Articles of Association

The
provisions of our articles of association with respect to transactions in which
our directors have a personal interest, are subject to the provisions of the
Companies Law, described under Item 6: Directors, Senior Management and
Employees  Board Practices  Approval of Transactions under the Companies
Law. Our articles of association do not set a higher standard for approval of
interested partys transactions than the standard set by the Companies Law
5759-1999, as amended.

In
February 2000, the Israeli Companies Ordinance (New Version)  1983 was replaced
by the Companies Law. Our articles of association were approved before
the enactment of the Companies Law. In all instances in which the Companies Law
differ from the Companies Ordinance, and as a result our articles of
association are not consistent with the Companies Law, the provisions of the
Companies Law prevail unless the Companies Law provides otherwise. Similarly,
where a provision of our articles of association refer to a section of the
Companies Ordinance that has been replaced by a corresponding section in the
Companies Law, such provision shall be interpreted as referring to the relevant
section of the Companies Law.

52

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Our
articles of association do not set age limitations with respect to our
directors and the directors are not required to hold qualifying shares.

As of the date of this report our
authorized share capital consists of 30,000,000 ordinary shares, nominal value
NIS 1.46 per share, of which,as of June 15, 2004,
 13,599,626 ordinary shares are issued and
outstanding.

Dividend
and Liquidation Rights. We may declare a dividend out of
profits legally available therefor so long as the Company reasonably believes
that such dividend distribution will not prevent the Company from paying all
its current and future debts. Such dividend may be paid to holders of our
ordinary shares according to their rights and interests in our profits.
Declaration of a dividend requires shareholder resolution, which may decrease
but not increase the amount proposed by our board of directors. 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 respective holdings. Such rights 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.

Voting,
Shareholder Meetings and Resolutions. Holders of our ordinary
shares have one vote for each 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. Our
ordinary shares do not have preemptive rights.

A
general meeting of the shareholders is held once every year at a place and
time, not being more than 15 months after the date of the last general meeting,
as may be prescribed by the board of directors. Upon request of any two
directors or one quarter of the officiating directors, the board of directors
may convene an extraordinary shareholders meeting. In addition, shareholders
who hold at least 5% of the shares of Robomatix may demand in writing that the
board of directors convene an extraordinary meeting, provided that the purpose
of that meeting is stated in the written demand. If the board of directors does
not convene the meeting within twenty-one days from the date that the written
demand was received at the offices of Robomatix, then the demanding
shareholders, or any of them representing more than one-half of the total
voting rights of all of them, may convene the meeting, provided that the
meeting may not be convened if three months has elapsed since the date that the
written demand was received at the offices of Robomatix.

The
quorum required for a general meeting of shareholders (whether annual or
extraordinary) consists of one or more shareholders present in person or by
proxy and holding, or representing, more than one-third of the voting rights of
the issued share capital. A meeting adjourned for lack of a quorum is adjourned
to the same day of the next week at the same time and place or such time and
place as the Board determines. If at such reconvened meeting a quorum is not
present within one half hour from the time set for the meeting, two
shareholders present in person or by proxy will constitute a quorum, regardless
of the number of shares represented.

53

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An
ordinary resolution (such as a resolution for the election of directors, the
declaration of dividends and the appointment of auditors) requires approval by
the holders of a majority of the shares represented at the meeting, in person
or by proxy, and voting thereon. A special or extraordinary resolution (such as
a resolution amending the memorandum or articles of association, changing the
capital of the Company, winding up, authorizing a class of shares with special
rights or other changes as specified in our articles of association) requires
approval of the holders of 75% of the shares represented in person or by proxy
at the meeting and voting thereon. A special resolution can be adopted only if
shareholders receive 21 days prior notice of the meeting at which such
resolution will be voted on unless all shareholders entitled to vote agree on a
shorter period. The 75% majority requirement is more significant than is
required by the Companies Law with respect to amendments to articles of
association.

Approval
of Transactions under the Companies Law.The Israel Companies
Law codifies the fiduciary duties that an office holder, including directors
and executive officers, owe to a company. An office holders fiduciary duties
consist of a duty of care and a duty of loyalty. The duty of care requires an
office holder to act with the same level of skill with which a reasonable
office holder in a similar position would have acted under the circumstances.
Such duty requires the use of reasonable means to obtain information on the
advisability of a given action brought for an office holders approval or an
action performed by the office holder by virtue of such office holders
position, and all other significant information pertaining to those actions.
The duty of loyalty requires an office older to act in good faith and for the
benefit of the Company, and includes the following:

| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a duty to avoid conflicts of interest between such
  office holders position in the company and other positions such office
  holder holds, or such office holders personal affairs;
| |   |                                                                                                                                                                                       
| |  | a duty to avoid competition with the company;                                                                                                                                         
| |   |                                                                                                                                                                                       
| |  | a duty to avoid exploitation of any business
  opportunity of the company for such office holders own benefit or for the
  benefit of others; and                                    
| |   |                                                                                                                                                                                       
| |  | a duty to disclose to the company any information or
  documents relating to the companys affairs which such office holder received
  due to its position as an office holder.       

However,
a company may approve such actions, in accordance with the provisions for
approval of interested parties transactions, provided that the office holder
acts in good faith, the action or its approval is not detrimental to the
company and the office holder discloses to the company, a reasonable time prior
to its approval, the nature of its personal interest in the action. Personal
interest of an office holder is defined as including the personal interest of a
relative of the office holder and the personal interest of a corporation in
which the office holder or its relative holds 5% or more of the capital stock,
a corporation in which the office holder or its relative is the chief executive
officer or a director, or a corporation in which such office holder or its
relative has the power to appoint the chief executive officer or a director.
There is no duty to disclose the personal interest of a relative of the office
holder in a transaction which is not an Extraordinary Transaction (as defined
herein). An Extraordinary Transaction is defined as a transaction outside of
the ordinary course of business, a transaction inconsistent with market terms
or a transaction which is likely to have a material impact on a companys
profitability, assets or liabilities.

54

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Transactions
in which an office holder has a personal interest must be approved in the
following manner: non-Extraordinary Transactions, including compensation for
office holders that are not directors, require approval of the board of
directors, unless the articles of association provide for another way of
approval. Extraordinary Transactions as well as the approval of indemnification
and insurance for office holders that are not directors require the approval of
the audit committee and the board of directors. In addition to board and audit
committee approvals, shareholders consent is required for the approval of
directors compensation or when the majority of the board of directors has a
personal interest and/or the audit committee has a personal interest in an
Extraordinary Transaction. A director who has a personal interest in a
transaction may not be present at a board or audit committee meeting convened
for the purpose of approving such transaction, unless the majority of the board
or the audit committee members have personal interest in the transaction.

Duties
of a Shareholder.Under the Companies Law, a shareholder has
a duty to act in good faith and in a customary manner towards the Company and
other shareholders and refrain from improperly exploiting his power, including,
among other things, when voting in the general meeting of the shareholders on
the following matters:

| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any amendment to the articles of association;                                                                                                                                    
| |   |                                                                                                                                                                                  
| |  | an increase of the Companys authorized share
  capital;                                                                                                                         
| |   |                                                                                                                                                                                  
| |  | a merger; or                                                                                                                                                                     
| |   |                                                                                                                                                                                  
| |  | approval of specific acts and transactions which
  require shareholder approval pursuant to the provisions relating to fiduciary
  duty and transactions with interested parties.

In
addition, any controlling shareholder, any shareholder who knows that it
possesses the power to determine the outcome of a vote at a shareholder meeting
and any shareholder that, pursuant to the provisions of the articles of
association, has the power to appoint, or to object to the appointment of, an
office holder or has any other power in the company, is under a duty to act in
fairness towards the company. The Companies Law does not elaborate on the
substance of this duty.

According
to the Israeli Companies Law-1999, the disclosure requirements discussed above
also apply to a controlling shareholder of a public company. Such requirements
also apply to certain shareholders of a public company, with respect to private
placements that will increase their relative holdings in the company. A
controlling shareholder, which is defined for the purposes of approval of
transactions with controlling shareholders as a shareholder that holds 25% or
more of the voting rights if no other shareholder holds more than 50% of the
voting rights in publicly traded companies is subject to disclosure
requirements in Extraordinary Transactions in which it has a personal interest
and such shareholders compensation as office holders or employees requires the
approval of the audit committee, the board of directors and a special majority
of the shareholders of the company. The shareholder approval must either
include at least one-third of the shares held by disinterested shareholders who
actively participate in the voting process (without taking abstaining votes
into account, or it must be shown that the total holdings of the non-interested
parties who voted against the transaction do not represent more than one
percent of the voting rights in the company.

55

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Private
placements in a public company require approval by a companys board of
directors and shareholders in the following cases:

| |   |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A private placement that meets all of the following
  conditions:                                      
| |   |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   | °                                                                                                       | The private placement will increase the relative
  holdings of a shareholder that holds five percent or more of the companys
  outstanding share capital, assuming the exercise of all of the securities
  convertible into shares held by that person, or that will cause any person to
  become, as a result of the issuance, a holder of more than five percent of
  the Companys outstanding share capital.
| |   |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   | °                                                                                                       | 20 percent or more of the voting rights in the
  company prior to such issuance are being offered.                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   | °                                                                                                       | All or part of the consideration for the offering is
  not cash or registered securities, or the private placement is not being
  offered at market terms.                                                                                                                                                                                                                                                       
| |   |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | A private placement which results in anyone becoming
  a controlling shareholder of the public company.

In
addition, under the Companies Law  1999, certain transactions or a series of
transactions are considered to be one private placement.

Any
placement of securities that does not fit the above description may be issued
at the discretion of the board of directors. If we are successful in conducting
our initial public offering in Israel, our shareholders will be subject to
these approvals.

Mergers
and Acquisitions.Under the Companies Law, a merger must be
approved by the board and shareholders of each of the merging companies. A
majority of the shareholders present at the meeting must approve the merger,
excluding shares held by the other merging company or any person holding at
least a 25% interest or has the right to appoint a director in the other
merging company or any party related thereto. If the target companys capital
stock is divided into different classes of shares, the merger must be approved
at meetings of the holders of each class. However, a court may allow a merger
which is not approved by the requisite majority or classes if the court is
convinced that such merger is reasonable and fair. Other than in specified
situations, the Companies Law does not require court approval of a merger. Upon
the request of a creditor of either party to the 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 party to the merger. In addition, a merger may be completed
only after 70 days have passed from the time that the requisite approvals for
the merger have been filed with the Israeli Registrar of Companies. A company
whose securities are traded in a foreign exchange must publish a notice of the
merger offer in a newspaper in the country where its securities are traded.

Notwithstanding
the approval requirements set forth in the Companies Law, such law provides
that with respect to companies which were incorporated prior to the new law
coming into effect, a merger shall require the approval of 75% of the shares
represented at the shareholders meeting and voted. Such requirement shall apply
unless the Company amends its articles of association to provide otherwise.

56

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Under
the Companies Law, an acquisition of shares of a publicly traded company in the
public market must be made by means of a tender offer if, as a result of the
acquisition, the purchaser will become the holder of 25% or more of the voting
rights in the company, provided that there is no other holder of 25% or more of
the voting rights in the company, or, that there is a holder of 25% or more of
the voting rights in the company, and as a result of the acquisition the
purchaser will become a holder of 45% or more of the voting rights of the
company, provided that there is no other holder of more than 50% of the voting
rights in the company. However, if following an acquisition of shares, the
acquirer will hold 90% or more of the shares or a class of shares of the
company, the acquisition must be made through a tender offer to acquire all of
the shares or a class of shares of the company. Such acquirer is entitled to
acquire all of the shares if the holdings of the shareholders who did not
accept the offer are less than 5% of the companys total outstanding shares, or
of the relevant class of shares. These rules do not apply if the acquisition is
made through a merger.

Transfer
of Shares and Notice. Fully paid ordinary shares are freely
transferable in Israel subject to securities laws. Each shareholder of record
is entitled to receive at least twenty-one days prior notice of shareholders
meetings. For purposes of determining the shareholders entitled to notice, the
board of directors may fix the record date not more than forty nor less than
fourteen days prior to the date of the meeting.

Election
of Directors. Holders of our ordinary shares do not have
cumulative voting rights in the election of directors. Therefore, the holders
of ordinary shares conferring more than 50% of the voting power have the power
to elect all of the directors. For the election of external directors, see
Item 6: Directors, Senior Management and Employees  Board Practices 
External Directors.

Indemnification.
Our articles of association allow for indemnification of office holders for
certain liabilities incurred in connection with acts in his/her capacity as an
office holder. On March 19, 2001, our shareholders approved an amendment to our
articles of association, pursuant to which we may exempt an office holder in
advance for his liability, or any part thereof, for damage in consequence of a
breach of his duty of care to us. The amendment also provides that under
certain circumstances, we may indemnify an office holder retroactively for an
obligation or expense imposed on him in consequence of acts done in his
capacity as an office holder of our company; and we may give an advance
undertaking vis-a-vis an office holder to indemnify him in respect of an
obligation or expense.  Any indemnity
provided for in the articles of association is limited in its scope by the
Companies Law, which provides that a company may not indemnify an officer or
director for:

|  |                                                                                                                                                                                                                                            
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a breach of his duty of loyalty, unless the officer
  or director acted in good faith and had reasonable grounds to assume that the
  action would not harm the company;                                                                   
|  |                                                                                                                                                                                                                                            
| | an intentional or reckless breach of their duty of
  care;                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                            
| | an act done with the intent to unlawfully realize
  personal gain; or                                                                                                                                                                      
|  |                                                                                                                                                                                                                                            
| | a criminal fine or administrative penalty imposed on
  the officer or director.                                                                                                                                                            
|  |                                                                                                                                                                                                                                            
| | damages caused to the company due to any breach of
  such Office Holders duty of care towards the company in a distribution,
  which is defined in the Companies Law as the grant of a dividend or an
  undertaking to grant a dividend.

57

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In
2001, following approval from our shareholders, we entered into indemnification
letters with certain of our previous directors and its current directors and
officers. Under the indemnification letters, we exempt in advance our directors
and officers for damage caused and/or that may be caused to us and our
subsidiaries due to the violation of such persons duty of care toward us
(unless the violation was intentional). The total amount of indemnification
that we undertook to pay under the form of indemnification letter will not
exceed, per case and in the aggregate, the greater of: $10,000,000; or 50% of
our shareholders equity.

Our
memorandum of association, articles of association and the laws of the State of
Israel do not restrict in any way the ownership or voting of our ordinary
shares by nonresidents of Israel, except with respect to subjects of countries,
which are at a state of war with Israel.

C.        Material
Contracts

The
following are the material contracts to which Robomatix is or was a party to
during the preceding two years:

On
January 1, 2004, we entered into a Consulting and Management Services Agreement
with Franz Kalff GmbH, under which we supply Franz Kalff with management
services. For more
information, see Item 7: Major Shareholders and Related Party Transactions.

On
July 19, 2004, we entered into an asset purchase agreement and distribution
agreement with Tadiran Telecom for the purchase of the assets and liabilities
of its service, maintenance, sales and marketing divisions in Israel as of
March 31, 2004. See Item 4: Information on the Company  Recent Capital
Expenditures.

D.        Exchange
Controls

Non-residents
of Israel who purchase our ordinary shares with certain non-Israeli currencies
(including United States dollars) and through an authorized foreign currency
dealer bank, will be able to convert dividends including dividends of liquidation
distributions and proceeds from the sale of such shares into freely repatriable
non-Israeli currencies at the rate of exchange prevailing at the time of
repatriation, pursuant to a general permit issued by the Controller of Foreign
Currency at the Bank of Israel under the Currency Control Law, 1978, provided
that Israeli income tax, if due, has been paid (or withheld) on such amounts.
See Item 5: Operating and Financial Review and Prospects   Conditions in
Israel  Economic Conditions.

E.
        Taxation

The
following describes certain income tax consequences arising from the purchase,
ownership and disposition of our ordinary shares. This discussion is for
general information only and is not intended, and should not be construed, as
legal or professional tax advice and does not cover all possible tax
considerations. To the extent that the discussion is based on legislation yet
to be judicially or administratively interpreted, there can be no assurance
that the views expressed herein will accord with any such interpretation in the
future. Accordingly, you should consult your tax advisor as to the particular
tax consequences arising from your purchase, ownership and disposition of our
ordinary shares, including the effects of applicable Israeli, United States and
other laws and possible changes in the tax laws.

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Israeli
Taxation

The
following discussion represents a summary of certain material Israeli tax laws
affecting us and our shareholders, including United States and other
non-Israeli shareholders.

General
Corporate Tax Structure.Before the 2004 tax year, Israeli companies were generally
subject to Company Tax at the rate of 36% of taxable income. Following an
amendment to Israeli tax law, the company tax rate has been reduced to 35% for
2004 and will be reduced in subsequent tax years as follows: in 34% in 2005,
32% in 2006 and 30% by 2007.

Taxation
under Inflationary Conditions.The Income Tax Law
(Inflationary Adjustments) 1985, is intended to neutralize the erosion of
capital investments in business and to prevent tax benefits resulting from
deduction of inflationary expenses. This law applies a supplementary set of
inflationary adjustments to the normal taxable profits computed under regular
historical cost principles. We are taxed under this law.

Some
important features of the Inflationary Adjustments Law are as follows:

A
special tax adjustment for the preservation of equity whereby certain corporate
assets are classified broadly into fixed (inflation resistant) assets and
non-fixed (soft) assets. Where a companys equity, as defined in such law,
exceeds the depreciated cost of fixed assets, a deduction from taxable income
that takes into account the effect of the applicable annual rate of inflation
on such excess is allowed (up to a ceiling of 70% of taxable income in any
single tax year, with the unused portion permitted to be carried forward on a
linked basis without limit). If the depreciated cost of fixed assets exceeds a
companys equity, then such excess multiplied by the applicable annual rate of
inflation is added to taxable income.

Subject
to certain limitations, depreciation deductions on fixed assets and losses
carried forward are adjusted for inflation, based on the increase in the
Israeli consumer price index.

Gains
on the sale of certain traded securities during the tax year are taxable under
this law in certain circumstances. Capital Gains Tax.Israeli law imposes a
capital gains tax on the sale of capital assets. The law distinguishes between
the real gain and the inflationary surplus. The real gain is the excess of the
total capital gain over the inflationary surplus, computed on the basis of the
increase in the Israeli consumer price index between the date of purchase and
the date of sale. The inflationary surplus accumulated from and after December
31, 1993 is exempt from any capital gains tax.

Real
gains from the sale of our shares before January 1, 2003 were subject to tax at
a rate of 35%. As of January 1, 2003, such gains are subject to tax at a rate
of 15% (including with respect to gains accrued before that date), so long as
our shares remain listed for trading on a stock exchange in Israel or abroad.
These reduced rates of tax do not apply, among others, to traders in securities
for whom the gains are business income; to companies subject to taxation under
Israels Income Tax Law (Inflationary Adjustments); and may not apply to
shareholders who held our shares before they were registered for trading on the
NASDAQ. Non-residents of Israel will be exempt from capital gains tax on the
sale of our shares if they were not purchased before the listing of our shares
for trade on the NASDAQ, the shares are not held as part of a permanent
establishment the non-resident maintains in Israel, and the shares remain
listed on a stock exchange in Israel or abroad.

59

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Dividends.Dividend distributions by one Israeli corporation to another
Israeli corporation are generally not subject to taxation. Dividends paid to
individuals and foreign corporations are generally taxed at 25%. The tax paid
on dividends is withheld at the source. The above tax rates may be reduced
pursuant to specific rulings or an applicable tax treaty.

United
States -Israel Tax Treaty.Pursuant to the tax treaty between
the United States and Israel (the Convention Between the Government of the
United States of America and the Government of Israel with Respect to Taxes on
Income, as amended), the sale, exchange or disposition of ordinary shares of an
Israeli company by a person who qualifies as a resident of the United States
within the meaning of the U.S.-Israel Tax Treaty and who is entitled to claim
benefits under the Treaty (Treaty U.S. Resident) will not be subject to
Israeli capital gains tax unless that Treaty U.S. Resident holds, directly or
indirectly, shares representing 10% or more of the voting power during any part
of the 12-month period preceding such sale, exchange or disposition, subject to
certain conditions. A sale, exchange or disposition of ordinary shares by a
Treaty U.S. Resident who holds, directly or indirectly, shares representing 10%
or more of the voting power at any time during such preceding 12-month period
would be subject to Israeli tax, to the extent applicable; however, under the
U.S.-Israel Tax Treaty, such Treaty U.S. Resident would be permitted to claim a
credit for such taxes against the United States income tax imposed with respect
to such sale, exchange or disposition, subject to the limitations in United
States laws applicable to foreign tax credits.

Taxation
of Non-Residents of Israel.Non-residents of Israel are
subject to income tax on income accrued or derived from sources in Israel. Such
sources of income include passive income such as dividends, royalties and
interest, as well as non-passive income from services rendered in Israel. On
distributions of dividends other than bonus shares (stock dividends), income
tax at the rate of 25% is withheld at source, unless a different rate is
provided in a treaty between Israel and the shareholders country of residence.

Under
the U.S.-Israel Tax Treaty, Israeli withholding tax on dividends paid to a U.S.
treaty resident may not, in general, exceed 25%. Where the recipient is a U.S.
corporation owning 10% or more of the voting stock of the paying corporation,
the Israeli tax withheld may not generally exceed 12.5%, subject to certain
conditions.

A
non-resident of Israel who has earned passive income derived from sources in
Israel, from which tax was withheld at source and which constitutes income from
interest, dividends or royalties, is generally exempt from the duty to file an
Israeli tax return with respect to such income, unless such income was from a
business carried on by the non-resident within Israel.

United
States taxpayers will generally have the option of claiming the amount of any
Israeli income taxes withheld at the source as either a deduction from gross
income or as a credit against Federal income tax liability, subject to detailed
rules and limitations contained in United States tax legislation. At present,
no estate or gift taxes are imposed under Israeli law.

60

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United
States Federal Income Taxation

The
following summary describes certain material federal income tax consequences
arising from the purchase, ownership and disposition of our ordinary shares.
This summary is not a complete analysis or description of all potential United
States federal income tax consequences to U.S. Holders (as defined below) and
does not address foreign, state, local or other tax consequences. Furthermore,
estate and gift tax consequences generally are not discussed herein. This
summary is based on the provisions of the Internal Revenue Code of 1986, as
amended, final, temporary and proposed United States Treasury Regulations
promulgated thereunder, and the administrative and judicial interpretations
thereof, all as in effect on the date of this report. The consequences to any
particular investor may differ from those described below by reason of that
investors particular circumstances. This summary does not address the
considerations that may be applicable to particular classes of taxpayers,
including financial institutions, insurance companies, small business
investment companies, mutual funds, S corporations, broker-dealers and
tax-exempt organizations, holders with a functional currency other than the
United States dollar or holders of 10% or more of the total combined voting
power of our ordinary shares. This summary is addressed only to holders who are
United States citizens; individuals resident in the United States for purposes
of United States federal income tax; corporations or partnerships (or other entities
properly characterized as corporations or partnerships for United States
federal income tax purposes) created or organized under the laws of the United
States or any state thereof; estates the income of which is subject to United
States federal income taxation regardless of its source or trusts if: a United
States court can exercise primary supervision over the administration of such
trust and one or more United States persons have the authority to control all
substantial decisions of such trust (U.S. Holders).

Treatment
of Distributions.For United States federal income tax
purposes, gross distributions (including the amount of any Israeli taxes
withheld therefrom) paid to a U.S. Holder with respect to our ordinary shares
will be includable as ordinary income to the extent made out of current and
accumulated earnings and profits of Robomatix, as determined based on United
States tax principles, at the time the distributions are received by the
holder. Such distributions will be treated as foreign source dividend income
and will not be eligible for the dividends-received deduction generally allowed
to United States corporations under Section 243 of the Code. Any Israeli
withholding tax imposed on dividends will be a foreign income tax and will
therefore be eligible for credit against such U.S. Holders United States
federal income tax liability, subject to certain limitations set out in the
Code (or, alternatively, for deduction against income in determining such tax
liability). The limitations set out in the Code with respect to foreign tax
credits include, among others, computational rules under which foreign tax
credits allowable with respect to specific classes of income cannot exceed the
United States federal income taxes otherwise payable with respect to each class
of income and a limitation on the use of the credit in any taxable year to
reduce not more than 90% of the liability for the United States individual and
corporate alternative minimum tax. Foreign income taxes exceeding the credit
limitation for the year of payment or accrual can be carried back for two
taxable years and forward for five taxable years, in order to reduce United
States federal income taxes, subject to the credit and alternative minimum tax
limitations applicable to each of such years and other restrictions.

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Dividends
paid in New Israeli Shekels will be included in income in a United States
dollar amount based on the exchange rate at the time of their receipt. U.S.
Holders should consult their own tax advisors regarding the treatment of any
foreign currency gain or loss on any amounts received as a dividend which are
converted into United States dollars on a date subsequent to their receipt.

Distributions
in excess of our current and accumulated earnings and profits (as determined
based on United States tax principles) are treated as a non-taxable return of
basis to the extent thereof (thus increasing the amount of gain, or reducing
the amount of loss, which may be realized by a holder upon a sale or exchange
of ordinary shares as described below). The amount of any distribution which
exceeds a holders basis in ordinary shares will be treated as a gain from the
sale of ordinary shares.

Disposition.A U.S. Holder will recognize gain or loss for United States
federal income tax purposes upon the sale or other disposition of ordinary
shares in an amount equal to the difference between the amount realized and the
U.S. Holders adjusted tax basis in such ordinary shares. Such gain or loss
generally will be capital gain or loss if the ordinary shares are a capital
asset in the hands of the U.S. Holder and will be long-term capital gain or
loss if the ordinary shares have been held for more than one year. Any gain or
loss recognized on the sale or other disposition of ordinary shares will
generally be United States source income. However, pursuant to the U.S.-Israel
Tax Treaty, such gain may be foreign source income in certain circumstances.
Any capital loss realized upon the sale, exchange or other disposition of
ordinary shares is generally deductible only against capital gains and not
against ordinary income, except that in the case of non-corporate taxpayers, a
capital loss is deductible only to the extent of capital gains plus ordinary income
of up to $3,000. If the amount realized on a sale or exchange is not
denominated in United States dollars, the amount realized will be equal to the
United States dollar value thereof, determined at the spot rate on the date of
the sale or exchange.

Our
Tax Status for United States Federal Income Tax Purposes

Passive
Foreign Investment Companies. A non-United States corporation
will be classified as a passive foreign investment company (a PFIC) for
United States federal income tax purposes if it satisfies either of the
following two tests: (i) 75% or more of its gross income is passive income or
(ii) on average for the taxable year 50% or more (by value or, if the
corporation is not a publicly traded corporation as defined in Section
1297(f) of the Code and so elects or if the corporation is a controlled
foreign corporation (as defined below), by adjusted basis) of its assets
produce or are held for the production of passive income.

Due
to the fact that the PFIC determination is made annually on the basis of facts
and circumstances that may be beyond our control and because the principles and
methodology for determining the fair market values of our assets are unclear,
there can be no assurance that we are not currently or will not become a PFIC.
If we are a PFIC at any time during a U.S. Holders holding period for the
ordinary shares, certain excess distributions with respect to, and gain upon
the disposition of, the ordinary shares generally will be taxed at the time of
the distribution or disposition as if the income or gain were ratably allocated
over the U.S. Holders holding period for the shares in the PFIC. The amount
allocated to the year of the distribution or disposition or to years prior to
our becoming a PFIC will be treated as ordinary income, and the amounts
allocated to earlier years for which the corporation was a PFIC will be taxed
at the highest rate applicable to individuals or corporations, as the case may
be, for the taxable year to which the income is allocated. Further, the tax on
an amount allocated to such an earlier year will be subject to an interest
charge which accrues from the due date of the return for that earlier year.
Additionally, if we are or were to become a PFIC, U.S. Holders who acquire
ordinary shares from decedents whose holding period for the ordinary shares
included time when we were a PFIC would be denied the normally available
step-up of income tax basis for such ordinary shares to fair market value at
the date of death and instead would have a tax basis limited to the decedents
tax basis. The above rules relating to distributions and dispositions generally
will not apply if (i) the U.S. Holder elects to treat us as a qualified
electing fund (a QEF election) for all taxable years that such holder has
held the ordinary shares and we were a PFIC, or (ii) the ordinary shares are
marketable stock for which a mark-to-market election can be and is made. If a
QEF election is made, a U.S. Holder generally will pay tax currently on its
pro-rata share of our ordinary earnings and net capital gains (at ordinary
income and capital gains rates, respectively), even if no dividends are
actually paid. Further, in such event, the denial of the basis step-up at death
described above would not apply. If the mark-to-market election is made, U.S.
Holders will generally account for changes in the value of the ordinary shares
on an annual basis as ordinary income or loss.

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In
2000, we engaged in a securities offering and invested the cash resulting from
such offering, which exceeded 50% of its assets, in assets held for the
production of passive income, satisfying one of the PFIC tests. As a result of
other investments in early 2001, however, we believe that neither of the two
PFIC tests will continue to be satisfied. Pursuant to a special rule in Section
1298(b)(3) of the Code relating to certain corporations changing businesses,
and assuming that the corporation does not actually satisfy either of the PFIC
tests in 2001 or 2002, the corporation will not have become a PFIC in 2000.

We
intend to notify U.S. Holders in the event that we conclude that we will be
treated as a PFIC for any taxable year to enable U.S. Holders to consider
whether to make a QEF election. In addition, we intend to comply with the
applicable information reporting requirements for U.S. Holders to make a QEF
election.

Controlled
Foreign Corporations. If more than 50% of the voting power of
all classes of our shares or the total value of our shares is owned (directly,
indirectly, or constructively) by United States shareholders, each of which
owns (directly, indirectly, or constructively) at least 10% of our voting stock
(the 10% Shareholders), we (and, generally, any of our direct or indirect non-United
States subsidiaries) will be treated as a controlled foreign corporation (a
CFC). If we are a CFC, 10% Shareholders who own our shares directly or
indirectly will be required to include in their United States income their pro
rata share of our Subpart F Income (which includes, among other things,
certain passive income and income from sales or other transactions with or on
behalf of affiliated parties), and certain other items of income, regardless of
whether any distributions are made. Subpart F Income previously included in
income by a 10% Shareholder will not be included in income again if it is
subsequently distributed. In addition to the current inclusion of Subpart F
Income, upon the sale or exchange or our ordinary shares, a U.S. Holder who is
or was a 10% Shareholder at any time during the five year period ending on the
date of such sale or exchange when we were a CFC would generally be required to
treat a portion of the gain recognized upon the sale or exchange as a dividend
to the extent of our earnings and profits which are attributable to those
shares and which were accumulated while the shares were owned by the 10%
Shareholder and we were a CFC.

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Generally,
if we are a PFIC (as described above) as well as a CFC, we will not be treated
as a PFIC with respect to a U.S. Holder for the portion of the U.S. Holders
holding period during which the U.S. Holder is a 10% Shareholder and we are a
CFC. It is possible that, as a result of sales and additional offerings of our
ordinary shares to United States persons, we could be classified as a CFC. Any
10 % Shareholders should consult their tax advisors regarding the application
of the United States tax rules relating to CFCs.

Information
Reporting and Backup Withholding.U.S. Holders are generally
subject to information reporting requirements with respect to dividends and the
proceeds of the disposition of all or a part of an ordinary share. Under the
Code, a U.S. Holder of an ordinary share may be subject, under certain circumstances,
to backup withholding at a 31% rate on cash payments in the United States of
the proceeds of disposition of all or part of an ordinary share. Under
regulations effective for payments made after December 31, 2000, dividends paid
in the United States may also be subject to backup withholding. Backup
withholding will apply only if a U.S. Holder (i) fails to timely furnish to us
its social security or other taxpayer identification number (TIN), (ii)
furnishes an incorrect TIN, (iii) is notified by the IRS that it has failed to
properly report payments of interest and dividends or (iv) under certain
circumstances, fails to certify, under penalty of perjury, that it has
furnished a correct TIN and has not been notified by the Internal Revenue Service
(IRS) that it is subject to backup withholding for failure to report interest
and dividend payments. U.S. Holders should consult their tax advisors regarding
their qualification for exemption from backup withholding and the procedure for
obtaining such an exemption if applicable. The amount of any backup withholding
from a payment to a U.S. Holder will be allowed as a credit against such
holders United States federal income tax liability and may entitle such holder
to a refund, provided that the required information is furnished to the IRS.

Documents on Display

We
are required to file reports and other information with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 and the
regulations thereunder applicable to foreign private issuers. Reports and other
information filed by us with the Securities and Exchange Commission may be
inspected and copied at the Securities and Exchange Commissions public
reference facilities described below. Although as a foreign private issuer we
are not required to file periodic information as frequently or as promptly as
United States companies, we generally do publicly announce our quarterly and
year-end results promptly and file periodic information with the Securities and
Exchange Commission under cover of Form 6-K. As a foreign private issuer, we
are also exempt from the rules under the Exchange Act prescribing the
furnishing and content of proxy statements and our officers, directors and
principal shareholders are exempt from the reporting and other provisions in
Section 16 of the Exchange Act.

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You
may review a copy of our filings with the Securities and Exchange Commission,
including any exhibits and schedules, at the Securities and Exchange
Commissions public reference facilities in Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of such
materials from the Public Reference Section of the Securities and Exchange
Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. You may call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. As a foreign private issuer we are not required to file through the Securities
and Exchange Commissions EDGAR system and our periodic filings are therefore
not available on the Securities and Exchange Commissions Web site. You may
read and copy any reports, statements or other information that we file with
the Securities and Exchange Commission at the Securities and Exchange
Commission facilities listed above. These Securities and Exchange Commission
filings are also available to the public from commercial document retrieval
services.

Any
statement in this annual report about any of our contracts or other documents
is not necessarily complete. If the contract or document is filed as an exhibit
to the registration statement, the contract or document is deemed to modify the
description contained in this annual report. We urge you to review the exhibits
themselves for a complete description of the contract or document.

|         |                                                            
|-------- | -----------------------------------------------------------
|Item 11: | Quantitative and Qualitative
  Disclosure about Market Risk

We
do not use financial instruments for trading purposes and do not hold any
derivative financial instruments which could expose us to significant market
risk.

The
carrying amount reported for cash and cash equivalents, trade receivables,
short-term bank credit and trade payables approximate their fair values, due to
the short-term maturity of these instruments.

The
carrying amount of our long-term borrowing approximates its fair value. The
fair value was estimated using discounted cash flow analyses, based on our
incremental borrowing rates for similar type of borrowing arrangements.

|         |                                                         
|-------- | --------------------------------------------------------
|Item 12: | Description of Securities Other
  Than Equity Securities

Not
required.

PART 2

|         |                                                  
|-------- | -------------------------------------------------
|Item 13: | Defaults, Dividend Arrearages and
  Delinquencies

Not applicable.

|         |                                                                               
|-------- | ------------------------------------------------------------------------------
|Item 14: | Material Modifications to the
  Rights of Security Holders and Use of Proceeds

Not
applicable.

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|         |                        
|-------- | -----------------------
|Item 15: | Controls and Procedures

An
evaluation was performed under the supervision and with the participation of
our management, including our chief executive officer of the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934, as amended). Based on that
evaluation, which was completed within 90 days of the filing date of this annual
report, our chief executive officer concluded that our disclosure controls and
procedures were effective though we are constantly engaged in the process of
improving these controls and procedures. There have been no significant changes
in our disclosure controls or in other factors that could significantly affect
disclosure controls subsequent to the date of the evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses. We do not have a chief financial officer and this role is fulfilled
by our chief executive officer.

|         |           
|-------- | ----------
|Item 16: | [reserved]

[reserved]

|          |                                   
|--------- | ----------------------------------
|Item 16A: | Audit
  Committee Financial Expert

Our
Board of Directors has determined that a member of our Audit Committee, Ruth
Breger, is an audit committee financial expert.

|          |               
|--------- | --------------
|Item 16B: | Code of Ethics

On
April 29, 2004, we adopted a code of ethics, inter alia, to impose certain
policies relating to ethical conduct on all of our directors and employees,
including our chief executive officer, who also fulfils the function of a chief
financial officer.

|          |                                         
|--------- | ----------------------------------------
|Item 16C: | Principal
  Accountant Fees and Services

The
following table presents fees we recorded for professional audit services
rendered by our auditors for the audit of our consolidated annual financial
statements for the years ended December 31, 2004 and 2003, and fees billed
for other services rendered by our auditors including our public offerings of
securities and tax services.

|                          |  |      |        |      |   |        | 
|------------------------- |  | ---- | ------ | ---- | - | ------ | 
|                          |  | 2003 |        | 2004 |  
|                          |  |      |        |      |  
|Audit (1)                 |  | $    | 46,000 |      | $ | 62,000 | 
|                         
|Tax Fees                  |  | $    | 4,000  |      | $ | 4,000  | 
|                         
|Other Consulting Services |  |      | 0      |      | $ | 0      | 
|                         
|Total                     |  | $    | 50,000 |      | $ | 66,000 | 

|    |                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit fees consist of fees for professional services
  rendered for the audit of our consolidated financial statements and review of
  un-audited interim financial statements included in our quarterly reports and
  services provided by the independent auditor in connection with statutory and
  regulatory filings.

66

---

---



|          |                                                            
|--------- | -----------------------------------------------------------
|Item 16D: | Exemption
  from the Listing Standards for Audit Committees

As
a foreign private issuer we remain exempt, until July 31, 2005, from the
NASDAQ requirement to adopt an audit committee charter.
Furthermore, our audit committee was established and selected
pursuant to the laws of Israel, and therefore we rely on the exemptions
set forth in Rule 10A with respect to the audit committees independence.

|          |                                                                         
|--------- | ------------------------------------------------------------------------
|Item 16E: | Purchases
  of Equity Securities by the Issuer and Affiliated Purchasers

None

PART 3

|          |                       
|--------- | ----------------------
|Item  17: | Financial
  Statements

Not
applicable.

|         |                     
|-------- | --------------------
|Item 18: | Financial Statements

See
pages F1 to F36.

67

---

---



|         |         
|-------- | --------
|Item 19: | Exhibits

|                  |      |      |                                                                                                                                                                                                                                                   
|----------------- | ---- | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 
  Number |      | Name
|                  |      |     
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 1.1  |      | Memorandum of Association (incorporated by reference
  to our Pre-Effective Amendment No. 1 to our Registration Statement on Form
  F-1 filed with the Securities and Exchange Commission on October 27, 1993)                                    
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 1.2  |      | Articles of Association, as amended (incorporated by
  reference to the 2000 20-F filed with the Securities Exchange Commission on
  June 30, 2001).                                                                                              
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 2.   |      | Specimen Certificate for ordinary Shares
  (incorporated by reference to our Registration Statement on Form F-1,
  Amendment No.3 filed with the Securities and Exchange Commission on December
  14, 1993)                                       
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 4.1  |      | Guarantee Agreement, dated January 24, 2001, by and
  between Gilex Holdings B.V. and Robomatix Technologies Ltd. (1)                                                                                                                             
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 4.2  |      | Translation of Robomatixs Application for Provision
  of Credit from Bank Hapoalim, dated January 18, 2001 (1)                                                                                                                                   
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 4.3  |      | Summary Translation of a Letter of Undertaking,
  dated January 18, 2001, by Robomatix for the benefit of Bank Hapoalim (1)                                                                                                                       
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 4.4  |      | Translation of a Debenture, dated January 18, 2001,
  issued by Robomatix Technologies Ltd. for the benefit of Bank Hapoalim and
  Schedule A thereto  (1)                                                                                        
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 4.5  |      | Translation of an Undertaking, dated January 18,
  2001, by Robomatix Technologies Ltd. for the Benefit of Bank Hapoalim (1)                                                                                                                      
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | *4.6 |      | Draft Services Agreement between Robomatix
  Technologies Ltd. and Silverboim Holdings Ltd. (incorporated by reference to
  the 2000 20-F filed with the Securities Exchange Commission on June 30, 2001)                                         
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 4.7  |      | Consultation and Management Agreement, dated
  November 15, 2001, between Robomatix Technologies Ltd. and Silverboim
  Holdings Ltd. (incorporated by reference to the 2000 20-F filed with the
  Securities Exchange Commission on June 30, 2001)

68

---

---



| |      |  |                                                                                                                                                                                                                                                                                               
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.8  |  | Agreement, dated as of January 18, 2001, between
  Robomatix Technologies Ltd. and Mersa Holdings B.V. (incorporated by
  reference to the 2001 20-F filed with the Securities Exchange Commission on
  June 30, 2002)                                                                        
| |      |  |                                                                                                                                                                                                                                                                                               
| | 4.9  |  | Translation of a letter agreement with Bank
  Hapoalim, dated as of November 15, 2001(incorporated by reference to the 2001
  20-F filed with the Securities Exchange Commission on June 30, 2002)                                                                                            
| |      |  |                                                                                                                                                                                                                                                                                               
| | 4.10 |  | Agreement on the Sale and
  Transfer of Real Property of Franz Kalff GmbH and Lease Agreement as
  presented and executed before Dietrich Kleppi, notary public, Bonn, Germany (incorporated
  by reference to the 2002 20-F filed with the Securities Exchange Commission
  on June 30, 2003)
| |      |  |                                                                                                                                                                                                                                                                                               
| | 4.11 |  | Summary of Agreement,
  dated as of June 3, 2004 by and between Robomatix Technologies Ltd. and Eyal
  Raef Adv., as trustee for un-named parties (incorporated by reference
  to the 2003 20-F filed with the Securities Exchange Commission on July 13,
  2004)                             
| |      |  |                                                                                                                                                                                                                                                                                               
| | 4.12 |  | Consulting and Management
  Services Agreement dated as of January 1, 2004 by and between Robomatix
  Technologies Ltd. and Franz Kalff GmbH                                                                                                                                                  
| |      |  |                                                                                                                                                                                                                                                                                               
| | 4.13 |  | Summary of Asset Purchase Agreement, dated as of
  July 19, 2004 by and between Robomatix Technologies Ltd. and Tadiran Telecom Business
  Systems (currently known as Tadiran Telecom Ltd.)                                                                                                  
| |      |  |                                                                                                                                                                                                                                                                                               
| | 4.14 |  | Summary of Distribution Agreement, dated as of July
  19, 2004 by and between Robomatix
  Technologies Ltd. and Tadiran Telecom Business Systems (currently
  known as Tadiran Telecom Ltd.)                                                                                                  
| |      |  |                                                                                                                                                                                                                                                                                               
| | 8.1  |  | List of Significant Subsidiaries                                                                                                                                                                                                                                                              
| |      |  |                                                                                                                                                                                                                                                                                               
| | 11   |  | Code of Ethics (incorporated by reference to the
  2003 20-F filed with the Securities Exchange Commission on July 13, 2004)                                                                                                                                                                  
| |      |  |                                                                                                                                                                                                                                                                                               
| | 12.1 |  | Certification by Chief Executive Officer pursuant to
  section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                          
| |      |  |                                                                                                                                                                                                                                                                                               
| | 13.1 |  | Certification by Chief Executive Officer pursuant to
  section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                          

(1) Previously filed with the Securities and Exchange
Commission on January 31, 2001 as part of Form 6-K for the month of January,
2001, and incorporated by reference herein.

*Although the agreement has not yet been executed by
the parties, the enclosed draft was the form of agreement approved by our
shareholders and the parties are acting pursuant to its terms.

69

---

---



SIGNATURES

Pursuant to the requirements of Section 12 of the
Securities Exchange Act of 1934, the registrant certifies that it meets all the
requirements for filing on Form 20-F and has duly caused this annual report to
be signed on its behalf by the undersigned, thereunto duly authorized on this
30th day of June 2005.

| |                                    |                     | 
| | ---------------------------------- | ------------------- | 
| | ROBOMATIX TECHNOLOGIES LTD.       
| |                                   
| | By:                                | /S/ ZVIKA BARINBOIM
| |                                    |                    
| | Zvika Barinboim                   
| | Chairman of the Board of Directors
|

70

---

---



Exhibit Index

|                  |      |      |                                                                                                                                                                                                                                                   
|----------------- | ---- | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 
  Number |      | Name
|                  |      |     
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 1.1  |      | Memorandum of Association (incorporated by reference
  to our Pre-Effective Amendment No. 1 to our Registration Statement on Form
  F-1 filed with the Securities and Exchange Commission on October 27, 1993)                                    
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 1.2  |      | Articles of Association, as amended (incorporated by
  reference to the 2000 20-F filed with the Securities Exchange Commission on
  June 30, 2001).                                                                                              
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 2.   |      | Specimen Certificate for ordinary Shares
  (incorporated by reference to our Registration Statement on Form F-1,
  Amendment No.3 filed with the Securities and Exchange Commission on December
  14, 1993)                                       
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 4.1  |      | Guarantee Agreement, dated January 24, 2001, by and
  between Gilex Holdings B.V. and Robomatix Technologies Ltd. (1)                                                                                                                             
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 4.2  |      | Translation of Robomatixs Application for Provision
  of Credit from Bank Hapoalim, dated January 18, 2001 (1)                                                                                                                                   
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 4.3  |      | Summary Translation of a Letter of Undertaking,
  dated January 18, 2001, by Robomatix for the benefit of Bank Hapoalim (1)                                                                                                                       
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 4.4  |      | Translation of a Debenture, dated January 18, 2001,
  issued by Robomatix Technologies Ltd. for the benefit of Bank Hapoalim and
  Schedule A thereto  (1)                                                                                        
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 4.5  |      | Translation of an Undertaking, dated January 18,
  2001, by Robomatix Technologies Ltd. for the Benefit of Bank Hapoalim (1)                                                                                                                      
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | *4.6 |      | Draft Services Agreement between Robomatix
  Technologies Ltd. and Silverboim Holdings Ltd. (incorporated by reference to
  the 2000 20-F filed with the Securities Exchange Commission on June 30, 2001)                                         
|                  |      |      |                                                                                                                                                                                                                                                   
|                  | 4.7  |      | Consultation and Management Agreement, dated
  November 15, 2001, between Robomatix Technologies Ltd. and Silverboim
  Holdings Ltd. (incorporated by reference to the 2000 20-F filed with the
  Securities Exchange Commission on June 30, 2001)

71

---

---



| |      |  |                                                                                                                                                                                                                                                                                               
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.8  |  | Agreement, dated as of January 18, 2001, between
  Robomatix Technologies Ltd. and Mersa Holdings B.V. (incorporated by
  reference to the 2001 20-F filed with the Securities Exchange Commission on
  June 30, 2002)                                                                        
| |      |  |                                                                                                                                                                                                                                                                                               
| | 4.9  |  | Translation of a letter agreement with Bank
  Hapoalim, dated as of November 15, 2001(incorporated by reference to the 2001
  20-F filed with the Securities Exchange Commission on June 30, 2002)                                                                                            
| |      |  |                                                                                                                                                                                                                                                                                               
| | 4.10 |  | Agreement on the Sale and
  Transfer of Real Property of Franz Kalff GmbH and Lease Agreement as
  presented and executed before Dietrich Kleppi, notary public, Bonn, Germany (incorporated
  by reference to the 2002 20-F filed with the Securities Exchange Commission
  on June 30, 2003)
| |      |  |                                                                                                                                                                                                                                                                                               
| | 4.11 |  | Summary of Agreement,
  dated as of June 3, 2004 by and between Robomatix Technologies Ltd. and Eyal
  Raef Adv., as trustee for un-named parties (incorporated by reference
  to the 2003 20-F filed with the Securities Exchange Commission on July 13,
  2004)                             
| |      |  |                                                                                                                                                                                                                                                                                               
| | 4.12 |  | Consulting and Management
  Services Agreement dated as of January 1, 2004 by and between Robomatix
  Technologies Ltd. and Franz Kalff GmbH                                                                                                                                                  
| |      |  |                                                                                                                                                                                                                                                                                               
| | 4.13 |  | Summary of Asset Purchase Agreement, dated as of
  July 19, 2004 by and between Robomatix Technologies Ltd. and Tadiran Telecom Business
  Systems (currently known as Tadiran Telecom Ltd.)                                                                                                  
| |      |  |                                                                                                                                                                                                                                                                                               
| | 4.14 |  | Summary of Distribution Agreement, dated as of July
  19, 2004 by and between Robomatix
  Technologies Ltd. and Tadiran Telecom Business Systems (currently
  known as Tadiran Telecom Ltd.)                                                                                                  
| |      |  |                                                                                                                                                                                                                                                                                               
| | 8.1  |  | List of Significant Subsidiaries                                                                                                                                                                                                                                                              
| |      |  |                                                                                                                                                                                                                                                                                               
| | 11   |  | Code of Ethics (incorporated by reference to the
  2003 20-F filed with the Securities Exchange Commission on July 13, 2004)                                                                                                                                                                  
| |      |  |                                                                                                                                                                                                                                                                                               
| | 12.1 |  | Certification by Chief Executive Officer pursuant to
  section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                          
| |      |  |                                                                                                                                                                                                                                                                                               
| | 13.1 |  | Certification by Chief Executive Officer pursuant to
  section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                          



---

*Although the agreement has not yet been executed by
the parties, the enclosed draft was the form of agreement approved by our
shareholders and the parties are acting pursuant to its terms.

72

---

---

ROBOMATIX TECHNOLOGIES LTD.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004

---

---



ROBOMATIX
TECHNOLOGIES AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS



|                                                                                                                           |         
|-------------------------------------------------------------------------------------------------------------------------- | --------
|                                                                                                                           | Page    
|                                                                                                                           |         
|Report of Independent Registered Public Accounting
  Firm                                                                  | F-2     
|                                                                                                                           |         
|Consolidated Financial Statements:                                                                                         |         
|                                                                                                                           |         
|Balance Sheets
  as of December 31, 2004 and 2003                                                                          | F-3-F-4 
|                                                                                                                           |         
|Statements of Operations
  for the years ended December 31, 2004, 2003 and 2002                                            | F-5     
|                                                                                                                           |         
|Statements of Shareholders Equity and
  Comprehensive Income (Loss)for the
  years ended December 31, 2004, 2003 and 2002 | F-6     
|                                                                                                                           |         
|Statements of Cash Flows
  for the years ended December 31, 2004, 2003 and 2002                                            | F-7-F-8 
|                                                                                                                           |         
|Notes to Consolidated Financial Statements                                                                                 | F-9-F-36

---

---



REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders
of
Robomatix Technologies Ltd.

We have
audited the accompanying consolidated balance sheets of Robomatix Technologies
Ltd. (the Company) and its subsidiaries as of December 31, 2004 and
2003, and the related consolidated statements of operations, shareholders
equity and comprehensive income (loss), and cash flows for each of the two
years in the period ended December 31, 2004. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted
our audit 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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company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, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Company and its subsidiaries as of December 31, 2004 and 2003 and the
consolidated results of their operations and their consolidated cash flows for
each of the years then ended, in conformity with U.S. generally accepted
accounting principles.

Brightman Almagor & Co.
Certified Public Accountants
A member firm of Deloitte Touche Tohmatsu

Tel Aviv,
Israel
May 8, 2005

---

---



# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

# To the Shareholders of

# ROBOMATIX TECHNOLOGIES
LTD.

We
have audited the accompanying consolidated statements of income, changes in
shareholders equity and cash flows for the year ended December 31, 2002 of
Robomatix Technologies LTD (the Company) and its subsidiaries. These financial
statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit also includes 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s internal control over financial reporting. Accordingly, we express no
such opinion. An audit alson 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 audit provide a reasonable basis for our
opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows for the year
ended December 31, 2002 of the Company and its subsidiaries, in conformity with US
generally accepted accounting principles.

|                 |                                 
|---------------- | --------------------------------
|Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER    
|May 31, 2003     | A Member of Ernst & Young Global



---

---

ROBOMATIX TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)

|                                                                                          |  |             |        |         |   |        |  
|----------------------------------------------------------------------------------------- |  | ----------- | ------ | ------- | - | ------ | -
|                                                                                          |  | December 31 |       
|                                                                                          |  |             |       
|                                                                                          |  | 2 0 0 4     |        | 2 0 0 3 |  
|                                                                                          |  |             |        |         |  
|                                                                                          |  |             |        |         |   |        |  
|ASSETS                                                                                    |  |             |        |         |   |        |  
|                                                                                          |  |             |        |         |   |        |  
|Current assets                                                                            |  |             |        |         |   |        |  
|Cash and cash equivalents                                                                 |  | $           | 535    |         | $ | 1,742  |  
|Available-for-sale marketable
  securities (Note 4)                                       |  |             | 811    |         |   | 293    |  
|Trade receivables, net of
  allowance for doubtful accounts of $111 and $50, respectively |  |             | 8,592  |         |   | 1,266  |  
|Other accounts receivable and
  prepaid expenses (Note 14a)                               |  |             | 195    |         |   | 1,003  |  
|Inventories (Note 14b)                                                                    |  |             | 6,164  |         |   | 4,725  |  
|                                                                                          |  |             |        |         |   |        |  
|                                                                                          |  |             |        |         |   |        |  
|Total current assets                                                                      |  |             | 16,297 |         |   | 9,029  |  
|                                                                                          |  |             |        |         |   |        |  
|                                                                                          |  |             |        |         |   |        |  
|Long-term
  investments (Note 5)                                                          |  |             | 532    |         |   | 4,748  |  
|                                                                                          |  |             |        |         |   |        |  
|                                                                                          |  |             |        |         |   |        |  
|Property and
  equipment(Note
  6)                                                        |  |             |        |         |   |        |  
|Cost                                                                                      |  |             | 2,936  |         |   | 2,595  |  
|Less  accumulated depreciation                                                           |  |             | (2,634 | )       |   | (2,480 | )
|                                                                                          |  |             |        |         |   |        |  
|                                                                                          |  |             | 302    |         |   | 115    |  
|                                                                                          |  |             |        |         |   |        |  
|                                                                                          |  |             |        |         |   |        |  
|Deferred
  taxes(Note 12f)                                                                |  |             | 2,095  |         |   | 2,276  |  
|                                                                                          |  |             |        |         |   |        |  
|                                                                                          |  |             |        |         |   |        |  
|Goodwill, net (Note 7a)                                                                   |  |             | 1,093  |         |   | 564    |  
|                                                                                          |  |             |        |         |   |        |  
|                                                                                          |  |             |        |         |   |        |  
|Other
  acquired intangibles assets, net(Note 7b)                                         |  |             | 5,718  |         |   | -      |  
|                                                                                          |  |             |        |         |   |        |  
|                                                                                          |  |             |        |         |   |        |  
|Total assets                                                                              |  | $           | 26,037 |         | $ | 16,732 |  
|                                                                                          |  |             |        |         |   |        |  

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

F-3

---

---



ROBOMATIX TECHNOLOGIES LTD.

CONSOLIDATED
BALANCE SHEETS (CONTD.)
(U.S. dollars in thousands, except share data)

|                                                                                                                                                        |  |             |         |         |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | ------- | - | ------- | -
|                                                                                                                                                        |  | December 31 |        
|                                                                                                                                                        |  |             |        
|                                                                                                                                                        |  | 2 0 0 4     |         | 2 0 0 3 |  
|                                                                                                                                                        |  |             |         |         |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|LIABILITIES
  AND SHAREHOLDERS EQUITY                                                                                                                  |  |             |         |         |   |         |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|Current
  liabilities                                                                                                                                   |  |             |         |         |   |         |  
|Short-term bank credit (Note 14c)                                                                                                                       |  | $           | 5,453   |         | $ | 2,004   |  
|Current maturities of long-term loans (Note
  8a)                                                                                                       |  |             | 2,097   |         |   | 565     |  
|Trade payables                                                                                                                                          |  |             | 2,265   |         |   | 819     |  
|Other accounts payable and accrued
  expenses  (Note 14d)                                                                                               |  |             | 5,228   |         |   | 1,707   |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|Total current liabilities                                                                                                                               |  |             | 14,811  |         |   | 5,095   |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|Long-term
  liabilities                                                                                                                                 |  |             |         |         |   |         |  
|Long-term loans, net of current maturities
  (Note 8a)                                                                                                  |  |             | 3,117   |         |   | 3,617   |  
|Pension and severance pay (Note 9)                                                                                                                      |  |             | 1,502   |         |   | 652     |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|                                                                                                                                                        |  |             | 4,851   |         |   | 4,269   |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|Commitments
  and contingent liabilities (Note 10)                                                                                                      |  |             |         |         |   |         |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|Shareholders
  equity (Note 11)                                                                                                                        |  |             |         |         |   |         |  
|Share capital -                                                                                                                                         |  |             |         |         |   |         |  
|Ordinary shares of NIS 1.46 par value:                                                                                                                  |  |             |         |         |   |         |  
|Authorized: 34,100,000 shares as of
  December 31, 2004 (2003-30,000,000); Issued and outstanding: 13,599,626
  shares as of December 31, 2004 and 2003 |  |             | 5,649   |         |   | 5,649   |  
|Additional paid-in capital                                                                                                                              |  |             | 30,315  |         |   | 30,133  |  
|Accumulated other comprehensive income                                                                                                                  |  |             | 925     |         |   | 512     |  
|Accumulated deficit                                                                                                                                     |  |             | (30,514 | )       |   | (28,926 | )
|                                                                                                                                                        |  |             |         |         |   |         |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|Total shareholders equity                                                                                                                              |  |             | 6,375   |         |   | 7,368   |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|                                                                                                                                                        |  |             |         |         |   |         |  
|Total
  liabilities and shareholders equity                                                                                                            |  | $           | 26,037  |         | $ | 16,732  |  
|                                                                                                                                                        |  |             |         |         |   |         |  

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

F-4

---

---



ROBOMATIX TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except share data)

|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | ------- | - | ---------- | - | - | ---------- | -
|                                                                                            |  | Year ended December 31, |           
|                                                                                            |  |                         |           
|                                                                                            |  | 2 0 0 4                 |            | 2 0 0 3 |   | 2 0 0 2    |  
|                                                                                            |  |                         |            |         |   |            |  
|Sales (Note 2 and
  15a)                                                                    |  |                         |            |         |   |            |   |   |            |  
|Products                                                                                    |  | $                       | 20,486     |         | $ | 12,493     |   | $ | 8,704      |  
|Services                                                                                    |  |                         | 3,111      |         |   | -          |   |   | -          |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|Total sales                                                                                 |  |                         | 23,597     |         |   | 12,493     |   |   | 8,704      |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|Costs of sales                                                                              |  |                         |            |         |   |            |   |   |            |  
|Products                                                                                    |  |                         | 15,146     |         |   | 9,649      |   |   | 6,708      |  
|Services                                                                                    |  |                         | 1,481      |         |   | -          |   |   | -          |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|Total costs of sales                                                                        |  |                         | 16,627     |         |   | 9,649      |   |   | 6,708      |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|Gross profit                                                                                |  |                         | 5,970      |         |   | 2,844      |   |   | 1,996      |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|Selling and marketing expenses                                                              |  |                         | 1,455      |         |   | 946        |   |   | 655        |  
|General and administrative expenses                                                         |  |                         | 2,741      |         |   | 1,949      |   |   | 1,471      |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|Operating Income (loss)                                                                     |  |                         | 1,774      |         |   | (51        | ) |   | (130       | )
|                                                                                            |  |                         |            |         |   | -          |   |   | -          |  
|Impairment of a long-term investment                                                        |  |                         | (2,218     | )       |   | -          |   |   | -          |  
|Impairment of available for sale marketable
  securities (Note 4)                           |  |                         | (572       | )       |   | -          |   |   | -          |  
|Financial expenses, net (Note 15c)                                                          |  |                         | (388       | )       |   | (10        | ) |   | (191       | )
|Other income (Note 15b)                                                                     |  |                         | 142        |         |   | 1,045      |   |   | 257        |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|Income (loss) before taxes on income                                                        |  |                         | (1,262     | )       |   | 984        |   |   | (64        | )
|Taxes on income                                                                             |  |                         | 332        |         |   | 195        |   |   | 378        |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|                                                                                            |  |                         | (1,594     | )       |   | 789        |   |   | (442       | )
|Equity in earnings of an affiliate                                                          |  |                         | 6          |         |   | 481        |   |   | -          |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|Net income (loss)                                                                           |  | $                       | (1,588     | )       | $ | 1,270      |   | $ | (442       | )
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|Basic and diluted net earnings (loss) per
  share -                                         |  | $                       | (0.12      | )       | $ | 0.09       |   | $ | (0.03      | )
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|Weighted average number of shares used in
  computing basic net earnings (loss) per share   |  |                         | 13,599,626 |         |   | 13,599,626 |   |   | 13,599,626 |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  
|Weighted average number of shares used in
  computing diluted net earnings (loss) per share |  |                         | 13,599,626 |         |   | 13,599,626 |   |   | 13,599,626 |  
|                                                                                            |  |                         |            |         |   |            |   |   |            |  

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

F-5

---

---



ROBOMATIX TECHNOLOGIES LTD.

STATEMENTS OF
SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
(U.S. dollars in thousands)

|                                                                    |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|------------------------------------------------------------------- |  | --------------- | ----- | --------------------------------- | - | --------------------------------------------------- |  | --------------------- | ---- | ----------------------------- |  | ------------------------------ | - |  | ------ | - |  | ------ | -
|                                                                    |  | Share
  capital |       | Additional
  
  paid-in
  capital |   | Accumulated
  other
  comprehensive
  income (loss) |  | Accumulated
  deficit |      | Comprehensive
  income (loss) |  | Total
  shareholders
  equity |  
|                                                                    |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |  
|                                                                    |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|Balance at January 1, 2002                                          |  | $               | 5,649 |                                   | $ | 29,524                                              |  | $                     | (69  | )                             |  | (29,754                        | ) |  |        |   |  | 5,350  |  
|Gain from transaction with related party
  (see Note 1b)            |  |                 | -     |                                   |   | 609                                                 |  |                       | -    |                               |  | -                              |   |  |        |   |  | 609    |  
|Other comprehensive income (losses):                                |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|Foreign currency translation adjustments                            |  |                 | -     |                                   |   | -                                                   |  |                       | 162  |                               |  | -                              |   |  | 162    |   |  | 162    |  
|Unrealized losses on available-for-sale
  marketable securities     |  |                 | -     |                                   |   | -                                                   |  |                       | (129 | )                             |  | -                              |   |  | (129   | ) |  | (129   | )
|Net loss                                                            |  |                 | -     |                                   |   | -                                                   |  |                       | -    |                               |  | (442                           | ) |  | (442   | ) |  | (442   | )
|                                                                    |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|Total comprehensive loss                                            |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  | (409   | ) |  |        |  
|                                                                    |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|                                                                    |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|Balance at December 31, 2002                                        |  |                 | 5,649 |                                   |   | 30,133                                              |  |                       | (36  | )                             |  | (30,196                        | ) |  |        |   |  | 5,550  |  
|Other comprehensive income:                                         |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|Foreign currency translation adjustments                            |  |                 | -     |                                   |   | -                                                   |  |                       | 386  |                               |  | -                              |   |  | 386    |   |  | 386    |  
|Unrealized gains on available-for-sale marketable
  securities      |  |                 | -     |                                   |   | -                                                   |  |                       | 162  |                               |  | -                              |   |  | 162    |   |  | 162    |  
|Net income                                                          |  |                 | -     |                                   |   | -                                                   |  |                       | -    |                               |  | 1,270                          |   |  | 1,270  |   |  | 1,270  |  
|                                                                    |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|Total comprehensive income                                          |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  | 1,818  |   |  |        |  
|                                                                    |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|                                                                    |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|Balance at December 31, 2003                                        |  |                 | 5,649 |                                   |   | 30,133                                              |  |                       | 512  |                               |  | (28,926                        | ) |  |        |   |  | 7,368  |  
|                                                                    |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|Other comprehensive income (losses):                                |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|Foreign currency translation adjustments                            |  |                 | -     |                                   |   | -                                                   |  |                       | 533  |                               |  | -                              |   |  | 533    |   |  | 533    |  
|Unrealized losses on available-for-sale
  marketable securities     |  |                 | -     |                                   |   | -                                                   |  |                       | (692 | )                             |  | -                              |   |  | (692   | ) |  | (692   | )
|Realization of losses on available-for-sale
  marketable securities |  |                 | -     |                                   |   | -                                                   |  |                       | 572  |                               |  | -                              |   |  | 572    |   |  | 572    |  
|Options issued in consideration for
  purchase of a subsidiary      |  |                 | -     |                                   |   | 182                                                 |  |                       | -    |                               |  | -                              |   |  | -      |   |  | 182    |  
|Net income                                                          |  |                 | -     |                                   |   | -                                                   |  |                       | -    |                               |  | (1,588                         | ) |  | (1,588 | ) |  | (1,588 | )
|                                                                    |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|Total comprehensive income                                          |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  | (1,175 | ) |  |        |  
|                                                                    |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  
|Balance at December 31, 2004                                        |  |                 | 5,649 |                                   |   | 30,315                                              |  |                       | 925  |                               |  | (30,514                        | ) |  |        |   |  | 6,375  |  
|                                                                    |  |                 |       |                                   |   |                                                     |  |                       |      |                               |  |                                |   |  |        |   |  |        |  

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

F-6

---

---



ROBOMATIX TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)

|                                                                        |  |                           |        |         |   |         |   |   |      |  
|----------------------------------------------------------------------- |  | ------------------------- | ------ | ------- | - | ------- | - | - | ---- | -
|                                                                        |  | Year ended
  December 31, |       
|                                                                        |  |                           |       
|                                                                        |  | 2 0 0 4                   |        | 2 0 0 3 |   | 2 0 0 2 |  
|                                                                        |  |                           |        |         |   |         |  
|Cash flows from operating activities                                    |  |                           |        |         |   |         |   |   |      |  
|Net income (loss)                                                       |  | $                         | (1,588 | )       | $ | 1,270   |   | $ | (442 | )
|(used in) operating activities from
  continuing operations:            |  |                           |        |         |   |         |   |   |      |  
|Impairment of a long-term investment                                    |  |                           | 2,218  |         |   | -       |   |   | -    |  
|Loss from sale of long-term investments                                 |  |                           | 55     |         |   | -       |   |   | -    |  
|Impairment of available for sale marketable
  securities                |  |                           | 572    |         |   |         |   |   |      |  
|Loss from sale of property and equipment                                |  |                           | -      |         |   | 234     |   |   | -    |  
|Equity in earnings of an affiliate                                      |  |                           | (6     | )       |   | (481    | ) |   | -    |  
|Gain from sale of a subsidiary                                          |  |                           | -      |         |   | (993    | ) |   | -    |  
|Deferred income taxes                                                   |  |                           | 373    |         |   | 214     |   |   | 378  |  
|Accrued interest on long-term loans                                     |  |                           | (374   | )       |   | (14     | ) |   | -    |  
|Depreciation                                                            |  |                           | 330    |         |   | 57      |   |   | 201  |  
|Increase in inventories                                                 |  |                           | (448   | )       |   | (1,417  | ) |   | (83  | )
|Accrued pensions and severance pay                                      |  |                           | 2      |         |   | (8      | ) |   | (13  | )
|Decrease (increase) in other accounts
  receivable and prepaid expenses |  |                           | 523    |         |   | (319    | ) |   | 61   |  
|Increase (decease) in trade payables                                    |  |                           | 1,335  |         |   | 33      |   |   | (248 | )
|Increase in other accounts payable and
  accrued expenses               |  |                           | 2,267  |         |   | 112     |   |   | 43   |  
|Decrease (increase) in trade receivables                                |  |                           | (6,915 | )       |   | 716     |   |   | (167 | )
|                                                                        |  |                           |        |         |   |         |   |   |      |  
|Net used in operating activities                                        |  |                           | (1,656 | )       |   | (596    | ) |   | (270 | )
|                                                                        |  |                           |        |         |   |         |   |   |      |  
|Cash flows from investing activities                                    |  |                           |        |         |   |         |   |   |      |  
|Purchase of property and equipment                                      |  |                           | (50    | )       |   | (67     | ) |   | (13  | )
|Proceeds from sale of a subsidiary to a
  related party                 |  |                           | 190    |         |   | 172     |   |   | 208  |  
|Investment in other companies                                           |  |                           | -      |         |   | (2,108  | ) |   | (23  | )
|Proceeds from sale of subsidiaries (a)                                  |  |                           | 304    |         |   | 779     |   |   | -    |  
|Payment for acquisition of a consolidated partnership
  (b)             |  |                           | (2,015 | )       |   | -       |   |   | -    |  
|Proceeds from sale of available for sale
  marketable securities        |  |                           | 102    |         |   | 4       |   |   | -    |  
|Proceeds from sale of property and
  equipment                          |  |                           | -      |         |   | 3,500   |   |   | 8    |  
|Proceeds from sale of long-term investments                             |  |                           | 760    |         |   | -       |   |   | -    |  
|                                                                        |  |                           |        |         |   |         |   |   |      |  
|Net cash provided by (used in) investing
  activities                   |  |                           | (709   | )       |   | 2,280   |   |   | 180  |  
|                                                                        |  |                           |        |         |   |         |   |   |      |  
|                                                                        |  |                           |        |         |   |         |   |   |      |  
|Cash flows from financing activities                                    |  |                           |        |         |   |         |   |   |      |  
|Proceeds from long-term debt                                            |  |                           | 354    |         |   | 1,297   |   |   | -    |  
|Repayment of long-term debt                                             |  |                           | (2,444 | )       |   | (2,515  | ) |   | (560 | )
|Short-term bank credit, net                                             |  |                           | 3,247  |         |   | 822     |   |   | 625  |  
|                                                                        |  |                           |        |         |   |         |   |   |      |  
|Net cash provided by (used in) financing
  activities                   |  |                           | 1,157  |         |   | (396    | ) |   | 65   |  
|                                                                        |  |                           |        |         |   |         |   |   |      |  
|Effect of exchange rate changes on cash and
  cash equivalents          |  |                           | 1      |         |   | 73      |   |   | 79   |  
|                                                                        |  |                           |        |         |   |         |   |   |      |  
|Increase (decrease) in cash and cash
  equivalents                      |  |                           | (1,207 | )       |   | 1,361   |   |   | 54   |  
|Cash and cash equivalents at the beginning
  of the year                |  |                           | 1,742  |         |   | 381     |   |   | 327  |  
|                                                                        |  |                           |        |         |   |         |   |   |      |  
|Cash and cash equivalents at the end of the
  year                      |  | $                         | 535    |         | $ | 1,742   |   | $ | 381  |  
|                                                                        |  |                           |        |         |   |         |   |   |      |  

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

F-7

---

---



ROBOMATIX TECHNOLOGIES LTD.

CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTD.)
(U.S. dollars in thousands)

|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|---------------------------------------------------------------------------- | ------------------------------------------------------------------------------- |  | ------------------------- | ------ | ------- | - | ------- | - | - | ---- | -
|                                                                             |                                                                                 |  | Year ended
  December 31, |       
|                                                                             |                                                                                 |  |                           |       
|                                                                             |                                                                                 |  | 2 0 0 4                   |        | 2 0 0 3 |   | 2 0 0 2 |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |  
|(a)                                                                          | Proceeds from sale of subsidiaries (Note 1b
  and 1c)                           |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             | Assets and liabilities of the subsidiaries
  at date of disposal                |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             | Working capital (excluding cash and cash
  equivalents)                         |  | $                         | -      |         | $ | (293    | ) | $ | (39  | )
|                                                                             | Related party receivable related to sale of
  subsidiary                        |  |                           | 190    |         |   | 172     |   |   | (362 | )
|                                                                             | Receivable related to sale of
subsidiary                                        |  |                           | 304    |         |   | (304    | ) |   | -    |  
|                                                                             | Investment in an affiliate                                                      |  |                           | -      |         |   | 481     |   |   | -    |  
|                                                                             | Foreign currency translation
adjustments                                        |  |                           | -      |         |   | (98     | ) |   | -    |  
|                                                                             | Capital gain                                                                    |  |                           | -      |         |   | 993     |   |   | 609  |  
|                                                                             |                                                                                 |  |                           | -      |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  | $                         | 494    |         | $ | 951     |   | $ | 208  |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|(b)                                                                          | Payment for acquisition of a consolidated
  partnership (see Note 3)            |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             | Fair value of assets acquired and
  liabilities assumed at date of acquisition: |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             | Working capital (excluding cash and cash
  equivalents)                         |  |                           | 409    |         |   | -       |   |   | -    |  
|                                                                             | Property, and equipment                                                         |  |                           | (180   | )       |   | -       |   |   | -    |  
|                                                                             | Accrued severance pay                                                           |  |                           | 768    |         |   | -       |   |   | -    |  
|                                                                             | Goodwill and other intangible assets                                            |  |                           | (3,012 | )       |   | -       |   |   | -    |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  | $                         | (2,015 | )       | $ | -       |   | $ | -    |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|(c)                                                                          | Supplemental disclosure of cash flows
  activities                              |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             | Cash paid during the year for interest                                          |  | $                         | -      |         | $ | 62      |   | $ | 21   |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|Supplementary information on financing
  activities not involving cash flows |                                                                                 |  |                           |        |         |   |         |   |   |     
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             | Sale of long-term investment for
  consideration of marketable securities       |  | $                         | -      |         | $ | -       |   | $ | 264  |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             | Issuance of warrants in exchange for
  acquisition of a consolidated subsidiary |  | $                         | 182    |         | $ | -       |   | $ | -    |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  
|                                                                             | Long-term loan for acquisition of a
  consolidated partnership                  |  | $                         | 3,127  |         | $ | -       |   | $ | -    |  
|                                                                             |                                                                                 |  |                           |        |         |   |         |   |   |      |  

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

F-8

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1     | GENERAL
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | a.      | Nature of operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |         | Robomatix
  Technologies Ltd. (the Company) is an Israeli holding company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |         | The
  Companys shares are traded on the OTC Bulletin Board (symbol: RBMFX.OB).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |         | The Company
  holds all of the outstanding share capital of Franz Kalff GmbH (Kalff), a
  German company engaged in manufacturing through subcontractors, marketing and
  sale of first aid kits, primarily for the automotive industry. Since October
  6, 2004 the Company holds all of the outstanding share capital of Tadiran
  Telecom Israel Partnership (Tadiran Telecom Israel), an Israeli Partnership
  that markets and sells communications solutions that support voice, data,
  video and advanced applications. The main areas of activity are marketing,
  selling and providing maintenance services of business systems and contact
  centers which are manufactured by Tadiran Telecom Ltd. (see Note 3).
  Additionally, the Company holds in direct 20% interests in eLady Ltd., a Japanese Internet commerce portal
  for women.
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | b.      | In September
  2002, the Company sold 100% of the share capital of Robomatix (Israel) Ltd.
  (a dormant subsidiary), to SPL Software Ltd., an Israeli company also held by
  Silverboim Holdings Ltd., the controlling shareholder, in consideration of $ 570.
  As a result of this sale, the Company recorded directly to shareholders
  equity the gain of $ 609 resulting from this related party transaction.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | c.      | In
  January 1, 2003, a subsidiary of the Company acquired the assets,
  liabilities and the operations of Edco Technologies Ltd. (Edco). In
  addition, it was decided to issue 9,200 Ordinary shares of the subsidiary to
  the sole shareholder of Edco that will comprise 50% of the subsidiarys
  issued and outstanding share capital following the issuance. As a result, the
  Companys holdings in the subsidiary were decreased to 49.5%.                                                                                                                                                                                                                                                                                                                                                                                                    
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |         | In
  March 31, 2003, the Company entered into an agreement with Berger
  Holdings  (1992) Ltd. a publicly
  traded company in the Tel Aviv Stock Exchange, for the sale of all the
  Company holdings in the subsidiary. The consideration was $ 1,083 net of
  related expenses amounting to $ 192, and as a result the Company recorded a
  gain of approximately $ 993.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F-9

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2     | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                             
|            |                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | The
  consolidated financial statements have been prepared in conformity with
  generally accepted accounting principles in the United States (U.S. GAAP).
|            |                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | a.                                                                                                                                                           | Use of estimates in preparation of financial statement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                                                                                                                              | The
  preparation of financial statements in conformity with generally accepted
  accounting principles requires management to make estimates and assumptions
  that affect the amounts reported in the financial statements and accompanying
  notes. Actual results could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | b.                                                                                                                                                           | Financial statements in U.S. dollars                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                                                                                                                              | The
  reporting currency of the Company is the U.S. dollar (dollar). The
  functional currency of Kalff is the Euro. The functional currency of Tadiran
  Telecom Israel is the NIS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                                                                                                                              | The
  financial statements of the Companys subsidiaries whose functional currency
  is other than the dollar are translated into dollars in accordance with the
  principles set forth in SFAS No. 52. Assets and liabilities have been
  translated at year-end exchange rates; results of operations have been translated
  at average exchange rates. The translation adjustments have been reported as
  a separate component of shareholders equity.                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | c.                                                                                                                                                           | Principles of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                                                                                                                              | The
  consolidated financial statements include the accounts of the Company and its
  wholly-owned subsidiaries. Inter-company transactions and balances have been
  eliminated upon consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | d.                                                                                                                                                           | Cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                                                                                                                              | Cash
  equivalents are short-term, highly liquid investments that are readily
  convertible to cash, with original maturities of three months or less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | e.                                                                                                                                                           | Marketable securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                                                                                                                              | Investments
  in marketable securities are accounted for in accordance with SFAS No. 115,
  Accounting for Certain Investments in Debt and Equity Securities (SFAS No.
  115). Management determines the appropriate classification of its
  investments in marketable equity securities at the time of purchase and
  reevaluates such determinations at each balance sheet date. The Company
  classifies its marketable securities as available-for-sale. Accordingly,
  these securities are carried at fair value, with unrealized gains and losses
  reported in a separate component of shareholders equity under Accumulated
  other comprehensive income (loss). Realized gains and losses on sales of
  investments, as determined on a specific identification basis, are included
  in the consolidated statement of operations.

F-10

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                         |                                                                                                                                                                                                                                                                                                                                               |                                                                                                                       
|----------- | --------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------
|NOTE 2     | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                         |                                                                                                                                                                                                                                                                                                                                               |                                                                                                                       
|            | f.                                      | Allowance for doubtful accounts                                                                                                                                                                                                                                                                                                              
|            |                                         |                                                                                                                                                                                                                                                                                                                                               |                                                                                                                       
|            |                                         | The
  allowance for doubtful accounts is calculated primarily with respect to
  specific receivables. The collection of which, in the opinion of the
  Companys management, is doubtful.                                                                                                                                                    
|            |                                         |                                                                                                                                                                                                                                                                                                                                               |                                                                                                                       
|            | g.                                      | Inventories                                                                                                                                                                                                                                                                                                                                  
|            |                                         |                                                                                                                                                                                                                                                                                                                                               |                                                                                                                       
|            |                                         | Inventories
  are stated at the lower of cost or market value. Inventory write-offs are
  provided for slow-moving items or technological obsolescence. The Company
  wrote-off approximately $ 153, $ 150 and $ 145 in 2004, 2003 and 2002,
  respectively. The write-off is included in the cost of sales. Cost is
  determined as follows:
|            |                                         |                                                                                                                                                                                                                                                                                                                                               |                                                                                                                       
|            |                                         | Raw
  materials - average cost basis.                                                                                                                                                                                                                                                                                                        
|            |                                         |                                                                                                                                                                                                                                                                                                                                               |                                                                                                                       
|            |                                         | Finished
  goods - average production costs including materials and labor.                                                                                                                                                                                                                                                                   
|            |                                         |                                                                                                                                                                                                                                                                                                                                               |                                                                                                                       
|            |                                         | Purchased
  products for commercial purposes - at cost.                                                                                                                                                                                                                                                                                      
|            |                                         |                                                                                                                                                                                                                                                                                                                                               |                                                                                                                       
|            | h.                                      | Property and equipment                                                                                                                                                                                                                                                                                                                       
|            |                                         |                                                                                                                                                                                                                                                                                                                                               |                                                                                                                       
|            |                                         | 1.                                                                                                                                                                                                                                                                                                                                            | Property and
  equipment are stated at cost, net of accumulated depreciation.                                         
|            |                                         |                                                                                                                                                                                                                                                                                                                                               |                                                                                                                       
|            |                                         | 2.                                                                                                                                                                                                                                                                                                                                            | Depreciation
  is calculated by the straight-line method, over the estimated useful lives of
  the assets, as follows:



| |                                        |  |  |       | 
| | -------------------------------------- |  |  | ----- | 
| |                                        |  |  | Years | 
| |                                        |  |  |       | 
| |                                        |  |  |       | 
| | Improvements                           |  |  | 10    | 
| | Computers (including related software) |  |  | 3     | 
| | Machinery and equipment                |  |  | 5-10  | 



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. | Investment in non-marketable securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | Investment
  in non-marketable securities are recorded at cost, net of other than
  temporary impairment, since the Company does not have the ability to exercise
  significant influence over the operating and financial policy of the
  companies.                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The carrying
  value of investment in shares of the companies is periodically reviewed by
  management based upon the difference between the carrying amount and fair
  value of such investments. If this review indicates that the carrying value
  is higher than the fair value, the carrying value of those investments are
  reduced to their estimated fair value and the impairment loss is recognized
  in the statement of operations. The Company recognized impairment loss in the
  amount of $ 2,218 in the year 2004.

F-11

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- | --------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2     | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | j.                                      | Impairment of long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         | The Company
  and its subsidiaries long-lived assets are reviewed for impairment in
  accordance with Statement of Financial Accounting Standard No. 144
  Accounting for the Impairment or Disposal of Long-lived Assets (SFAS No.
  144) whenever events or changes in circumstances indicate that the carrying
  amount of an asset may not be recoverable. Recoverability of assets to be
  held and used is measured by a comparison of the carrying amount of an asset
  to the future undiscounted cash flows expected to be generated by the assets.
  If such assets are considered to be impaired, the impairment to be recognized
  is measured by the amount by which the carrying amount of the assets exceeds
  the fair value of the assets. As of December 31, 2004, no impairment losses
  have been identified.                                               
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | k.                                      | Acquisition - related intangible assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         | The Company accounts for
  its business combinations in accordance with SFAS No. 141 Business
  Combinations (SFAS 141) and the related acquired intangible assets and
  goodwill in accordance with SFAS No. 142 Goodwill and Other Intangible
  Assets (SFAS 142). SFAS 141 specifies the accounting for business
  combinations and the criteria for recognizing and reporting intangible assets
  apart from goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         | Acquisition-related
  intangible assets result from the Companys acquisitions of businesses
  accounted for under the purchase method and consist of the values of
  identifiable intangible assets including distribution rights as well as
  goodwill. Goodwill is the amount by which the acquisition cost exceeds the
  fair values of identifiable acquired net assets on the date of purchase. SFAS
  142 requires that goodwill not be amortized but instead be tested for
  impairment in accordance with the provisions of SFAS 142 at least annually
  and more frequently upon the occurrence of certain events.
  Acquisition-related intangible assets are reported at cost, net of
  accumulated amortization. Identifiable intangible assets other than goodwill
  are amortized on a straight-line basis over their estimated useful lives of
  five to seven years.
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | l.                                      | Stock based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         | The Company
  accounts for employee stock-based compensation in accordance with Accounting
  Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
  (APB No. 25), and in accordance with FASB Interpretation No. 44. Pursuant to
  these accounting pronouncements, the Company records compensation for stock
  options granted to employees over the vesting period of the options based on
  the difference, if any, between the exercise price of the options and the
  market price of the underlying shares at that date.                                                                                                                                                                                                                                                                                                                              
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         | Deferred
  compensation is amortized to compensation expense over the vesting period of
  the options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-12

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                              
|----------- | --------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2     | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                              
|            | l.                                      | Stock based compensation (Cont.)                                                                                                                                                                                                                                                                                                                                                                             
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                         | Had
  compensation cost for the Companys option plans been determined on the basis
  of the fair value at the grant dates in accordance with the provisions of
  SFAS No. 123 as amended by SFAS No. 148 Accounting for Stock-Based
  Compensation (SFAS No. 148), the Companys pro forma net income (loss) and
  pro forma basic and diluted net income (loss) per share would have been as
  follows:



| |                                                                                                  |  |  |                           |   |  |         |   |  |         |  
| | ------------------------------------------------------------------------------------------------ |  |  | ------------------------- | - |  | ------- | - |  | ------- | -
| |                                                                                                  |  |  | Year ended
  December 31, |  
| |                                                                                                  |  |  |                           |  
| |                                                                                                  |  |  | 2 0 0 4                   |   |  | 2 0 0 3 |   |  | 2 0 0 2 |  
| |                                                                                                  |  |  |                           |   |  |         |   |  |         |  
| |                                                                                                  |  |  |                           |   |  |         |   |  |         |  
| | Net income (loss) - as reported                                                                  |  |  | (1,588                    | ) |  | 1,270   |   |  | (442    | )
| | Deduct: Total stock-based compensation
  determined under fair value based method for all awards |  |  | (18                       | ) |  | (49     | ) |  | (44     | )
| |                                                                                                  |  |  |                           |   |  |         |   |  |         |  
| |                                                                                                  |  |  |                           |   |  |         |   |  |         |  
| | Net income (loss) - pro forma                                                                    |  |  | (1,606                    | ) |  | 1,221   |   |  | (486    | )
| |                                                                                                  |  |  |                           |   |  |         |   |  |         |  
| |                                                                                                  |  |  |                           |   |  |         |   |  |         |  
| | Net income (loss) per share - as reported
  and pro-forma                                        |  |  | (0.12                     | ) |  | 0.09    |   |  | (0.03   | )
| |                                                                                                  |  |  |                           |   |  |         |   |  |         |  



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | Under SFAS
  No. 123, pro forma information regarding net income (loss) is required and
  determined as if the Company had accounted for its employee stock options
  under the fair value method of SFAS No.123. The fair value of each option
  granted was estimated at the date of grant using the Black-Scholes
  option-pricing model with the following weighted average assumptions for the
  option plans 2004 and 2001 respectively: risk-free interest rates 3.16% and
  2.75%; dividend yield of 0%; expected volatility of 85% and 83.8%, and
  expected life of 5 and 10 years
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | m. | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | The Company
  through Kalff generates revenues mainly from sales of first-aid kits. The
  Company sells its products primarily through retail stores and car
  manufacturers in Germany.                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | Additionally
  the company through Tadiran Telecom Israel generates revenues from sales of
  the contact centers, as well as maintenance services.                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | Revenues
  from product sales are recognized in accordance with Staff Accounting
  Bulletin No. 101 Revenue Recognition in Financial Statements (SAB No.
  101) as amended by SAB No. 104 when delivery has occurred, persuasive
  evidence of an agreement exists, the vendors fee is fixed or determinable
  and the collection is probable.                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | Service
  revenues include mainly maintenance services which are recognized ratably
  over the term of the maintenance period.                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F-13

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------- | --------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2     | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | n.                                      | Sales incentives and trade promotional allowances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                         | The Company
  has adopted EITF No. 01-09 Accounting for Consideration Given by a Vendor to
  a Customer (including a Reseller of the Vendors Products). In accordance
  with EITF 01-09, the Company offsets sales and marketing expenses deriving
  from sales incentives and trade promotional allowances against sales.                                                                                                                                                                                                                                                                                                                                                    
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | o.                                      | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                         | The Company
  and its subsidiaries account for income taxes in accordance with SFAS No.
  109, Accounting for Income Taxes. This Statement prescribes the use of the
  liability method whereby deferred tax assets and liabilities are determined
  based on the 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 when it is considered 
  more likely then not that they will not be utilized.
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | p.                                      | Net income (loss) per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                         | Basic and
  dilutive loss per share are computed in accordance with SFAS No. 128,
  Earnings per Share, using the weighted average number of ordinary shares
  outstanding. Basic net income (loss) per share excluded any dillutive effect
  of options and warrants. A total of 1,218,134 incremental shares were
  excluded from the calculation of diluted net income per ordinary share for
  2004 due to the anti-dillutive effect.                                                                                                                                                                                                                                     
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | q.                                      | Fair value of financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                         | The
  following methods and assumptions were used by the Company and its
  subsidiaries in estimating their fair value disclosures for financial
  instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                         | The carrying
  amounts of cash and cash equivalents, trade receivables, short-term bank
  credit and trade payables approximate their fair values, due to the
  short-term maturity of such instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                         | The fair
  value for marketable securities is based on quoted market price.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                         | The carrying
  amount of the Companys long-term borrowing approximates its fair value. The
  fair value was estimated using discounted cash flow analysis, based on the
  Companys incremental borrowing rates for similar type of borrowing
  arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                  

F-14

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- | --------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2     | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | r.                                      | Concentrations of credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | Financial instruments that
  potentially subject the Company and its subsidiaries to concentrations of
  credit risk consist primarily of cash and cash equivalents, trade receivables
  and marketable securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | The majority of the
  Companys and its subsidiaries cash and cash equivalents is invested in
  banks in Israel and Germany. Management believes that the financial
  institutions that hold the Companys investments are financially sound, and
  accordingly, minimal credit risk exists with respect to these investments.                                                                                                                                                                                                                                                                                                                                            
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | The subsidiaries trade
  receivables are mainly derived from sales to customers in Germany and Israel,
  The subsidiaries have adopted credit policies and standards intended to
  accommodate industry growth and inherent risk. Management believes that
  credit risks are moderated by obtaining credit insurance, the diversity of
  its customer base and geographic sales areas. The subsidiaries perform
  ongoing credit evaluations of its customers financial condition and require
  collateral when deemed necessary.                                                                                                                                       
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | The Company has no
  off-balance-sheet concentration of credit risk, such as foreign exchange
  contracts or option contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | s.                                      | Impact of recently issued accounting standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | Recently issued accounting standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | SFAS No. 123 (Revised 2004) Share Based Payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                         | In December 2004, the FASB
  issued SFAS No. 123 (revised 2004) Share Based Payments (SFAS 123(R)).
  This Statement is a revision of FASB Statement No. 123, Accounting for
  Stock-Based Compensation, which supersedes APB Opinion No. 25, Accounting
  for Stock Issued Employees and its authoritative interpretations.                                                                                                                                                                                                                                                                                                                                       
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | SFAS 123(R) establishes
  standards for the accounting for transactions in which an entity exchanges
  its equity instruments for goods or services; focuses primarily on accounting
  for transactions in which an entity obtains employee and directors services
  in share-based payment transactions; and does not change the accounting
  guidance for share-based payment transactions with parties other than
  employees.                                                                                                                                                                                                                                          
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | SFAS 123(R) eliminates the
  alternative to use APB 25s intrinsic value method of accounting that was
  provided in SFAS 123 as originally issued and requires to measure the cost of
  employee services received in exchange for an award of equity instruments
  based on the grant-date fair value of the award. The fair-value-based method
  in this Statement is similar to the fair-value-based method in SFAS 123 in
  most respects. The costs associated with the awards will be recognized over
  the period during which an employee is required to provide service in
  exchange for the award- the requisite service period (usually the vesting
  period).
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | The grant-dates fair
  value of employee share options and similar instruments will be estimated
  using option-pricing models adjusted for the unique characteristics of those
  instruments (unless observable market prices for the same or similar
  instruments are available). If an equity award is modified after the grant
  date, incremental compensation cost will be recognized in an amount equal to
  the excess of the fair value of the modified award over the fair value of the
  original award immediately before the modification.                                                                                                                  

F-15

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- | --------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2     | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | s.                                      | Impact of recently issued accounting standards (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                         | Recently issued accounting standards (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         | The
  provisions of SFAS 123(R) apply to all awards to be granted by the Company after
  June 30, 2005 and to awards modified, repurchased, or cancelled after that
  date. When initially applying the provisions of SFAS 123(R), in the first
  quarter of 2006, the Company will be required to elect between using either
  the modified prospective method or the modified retrospective method.
  Under the modified prospective method, the Company is required to recognize
  compensation cost for all awards granted after the adoption of SFAS 123(R)
  and for the unvested portion of previously granted awards that are
  outstanding on that date. Under the modified retrospective method, the
  Company is required to restate its previously issued financial statements to
  recognize the amounts previously calculated and reported on a pro forma
  basis, as if the original provisions of SFAS 123 had been adopted. Under both
  methods, it is permitted to use either a straight line or an accelerated
  method to amortize the cost as an expense for awards with graded vesting.
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                         | Management
  has recently commenced identifying the potential future impact of applying
  the provisions of SFAS 123(R), including each of its proposed transition
  methods, yet is currently unable to fully quantify the effect of this
  Standard on the Companys future financial position and results of operations
  in accordance with U.S. GAAP. Nonetheless, it is expected that the adoption
  of SFAS 123(R) will increase the stock-based-award expenses the Company is to
  record in the future in comparison to the expenses recorded under the
  guidance currently applied by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                         | SFAS 153, Exchange of Non-Monetary Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                         | In December
  2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets an
  amendment of APB No. 29. This Statement amends Opinion 29 to eliminate the
  exception for nonmonetary exchanges of similar productive assets and replaces
  it with a general exception for exchanges of nonmonetary assets that do not
  have commercial substance. The Statement specifies that a nonmonetary
  exchange has commercial substance if the future cash flows of the entity are
  expected to change significantly as a result of the exchange. This Statement
  is effective for nonmonetary asset exchanges occurring in fiscal periods
  beginning after June 15, 2005. Earlier application is permitted for
  nonmonetary asset exchanges occurring in fiscal periods beginning after the
  date this Statement is issued. Retroactive application is not permitted. The
  Company does not expect the adoption of SFAS 153 to have a material effect on
  the Companys results of operations.                                                                                                      
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                         | FASB Statement No. 151, Inventory Costs, an amendment to ARB 43 (SFAS
  151)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         | In November 2004, the FASB issued FASB
  Statement No. 151, Inventory Costs,an
  amendment to ARB 43, Chapter 4 (SFAS 151). The amendment made
  by SFAS 151 clarify that abnormal amounts of idle facility expense, freight,
  handling costs, and wasted material (spoilage) should be recognized as
  current-period charges, and also require the allocation of fixed production
  overhead inventory based on the normal capacity of the production facilities.
  The guidance is effective for inventory costs incurred during fiscal years
  beginning after June 15, 2005. Earlier application is permitted for inventory
  costs incurred during fiscal years beginning after November 23, 2004. The
  provision of SFAS 151 should be applied prospectively. The Company does not
  expect the adoption of SFAS 151 to have a material effect on the Companys
  results of operations.                                                                                                                                                                                                                 

F-16

---

---



|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                          
|----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------
|            | t.                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Reclassification                                                                                         
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                          
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Certain
  figures from prior years have been reclassified in order to conform to the
  2003 presentation.
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                          
|NOTE 3     | SIGNIFICANT ACQUISITIONS                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                          
|            | Acquisition of Tadiran Telecom Israel                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                          
|            | In July 2004 the Company
  signed an agreement to purchase all the assets and assume certain liabilities
  of Tadiran Telecom Israel, which is engaged in selling, distribution,
  maintenance and installation of contact centers, manufactured by Tadiran
  Telecom Ltd. The purchase was consummated in October 2004. The total purchase
  price was $ 6,700 of which $ 3,800 was paid in October 2004.  The balance will be paid over three years.
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                          
|            | According to the
  agreement, the Company is entitled to all net income from March 31, 2004
  until October 1, 2004. This amount of $ 1,800 was reduced from the purchase
  price. Additionally, the Company issued 1,674,404 options to Tadiran Telecom
  Ltd. The fair value of the options on the grant date was $ 183. Total
  acquisition costs were $ 242. Thus, the total purchase price after adjustments
  is $ 5,325.                       
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                          
|            | The transaction was
  accounted for in accordance with SFAS No. 141 and SFAS No. 142, and the
  financial results of Tadiran Telecom Israel have been included in the
  Companys financial statements beginning on the acquisition date. The total
  purchase price of $ 5,325 was allocated on the basis of the estimated fair
  value of the assets acquired and the liabilities assumed.                                                          
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                          
|            | The excess of the purchase
  price over the fair value of the net tangible assets acquired has been
  attributed to customer relationship, distribution rights agreement, and
  goodwill in the amounts of $ 1,463, $ 4,533 and $ 326, respectively. The
  purchase price attributed to customer relationship and distribution agreement
  is being amortized over their estimated useful lives, which are 7 and 5
  years, respectively.             
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                          
|            | In accordance with SFAS
  No. 141 and SFAS No. 142, the purchase price attributed to goodwill is no
  longer amortized, but rather is subject to periodic impairment test.                                                                                                                                                                                                                                                                            
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                          
|            | The allocation of fair
  value is as follows:                                                                                                                                                                                                                                                                                                                                                                                                         



| |                               |  |  |        |  
| | ----------------------------- |  |  | ------ | -
| | Intangible assets             |  |  | 795    |  
| | Customer relationship         |  |  | 1,463  |  
| | Distribution right agreements |  |  | 4,533  |  
| | Goodwill                      |  |  | 326    |  
| | Liabilities acquired          |  |  | (1,792 | )
| |                               |  |  |        |  
| | Total purchase price          |  |  | 5,325  |  
| |                               |  |  |        |  



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  following unaudited pro forma summary presents information as if the
  acquisition of Tadiran Telecom Israel occurred at the beginning of the
  periods presented. The pro forma data, which is provided for informational
  purposes only, is based on historical information and does not necessarily
  reflect the results that would have occurred, nor is it necessarily
  indicative of future results of operations of the consolidated entities.

F-17

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                              
|----------- | ---------------------------------------------
|NOTE 3     | SIGNIFICANT ACQUISITIONS (Cont.)             
|            |                                              
|            | Acquisition of Tadiran Telecom Israel (Cont.)



| |                      |  |                           |        |         |   |        | 
| | -------------------- |  | ------------------------- | ------ | ------- | - | ------ | 
| |                      |  | Year ended
  December 31, |       
| |                      |  |                           |       
| |                      |  | 2 0 0 4                   |        | 2 0 0 3 |  
| |                      |  |                           |        |         |  
| |                      |  |                           |        |         |   |        | 
| | Revenues             |  | $                         | 41,096 |         | $ | 32,036 | 
| |                      |  |                           |        |         |   |        | 
| |                      |  |                           |        |         |   |        | 
| | Net income           |  |                           | 1,619  |         |   | 3,834  | 
| |                      |  |                           |        |         |   |        | 
| |                      |  |                           |        |         |   |        | 
| | Earning per
  share: |  |                           |        |         |   |        | 
| | Basic and
  diluted  |  |                           | 0.12   |         |   | 0.03   | 
| |                      |  |                           |        |         |   |        | 



|            |                                         
|----------- | ----------------------------------------
|NOTE 4     | AVAILABLE-FOR-SALE MARKETABLE SECURITIES



| |                                                             |  |  |                |  |  |         | 
| | ----------------------------------------------------------- |  |  | -------------- |  |  | ------- | 
| |                                                             |  |  | December
  31, | 
| |                                                             |  |  |                | 
| |                                                             |  |  | 2 0 0 4        |  |  | 2 0 0 3 | 
| |                                                             |  |  |                |  |  |         | 
| |                                                             |  |  |                |  |  |         | 
| | Leader Tech Ltd. (4.4%)                                     |  |  | 161            |  |  | 293     | 
| | Israel Land Development Insurance Company
  Ltd. (2.4%) (1) |  |  | 650            |  |  | -       | 
| |                                                             |  |  |                |  |  |         | 
| |                                                             |  |  | 811            |  |  | 293     | 
| |                                                             |  |  |                |  |  |         | 
| |                                                             |  |  |                |  |  |         | 



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | As of December
  31, 2004 due to the market conditions, and since the Companys management
  believes that the decline in the fair value is other than temporary, the cost
  basis of these securities was written down to fair value as a new cost basis.
  An impairment of available-for-sale marketable securities amounting to $ 572
  was included in earnings. (See also Note 5.2). During 2005 the Company sold
  86% of the investment in consideration of $ 865.

F-18

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                     
|----------- | --------------------
|NOTE 5     | LONG TERM INVESTMENT



| |                                                      |  |                |     |         |   |       | 
| | ---------------------------------------------------- |  | -------------- | --- | ------- | - | ----- | 
| |                                                      |  | December
  31, |    
| |                                                      |  |                |    
| |                                                      |  | 2 0 0 4        |     | 2 0 0 3 |  
| |                                                      |  |                |     |         |  
| |                                                      |  |                |     |         |   |       | 
| | ELady (1)                                            |  | $              | 532 |         | $ | 2,685 | 
| | Israel Land Development Insurance Company
  Ltd. (2) |  |                | -   |         |   | 1,238 | 
| | Israel Credit Insurance Company Ltd
(2)              |  |                | -   |         |   | 825   | 
| |                                                      |  |                |     |         |   |       | 
| |                                                      |  | $              | 532 |         | $ | 4,748 | 
| |                                                      |  |                |     |         |   |       | 



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | During 2000,
  the Company invested in shares of eLady Ltd. (eLady), a Japanese company,
  engaged in operating a shopping mall, supplies various information which is
  primarily related to fashion and sell luxury, brand goods such as bags,
  accessories and watches over the eLadys internet website.                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The Company
  does not have any representative in eLadys board, does not have the ability
  to exercise significant influence over the operating and financial policy of
  eLady, and was not able to obtain timely financial information from eLady. As
  a result, the Company does not account for its investment in eLLady in
  accordance with the equity method. In April and November 2003, eLady entered
  into stock subscription agreements for the issuance of Series A Preferred
  Stock (22% of eLadys voting rights) to strategic investors and current
  shareholders for a total consideration of $1.2 million resulting in a
  decrease of the indirect holding of the Company from 27% to 20%.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | During 2004,
  the Company examined the fair value of eLady (for which an impairment charge
  of $ 1000 had been previously recorded in 2001), and wrote down the investment
  by the amount of $ 2,218. The Companys estimate is based upon the value of
  the Preferred Stock which it holds.                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 2. | In November
  19, 2002, the Company reached two agreements with The Israel Land Development
  Insurance Holdings Company Ltd. (hereafter - ILDIH), pursuant to which the
  Company purchased 2.4% and 5.33% of the issued share capital of two private
  insurance companies controlled by ILDIH- Israel Land Development Insurance
  Company Ltd. and Israel Credit Insurance Company Ltd. (hereafter - ICIC), in
  consideration of $1,238 and $825, respectively.                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | During 2004,
  Israel Land Development Insurance Company Ltd. registered its shares for
  trade on the Tel Aviv Stock Exchange. In June 2004 the Company sold all its
  shares in ICIC for approximately $ 767.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-19

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                                                           | 
|----------- | ------------------------------------------------------------------------- | 
|NOTE 6     | PROPERTY AND EQUIPMENT                                                   
|            |                                                                           | 
|            | Composition
  of assets, grouped by major classifications, is as follows:

| |                                        |  |                |        |         |   |        |  
| | -------------------------------------- |  | -------------- | ------ | ------- | - | ------ | -
| |                                        |  | December
  31, |       
| |                                        |  |                |       
| |                                        |  | 2 0 0 4        |        | 2 0 0 3 |  
| |                                        |  |                |        |         |  
| | Cost:                                  |  |                |        |         |   |        |  
| | Buildings, land and improvements       |  | $              | 53     |         | $ | 43     |  
| | Computers (including related software) |  |                | 256    |         |   | 96     |  
| | Machinery and equipment                |  |                | 2,627  |         |   | 2,456  |  
| |                                        |  |                |        |         |   |        |  
| |                                        |  |                | 2,936  |         |   | 2,595  |  
| | Accumulated depreciation               |  |                | (2,634 | )       |   | (2,480 | )
| |                                        |  |                |        |         |   |        |  
| |                                        |  |                |        |         |   |        |  
| | Net book value                         |  |                | 302    |         |   | 115    |  
| |                                        |  |                |        |         |   |        |  
| |                                        |  |                |        |         |   |        |  

| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | Depreciation
  expenses for the years ended December 31, 2004, 2003 and 2002, were $52, $57
  and $201, respectively.

|            |                           |               
|----------- | ------------------------- | --------------
|NOTE 7     | ACQUIRED INTANGIBLES, NET
|            |                          
|            | Comprised as
  follows:  
|            |                           |               
|            | a.                        | Goodwill, net:

| |  |  |                |       |         |   |     | 
| |  |  | -------------- | ----- | ------- | - | --- | 
| |  |  | December
  31, |      
| |  |  |                |      
| |  |  | 2 0 0 4        |       | 2 0 0 3 |  
| |  |  |                |       |         |  
| |  |  |                |       |         |   |     | 
| |  |  | $              | 1,093 |         | $ | 564 | 
| |  |  |                |       |         |   |     | 

| |    |                                       
| | -- | --------------------------------------
| | b. | Other acquired intangible assets, net:

| |                             |  |                |       |         |   |   | 
| | --------------------------- |  | -------------- | ----- | ------- | - | - | 
| |                             |  | December
  31, |      
| |                             |  |                |      
| |                             |  | 2 0 0 4        |       | 2 0 0 3 |  
| |                             |  |                |       |         |  
| |                             |  |                |       |         |   |   | 
| | Cost:                       |  |                |       |         |   |   | 
| | Distribution agreement      |  | $              | 4,533 |         | $ | - | 
| | Customer relationship       |  |                | 1,463 |         |   | - | 
| |                             |  |                |       |         |   |   | 
| |                             |  |                | 5,996 |         | $ | - | 
| |                             |  |                |       |         |   |   | 
| |                             |  |                |       |         |   |   | 
| | Accumulated
  depreciation: |  |                | 226   |         | $ | - | 
| | Distribution agreement      |  |                | 52    |         |   | - | 
| |                             |  |                |       |         |   |   | 
| | Customer relationship       |  |                | 278   |         | $ | - | 
| |                             |  |                |       |         |   |   | 
| |                             |  |                |       |         |   |   | 
| |                             |  | $              | 5,718 |         | $ | - | 
| |                             |  |                |       |         |   |   | 

F-20

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                 |                     
|----------- | --------------- | --------------------
|NOTE 8     | LONG-TERM LOANS
|            |                 |                     
|            | a.              | Composed as follows:

| |                                  |  |                |       |         |   |       | 
| | -------------------------------- |  | -------------- | ----- | ------- | - | ----- | 
| |                                  |  | December
  31, |      
| |                                  |  |                |      
| |                                  |  | 2 0 0 4        |       | 2 0 0 3 |  
| |                                  |  |                |       |         |  
| |                                  |  |                |       |         |   |       | 
| | Long-term
  bank loans           |  | $              | 2,087 |         | $ | 4,182 | 
| | Less -
  current maturities      |  |                | 565   |         |   | 565   | 
| |                                  |  |                |       |         |   |       | 
| |                                  |  | $              | 1,522 |         | $ | 3,617 | 
| |                                  |  |                |       |         |   |       | 
| |                                  |  |                |       |         |   |       | 
| | Long-term
  loan from others (*) |  | $              | 3,127 |         | $ | -     | 
| | Less -
  current maturities      |  |                | 1,532 |         |   | -     | 
| |                                  |  |                |       |         |   |       | 
| |                                  |  | $              | 1,595 |         | $ | -     | 
| |                                  |  |                |       |         |   |       | 
| |                                  |  |                |       |         |   |       | 
| |                                  |  | $              | 3,117 |         | $ | 3,617 | 
| |                                  |  |                |       |         |   |       | 

| |    |                                                                                                                                                           |                                                                                                                                         
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------
| |    | (*)                                                                                                                                                       | A
  non-interest bearing NIS loan payable to Tadiran Telecom Ltd. in connection
  with the Tadiran Telecom Israel purchase (see Note 3).
| |    |                                                                                                                                                          
| | b. | Classified
  by currency, linkage terms and interest rates, the total amount of the
  liabilities (before deduction of current maturities) is as follows:

| |                       |  |                                  |     |              |  |         |  |         |       |  |   |       | 
| | --------------------- |  | -------------------------------- | --- | ------------ |  | ------- |  | ------- | ----- |  | - | ----- | 
| |                       |  | Weighted average
  interest rate |     |              | 
| |                       |  |                                  |     |              | 
| |                       |  | December 31,                     |     | December 31, | 
| |                       |  |                                  |     |              | 
| |                       |  | 2 0 0 4                          |     | 2 0 0 3      |  | 2 0 0 4 |  | 2 0 0 3 |      
| |                       |  |                                  |     |              |  |         |  |         |      
| |                       |  | %                                |     |              |  |         | 
| |                       |  |                                  |     |              |  |         | 
| |                       |  |                                  |     |              |  |         | 
| | In Swiss
  Franks     |  |                                  | 3.5 |              |  | 3.5     |  | $       | 2,087 |  | $ | 2,886 | 
| | In Israeli
  currency |  |                                  | -   |              |  | 6.29    |  |         | 3,127 |  |   | 1,296 | 
| |                       |  |                                  |     |              |  |         |  |         |       |  |   |       | 
| |                       |  |                                  |     |              |  |         |  | $       | 5,214 |  | $ | 4,182 | 
| |                       |  |                                  |     |              |  |         |  |         |       |  |   |       | 

| |    |                                   
| | -- | ----------------------------------
| | d. | The liabilities mature as follows:

| |                           |  |              |       | 
| | ------------------------- |  | ------------ | ----- | 
| |                           |  | December 31, |      
| |                           |  |              |      
| |                           |  | 2 0 0 4      |      
| |                           |  |              |      
| |                           |  |              |       | 
| | 2004
  (current maturity) |  | $            | 2,097 | 
| | 2005                      |  |              | 1,508 | 
| | 2006                      |  |              | 1,061 | 
| | 2007                      |  |              | 548   | 
| |                           |  |              |       | 
| |                           |  | $            | 5,214 | 
| |                           |  |              |       | 

| |    |                              
| | -- | -----------------------------
| | e. | As for pledges, see Note 10f.

F-21

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                           | 
|----------- | ------------------------- | 
|            |                          
|NOTE 9     | PENSION AND SEVERANCE PAY

| |                                                  |  |                |       |         |   |     | 
| | ------------------------------------------------ |  | -------------- | ----- | ------- | - | --- | 
| |                                                  |  | December
  31, |      
| |                                                  |  |                |      
| |                                                  |  | 2 0 0 4        |       | 2 0 0 3 |  
| |                                                  |  |                |       |         |  
| |                                                  |  |                |       |         |   |     | 
| | Severance pay of Subsidiary in Israel (1)        |  | $              | 801   |         | $ | -   | 
| | Pension liability of Subsidiary in Germany
  (2) |  |                | 698   |         |   | 652 | 
| | Severance pay in Israel (3)                      |  |                | 3     |         |   | -   | 
| |                                                  |  |                |       |         |   |     | 
| |                                                  |  | $              | 1,502 |         | $ | 652 | 
| |                                                  |  |                |       |         |   |     | 

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Upon
  acquisition, Tadiran Telecom became obligated to engage all of the
  transferred employees at the terms under which they were employed and with
  the rights to which they were entitled in the context of their employment by
  Tadiran Telecom Ltd., including continuing the applicability of the
  collective agreements to those employees who were covered by collective
  agreements. In accordance with these agreements, all of the severance pay accumulations
  to which the employees were entitled were transferred, as if they had been
  dismissed prior to the acquisition, to designated funds in the names of the
  employees and, in accordance with the provisions of Section 14 to the
  Severance Pay Law, the obligations for severance pay were covered in full.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | These
  collective agreements also include the liability of Tadiran Telecom Ltd. to
  pay increased severance pay and early pensions to its employees in the event
  that they are dismissed during the period that is defined as the safety net
  period (through the year 2011). Employees who meet the criteria stipulated in
  these agreements (10 years remaining until retirement age (65) and seniority
  of at least 33 years with the Company) are entitled to retire voluntarily
  from their employment in the Company and have the right to all of the rights
  under the safety net. A liability for early pensions in the amount of $ 801
  thousand was recorded with respect to these employees.                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Within the
  context of the acquisition agreement, Tadiran Telecom undertook to desist
  from discharging employees or conveying dismissal notices during a 12-month
  period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Tadiran
  Telecom also became obligated to provide a bank guarantee with regard to the safety
  net at a rate not lower than 35% of the updated safety net amount for the
  transferred employees (approximately $ 6 million) and not below $ 1.57
  million. The amount of the safety net as of December 31, 2004 was
  calculated on the assumption that all of the transferred employees would be
  dismissed in accordance with the safety net terms which applies to them.                                                                                                                                                                                                                                                                                                          

F-22

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                   |                                                                                                                                                                                                                                                                                                                                                 
|----------- | --------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 9     | PENSION AND SEVERANCE PAY (Cont.)
|            |                                   |                                                                                                                                                                                                                                                                                                                                                 
|            | (2)                               | The German
  subsidiary maintains two defined benefit pension plans covering mostly
  retired and inactive employees. The pension benefits are based primarily on
  length of service. The  plans are not
  funded by the subsidiary and are closed to employees who were hired by it
  after 1987. Components of net periodic benefit cost are:

| |                             |  |                |    |         |   |    | 
| | --------------------------- |  | -------------- | -- | ------- | - | -- | 
| |                             |  | December
  31, |   
| |                             |  |                |   
| |                             |  | 2 0 0 4        |    | 2 0 0 3 |  
| |                             |  |                |    |         |  
| |                             |  |                |    |         |   |    | 
| | Service cost                |  | $              | -  |         | $ | 1  | 
| | Interest
  cost             |  |                | 36 |         |   | 35 | 
| |                             |  |                |    |         |   |    | 
| |                             |  |                |    |         |   |    | 
| | Net periodic
  benefit cost |  | $              | 36 |         | $ | 36 | 
| |                             |  |                |    |         |   |    | 

| |                                                                            
| | ---------------------------------------------------------------------------
| | Change in
  the projected benefit obligation for the defined benefit plans:

| |                                            |  |                |     |         |   |     |  
| | ------------------------------------------ |  | -------------- | --- | ------- | - | --- | -
| |                                            |  | December
  31, |    
| |                                            |  |                |    
| |                                            |  | 2 0 0 4        |     | 2 0 0 3 |  
| |                                            |  |                |     |         |  
| |                                            |  |                |     |         |   |     |  
| | Benefit
  obligation at beginning of year  |  | $              | 653 |         | $ | 553 |  
| | Service cost                               |  |                | -   |         |   | 1   |  
| | Interest
  cost                            |  |                | 35  |         |   | 35  |  
| | Benefits
  paid                            |  |                | (47 | )       |   | (45 | )
| | Foreign
  currency translation adjustments |  |                | 57  |         |   | 108 |  
| |                                            |  |                |     |         |   |     |  
| | Benefit
  obligation at year end           |  | $              | 698 |         | $ | 652 |  
| |                                            |  |                |     |         |   |     |  

| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | The following
  table sets forth the funded status of the plans as of December 31, 2004 and
  2003:

| |                                  |  |                |     |         |  |     | 
| | -------------------------------- |  | -------------- | --- | ------- |  | --- | 
| |                                  |  | December
  31, |    
| |                                  |  |                |    
| |                                  |  | 2 0 0 4        |     | 2 0 0 3 | 
| |                                  |  |                |     |         | 
| |                                  |  |                |     |         |  |     | 
| | Vested
  benefit obligation      |  |                | 694 |         |  | 624 | 
| | Accumulated
  benefit obligation |  |                | 694 |         |  | 624 | 
| | Projected
  benefit obligation   |  |                | 694 |         |  | 624 | 
| | Accrued
  pension cost           |  |                | 698 |         |  | 652 | 

| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | The Company
  used the following assumptions to measure its pension obligation for the
  years reported:

| |                  |  |      |   |  |                 
| | ---------------- |  | ---- | - |  | ----------------
| | Discount
  rate  |  | 4.75 | % |  | (5.5% in
  2003)
| | Inflation
  rate |  | 2    | % |  | (2% in 2003)    

| |     |                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | Severance
  and pension expenses for the years ended December 31, 2004, 2003 and 2002,
  amounted to approximately $53, $99 and
  $76, respectively.                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                              
| | (2) | The
  obligation relating to termination of the employer-employee relationship
  fully covers the Companys liability as of the balance sheet date, with the
  exception of the liabilities that are covered by payments for appropriate
  insurance policies. The obligation is calculated on the basis of the latest
  salary of the employees and their employment period.

F-23

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|             |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------------ | -------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 10     | COMMITMENTS AND CONTINGENT LIABILITIES
|             |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|             | a.                                     | Royalty commitments                                                                                                                                                                                                                                                                                                                                                                                                                                     
|             |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|             |                                        | The Company
  and some of its Israeli subsidiaries are committed to pay royalties at the
  rate of 3% to the Government of Israel on proceeds from sales of products in
  which the Government participated in the research and development by way of
  grants, up to the cumulative amount of such grants received (in dollar
  terms). At the time the participations were received, successful development
  of the related projects was not assured.
|             |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|             |                                        | Total amount
  of grants received by the Company and the abovementioned subsidiaries, net of
  royalties paid or accrued, as of December 31, 2004, is approximately $ 4,400.                                                                                                                                                                                                                                                                            
|             |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|             |                                        | The Company
  and the abovementioned subsidiaries discontinued their past activities. These
  companies will have to pay royalties only if they have revenues from the sale
  of royalty-bearing products, or in the event of the sale of the know-how
  developed with the participation of the abovementioned grants.                                                                                                                                 
|             |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|             | b.                                     | Management fee agreement                                                                                                                                                                                                                                                                                                                                                                                                                                
|             |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|             |                                        | Effective
  January 1, 2000, the Company entered into an agreement for payment to its
  parent company, in the amount of approximately $10 per month, plus related
  expenses for a period of five years, for rendering management and consulting
  services.                                                                                                                                                                                           
|             |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|             | c.                                     | Service agreement                                                                                                                                                                                                                                                                                                                                                                                                                                       
|             |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|             |                                        | Effective
  January 1, 2000, the Company entered into an agreement for payment to its
  parent company, in the amount of up to $ 5 per month, for rendering
  administration and support services.                                                                                                                                                                                                                                                      
|             |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|             | d.                                     | Consulting agreement                                                                                                                                                                                                                                                                                                                                                                                                                                    
|             |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|             |                                        | In November
  2002, the Company entered into an agreement with Israel Land Development
  Insurance Company Ltd. in which the Company will receive an annual payment of
  $57 until the end of 2009 for consulting services.                                                                                                                                                                                                                             
|             |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|             | e.                                     | Pledges                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|             |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|             |                                        | All of the
  Companys assets are pledged as security to banks, under a floating charge. A
  Long-term debt (including current maturities) of the Company in the amount of
  $ 5,214 is collateralized by pledges. Silverboim Holdings Ltd., the
  controlling shareholder, guaranteed the long-term debt.                                                                                                                                              

F-24

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                                |                                                                                                                                                                                                                                                                                                              
|----------- | ---------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 10    | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|            |                                                |                                                                                                                                                                                                                                                                                                              
|            | f.                                             | Leases                                                                                                                                                                                                                                                                                                       
|            |                                                |                                                                                                                                                                                                                                                                                                              
|            |                                                | The Companys
  subsidiary in Germany leases automobiles and equipment under non-cancelable
  operating lease contracts.                                                                                                                                                                                     
|            |                                                |                                                                                                                                                                                                                                                                                                              
|            |                                                | Total
  operating lease expenses amounted to approximately $473, $ 436 and $ 55 during
  2004, 2003 and 2002, respectively. Future minimum lease payments under
  non-cancelable operating leases with initial or remaining terms in excess of
  one year consisted of the following as of December 31, 2004:

| |            |  |  |       | 
| | ---------- |  |  | ----- | 
| | 2005       |  |  | 436   | 
| | 2006       |  |  | 406   | 
| | 2007       |  |  | 419   | 
| | 2008       |  |  | 362   | 
| | Thereafter |  |  | 3,152 | 

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | The Companys
  subsidiary in Germany leases its premises for a minimum lease term of 15
  years with annual rental fees of $350.                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | g. | Distribution Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | On July 19,
  2004, a distribution agreement was signed between Tadiran Telecom and Tadiran
  under which Tadiran Telecom appointed Tadiran to sell Tadiran Telecom
  products and to provide all related services within the borders of the State
  of Israel and the Palestinian Authority. Tadiran Telecom will be permitted to
  sell its products by means of sub-distributors and will obligated to continue
  selling products to distributors who are party to distribution agreements
  with Tadiran Telecom under the agreement for the sale of operations.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Tadiran
  Telecom will sell its products to Tadiran in accordance with an agreed upon
  price list.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The
  distribution agreement includes a mutual exclusivity agreement, so that,
  Tadiran will purchase and market only Tadiran Telecom products on an
  exclusive basis (except for products which do not compete with Tadiaran
  Telecom products), while Tadiran Telecom will sell its products in Israel
  solely through Tadiran. This exclusivity is for a seven year period which may
  be extended upon agreement by the parties. The exclusivity will be cancelable
  by any of the parties in the event that such exclusivity is not complied
  with.       

F-25

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 11    | SHAREHOLDERS EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | Ordinary shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | The Companys
  shares are traded on the OTC Bulletin Board in the USA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | Ordinary
  shares confer upon their holders voting rights and the right to receive
  dividends, if declared.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | On May 1,
  1998, the Company granted three of its directors (who are no longer directors
  of the Company), options to purchase 143,174 Ordinary shares at an exercise
  price of $ 0.25 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | In 2000, two
  of the former directors requested to exercise their options. The Company,
  based on the opinion of its legal advisors, believes that these former
  directors are not entitled to exercise the said options, since they have not
  yet been directors of the Company for three years. On April 17, 2000, one of
  such former directors filed a claim with the Tel-Aviv Magistrates Court for
  the issuance of shares underlying the options he received under the 1998 Plan
  and an express motion for provisional remedies. In November 2001, the court
  rejected the claim of the former director. The former director filed an
  appeal in December 2001. After the balance sheet date the court charged the
  Company $7 for the claim and closed the case.                                           
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | Stock option plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | As of
  December 31, 2004, the Company had the following employees and directors
  stock option plans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 2001 plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | On, May 21,
  2001, the Companys Board of Directors approved the adoption of the Robomatix
  Techologies Ltd. Share Option Plan (the 2001 Plan). Under the 2001 Plan
  options to purchase up to 1,500,000 Ordinary shares of the Company may be
  granted at an exercise price of $0.7 per share. Officers, directors and
  employees of the Company and subsidiaries are eligible to participate in the
  2001 Plan. The Options granted vest in three equal annual installments,
  commencing December 7, 2001. Under the 2001 Plan, options will expire ten
  years from the date of the grant. As of December 31, 2004 options to purchase
  910,000 shares were outstanding with an exercise price of $0.7 per share and
  aggregate of 590,000 Ordinary shares of the Company are still available for
  future grant.
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | Option Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | On October
  6, 2004, in the context of the acquisition agreement (see Note 3), an
  agreement was signed between Tadiran and the Company for the issuance of
  Options, according to which the Company granted 1,674,403 Options which are
  exercisable into 1,674,403 Ordinary shares of Robomatix with par value of NIS
  1.46 each. The exercise price of each Option is $ 0.70. The Options may be
  exercised through October 6, 2007.                                                                                                                                                                                                                                                                                                                                                                                  

F-26

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|           |                                                                                                                                                                                                                                                                                                                                                                                                                              
|---------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 11   | SHAREHOLDERS EQUITY (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                 
|           |                                                                                                                                                                                                                                                                                                                                                                                                                              
|           | 2004 plans                                                                                                                                                                                                                                                                                                                                                                                                                   
|           |                                                                                                                                                                                                                                                                                                                                                                                                                              
|           | On May 24,
  2004, the Company granted to two of its directors option to purchase 60,000
  Ordinary shares each, at an exercise price of $0.4 per share. The options are
  exercisable over a three year period commencing May 24, 2005, provided that
  the director will continue to serve in that role for the Company during the
  entire period. The options will expire five years from the date of grant.             
|           |                                                                                                                                                                                                                                                                                                                                                                                                                              
|           | The Company
  granted to the CEO options to purchase 240,000 Ordinary shares at an exercise
  price of $0.4 per share. The Options are exercisable over a three year period
  commencing May 24, 2005. The options will expire five years from the date of
  grant. In May 2005 the board of directors decided to accelerate the vesting
  of these options to vest immediately.                                             
|           |                                                                                                                                                                                                                                                                                                                                                                                                                              
|           | On November
  30, 2004 the Companys Board of Directors approved the adoption of the
  Robomatix Techologies Ltd. Share Option Plan (the 2004 Plan). Under the
  2004 Plan, options to purchase up to 4,100,000 Ordinary shares of the Company
  may be granted at an exercise price of $0.77 per share.  Officers, directors and employees of the
  Company and subsidiaries are eligible to participate in the 2004 Plan.
|           |                                                                                                                                                                                                                                                                                                                                                                                                                              
|           | Pursuant to
  the 2004 plan, the Company granted options to purchase 4,035,577 Ordinary
  shares to Tadiran Telecom Israels employees and consultants at an exercise
  price of $0.77 per share. The options are exercisable over four years period
  commencing December 30, 2004. The options will expire five years from the
  date of grant.                                                                            
|           |                                                                                                                                                                                                                                                                                                                                                                                                                              
|           | A summary of
  the Companys stock option activity and related information for the years
  ended December 31, 2004, 2003 and 2002 is as follows:                                                                                                                                                                                                                                                                             

| |                                                                  |  |              |           |                                       |   |         |  |                                       |           |        |   |                                       |  |  |           |  |   |      | 
| | ---------------------------------------------------------------- |  | ------------ | --------- | ------------------------------------- | - | ------- |  | ------------------------------------- | --------- | ------ | - | ------------------------------------- |  |  | --------- |  | - | ---- | 
| |                                                                  |  | December 31, |          
| |                                                                  |  |              |          
| |                                                                  |  | 2 0 0 4      |           | 2 0 0 3                               |   | 2 0 0 2 | 
| |                                                                  |  |              |           |                                       |   |         | 
| |                                                                  |  | shares       |           | Weighted
  average
  exercise
  price |   | shares  |  | Weighted
  average
  exercise
  price |           | shares |   | Weighted
  average
  exercise
  price | 
| |                                                                  |  |              |           |                                       |   |         |  |                                       |           |        |   |                                       | 
|
| | Options outstanding at beginning of year                         |  |              | 1,110,000 |                                       | $ | 0.64    |  |                                       | 1,110,000 |        | $ | 0.64                                  |  |  | 1,110,000 |  | $ | 0.64 | 
| | Granted during year                                              |  |              | 4,395,577 |                                       | $ | 0.74    |  |                                       | -         |        |   | -                                     |  |  | -         |  |   | -    | 
| | Exercised during year                                            |  |              | -         |                                       |   | -       |  |                                       | -         |        |   | -                                     |  |  | -         |  |   | -    | 
| | Forfeited during year                                            |  |              | 200,000   |                                       | $ | 0.36    |  |                                       | -         |        |   | -                                     |  |  | -         |  |   | -    | 
| |                                                                  |  |              |           |                                       |   |         |  |                                       |           |        |   |                                       |  |  |           |  |   |      | 
| | Outstanding at year of year                                      |  |              | 5,305,577 |                                       | $ | 0.72    |  |                                       | 1,110,000 |        | $ | 0.64                                  |  |  | 1,110,000 |  | $ | 0.64 | 
| |                                                                  |  |              |           |                                       |   |         |  |                                       |           |        |   |                                       |  |  |           |  |   |      | 
| | Options exercisable at year-end                                  |  |              | 1,881,394 |                                       | $ | 0.74    |  |                                       | 1,010,000 |        |   | 0.64                                  |  |  | 790,000   |  | $ | 0.61 | 
| |                                                                  |  |              |           |                                       |   |         |  |                                       |           |        |   |                                       |  |  |           |  |   |      | 
| |                                                                  |  |              |           |                                       |   |         |  |                                       |           |        |   |                                       |  |  |           |  |   |      | 
| | Weighted average fair value of options
  granted during the year |  |              | 1,293     |                                       |   |         |  |                                       | -         |        |   |                                       |  |  | -         |  |   |      | 
| |                                                                  |  |              |           |                                       |   |         |  |                                       |           |        |   |                                       |  |  |           |  |   |      | 

F-27

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                                                                                           
|----------- | ----------------------------------------------------------------------------------------------------------
|NOTE 11    | SHAREHOLDERS EQUITY (Cont.)                                                                              
|            |                                                                                                           
|            | Stock option plans (Cont.)                                                                                
|            |                                                                                                           
|            | The
  following table summarizes information relating to stock options outstanding
  at December 31, 2004:

| |                             |      |                                                            |  |                                                                  |  |                                       |      |                                                            |   |                                       |  |  |         |  |   |     | 
| | --------------------------- | ---- | ---------------------------------------------------------- |  | ---------------------------------------------------------------- |  | ------------------------------------- | ---- | ---------------------------------------------------------- | - | ------------------------------------- |  |  | ------- |  | - | --- | 
| | Options outstanding         |      | Options exercisable                                        | 
| |                             |      |                                                            | 
| | Range of
  exercise
  Price |      | Number of
  shares 
  outstanding at
  December 31,
  2004 |  | Weighted
  average
  remaining
  contractual
  life
  (in years) |  | Weighted
  average
  exercise
  price |      | Number of
  shares 
  outstanding at
  December 31,
  2004 |   | Weighted
  average
  exercise
  price | 
| |                             |      |                                                            |  |                                                                  |  |                                       |      |                                                            |   |                                       | 
|
| | $                           | 0.70 |                                                            |  | 910,000                                                          |  |                                       | 6.47 |                                                            | $ | 0.70                                  |  |  | 910,000 |  | $ | 0.7 | 
| | $                           | 0.40 |                                                            |  | 360,000                                                          |  |                                       | 4.5  |                                                            | $ | 0.40                                  |  |  | -       |  |   | -   | 
| | $                           | 0.77 |                                                            |  | 4,035,577                                                        |  |                                       | 5.0  |                                                            | $ | 0.77                                  |  |  | -       |  |   |     | 
| |                             |      |                                                            |  |                                                                  |  |                                       |      |                                                            |   |                                       |  |  |         |  |   |     | 
| |                             |      |                                                            |  | 5,305,577                                                        |  |                                       | 5.22 |                                                            | $ | 0.73                                  |  |  | 910,000 |  | $ | 0.7 | 
| |                             |      |                                                            |  |                                                                  |  |                                       |      |                                                            |   |                                       |  |  |         |  |   |     | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                             | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | Dividends                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In the event
  that cash dividends are declared by the Company, such dividends will be paid
  in Israeli currency. Under current Israeli regulations, any cash dividend in
  Israeli currency paid in respect of Ordinary shares purchased by
  non-residents of Israel with non-Israeli currency may be freely repatriated
  in such non-Israeli currency, at the rate of exchange prevailing at the time
  of conversion.

|            |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- | ------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 12    | INCOME TAXES
|            |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | a.           | Tax in
  Israel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |              | The Company
  and its subsidiaries are assessed for tax purposes on an unconsolidated
  basis. The Company and its Israeli subsidiaries are assessed under the
  provisions of the Income Tax Law (Inflationary Adjustments), 1985, pursuant
  to which the results for tax purposes are measured in Israeli currency in
  real terms in accordance with changes in the Israeli Consumer Price Index (CPI).
  Each of the subsidiaries is subject to the tax rules prevailing in the
  country of incorporation.

F-28

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                      |                                                                                                                                                                                                                                                                                                                                             
|----------- | -------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 12    | INCOME TAXES (cont.)
|            |                     
|            | a.                   | Tax in Israel: (cont.)                                                                                                                                                                                                                                                                                                                      
|            |                      |                                                                                                                                                                                                                                                                                                                                             
|            |                      | Israeli tax
  reform:                                                                                                                                                                                                                                                                                                                       
|            |                      |                                                                                                                                                                                                                                                                                                                                             
|            |                      | On July 24,
  2002, Amendment 132 to the Israeli Tax Ordinance (the Amendment) was
  approved by the Israeli parliament and went into effect on January 1, 2003.                                                                                                                                                                          
|            |                      |                                                                                                                                                                                                                                                                                                                                             
|            |                      | The
  principal objectives of the Amendment were to broaden the categories of
  taxable income and to reduce the tax rates imposed on employees income.                                                                                                                                                                                    
|            |                      |                                                                                                                                                                                                                                                                                                                                             
|            |                      | The material
  consequences of the Amendment applicable to the Company include, among other
  things, imposing a tax on all universal income of Israeli residents,
  individuals and corporations, regardless of the territorial source of income,
  and certain modifications in the qualified taxation tracks of employee stock
  options.
|            |                      |                                                                                                                                                                                                                                                                                                                                             
|            |                      | On June 29,
  2004 an amendment to the Israeli tax law was approved by the Israeli
  parliament, which reduces the Israel corporate tax rates to 35% for 2004;
  this amendment states that the corporate tax rate will be further reduced in
  subsequent tax years as follows: 34% in 2005, 32% in 2006, and 30% in 2007
  and thereafter.
|            |                      |                                                                                                                                                                                                                                                                                                                                             
|            | b.                   | Income (loss) before taxes on income consists of the following:                                                                                                                                                                                                                                                                             

| |          |  |                           |        |         |  |         |  |  |     |  
| | -------- |  | ------------------------- | ------ | ------- |  | ------- |  |  | --- | -
| |          |  | Year ended
  December 31, |       
| |          |  |                           |       
| |          |  | 2 0 0 4                   |        | 2 0 0 3 |  | 2 0 0 2 | 
| |          |  |                           |        |         |  |         | 
| |          |  |                           |        |         |  |         |  |  |     |  
| | Domestic |  |                           | (1,789 | )       |  | 493     |  |  | (18 | )
| | Foreign  |  |                           | 527    |         |  | 491     |  |  | (46 | )
| |          |  |                           |        |         |  |         |  |  |     |  
| |          |  |                           |        |         |  |         |  |  |     |  
| |          |  |                           | (1,262 | )       |  | 984     |  |  | (64 | )
| |          |  |                           |        |         |  |         |  |  |     |  

| |    |                                                           
| | -- | ----------------------------------------------------------
| | c. | The provision for taxes on income comprises the following:

| |                               |  |                           |     |         |  |         |   |  |     | 
| | ----------------------------- |  | ------------------------- | --- | ------- |  | ------- | - |  | --- | 
| |                               |  | Year ended
  December 31, |    
| |                               |  |                           |    
| |                               |  | 2 0 0 4                   |     | 2 0 0 3 |  | 2 0 0 2 |  
| |                               |  |                           |     |         |  |         |  
| |                               |  |                           |     |         |  |         |   |  |     | 
| | Deferred taxes - foreign      |  |                           | 332 |         |  | 214     |   |  | 378 | 
| | Prior years tax reimbursement |  |                           | -   |         |  | (19     | ) |  | -   | 
| |                               |  |                           |     |         |  |         |   |  |     | 
| |                               |  |                           |     |         |  |         |   |  |     | 
| |                               |  |                           | 332 |         |  | 195     |   |  | 378 | 
| |                               |  |                           |     |         |  |         |   |  |     | 

F-29

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                      |                                                                                                                                                                                                                                 
|----------- | -------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 12    | INCOME TAXES (Cont.)
|            |                     
|            | d.                   | Reconciliation between theoretical tax expenses to actual tax
  expenses:                                                                                                                                                       
|            |                      |                                                                                                                                                                                                                                 
|            |                      | Reconciliation
  between the income tax benefits, assuming all income is taxed at the
  statutory rate applicable to income of the Company and actual income taxes as
  reported in the statements of operations, is as follows:

| |                                                                                               |  |                           |        |         |  |         |   |  |     |  
| | --------------------------------------------------------------------------------------------- |  | ------------------------- | ------ | ------- |  | ------- | - |  | --- | -
| |                                                                                               |  | Year ended
  December 31, |       
| |                                                                                               |  |                           |       
| |                                                                                               |  | 2 0 0 4                   |        | 2 0 0 3 |  | 2 0 0 2 |  
| |                                                                                               |  |                           |        |         |  |         |  
| |                                                                                               |  |                           |        |         |  |         |   |  |     |  
| | Income (loss) before taxes on income                                                          |  |                           | (1,262 | )       |  | 984     |   |  | (64 | )
| |                                                                                               |  |                           |        |         |  |         |   |  |     |  
| |                                                                                               |  |                           |        |         |  |         |   |  |     |  
| | Statutory tax rate                                                                            |  |                           | 35     | %       |  | 36      | % |  | 36  | %
| |                                                                                               |  |                           |        |         |  |         |   |  |     |  
| |                                                                                               |  |                           |        |         |  |         |   |  |     |  
| | Theoretical tax expense (benefit)                                                             |  |                           | (442   | )       |  | 354     |   |  | (23 | )
| | Tax benefits for which deferred taxes were
  not recorded                                     |  |                           | 374    |         |  | (321    | ) |  | -   |  
| | Utilization of tax loss carryforwards for
  which deferred taxes were not previously recorded |  |                           | (410   | )       |  | -       |   |  | -   |  
| | Prior years tax reimbursement                                                                 |  |                           | -      |         |  | 19      |   |  | -   |  
| | Effect of different tax rates in other
  countries                                            |  |                           | 21     |         |  | 8       |   |  | 16  |  
| | Non-deductible expenses                                                                       |  |                           | 844    |         |  | 160     |   |  | 405 |  
| | Other                                                                                         |  |                           | (55    | )       |  | (25     | ) |  | (20 | )
| |                                                                                               |  |                           |        |         |  |         |   |  |     |  
| |                                                                                               |  |                           |        |         |  |         |   |  |     |  
| | Taxes on income in the statements of
  operations                                             |  |                           | 332    |         |  | 195     |   |  | 378 |  
| |                                                                                               |  |                           |        |         |  |         |   |  |     |  

| |    |                                                     
| | -- | ----------------------------------------------------
| | e. | Current taxes are calculated at the following rates:

| |                          |  |                           |      |         |  |         |  |  |      | 
| | ------------------------ |  | ------------------------- | ---- | ------- |  | ------- |  |  | ---- | 
| |                          |  | Year ended
  December 31, |     
| |                          |  |                           |     
| |                          |  | 2 0 0 4                   |      | 2 0 0 3 |  | 2 0 0 2 | 
| |                          |  |                           |      |         |  |         | 
| |                          |  |                           |      |         |  |         |  |  |      | 
| | On Israeli operations    |  |                           | 35   |         |  | 36      |  |  | 36   | 
| | On German operations (*) |  |                           | 38.5 |         |  | 38.5    |  |  | 38.5 | 
| |                          |  |                           |      |         |  |         |  |  |      | 

| |     |                                                                          
| | --- | -------------------------------------------------------------------------
| | (*) | The German
  subsidiary is taxed on the basis of the tax laws in Germany.

F-30

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                      |                                                                                                                                                                                                                                                                                                                     
|----------- | -------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 12    | INCOME TAXES (Cont.)
|            |                     
|            | f.                   | Deferred taxes:                                                                                                                                                                                                                                                                                                     
|            |                      |                                                                                                                                                                                                                                                                                                                     
|            |                      | Deferred
  income taxes reflect the net tax effect of temporary differences between the
  carrying amounts of assets and liabilities for financial reporting purposes,
  and amounts used for income tax purposes. Significant components of the
  Company and its subsidiaries deferred tax assets are as follows:

| |                                               |  |                |        |         |   |        |  
| | --------------------------------------------- |  | -------------- | ------ | ------- | - | ------ | -
| |                                               |  | December
  31, |       
| |                                               |  |                |       
| |                                               |  | 2 0 0 4        |        | 2 0 0 3 |  
| |                                               |  |                |        |         |  
| |                                               |  |                |        |         |   |        |  
| | Deferred tax
  assets:                        |  |                |        |         |   |        |  
| | Net operating losses carry forwards           |  | $              | 7,347  |         | $ | 7,382  |  
| | Other - net                                   |  |                | 47     |         |   | 58     |  
| |                                               |  |                |        |         |   |        |  
| |                                               |  |                |        |         |   |        |  
| | Total
  deferred tax assets                   |  |                | 7,394  |         |   | 7,440  |  
| | Valuation
  allowance for deferred tax assets |  |                | (5,299 | )       |   | (5,164 | )
| |                                               |  |                |        |         |   |        |  
| |                                               |  |                |        |         |   |        |  
| | Net deferred
  tax assets                     |  | $              | 2,095  |         | $ | 2,276  |  
| |                                               |  |                |        |         |   |        |  
| |                                               |  |                |        |         |   |        |  
| | Domestic                                      |  |                | -      |         |   | -      |  
| | Foreign                                       |  |                | 2,095  |         |   | 2,276  |  
| |                                               |  |                |        |         |   |        |  
| |                                               |  |                |        |         |   |        |  
| |                                               |  | $              | 2,095  |         | $ | 2,276  |  
| |                                               |  |                |        |         |   |        |  

| |    |                                                                                                                                                                                                                                                     
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | g. | Net operating carryforward tax losses:                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                     
| |    | 1.     The Company
  and its Israeli subsidiaries:                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                     
| |    | Carryforward
  tax losses at December 31, 2004 aggregated approximately $15,585. The
  carryforward tax losses are linked to the Israeli CPI and may be carried
  forward and offset against taxable income in the future for an indefinite
  period
| |    |                                                                                                                                                                                                                                                     
| |    | 2.     German
  subsidiary:                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                     
| |    | As of
  December 31, 2004, this subsidiary has net operating loss carryforward
  tradetax $ 3,565 and corporate tax of $6,567. In Germany, there is no time
  limit for utilizing carry forward tax losses.                                         

F-31

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                                                                  |                                   
|----------- | -------------------------------------------------------------------------------- | ----------------------------------
|NOTE 13    | RELATED PARTIES TRANSACTIONS                                                    
|            |                                                                                 
|            | The balances
  and the transactions derived from related parties are as follows:
|            |                                                                                 
|            | a.                                                                               | Transactions with related parties:

| |                                                      |  |                           |     |         |  |     | 
| | ---------------------------------------------------- |  | ------------------------- | --- | ------- |  | --- | 
| |                                                      |  | Year ended
  December 31, |    
| |                                                      |  |                           |    
| |                                                      |  | 2 0 0 4                   |     | 2 0 0 3 | 
| |                                                      |  |                           |     |         | 
| |                                                      |  |                           |     |         |  |     | 
| |                                                      |  |                           |     |         |  |     | 
| | Management
  fees (see Note 10b)                     |  |                           | 120 |         |  | 120 | 
| |                                                      |  |                           |     |         |  |     | 
| |                                                      |  |                           |     |         |  |     | 
| | Administrative
  and support services (see Note 10c) |  |                           | 60  |         |  | 60  | 
| |                                                      |  |                           |     |         |  |     | 

| |    |                             
| | -- | ----------------------------
| | b. | Balances with related party:

| |                                                  |  |  |     |  |  |     | 
| | ------------------------------------------------ |  |  | --- |  |  | --- | 
| | Debt
  balance:                                  |  |  |     |  |  |     | 
| |                                                  |  |  |     |  |  |     | 
| | Other
  accounts receivable and prepaid expenses |  |  | -   |  |  | 190 | 
| |                                                  |  |  |     |  |  |     | 
| |                                                  |  |  |     |  |  |     | 
| | Credit
  balance:                                |  |  |     |  |  |     | 
| |                                                  |  |  |     |  |  |     | 
| | Other
  accounts payable and accrued expenses    |  |  | 685 |  |  | 503 | 
| |                                                  |  |  |     |  |  |     | 

|           |                                         |                                                
|---------- | --------------------------------------- | -----------------------------------------------
|NOTE 14   | SUPPLEMENTARY BALANCE SHEET INFORMATION
|           |                                        
|           | a.                                      | Other accounts receivable and prepaid expenses:

| |                                                                      |  |                |     |         |     |       | 
| | -------------------------------------------------------------------- |  | -------------- | --- | ------- | --- | ----- | 
| |                                                                      |  | December
  31, |    
| |                                                                      |  |                |    
| |                                                                      |  | 2 0 0 4        |     | 2 0 0 3 |    
| |                                                                      |  |                |     |         |    
| |                                                                      |  |                |     |         |     |       | 
| | Prepaid expenses                                                     |  | $              | 192 |         | $   | 136   | 
| | Receivables from the sale of subsidiary                              |  |                | -   |         |     | 304   | 
| | Receivables from a sale of subsidiary to a
  related party (Note 1b) |  |                | -   |         |     | 190   | 
| | Other                                                                |  |                | 3   |         | (*) | 373   | 
| |                                                                      |  |                |     |         |     |       | 
| |                                                                      |  |                |     |         |     |       | 
| |                                                                      |  | $              | 195 |         | $   | 1,003 | 
| |                                                                      |  |                |     |         |     |       | 

| |    |              |             
| | -- | ------------ | ------------
| |    | (*)          | Reclassified
| |    |              |             
| | b. | Inventories:

| |                               |  |   |       |  |   |       | 
| | ----------------------------- |  | - | ----- |  | - | ----- | 
| | Raw
  materials               |  | $ | 2,946 |  | $ | 2,090 | 
| | Finished
  products and goods |  |   | 3,200 |  |   | 2,635 | 
| |                               |  |   |       |  |   |       | 
| |                               |  |   |       |  |   |       | 
| |                               |  | $ | 6,164 |  | $ | 4,725 | 
| |                               |  |   |       |  |   |       | 

F-32

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                                 |                        
|----------- | ----------------------------------------------- | -----------------------
|NOTE 14    | SUPPLEMENTARY BALANCE SHEET INFORMATION (cont.)
|            |                                                
|            | c.                                              | Short-term bank credit:

| |                          |  |                 |     |                |  |         |  |         |       |  |   |       | 
| | ------------------------ |  | --------------- | --- | -------------- |  | ------- |  | ------- | ----- |  | - | ----- | 
| |                          |  | Interest
  rate |     | Amount         | 
| |                          |  |                 |     |                | 
| |                          |  | December
  31,  |     | December
  31, | 
| |                          |  |                 |     |                | 
| |                          |  | 2 0 0 4         |     | 2 0 0 3        |  | 2 0 0 4 |  | 2 0 0 3 |      
| |                          |  |                 |     |                |  |         |  |         |      
| |                          |  | %               |     |                | 
| |                          |  |                 |     |                | 
| |                          |  |                 |     |                |  |         |  |         |       |  |   |       | 
| | Short-term
  bank credit |  |                 |     |                |  |         |  |         |       |  |   |       | 
| | In NIS (*)               |  |                 | 6.1 |                |  | -       |  | $       | 2,753 |  | $ | -     | 
| | In Euro                  |  |                 | 8.5 |                |  | 9       |  |         | 2,595 |  |   | 2,004 | 
| | In Dollar                |  |                 |     |                |  |         |  |         | 105   |  |   | -     | 
| |                          |  |                 |     |                |  |         |  |         |       |  |   |       | 
|
| |                          |  |                 |     |                |  |         |  | $       | 5,453 |  | $ | 2,004 | 
| |                          |  |                 |     |                |  |         |  |         |       |  |   |       | 

| |    |                                              |                                                                                                                                                                                                                        |                                                                                                                             
| | -- | -------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------
| |    | (*)                                          | In order to
  obtain the credit, the Company and Tadiran Telecom reached oral
  understandings with a bank regarding the following financial covenants (the
  understandings have not yet been formalized in writing):
| |    |                                              |                                                                                                                                                                                                                       
| |    |                                              | (1)                                                                                                                                                                                                                    | Short-term
  bank credit to be taken by Tadiran Telecom divided by its working capital
  will not exceed 1.                 
| |    |                                              |                                                                                                                                                                                                                        |                                                                                                                             
| |    |                                              | (2)                                                                                                                                                                                                                    | The ratio of
  total short-term and long-term bank credit of Tadiran Telecom to its
  operating profit shall not exceed 2:1.
| |    |                                              |                                                                                                                                                                                                                        |                                                                                                                             
| | d. | Other accounts payable and accrued expenses:

| |                                          |  |                |       |         |   |       | 
| | ---------------------------------------- |  | -------------- | ----- | ------- | - | ----- | 
| |                                          |  | December
  31, |      
| |                                          |  |                |      
| |                                          |  | 2 0 0 4        |       | 2 0 0 3 |  
| |                                          |  |                |       |         |  
| |                                          |  |                |       |         |   |       | 
| | Payroll and
  related expenses           |  | $              | 1,535 |         | $ | 175   | 
| | Accrued
  expenses and other (1)         |  |                | 2,701 |         |   | 964   | 
| | Accrued
  customer incentive             |  |                | 992   |         |   | 568   | 
| |                                          |  |                |       |         |   |       | 
| |                                          |  |                |       |         |   |       | 
| |                                          |  | $              | 5,228 |         | $ | 1,707 | 
| |                                          |  |                |       |         |   |       | 
| |                                          |  |                |       |         |   |       | 
| | (1)          Including
  a related party |  | $              | 691   |         | $ | 503   | 
| |                                          |  |                |       |         |   |       | 

F-33

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                                                   |                                                                           
|----------- | ------------------------------------------------- | --------------------------------------------------------------------------
|NOTE 15    | SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
|            |                                                  
|            | a.                                                | Sales to major customers as a percentage of total sales were as
  follows:

| |            |  |                           |    |         |  |         |  |  |    | 
| | ---------- |  | ------------------------- | -- | ------- |  | ------- |  |  | -- | 
| |            |  | Year ended
  December 31, |   
| |            |  |                           |   
| |            |  | 2 0 0 4                   |    | 2 0 0 3 |  | 2 0 0 2 | 
| |            |  |                           |    |         |  |         | 
| |            |  | %                         |    | %       |  | %       | 
| |            |  |                           |    |         |  |         | 
| |            |  |                           |    |         |  |         |  |  |    | 
| | Customer A |  |                           | 18 |         |  | 18      |  |  | 15 | 
| | Customer B |  |                           | 15 |         |  | 13      |  |  | 15 | 
| | Customer C |  |                           | -  |         |  | 11      |  |  | 14 | 
| |            |  |                           |    |         |  |         |  |  |    | 

| |    |              
| | -- | -------------
| | b. | Other income:

| |                                  |  |                           |     |         |   |         |   |   |     | 
| | -------------------------------- |  | ------------------------- | --- | ------- | - | ------- | - | - | --- | 
| |                                  |  | Year ended
  December 31, |    
| |                                  |  |                           |    
| |                                  |  | 2 0 0 4                   |     | 2 0 0 3 |   | 2 0 0 2 |  
| |                                  |  |                           |     |         |   |         |  
| |                                  |  |                           |     |         |   |         |   |   |     | 
| | Loss from
  sale of fixed assets |  | $                         | -   |         | $ | (234    | ) | $ | -   | 
| | Rent                             |  |                           | -   |         |   | -       |   |   | 256 | 
| | Gain from
  sale of a subsidiary |  |                           | -   |         |   | 993     |   |   | -   | 
| | Other                            |  |                           | 142 |         |   | 286     |   |   | 1   | 
| |                                  |  |                           |     |         |   |         |   |   |     | 
| |                                  |  | $                         | 142 |         | $ | 1,045   |   | $ | 257 | 
| |                                  |  |                           |     |         |   |         |   |   |     | 

| |    |                         
| | -- | ------------------------
| | c. | Financial expenses, net:

| |                               |  |                           |      |         |   |         |   |   |      |  
| | ----------------------------- |  | ------------------------- | ---- | ------- | - | ------- | - | - | ---- | -
| |                               |  | Year ended
  December 31, |     
| |                               |  |                           |     
| |                               |  | 2 0 0 4                   |      | 2 0 0 3 |   | 2 0 0 2 |  
| |                               |  |                           |      |         |   |         |  
| |                               |  |                           |      |         |   |         |   |   |      |  
| | Income from
  deposits        |  | $                         | -    |         | $ | 41      |   | $ | -    |  
| | Interest on
  long-term loans |  |                           | (314 | )       |   | (250    | ) |   | (215 | )
| | Other                         |  |                           | (74  | )       |   | 199     |   |   | 24   |  
| |                               |  |                           |      |         |   |         |   |   |      |  
| |                               |  | $                         | (388 | )       | $ | (10     | ) | $ | (191 | )
| |                               |  |                           |      |         |   |         |   |   |      |  

F-34

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                    |                                                                                                                                                                              
|----------- | ------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 16    | OPERATING SEGMENTS
|            |                   
|            | a.                 | Operating segments and geographic information                                                                                                                                
|            |                    |                                                                                                                                                                              
|            |                    | The Company
  through Kalff is engaged in manufacturing, marketing and selling of first aid
  kits.                                                                          
|            |                    |                                                                                                                                                                              
|            |                    | In addition
  the Company, through Tadiran Telecom Israel, sells contact centers, and
  provides services of these products, which are manufactured by Tadiran
  Telecom Ltd.
|            |                    |                                                                                                                                                                              
|            |                    | The Company
  evaluates performance based on profit and loss from operations before income
  taxes, interest expenses and other income.                                      

| |                               |  |                           |        |         |   |         |  |   |       | 
| | ----------------------------- |  | ------------------------- | ------ | ------- | - | ------- |  | - | ----- | 
| |                               |  | Year ended
  December 31, |       
| |                               |  |                           |       
| |                               |  | 2 0 0 4                   |        | 2 0 0 3 |   | 2 0 0 2 | 
| |                               |  |                           |        |         |   |         | 
| | First aid
  kits for vehicles |  |                           |        |         |   |         |  |   |       | 
| |                               |  |                           |        |         |   |         |  |   |       | 
| | Revenues                      |  | $                         | 17,709 |         | $ | 12,416  |  | $ | 8,704 | 
| |                               |  |                           |        |         |   |         |  |   |       | 
| |                               |  |                           |        |         |   |         |  |   |       | 
| | Operating
  income            |  | $                         | 937    |         | $ | 444     |  | $ | 326   | 
| |                               |  |                           |        |         |   |         |  |   |       | 
| |                               |  |                           |        |         |   |         |  |   |       | 
| | Long lived
  assets           |  | $                         | 673    |         | $ | 670     |  | $ | 649   | 
| |                               |  |                           |        |         |   |         |  |   |       | 
| |                               |  |                           |        |         |   |         |  |   |       | 
| | Contact
  centers             |  |                           |        |         |   |         |  |   |       | 
| |                               |  |                           |        |         |   |         |  |   |       | 
| | Revenues                      |  | $                         | 5,832  |         | $ | -       |  | $ | -     | 
| |                               |  |                           |        |         |   |         |  |   |       | 
| |                               |  |                           |        |         |   |         |  |   |       | 
| | Operating
  income            |  | $                         | 1,072  |         | $ | -       |  | $ | -     | 
| |                               |  |                           |        |         |   |         |  |   |       | 
| |                               |  |                           |        |         |   |         |  |   |       | 
| | Long lived
  assets           |  | $                         | 6,423  |         | $ | -       |  | $ | -     | 
| |                               |  |                           |        |         |   |         |  |   |       | 

| |    |                                                                                                                                                
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------
| | b. | Following is a reconciliation of the operating loss of the reportable
  segments to the data included in the consolidated financial statements:

| |                                                      |  |                         |       |      |   |      |   |   |      |  
| | ---------------------------------------------------- |  | ----------------------- | ----- | ---- | - | ---- | - | - | ---- | -
| |                                                      |  | Year ended December 31, |      
| |                                                      |  |                         |      
| |                                                      |  | 2004                    |       | 2003 |   | 2002 |  
| |                                                      |  |                         |       |      |   |      |  
| |                                                      |  |                         |       |      |   |      |   |   |      |  
| | Total operating income of the reportable
  segments: |  | $                       | 2,009 |      | $ | 444  |   | $ | 326  |  
| |                                                      |  |                         |       |      |   |      |   |   |      |  
| | Amounts not allocated to segments:                   |  |                         |       |      |   |      |   |   |      |  
| | General and administrative expenses                  |  |                         | (291  | )    |   | (572 | ) |   | (456 | )
| | Consulting fees                                      |  |                         | 56    |      |   | 77   |   |   | -    |  
| |                                                      |  |                         |       |      |   |      |   |   |      |  
| | Consolidated operating income (loss)                 |  | $                       | 1,774 |      | $ | (51  | ) | $ | (130 | )
| |                                                      |  |                         |       |      |   |      |   |   |      |  

F-35

---

---



ROBOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)

|            |                            |                                                                                                                         
|----------- | -------------------------- | ------------------------------------------------------------------------------------------------------------------------
|NOTE 16    | OPERATING SEGMENTS (Cont.)
|            |                            |                                                                                                                         
|            | c.                         | Geographic information:                                                                                                 
|            |                            |                                                                                                                         
|            |                            | The total
  revenues and long-lived assets are attributed to geographic information,
  based on the customers location.

| |         |  |                           |        |                         |   |                  |  |                         |        |                  |   |                         |  |   |       |  |   |       | 
| | ------- |  | ------------------------- | ------ | ----------------------- | - | ---------------- |  | ----------------------- | ------ | ---------------- | - | ----------------------- |  | - | ----- |  | - | ----- | 
| |         |  | Year ended
  December 31, |       
| |         |  |                           |       
| |         |  | 2 0 0 4                   |        | 2 0 0 3                 |   | 2 0 0 2          | 
| |         |  |                           |        |                         |   |                  | 
| |         |  | Total
  revenues          |        | Long -
  lived
  assets |   | Total
  revenues |  | Long -
  lived
  assets |        | Total
  revenues |   | Long -
  lived
  assets | 
| |         |  |                           |        |                         |   |                  |  |                         |        |                  |   |                         | 
| |         |  |                           |        |                         |   |                  |  |                         |        |                  |   |                         |  |   |       |  |   |       | 
| | Germany |  | $                         | 17,709 |                         | $ | 673              |  | $                       | 12,416 |                  | $ | 670                     |  | $ | 8,704 |  | $ | 649   | 
| | Israel  |  |                           | 5,888  |                         |   | 6,972            |  |                         | 77     |                  |   | 4,757                   |  |   | -     |  |   | 6,295 | 
| |         |  |                           |        |                         |   |                  |  |                         |        |                  |   |                         |  |   |       |  |   |       | 
| |         |  | $                         | 23,597 |                         | $ | 7,645            |  | $                       | 12,493 |                  | $ | 5,427                   |  | $ | 8,704 |  | $ | 6,944 | 
| |         |  |                           |        |                         |   |                  |  |                         |        |                  |   |                         |  |   |       |  |   |       | 

F-36

---

---