---

---

# SECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549

---

# FORM 20-F

|o | REGISTRATION  STATEMENT  PURSUANT TO SECTION  12(b) OR (g) OF THE  SECURITIES  EXCHANGE
 ACT OF          1934
|- | -------------------------------------------------------------------------------------------------------------

# OR

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

# OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|- | ----------------------------------------------------------------------------------------

# OR

|o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|- | -------------------------------------------------------------------------------------------

Date of event requiring this shell company report.............................

For the transition period from ____________ to ____________

Commission file number: 001-33085



|RRsat Global Communications Network Ltd.              
|------------------------------------------------------
|                                                      
|(Exact name of Registrant as specified in its charter)
|                                                      
|Israel                                                
|                                                      
|(Jurisdiction of incorporation or organization)       
|                                                      
|4 Hagoren Street, Industrial Park, Omer 84965, Israel 
|                                                      
|(Address of principal executive offices)              

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

|                                              |                                          
|--------------------------------------------- | -----------------------------------------
|Title of each class                           | Name of each exchange on which registered
|                                             
|Ordinary shares, par value NIS 0.01 per share | The NASDAQ Stock Market LLC              

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding
shares of each of the issuers classes of capital or common stock as of December 31,
2007: 17,286,762 ordinary shares, par value NIS 0.01 per share

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act:

Yes  o     No  x

If
this report is an annual or transition report, indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934:

Yes o      No  x

Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.

Yes x      No  o



---

---

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.

Large Accelerated filer o          Accelerated filer x          Non-accelerated filer o

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

Item 17 o     Item 18 x

If
this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act):

Yes  o      No  x

2

---

---

# TABLE OF CONTENTS

|          |                                                                              |    
|--------- | ---------------------------------------------------------------------------- | ---
|          | PART I                                                                      
|         
|Item 1.   | Identity of Directors, Senior Management and Advisers                        | 5  
|Item 2.   | Offer Statistics and Expected Timetable                                      | 5  
|Item 3.   | Key Information                                                              | 6  
|Item 4.   | Information on the Company                                                   | 25 
|Item 4A.  | Unresolved Staff Comments                                                    | 48 
|Item 5.   | Operating and Financial Review and Prospects                                 | 49 
|Item 6.   | Directors, Senior Management and Employees                                   | 66 
|Item 7.   | Major Shareholders and Related Party Transactions                            | 76 
|Item 8.   | Financial Information                                                        | 83 
|Item 9.   | The Offer and Listing                                                        | 84 
|Item 10.  | Additional Information                                                       | 85 
|Item 11.  | Quantitative and Qualitative Disclosures about Market Risk                   | 103
|Item 12.  | Description of Securities Other than Equity Securities                       | 103
|         
|          | PART II                                                                     
|Item 13.  | Defaults, Dividend Arrearages and Delinquencies                              | 104
|Item 14.  | Material Modifications to the Rights of Security Holders and Use of Proceeds | 104
|Item 15.  | Controls and Procedures                                                      | 104
|Item 16.  | Reserved                                                                     | 105
|Item 16A. | Audit Committee Financial Expert                                             | 106
|Item 16B. | Code of Ethics                                                               | 106
|Item 16C. | Principal Accountant Fees and Services                                       | 106
|Item 16D. | Exemption from the Listing Standards for Audit Committee                     | 107
|Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers       | 107

3

---

---

|         | PART III            
|-------- | --------------------
|Item 17. | Financial Statements
|Item 18. | Financial Statements
|Item 19. | Exhibits            

4

---

---

# PART I

|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|------- | -----------------------------------------------------

Not
applicable.

|ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- | ---------------------------------------

Not
applicable.

5

---

---

|ITEM 3. | KEY INFORMATION
|------- | ---------------

A. Selected financial data

The
following selected financial data, which is presented in accordance with generally
accepted accounting principles in the United States (U.S. GAAP), should be read together
with our consolidated financial statements and related notes and Item 5
Operating and Financial Review and Prospects included elsewhere in this Annual
Report. The selected balance sheet data as of December 31, 2006 and 2007 and the
selected statements of operations data for the years ended December 31, 2005, 2006
and 2007 have been derived from our audited consolidated financial statements included
elsewhere in this Annual Report. The selected balance sheet data as of December 31,
2003, 2004 and 2005 and the selected statements of operations data for the years ended
December 31, 2003 and 2004 have been derived from our audited financial statements
not included in this Annual Report.

|                                                | Year ended December 31,
|----------------------------------------------- | -----------------------
|
|
|
|
|Statements of Operations Data:                  |                        
|Revenues                                        |                        
|Cost of revenue                                 |                        
|                                                |                        
|Gross profit                                    |                        
|                                                |                        
|Operating expenses:                             |                        
|Sales and marketing                             |                        
|General and administrative                      |                        
|One time fees associated with the IPO           |                        
|                                                |                        
|Total operating expenses                        |                        
|                                                |                        
|Operating income                                |                        
|Interest and marketable securities income       |                        
|Currency fluctuation and other financial income |                        
|(expenses), net                                 |                        
|Change in fair value of embedded currency       |                        
|conversion derivatives                          |                        
|Other income (expenses), net                    |                        
|                                                |                        
|Income before taxes on income                   |                        
|Income taxes                                    |                        
|                                                |                        
|Net income                                      |                        
|                                                |                        
|Basic income per ordinary share                 |                        
|                                                |                        
|Diluted income per ordinary share               |                        
|                                                |                        
|Weighted average number of ordinary shares used |                        
|to compute basic income per ordinary share      |                        
|                                                |                        
|Weighted average number of ordinary shares used |                        
|to compute diluted income per ordinary share    |                        
|                                                |                        
|Cash dividend per ordinary share                |                        
|                                                |                        

6

---

---

|                          | As of December 31,
|------------------------- | ------------------
|
|
|
|
|Balance Sheet Data:       |                   
|Cash and cash equivalents |                   
|Working capital           |                   
|Total assets              |                   
|Total liabilities         |                   
|Retained earnings         |                   
|Shareholders' equity      |                   

B. Capitalization and indebtedness

Not
applicable.

C.
          Reasons for offer and use of proceeds

Not
applicable.

# D. Risk factors

Special
Note Regarding Forward-Looking Statements. This Annual Report contains
forward-looking statements, as defined in the Private Litigation Reform Act of 1995, that
involve risks and uncertainties. The forward-looking statements are contained principally
in Item 3 Key Information  Risk Factors, Item 5 Operating and
Financial Review and Prospects, and in Item 4 Information on the
Company. These statements involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements to be materially
different from any future results, performances or achievements expressed or implied by
the forward-looking statements. Forward-looking statements include, but are not limited
to, statements about:

| |  | our
ability to convince potential customers to use our content management and distribution
services rather than the services of other providers, including teleports that are owned
by satellite operators;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
future growth of the global broadcast market and the global content management and
              distribution services market;
| | - | ----------------------------------------------------------------------------------------------------------------------------------

| |  | our
ability to lease additional satellite capacity in order to provide continuity of service
to our existing customers, enter into contracts with new customers and expand our
transmission service offerings;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
revenues that we may generate from our contracted backlog;
| | - | --------------------------------------------------------------

| |  | our
plans to expand our presence in the United States, Asia and in other markets in which we
currently have hosted facilities by acquiring or establishing our own teleports and
production facilities;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | our
ability to successfully integrate businesses and assets we acquire;
| | - | -----------------------------------------------------------------------

7

---

---

| |  | our
plans to broaden our service offerings and to acquire or establish complementary
              businesses or technologies;
| | - | ------------------------------------------------------------------------------------------------------------------------------

| |  | our
plans to invest in appropriate infrastructure and personnel to allow us to continue to
              accommodate global content management and distribution utilizing the latest
technologies;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | our
ability to enter into strategic arrangements with satellite fleet operators;
| | - | --------------------------------------------------------------------------------

| |  | the
growth of the North American and Asia Pacific broadcast markets;
| | - | --------------------------------------------------------------------

| |  | the
growth of new technologies, such as high definition television (HDTV) or Internet
              protocol television;
| | - | ------------------------------------------------------------------------------------------------------------------------

| |  | our
expected increases in expenses as our operations continue to expand;
| | - | ------------------------------------------------------------------------

| |  | entering
into currency hedging transactions to decrease the risk of financial exposure from
              fluctuations in the exchange rate of the U.S. dollar against the Euro or
NIS;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | our
intention to pay cash dividends to our shareholders in the future;
| | - | ----------------------------------------------------------------------

| |  | the
renewal of our license by the Israeli Ministry of Communications;
| | - | ---------------------------------------------------------------------

| |  | our
ability to extend our building and other permits for our principal teleport;
| | - | --------------------------------------------------------------------------------

| |  | our
belief that our current facilities leases are adequate to meet our needs; and
| | - | ---------------------------------------------------------------------------------

| |  | our
estimates regarding future performance, sales, gross margins, expenses (including
stock-based compensation expenses) and cost of sales.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

In
some cases, you can identify forward-looking statements by terms such as may,
might, will, should, could,
would, expect, believe, intend,
estimate, predict, potential or the negative of these
terms, and similar expressions intended to identify forward-looking statements. These
statements reflect our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. Given these uncertainties, you should
not place undue reliance on these forward-looking statements. There are important factors
that could cause our actual results, level of activity, performance or achievements to
differ materially from those expressed or implied by the forward-looking statements. In
particular, you should consider the risks in this Annual Report under this Item 3
Key Information  Risk Factors.

These
forward-looking statements represent our estimates and assumptions only as of the date of
this Annual Report. Although we believe the expectations reflected in the forward-looking
statements to be reasonable, we cannot guarantee future results, level of activity,
performance or achievement. We undertake no obligation to update any of the
forward-looking statements after the date of the filing of this Annual Report to conform
those statements to reflect the occurrence of unanticipated events, except as required by
applicable law.

# Risks Relating to Our
Business and Industry

We operate in a relatively new
market and cannot assure you that it will continue to grow.

We
operate in a new segment of our industry involving comprehensive, global content
management and distribution services for the television and radio broadcasting industries.
The continued growth of this segment depends upon a number of factors, including continued
growth in the introduction of broadcast channels seeking a global audience, deregulation
of broadcasting, and the scope, timeliness, sophistication and price of our services. We
cannot assure you that the market will demand such services from us at prices and on terms
acceptable to us. A lack of market demand or lack of additional revenues beyond our
existing customer contracts would adversely affect our financial condition and ability to
grow our business.

8

---

---

Significant damage to our
principal teleport in Israel would have a material adverse affect on our ability to
continue to operate our business.

Our
principal teleport and playout facilities are located in Reem, Israel. Significant
damage to these facilities, for any reason, including acts of terrorism, could require
substantial time and expense to repair, and would require reestablishing transmission
links with our suppliers of capacity. Even though our facilities are covered under an
insurance policy, the policy may not be sufficient to cover repair costs or the cost of
distruption of our services. If this were to occur, it would have a material adverse
effect on our ability to continue to operate our business or operate our business
profitably. Furthermore, if our customers or potential customers were to be concerned that
our principal teleport and playout facilities or our operations were at risk due to a
perception of instability in the security situation in Israel, they may be deterred from
entering into agreements to use our services.

If there is a material decrease in
the current level of excess capacity in satellite and terrestrial fiber optic transmission
networks, we may not be able to obtain leased transmission capacity on competitive terms.

We
lease satellite and terrestrial fiber optic capacity and offer this capacity as part of a
package together with our other services. There is currently excess capacity in satellite
and terrestrial fiber optic transmission networks, which allows us to lease and offer
capacity on competitive terms. We may be adversely affected were the amount of satellite
and terrestrial fiber optic excess capacity available for video and audio programming to
decrease. We need to renew our existing leases and enter into additional leases of such
capacity in order to provide continuity of service to our existing customers, enter into
contracts with new customers and expand our transmission service offerings. There can be
no assurance, however, that there will continue to be excess capacity. For example, high
definition television (HDTV) broadcasts require substantially greater bandwidth than
conventional television broadcasts, and the success of high definition television (HDTV)
broadcasts may lead to a reduction in the quantity of excess capacity. We lease
approximately 28% of our satellite transmission capacity pursuant to long-term preemptible
leases, which means that the satellite fleet operator can use our transponder to provide
service for another customer or to restore service to other customers in the event of
satellite or transponder failure. A decline in the available excess capacity might lead
our suppliers to preempt the use of some of our leased capacity, increase our transmission
costs and therefore reduce our margins, increase costs to an extent that our potential
customers would be less likely to pursue a global market, and require us to incur more
long-term commitments for capacity without any corresponding assurance of customers for
this capacity.

If we are unable to successfully
balance our supplier and customer capacity commitments, our revenues will decline.

We
are generally required to commit to lease capacity on a long-term basis. In most cases our
commitment is longer than the corresponding commitment that we obtain from our customers.
In many cases we are not able to terminate our commitment before its scheduled expiration.
If we commit to lease capacity in anticipation of customer orders and these orders do not
materialize or are terminated, we will likely still be required to pay our suppliers, and
may have difficulty in obtaining commitments from other customers for this capacity. In
this case, we would have fixed cost commitments without a corresponding source of
revenues.

9

---

---

In
addition, we lease approximately 28% of our satellite transmission capacity pursuant to
preemptible leases. If we commit to provide content distribution services to a customer
and the satellite fleet operator then preempts our transponder, we would need to obtain
capacity on other satellites with a comparable footprint, or geographic coverage. We may
not be able to replace this capacity on economical terms, with the quality of service
necessary to satisfy our customers requirements, or at all. We would likely need a
significant amount of time and incur substantial expense to replace the capacity.

The failure of third parties to
properly maintain transmission networks we lease from them would adversely affect the
quality of the services we offer.

We
rely on transmission capacity and other critical facilities that we lease from third
parties. All of our satellite and terrestrial fiber optic transmission capacity is leased,
and we receive teleport services and maintain points of presence (POPs) outside of Israel
pursuant to contracts with third parties. We are dependent on the quality of service
provided by these third parties.

Damage
to a satellite on which we lease transponders could significantly degrade the
satellites performance and result in a partial or total loss of our transmission
capacity on that satellite. Similarly, the loss of a satellite on which we lease
transponders would result in the total loss of our transmission capacity on that
satellite. We cannot assure you that the satellites on which we lease capacity will
perform properly or remain in operation for the duration of their expected commercial
lives.

If
we suffered a partial or total loss of leased capacity on a satellite, we would need to
obtain capacity on other satellites with a comparable footprint, or geographic coverage.
We may not be able to obtain alternative capacity on economical terms or at all. We would
likely need a significant amount of time and incur substantial expense to replace the
capacity. During any period of time in which any of our transponders is not fully
operational, we likely would lose most or all of the revenues that we otherwise would have
derived from the leased capacity on that transponder. Similar risks apply to our leased
terrestrial fiber optic transmission capacity, as well as to our hosted teleports and
points of presence (POPs) outside of Israel.

Failure to compete successfully in
providing content management and distribution services would have a material adverse
effect on our business and could prevent us from implementing our business strategy.

We
compete in the market for global content management and distribution services with
numerous commercial and other providers. Many of our competitors have greater technical,
financial, human and other resources than we do, and some of them own satellites and
teleports on several continents. The principal global broadcasters may prefer to procure
services from larger or more established vendors of content management and distribution
services, or from vendors with their own satellites, even if our quality and pricing are
more attractive.

Certain
satellite fleet operators, which had typically offered only connectivity, have recently
begun to either acquire or partner with teleports and terrestrial fiber network operators
to create global hybrid networks. In addition to our direct competitors, numerous
companies and governments that operate global or regional fleets of satellites in the
United States, Latin America, Europe, the Middle East, Africa and Asia may recommend
individual teleport operators and service providers (who are our competitors in providing
value-added services and service packages) with whom they have relationships.

If
the overcapacity situation that currently exists with respect to satellite and terrestrial
fiber optic transmission networks were to become exacerbated, satellite fleet operators
and terrestrial fiber optic networks might engage in aggressive price competition and
offer our current and potential customers more attractive prices for transmission than we
can offer them. In this case, our current and potential customers may prefer to obtain
transmission directly from our suppliers of capacity and turn to other content management
service providers or develop their own content management capabilities, rather than to
procure a package of services from us.

10

---

---

We have a limited operating
history in the market for global content management and distribution services and may fail
to successfully address the risks and uncertainties associated with our business.

We
began to provide global content management and distribution services to the television and
radio broadcasting industries in 2000. Given our limited operating history in this market
and the risks, expenses, difficulties and potential delays associated with a
high-technology, highly-regulated industry such as ours, if we are unable to address these
uncertainties, we may not be able to expand our business, develop a sufficiently large
revenue-generating customer base, obtain additional transmission capacity or compete
successfully in the global content management and distribution services industry.

Our contracted backlog may not
ultimately result in future revenues.

Contracted
backlog represents services that our customers have committed by long-term contracts to
purchase from us. As of December 31, 2007, we had contracted backlog totaling $155.5
million through 2016, of which $59.3 million are related to services expected to be
delivered in 2008, and $48.7 million are related to services expected to be delivered
in 2009. Although we believe contracted backlog is an indicator of our future revenues,
our reported contracted backlog may not be converted to revenues in any particular period
and actual revenues from such contracts may not equal our reported contracted backlog.
Therefore, our contracted backlog is not necessarily indicative of the level of our future
revenues. Of our $155.5 million contracted backlog as of December 31, 2007, which we
do not recognize as revenue until we actually perform the services, approximately
$134 million, or 86%, is related to obligations to be provided under non-cancelable
agreements and the remaining contracts may be canceled under certain circumstances by an
advanced notice of between 30 to 120 days, at certain predefined exit dates or by the
customers payment of a penalty equal to between one and six months fees. As of
December 31, 2007, long-term contracts constituting approximately 5.5% of our contracted
backlog at December 31, 2006 had been cancelled. Cancellations of customer contracts
could substantially and materially reduce contracted backlog and could negatively impact
our revenues. Our ability to collect our monthly fees with respect to all or a portion of
the contracted backlog may also be adversely affected by the long-term financial condition
of our customers. If several of our customers become insolvent or bankrupt or experience
other financial difficulties which make them unable or unwilling to continue to use our
services, our revenue would be adversely affected. Accordingly, we cannot assure you that
our contracted backlog will ultimately result in revenues.

Contracts for content management
and distribution services generally extend over several years, which will make it more
difficult for us to sell our services to broadcasters who have entered into agreements
with other providers of these services.

Broadcasters
generally seek content management and distribution services over a lengthy period.
Contracts for these services generally extend for terms of 3 to 5 years, and in some
cases may extend for the expected life of a satellite. Once a broadcaster has entered into
an agreement with one of our competitors, we may effectively be unable to obtain business
from that potential customer for an extended period.

Changes in technology may reduce
the demand for our services.

The
technology used in content management and distribution services is evolving rapidly. The
technologies we currently use or plan to use may not be preferred by our customers or
changes in these technologies may compromise our business. For example, although satellite
transmission is currently the preferred method of point-to-multipoint global distribution,
widespread implementation of Internet television broadcasts may reduce the demand for our
content management and distribution services. Similarly, to the extent that excess
capacity develops in terrestrial fiber optic systems, our satellite-based content
management and distribution offerings may be less attractive. If we are unable to keep
pace with on-going technological changes in the content management and distribution
services industry, our financial condition may be adversely affected.

11

---

---

We have signed an agreement to
acquire a teleport, and we may acquire or establish additional teleports or complementary
businesses or technologies. We may be unsuccessful in integrating any acquired businesses
or assets, and these acquisitions could divert our resources, cause dilution to our
shareholders and adversely affect our financial results.

We
intend to use a significant amount of our cash, cash equivalents and marketable securities
to acquire or establish additional teleports or complementary businesses or technologies.
Except for our recent agreement to acquire the Hawley Teleport in Pennsylvania, we have
not made any acquisitions to date and our management has not had any experience making
acquisitions or integrating acquired businesses. Negotiating potential acquisitions or
integrating newly acquired businesses or technologies into our business could divert our
managements attention from other business concerns and could be expensive and time
consuming. Acquisitions, such as our recent agreement to acquire the Hawley Teleport,
could expose our business to unforeseen liabilities or risks associated with entering new
markets. For example, once we acquire or establish additional teleports, we will be
subject to governmental regulations, licensing fees and taxation in the countries in which
those teleports are located. In addition, we might lose key employees while integrating
new organizations. Consequently, we might not be successful in integrating any acquired
businesses or technologies, and might not achieve anticipated revenue or cost benefits. In
addition, future acquisitions could result in customer dissatisfaction, performance
problems with an acquired company, or issuances of equity securities that cause dilution
to our shareholders. Furthermore, we may incur contingent liability or possible impairment
charges related to goodwill or other intangible assets or other unanticipated events or
circumstances, any of which could harm our business.

Because our functional currency is
the U.S. dollar but a large portion of our expenses and revenues are incurred in Euros and
New Israeli Shekels, our results of operations may be seriously harmed by currency
fluctuations.

Although
our functional currency is the U.S. dollar, we pay a large portion of our expenses in
other currencies  primarily payments for transmission capacity in Euros, and to a
lesser extent payments for salaries and other general and administrative expenses in New
Israeli Shekels, or NIS. As a result, we are exposed to risk to the extent that the value
of the U.S. dollar decreases against the Euro or the NIS. In that event, the U.S. dollar
cost of our operations will increase and our U.S. dollar-measured results of operations
will be adversely affected. This effect has occurred in 2007, because the Euro and NIS
appreciated against the U.S. dollar, which resulted in a significant increase in the U.S.
dollar cost of our operations. In addition, a significant portion of our agreements with
customers are denominated in Euros or NIS, which exposes us to risk to the extent the
value of the U.S. dollar increases against the Euro or the NIS. To date, we have not
engaged in hedging transactions. In the future, we may enter into currency hedging
transactions to decrease the risk of financial exposure from fluctuations in the exchange
rate of the U.S. dollar against the Euro or NIS. Our financial results of operations could
be adversely affected if we are unable to guard against currency fluctuations in the
future.

Our reported net income and income
per share will be impacted by embedded derivatives.

Some
of our customers and suppliers contracts provide for payment in currencies that are
neither our functional currency nor the functional currency of the customer or supplier.
Under Statement of Financial Accounting Standard No. 133 Accounting for
Derivatives Instruments and Hedging Activities (SFAS 133), these contracts are
deemed to include an embedded derivative in the form of a foreign currency
forward contract. Accordingly, our U.S. GAAP statements of operations reflect
non-operating, non-cash gains and losses attributable to changes in the fair value of
foreign currency embedded derivatives. Although we do not believe that these
non-operating, non-cash gains and losses are meaningful to an understanding of our results
of operations, they can result in unanticipated fluctuations in our reported results of
operations and impact the market price of our ordinary shares.

12

---

---

Future consolidations in the
telecommunications and satellite industries, or in the content management and distribution
services market, may increase competition that could reduce our revenues and the demand
for our services.

The
markets in which we compete have been characterized by increasing consolidation. We may
not be able to compete successfully in increasingly consolidated markets. Additional
consolidation may reduce the amount of capacity that may be available to us and increase
the cost of such capacity. Increased competition and consolidation in these markets also
may require that we reduce the prices of our services or result in a loss of market share,
which could materially adversely affect our revenues and reduce our operating margins.
Additionally, because we now, and may in the future, depend on certain strategic
relationships with third parties in the telecommunications and satellite industries, any
additional consolidation involving these parties could reduce the demand for our services
and otherwise hurt our business prospects.

We depend and rely upon the
experience and resources of our shareholders, none of which has any obligation to assist
us except as contracted.

We
receive certain consulting services from our principal shareholders Del-Ta Engineering
Equipment Ltd., or Del-Ta Engineering, and Kardan Communications Ltd., or Kardan
Communications, pursuant to a management services agreement. If either of them decides to
discontinue the services it is providing, we may not be able to obtain alternative
consulting services from independent third parties on economical terms or at all. In
addition, these principal shareholders provide us with the benefit of their experience and
extensive contacts in the industry, which they are not obligated to provide under their
management services agreement.

We may have difficulty managing
the growth of our business, which could limit our ability to increase sales and cash flow.

We
have experienced significant growth in our operations in recent years, with our annual
revenues increasing from $4.4 million in 2000 to $59.2 million in 2007. In
addition, during the next few years we expect to acquire teleports in the United States
and Asia and to expand our sales and marketing activities, such as the agreement we
recently entered into in February 2008 to acquire the Hawley Teleport in Pennsylvania. Our
growth has placed, and will continue to place, significant demands on our management, as
well as our financial and operational resources, that are required to:

| |  | manage
a larger organization;
| | - | -----------------------------

| |  | integrate
the assets and businesses we acquire;
| | - | -----------------------------------------------

| |  | implement
appropriate financial and operational systems;
| | - | --------------------------------------------------------

| |  | expand
our infrastructure to support a greater volume of services; and
| | - | ----------------------------------------------------------------------

| |  | expand
our sales and marketing infrastructure and capabilities on an international basis.
| | - | -----------------------------------------------------------------------------------------

If
we are unable to manage and grow our business effectively during this period of rapid
growth, we may not be able to implement our business strategy and our business and
financial results would suffer.

13

---

---

A loss of the services of David
Rivel, our founder and Chief Executive Officer, or other members of our senior management
could cause our revenues to decline and impair our ability to expand our business.

We
depend on the continued services of David Rivel, our founder and Chief Executive Officer.
Any loss of the services of Mr. Rivel or of other members of our senior management
could result in a gap in senior management and the loss of technical and managerial
expertise necessary for us to succeed, which could cause our revenues to decline and
impair our ability to expand our business.

If we are unable to hire, train
and retain qualified managerial, technical, and sales and marketing personnel, we may be
unable to develop new services or sell or support our existing or new services. This could
cause our revenues to decline and impair our ability to meet our development and revenue
objectives.

Our
success depends in large part on the continued contributions of our managerial, technical,
and sales and marketing personnel. If our business continues to grow, we will need to hire
additional qualified managerial, technical engineering, and sales and marketing personnel
to succeed. The process of hiring, training and successfully integrating qualified
personnel into our operations is a lengthy and expensive one. The market for the qualified
personnel we require is very competitive because of the limited number of people available
with the necessary technical and sales skills and understanding of our services. This is
particularly true in Israel and some of the markets into which we hope to expand, where
competition for qualified personnel is intense. Our failure to hire and retain qualified
employees could cause our revenues to decline and impair our ability to meet our sales
objectives.

Volatility in the broadcasting and
telecommunications industries may affect our revenues and, as a result, we could
experience reduced revenues or operating results.

The
broadcasting and telecommunications industries in which we operate historically have been
volatile and are characterized by fluctuations in product supply and demand. From time to
time, these industries have experienced significant downturns, often in connection with,
or in anticipation of, maturing product and technology cycles, and declines in general
economic conditions. This volatility could cause our operating results to decline
dramatically from one period to the next. If economic conditions in the United States and
worldwide do not continue to improve or if they worsen from current levels, demand for our
services may fail to develop and our revenues may be materially adversely affected. In
addition, if in periods of decreased demand we are unable to adjust our levels of lease
commitments and human resources or manage our costs and deliveries from suppliers in
response to lower spending by customers, our gross margin might decline and we may
experience operating losses.

If we are unable to provide
uninterrupted or quality services, our reputation may suffer, which could cause the demand
for our services to decline.

Our
business depends on the efficient, uninterrupted and high-quality operation of our
systems. Our service offerings are complex, depend on our successful integration of
sophisticated third-party technology and services, and must meet stringent quality
requirements. Our services are critical to our customers businesses, and disruptions
in our services may cause significant damage to our customers and our reputation. We do
not know whether, in the future, we will be subject to liability claims or litigation for
damages related to service disruptions. If such litigation were to arise, regardless of
its outcome, it could result in substantial expenses to us, significantly divert the
efforts of our technical and management personnel and disrupt or otherwise severely impact
our relationships with current and potential customers. In addition, if any of our
services has reliability or quality problems, our reputation could be damaged
significantly and customers might be reluctant to buy our services, which could result in
a decline in revenues, a loss of existing customers or the failure to attract new
customers.

14

---

---

Our quarterly operating results
are likely to fluctuate, which could cause us to miss expectations about these results and
cause the trading price of our ordinary shares to decline.

Our
prospective customers generally must commit significant resources to evaluate our
services. Accordingly, our sales process is subject to delays associated with the approval
process and delays associated with our customers preparations to begin broadcasting
using our services. This approval process typically lasts 3 to 12 months. This
creates unpredictability regarding the timing of our generation of revenues. As a result,
orders that we expect in one quarter may be deferred to another because of the timing of
customers procurement decisions. Therefore, our quarterly operating results are
likely to fluctuate, which could cause us to miss expectations about these results and
cause the trading price of our ordinary shares to decline.

Factors
that could cause our revenues and operating results to fluctuate from period to period
include:

| |  | our
service and customer mix;
| | - | -----------------------------

| |  | customer
demand for our services;
| | - | ---------------------------------

| |  | the
timing and success of new service introductions by our competitors and us;
| | - | ------------------------------------------------------------------------------

| |  | the
timing of contracts with new customers;
| | - | -------------------------------------------

| |  | changes
in the price or the profitability of our services;
| | - | ----------------------------------------------------------

| |  | changes
in the availability or the cost of transmission capacity;
| | - | -----------------------------------------------------------------

| |  | the
timing of renewal or commencement of our long-term capacity commitments; and
| | - | --------------------------------------------------------------------------------

| |  | market
conditions in the broadcast and telecommunications industries and the economy as a
              whole.
| | - | --------------------------------------------------------------------------------------------------------------

We face potential liability for
content broadcast by our customers over our network.

Our
potential liability for distributing content broadcast by our customers over our network
is uncertain. We could become liable for such content based on obscenity, defamation,
negligence, copyright or trademark infringement, or other bases.

Our
standard agreement provides that our customers are fully responsible for the content of
their programming, for ensuring that the content conforms to all applicable governmental
regulations and for obtaining any local regulatory approvals relating to their broadcasts.
The agreement further provides that we are not liable if the satellite fleet operator
requires us to suspend or terminate service for any reason relating to content. Our
customers are generally required to indemnify us for any financial costs of governmental
or third-party proceedings resulting from their content. Although we attempt to reduce our
liability through contractual indemnification from our customers and disclaimers, there is
no guarantee that we would be successful in protecting ourselves against this type of
liability. Even if we were ultimately successful in such litigation, litigation would
divert management time and resources, could be costly and is likely to generate negative
publicity for our business. We may also be forced to implement expensive measures to alter
the way our services are provided to avoid any further liability.

15

---

---

We face potential liability for
radiation generated by our teleports.

Our
teleports in Israel generate electromagnetic radiation, which above certain levels can be
harmful to people. Although we believe that our facilities comply with all applicable
standards in this regard, personal injury claims may be brought against us for harm to
individuals allegedly caused by our transmission equipment. Similarly, new, more stringent
environmental protection regulations may be promulgated, and we may need to incur
significant expense to comply with such regulations. We may also face such risk in
connection with the Hawley Teleport we recently entered into an agreement to acquire.

Our business, including the
operation of our network, may be vulnerable to acts of terrorism or war.

Our
network may be vulnerable to acts of terrorism or war. If our facilities, including our
headquarters or principal teleport, become temporarily or permanently disabled by an act
of terrorism or war, it will be necessary for us to develop alternative infrastructure to
continue providing service to our customers. We may not be able to avoid service
interruptions if our facilities or the facilities we use are disabled due to a terrorist
attack or war. Any act of terrorism or war that substantially or totally destroys or
disables our facilities or the facilities of our service providers would result in a
substantial reduction in revenues and in the recognition of a loss of any uninsured assets
that are substantially or totally disabled.

We may not be able to fulfill
our dividend policy in the future and holders of our ordinary shares may not receive any
cash dividends.

In
March 2008, our board of directors adopted a new dividend policy to distribute each year
not more than 50% of our cumulative retained earnings, subject to applicable law, our contractual
obligations and provided that such distribution would not be detrimental to our cash needs
or to any plans approved by our board of directors. Our board of directors will consider,
among other factors, our expected results of operations, financial condition, contractual
restrictions, planned capital expenditures, financing needs and other factors our board of
directors deems relevant in order to reach its conclusion that a distribution of dividends
will not prevent us from satisfying our existing and foreseeable obligations as they
become due.

Dividend
payments are not guaranteed and our board of directors may decide, in its absolute
discretion, at any time and for any reason, not to pay dividends. Our ability to pay
dividends is also subject to the requirements of Israeli law. Further, our dividend
policy, to the extent implemented, will significantly restrict our cash reserves and may
adversely affect our ability to fund unexpected capital expenditures. As a result, we may
be required to borrow money or raise capital by issuing equity securities, which may not
be possible on attractive terms or at all.

If
we are unable to fulfill our dividend policy, or pay dividends at levels anticipated by
investors, the market price of our shares may be negatively affected and the value of your
investment may be reduced. For additional information, please also see Item 8.A
Financial information  Consolidated Financial Statements and Other Financial
Information  Dividend Policy.

Market prices of companies
involved in the telecommunications industry, as well as our company, have been highly
volatile and shareholders may not be able to resell their ordinary shares at or above the
price they paid.

The
trading price of our ordinary shares has been in the past, and may be in the future,
subject to wide fluctuations. Factors that may affect the trading price include, but are
not limited to:

| |  | the
gain or loss of significant customers;
| | - | ------------------------------------------

| |  | fluctuations
in the timing or amount of customer orders;
| | - | --------------------------------------------------------

| |  | variations
in our operating results;
| | - | ------------------------------------

| |  | announcements
of new services or service enhancements, strategic alliances or significant
              agreements by us or by our competitors;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  | recruitment
or departure of key personnel;
| | - | ------------------------------------------

16

---

---

| |  | commencement
of, or involvement in, litigation;
| | - | -----------------------------------------------

| |  | changes
in the estimates of our operating results or changes in recommendations by any
              securities analysts that elect to follow our shares; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | market
conditions in our industry, the industries of our customers and the economy as a whole.
| | - | ----------------------------------------------------------------------------------------------

The
trading price and volume for our ordinary shares may also be influenced by the research
and reports that industry or securities analysts publish about us or our business. If our
future quarterly or annual operating results are below the expectations of securities
analysts or investors, the price of our ordinary shares would likely decline. Share price
fluctuations may be amplified if the trading volume of our ordinary shares is low.

Class action litigation due to
share price volatility or other factors could cause us to incur substantial costs and
divert our managements attention and resources.

In
the past, following periods of volatility in the market price of a public companys
securities, securities class action litigation has often been instituted against that
company. Companies such as ours in the telecommunications industry and other technology
industries are particularly vulnerable to this kind of litigation as a result of the
volatility of their share prices. Any litigation of this sort could result in substantial
costs and a diversion of managements attention and resources.

We are controlled by a small
number of shareholders, who may make decisions with which other shareholders may disagree.

Our
directors, executive officers, principal shareholders and their affiliated entities
beneficially own approximately 72.8% of our outstanding ordinary shares. The interests of
these shareholders may differ from the interests of other shareholders. These
shareholders, if acting together, could control our operations and business strategy and
will have sufficient voting power to influence all matters requiring approval by our
shareholders, including the approval or rejection of mergers or other business combination
transactions. These shareholders have also entered into an agreement providing each of
them with a right to tag along to certain sales of our shares by Del-Ta Engineering or
Kardan Communications. In addition, two of our principal shareholders, Del-Ta Engineering
and David Rivel, our Chief Executive Officer, are parties to a shareholders agreement,
pursuant to which Mr. Rivel granted Del-Ta Engineering an irrevocable proxy to vote
all his shares with respect to the election of directors. This concentration of ownership
may delay, prevent or deter a change in control, or deprive shareholders of a possible
premium for their ordinary shares as part of a sale of our company.

U.S. investors in our company could suffer adverse tax consequences if we are
          characterized as a passive foreign investment company.

If,
for any taxable year, our passive income or our assets that produce passive income exceed
levels provided by law, we may be characterized as a passive foreign investment company,
or a PFIC, for U.S. federal income tax purposes. This characterization could result in
adverse U.S. tax consequences to our shareholders. We believe that we were not a PFIC for
U.S. federal income tax purposes in any prior taxable year and that we will not be
classified as a PFIC for the current taxable year, but we cannot determine our status as a
PFIC for our current taxable year or for future taxable years until the close of the
applicable tax year. If we were classified as a PFIC, a U.S. Holder could be subject to
increased tax liability upon the sale or other disposition of ordinary shares or upon the
receipt of amounts treated as excess distributions. Under these rules, the
excess distribution and any gain would be allocated ratably over the U.S. Holders
holding period for the ordinary shares, and the amount allocated to the current taxable
year and any taxable year prior to the first taxable year in which we were a PFIC would be
taxed as ordinary income. The amount allocated to each of the other taxable years would be
subject to tax at the highest marginal rate in effect for the applicable class of taxpayer
for that year, and an interest charge for the deemed deferral benefit would be imposed on
the resulting tax allocated to such other taxable years. The tax liability with respect to
the amount allocated to years prior to the year of the disposition, or excess
distribution, cannot be offset by any net operating losses. In addition, holders of
shares in a PFIC may not receive a step-up in basis on shares acquired from a
decedent. U.S. shareholders should consult with their own U.S. tax advisors with respect
to the U.S. tax consequences of investing in our ordinary shares as well as the specific
application of the excess distribution and other rules discussed in this
paragraph. For a discussion of how we might be characterized as a PFIC and related tax
consequences, please see Item 10.E. Additional Information  Taxation 
U.S. Federal Income Tax Consequences  Passive Foreign Investment Company
Considerations.

17

---

---

Provisions of Israeli law, our
license and current agreements among our principal shareholders may delay, prevent or make
difficult an acquisition of us, prevent a change of control and negatively impact our
share price.

Israeli
corporate law regulates acquisitions of shares through tender offers and mergers, requires
special approvals for transactions involving directors, officers or significant
shareholders, and regulates other matters that may be relevant to these types of
transactions. Furthermore, Israeli tax considerations may make potential acquisition
transactions unappealing to us or to some of our shareholders. For example, Israeli tax
law may subject a shareholder who exchanges his or her ordinary shares for shares in a
foreign corporation to taxation before disposition of the investment in the foreign
corporation. In addition, our license from the Israeli Ministry of Communications to
operate our teleports in Israel impose certain restrictions on ownership of our shares, as
described below under Risks Relating to Government Regulation  Our
license from the Israeli Ministry of Communications to operate our teleports impose
certain restrictions on ownership of our shares. If these restrictions are breached, we
could lose our license. These provisions of Israeli law and of our license may
delay, prevent or make difficult an acquisition of our company, which could prevent a
change of control and therefore depress the price of our shares. In addition, our
principal shareholders have entered into an agreement providing each of them with a right
to tag along to certain sales of our shares by Del-Ta Engineering or Kardan
Communications. Furthermore, David Rivel and Del-Ta Engineering, two of our principal
shareholders, are parties to a shareholders agreement, pursuant to which Mr. Rivel
granted Del-Ta Engineering an irrevocable proxy to vote all his shares solely with respect
to the election of directors. These agreements, which add to the concentration of
ownership in our company, may have the effect of delaying or deterring a change in control
of us, thereby limiting the opportunity for shareholders to receive a premium for their
shares and possibly affecting the price that some investors are willing to pay for our
securities.

Our
board of directors could choose not to negotiate with an acquiror that it did not feel was
in our strategic interest. If the acquiror were discouraged from offering to acquire us or
prevented from successfully completing a hostile acquisition by anti-takeover measures,
shareholders could lose the opportunity to sell their shares at a favorable price.

We may fail to maintain effective
internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.

The
Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors.
Our efforts to comply with the requirements of Section 404, which started in connection
with this Annual Report on Form 20-F, have resulted in increased general and
administrative expense and a diversion of management time and attention, and we expect
these efforts to require the continued commitment of resources.

18

---

---

Section 404
of the Sarbanes-Oxley Act requires (i) managements annual review and evaluation of
our internal control over financial reporting, and (ii) a statement by management that its
independent registered public accounting firm has issued an attestation report on the
effectiveness of our internal control over financial reporting, in connection with the
filing of the Annual Report on Form 20-F for each fiscal year.

We
have documented and tested our internal control systems and procedures and have made
improvements in order for us to comply with the requirements of Section 404. While
our assessment of our internal control over financial reporting resulted in our conclusion
that as of December 31, 2007, our internal control over financial reporting was
effective, we cannot predict the outcome of our testing in future periods. If we fail to
maintain the adequacy of our internal controls, we may not be able to ensure that we can
conclude on an ongoing basis that we have effective internal controls over financial
reporting. Failure to maintain effective internal controls over financial reporting could
require us to expand significant resources and management time to implement and test
remedial measures, or result in investigation or sanctions by regulatory authorities, and
could have a material adverse effect on our operating results, investor confidence in our
reported financial information, and the market price of our ordinary shares.

We are incurring increased costs
as a result of being a public company.

Since
our initial public offering in November 2006, we face increased legal, accounting,
administrative and other costs and expenses as a public company that we did not incur as a
private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented
by the Securities and Exchange Commission, or SEC, the Public Company Accounting Oversight
Board and NASDAQ, require changes in the corporate governance practices of public
companies. These rules and regulations have resulted in both a significant initial cost,
as we initiate certain internal controls to comply with Section 404 of the
Sarbanes-Oxley Act and other procedures designed to comply with the other requirements of
the Sarbanes-Oxley Act, and in an ongoing increase in our legal, audit and financial
compliance costs. Our management is also required to divert attention from operations and
strategic opportunities, which makes legal, accounting and administrative activities more
time-consuming and costly.

# Risks Relating to
Government Regulation

If we do not obtain or continue to
maintain all of the regulatory permissions, authorizations and licenses necessary to
provide our services, we may be required to relocate or shut down our principal teleport
or other teleports, and may not be able to implement our business strategy and expand our
operations as we currently plan.

Aspects
of the content management and distribution services industry are highly regulated, both in
Israel and internationally. Our business requires regulatory permissions, authorizations
and licenses from the Israeli Ministry of Communications, which we have obtained.
Furthermore, the use, operation and sale of encryption devices such as those incorporated
in our transmission systems and services require a license from the Israeli Ministry of
Defense, which we have obtained. The employment of employees that are required to work on
Saturday and Jewish Holidays in Israel requires a special permit from the Israeli Ministry
of Industry, Trade and Labor, which we are in the process of obtaining. These permissions,
authorizations and licenses are subject to periodic renewal. Our principal license from
the Israeli Ministry of Communications for operation of our teleports is scheduled to
expire in July 2008. If our principal license from the Israeli Ministry of
Communications for operation of our teleports is revoked or not renewed, we will not be
able to continue our operations as they are being conducted today.

19

---

---

In
addition, the erection and operation of our Reem teleport site requires building
permits from local and regional zoning authorities, which are granted for limited periods
and are subject to renewal from time to time. The building permit for our Reem
teleport site has expired at the end of February 2008. We have applied to extend the
permit for an additional year but the zoning authority has not yet determined whether to
extend our permit. If our request is not granted, we intend to appeal the decision. There
can be no assurance that the zoning authority will renew the expired permit, or that we
will be able to renew any of our other licenses or permits when they expire, or that we
will be able to obtain any new licenses or permits that may be required for the operation
of our business. If we are unable to renew the building permit for our Reem teleport
site, we could be forced to shut down or relocate our antennas and other equipment
currently located at our principal teleport. Relocation of our principal teleport would
require significant additional capital expenditures. In addition, shutting down or
relocation of our principal teleport could disrupt or diminish the quality of the services
we provide to our customers.

Under
Israeli law, the Israeli Prime Minister and the Ministry of Communications, at the request
of the Ministry of Defense and subject to the approval of the Government of Israel, have
the right to determine by order that certain telecommunications services, including
certain of the services we provide, such as the downlink of broadcasts in Israel, are
vital services. If such an order is issued, the Prime Minister and the Ministry of
Communications, subject to approval of the Government of Israel, may impose various
requirements and limitations that may directly or indirectly affect us. These requirements
and limitations include, among others, limitations on the identity of our shareholders,
requiring that management and control of our company be located in and be carried out in
Israel, obligations to provide information, limitations regarding the identity of our
officers, limitations regarding our corporate reorganization and limitations on transfer
of control of our company. In addition, if such an order is issued with respect to us, the
Israeli Prime Minister and Ministry of Communications may impose limitations on the
transfer of information to certain of our officers and shareholders.

Further,
if the Government of Israel determines that the State of Israel is undergoing a state of
emergency, the Ministry of Communications can expropriate any device that is involved in
the transmission of wireless telegraph information, visual signs or electromagnetic waves.
During such an emergency period, the Ministry of Communications can also enact orders to
sell, buy, erect, use or restrict the operation of any such instrument. Any emergency
appropriation or regulation of communications equipment could result in our equipment or
frequencies required for us to operate our business being used by the State of Israel, or
in our being forced to share with the State of Israel control of equipment or frequencies
required for us to conduct our business.

We
are also required to obtain permits from the Israeli Ministry of Environmental Protection
with regard to our transmission antennae and other radiation generating equipment. If the
Ministry of Environmental Protection were to impose stricter requirements than currently
exist in connection with the renewal of these permits, we may be unable to renew them. In
this event, we could be forced to relocate our antennas and other equipment currently
located at our principal teleport or other teleports, or could be restricted in our
ability to expand our teleports. Relocation of our teleports would require significant
additional capital expenditures. In addition, relocation of our teleports or significant
restrictions on our ability to expand our teleports could disrupt or diminish the quality
of the services we provide to our customers.

Our license from the Israeli
Ministry of Communications to operate our teleports impose certain restrictions on
ownership of our shares. If these restrictions are breached, we could lose our license.

Our
license from the Israeli Ministry of Communications to operate our teleports provides
that, without the consent of the Israeli Ministry of Communications, no direct or indirect
control of RRsat may be acquired and no means of control may be transferred in a manner
that would result in a transfer of control.

20

---

---

In
connection with our initial public offering in November 2006, our license was amended to
provide that our entering into an underwriting agreement for the offering and sale of
shares to the public, listing the shares for trading, and depositing shares with a
depositary was not considered a transfer of means of control. In addition, pursuant to the
amendments, transfers of our shares that do not result in the transfer of control of RRsat
are permitted without the prior approval of the Ministry of Communications, provided that:

| |  | in
the event of a transfer or acquisition of shares without the consent of the Ministry of
Communications, resulting in the transferee becoming a beneficial holder of 5% or more of
our shares or being entitled to a right to appoint a director or the chief executive
officer (or is a director or the chief executive officer), we must notify the Minister
within 21 days of learning of such transfer; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | in
the event of a transfer or acquisition of shares without the consent of the Ministry of
Communications, resulting in the transferee becoming a beneficial holder of 10% or more
of our shares or having significant influence over us (but which does not result in a
transfer of control of RRsat), we must notify the Minister within 21 days of
learning of such transfer and request the consent of the Minister for such transfer.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Should
a shareholder, other than our shareholders prior to our initial public offering in
November 2006, become a beneficial holder of 10% or more of our shares or acquire shares
in an amount resulting in such shareholder having significant influence over us without
receiving the consent of the Minister, its holdings will be converted into dormant shares
for as long as the Ministers consent is required but not obtained. The beneficial
holder of such dormant shares will have no rights other than the right to receive
dividends and other distributions to shareholders and the right to participate in rights
offerings.

Our
articles of association contain the provisions described above, and any revisions to these
provisions in our articles of association may result in the termination of our license
from the Ministry of Communications. For additional information, see Item 4.B.
Information on the Company  Business Overview  Regulation.

Our ability to establish or
acquire our own teleports in countries other than Israel may be restricted by laws
prohibiting or limiting foreign ownership.

In
countries other than Israel, the teleports we use are owned and operated by third
parties. Our customers and these third parties are responsible for obtaining any
necessary licenses, approvals  or operational authority for the
transmission of data and/or audiovisual signals to and from the satellites that we, via
our suppliers, use. Failure by our customers or suppliers to obtain and maintain some or
all regulatory licenses, authorizations or approvals could have a material adverse effect
on our business. We filed applications with the Federal Communications Commission
(FCC) on February 21, 2008 seeking FCC approval to acquire various wireless
and earth station licenses associated with the Hawley Teleport and operate them on a
non-common carrier basis. Comments on or oppositions to the acquisition must be filed with
the FCC by April 4, 2008. As further discussed below, the Department of Justice, The
Department of Homeland Security and the Federal Bureau of Investigation also my review the
applications for national security concerns.

21

---

---

We
intend to expand our presence in markets in which we currently have hosted facilities by
acquiring or establishing our own teleports and production facilities, such as the
agreement we recently entered into in February 2008 to acquire the Hawley Teleport in
Pennsylvania. The United States has restrictions on the foreign ownership of companies
that directly or indirectly hold common carrier wireless licenses, including earth station
licenses that are used to communicate with satellites, that could prevent us from
acquiring or owning our own teleports in the United States to the extent we seek to
operate the teleports on a common carrier basis. In the event that we seek to operate the
teleports on a common carrier basis, U.S. law prohibits more than 20 percent of the
capital stock of a common carrier wireless licensee to be directly owned or voted by
non-U.S. citizens or their representatives, by a foreign government or its representatives
or by a foreign corporation. Additionally, no more than 25 percent of the capital
stock of an entity that directly or indirectly controls a common carrier wireless licensee
may be owned or voted by non-U.S. citizens or their representatives, by a foreign
government or its representatives, or by a foreign corporation, if the FCC finds that
prohibiting such indirect foreign ownership of a common carrier wireless licensee would
serve the public interest. The FCC, however, may allow indirect foreign ownership levels
in excess of 25 percent, and even up to 100 percent, if it finds that the higher
foreign ownership levels are consistent with the public interest. Although the FCC has
adopted a rebuttable presumption in favor of allowing indirect foreign ownership in excess
of 25 percent by investors from World Trade Organization member countries, including
Israel, there can be no assurance that we will be able to obtain a favorable ruling from
the FCC in the future. In addition, the Department of Justice, the Department of Homeland
Security and the Federal Bureau of Investigation review FCC applications to acquire new or
existing wireless licenses and can require the applicant to enter into an agreement
addressing any national security concerns before the license is granted. Restrictions on
foreign ownership of teleports may also exist in other countries in which we would at some
future date like to establish or acquire teleport facilities. If we are not able to
acquire our own teleports in the United States or other countries, our ability to expand
our presence in those markets may be adversely affected.

We
could in the future be subject to new laws, policies or regulations, or changes in the
interpretation or application of existing laws, policies and regulations that modify the
present regulatory environment in Israel, the United States or other countries in which we
may wish to own or operate teleport facilities. For example, a country in which we
currently operate without need of a license could modify its laws or regulations to
require a license, which we may or may not be able to obtain. Similarly, a country in
which we may wish to acquire a teleport could modify its laws or regulations to prohibit
or limit foreign ownership, which could impair our ability to acquire a teleport in that
country. We are not aware, however, of any specific countries contemplating such changes
at present. For additional information, see Item 4.B. Information on the Company
 Business Overview  Regulation.

# Risks Relating to Our
Operations in Israel

Potential political, economic and
military instability in Israel, where our principal teleport and our senior management are
located, may adversely affect our results of operations.

Our
principal teleport and our principal executive offices are located in Israel. Accordingly,
political, economic and military conditions in Israel may directly affect our business.
Since the State of Israel was established in 1948, a number of armed conflicts have
occurred between Israel and its Arab neighbors. Any hostilities involving Israel or the
interruption or curtailment of trade between Israel and its present trading partners, or a
significant downturn in the economic or financial condition of Israel, could adversely
affect our operations. Since October 2000, terrorist violence in Israel has increased
significantly. Recently, there was an escalation in violence among Israel, Hamas, the
Palestinian Authority and other groups, as well as extensive hostilities along
Israels northern border with Lebanon in the summer of 2006, and extensive
hostilities along Israels border with the Gaza Strip since June 2007 when the Hamas
effectively took control of the Gaza Strip, which have intensified since February 2008.
Ongoing and revived hostilities or other Israeli political or economic factors could harm
our operations and cause our revenues to decrease. Furthermore, several countries,
principally those in the Middle East, still restrict business with Israel and Israeli
companies. These restrictive laws and policies may seriously limit our ability to offer
our services to customers in these countries.

Our operations may be disrupted by
the obligations of our personnel to perform military service.

Most
of our employees are obligated to perform several weeks of military reserve duty annually,
and are subject to being called to active duty at any time under emergency circumstances
until they reach middle age. In response to the increase in terrorist activity and
hostilities in the region, there have been, at times, significant call-ups of military
reservists, including in connection with recent hostilities along Israels northern
border with Lebanon, and it is possible that there will be additional call-ups in the
future. Our operations could be disrupted by the absence of a significant number of our
employees related to military service or the absence for extended periods of military
service of one or more of our key employees. A disruption could materially adversely
affect our business.

22

---

---

The tax benefits available to us
under Israeli law require us to meet several conditions, including meeting export goals
and applying plan administration rules, and may be terminated or reduced in the future,
which would increase our taxes.

Since
2006 we have been realizing tax reductions resulting from the approved
enterprise status of our facilities in Israel. To be eligible for these tax
benefits, we must meet conditions, including meeting export goals and applying plan
administration rules. If we fail to meet these conditions in the future, the tax benefits
would be canceled and we could be required to refund any tax benefits we might already
have received. These tax benefits may not be continued in the future at their current
levels, or at any level. In recent years, the Israeli government has reduced the benefits
available and has indicated that it may further reduce or eliminate some of these benefits
in the future. The termination or reduction of these benefits may increase our income tax
expense in the future. See Item 10.D. Additional Information  Taxation 
Taxation in Israel - Law for the Encouragement of Capital Investments,
1959 for more information about our approved enterprise status.

You may have difficulties
enforcing a U.S. judgment against us and our executive officers and directors or asserting
U.S. securities laws claims in Israel.

All
of our directors and executive officers are not residents of the United States and most of
their assets and our assets are located outside the United States. Service of process upon
our non-U.S. resident directors or executive officers and enforcement of judgments
obtained in the United States against us and our directors and executive officers may be
difficult to obtain within the United States. It may be difficult to assert U.S.
securities law claims in original actions instituted in Israel. Israeli courts may refuse
to hear a claim based on a violation of U.S. securities laws because Israel is not the
most appropriate forum in which to bring such a claim. In addition, even if an Israeli
court agrees to hear a claim, it may determine that Israeli law and not U.S. law is
applicable to the claim. If U.S. law is found to be applicable, the substance of the
applicable U.S. law must be proved as a fact, which can be a time-consuming and costly
process. Certain matters of procedure will also be governed by Israeli law. Furthermore,
there is little binding case law in Israel addressing these matters.

Israeli
courts might not enforce judgments rendered outside Israel which may make it difficult to
collect on judgments rendered against us. Subject to certain time limitations, an Israeli
court may declare a foreign civil judgment enforceable only if it finds that:

| |  | the
judgment was rendered by a court which was, according to the laws of the state of the
              court, competent to render the judgment;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
judgment may no longer be appealed;
| | - | ---------------------------------------

| |  | the
obligation imposed by the judgment is enforceable according to the rules relating to the
              enforceability of judgments in Israel and the substance of the judgment is
not contrary               to public policy; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
judgment is executory in the state in which it was given.
| | - | -------------------------------------------------------------

23

---

---

Even
if these conditions are satisfied, an Israeli court will not enforce a foreign judgment if
it was given in a state whose laws do not provide for the enforcement of judgments of
Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice
the sovereignty or security of the State of Israel. An Israeli court also will not declare
a foreign judgment enforceable if:

| |  | the
judgment was obtained by fraud;
| | - | -----------------------------------

| |  | there
is a finding of lack of due process;
| | - | ------------------------------------------

| |  | the
judgment was rendered by a court not competent to render it according to the laws of
              private international law in Israel;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
judgment is at variance with another judgment that was given in the same matter between
              the same parties and that is still valid; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | at
the time the action was brought in the foreign court, a suit in the same matter and
between the same parties was pending before a court or tribunal in Israel.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

24

---

---

|ITEM 4. | INFORMATION ON THE COMPANY
|------- | --------------------------

A.
          History and development of the company

We
were incorporated in Israel in August 1981. We are registered with the Israeli registrar
of companies and our registration number is 51-089629-3. In August 2006, we changed our
corporate name from R.R. Satellite Communications Ltd. to RRsat Global Communications
Network Ltd.

Our
principal executive offices are located at 4 Hagoren Street, Industrial Park, Omer 84965,
Israel, and our telephone number is +972-8-861-0000. Our website address is www.rrsat.com.
Our website address is included in this annual report for textual reference only, and the
information on, or accessible through, our website is not part of this Annual Report.

Our
agent for service of process in the United States is Puglisi & Associates, 850
Library Avenue, Suite 204, Newark, Delaware 19711, tel: 302-738-6680.

See
Items 5 and 18 of this Annual Report for a description of our current principal
capital expenditures and our principal capital expenditures during the last three fiscal
years. We have not made any divestitures during the same time period.

# B. Business overview

# Overview

We
provide global, comprehensive, content management and distribution services to the rapidly
expanding television and radio broadcasting industries. Through our proprietary
RRsat Global Network, composed of satellite and terrestrial fiber optic
transmission capacity and the public Internet, we are able to offer high-quality and
flexible global distribution services for content providers. Our content distribution
services involve the worldwide transmission of video and audio broadcasts over our
state-of-the-art RRsat Global Network infrastructure. Our content management services
involve the digital archiving and sophisticated compilation of a customers
programming and advertising content into one or more broadcast channels, with the ability
to customize broadcast channels by target audience. We then provide automated transmission
services for these channels in accordance with our customers broadcast schedules,
known as playlists. We concurrently provide services to more than 425 television and radio
channels, covering more than 150 countries. We offer continuous distribution services to
channels such as Baby TV, Baby First TV, Fashion TV, MGM, GOD TV, NTD TV, AON TV, BVN TV,
Telemedia Interactv, Kurdsat, Thai Global Network, and Turkish Radio and Television, and
occasional and news distribution services to channels such as Fox News, Israeli Channels
(2, 5 and 10), Al Jazeera and Russia Today. In 2007, we derived approximately 43.7% of our
revenues from European customers (primarily Western Europeans) and approximately 22.3% of
our revenues from North American customers.

25

---

---

The
global content management and distribution services market is rapidly growing.
Technological developments have prompted a rapid acceleration in the pace of introduction
of new broadcasters and have increasingly led broadcasters to target a global audience.
According to Euroconsult, the number of satellite television channels worldwide grew from
approximately 1,000 in 1995 to more than 13,000 in 2005, and is expected to grow to more
than 29,000 television channels by 2013. We believe that the trend towards global
distribution and the need to accommodate the rapid and reliable transmission of the vast
amounts of information underlying the growth in traffic and content call for a network
infrastructure that integrates both satellite-based and terrestrial fiber optic capacity.
Teleports, which allow for such integration, have therefore emerged as the primary
solution for the broadcasting community. According to a 2007 report by the World Teleport
Association, in 2007 the teleport sector generated revenues of approximately
$15 billion per year and was a critical component of the global satellite
communications industry, producing over 24.0% of world satellite services revenue.

Satellite
transmission is currently the preferred method of point-to-multipoint global distribution,
and teleports are the ground-based side of a satellite transmission network. The unique
geographical location of our principal teleport, Reem Teleport, in southern Israel
provides us direct access (via a single connection) to satellites that can transmit
directly to North America, South America, Europe, Asia, Africa and Australia, which
affords us the capability to receive transmissions from and transmit to all the major
population centers in both the Western and Eastern hemispheres from a single location. In
addition to our principal teleport, we operate three auxiliary teleports elsewhere in
Israel. We have also entered into an agreement in February 2008 to acquire the Hawley
Teleport in Pennsylvania. We also utilize hosted teleports (teleports at which the
connectivity and transmission capabilities, and in some cases the equipment and
transmission capacity, are provided by a third party pursuant to a service agreement) in
the United States, Spain, Hong Kong, Serbia, Australia, Argentina, Hungary, Italy and
Russia. These teleports provide continuous and occasional uplink, downlink and turnaround
transmission services. Uplink services consist of the transmission of a broadcast from a
teleport to a satellite, downlink services consist of the reception of a broadcast that is
transmitted from a satellite to a teleport, and turnaround consists of downlinking a
satellite signal and instantaneously uplinking it again, either to transmit a signal
beyond the range of a single satellite or to change the signal from one transmission
bandwidth to another. We transmit to 31 satellites and receive transmissions from 58
satellites that cover every significant population center. Our RRsat Global Network
delivers our customers content to four different end markets: to cable operators and
satellite operators, to the Direct to Home market, and to the public Internet.

In
order to offer a comprehensive solution, our global content distribution network
integrates our teleports with leased satellite transmission capacity, our points of
presence (POPs) with leased terrestrial fiber optic transmission capacity and the public
Internet capacity. We maintain hosted terrestrial points of presence (POPs) in four
continents, with our leased terrestrial fiber optic transmission network linking our
teleports to our points of presence (POPs) in the United States (New Jersey, New York,
Washington DC and Pennsylvania), the United Kingdom, Russia, Israel, Italy, Australia and
Hungary. We also procure public Internet capacity, which we use primarily for monitoring
the quality of our transmissions worldwide, but also as a distribution tool for some of
our customers who transmit Internet protocol television broadcasts.

In
addition to a comprehensive range of content distribution services, we provide
comprehensive content management services for broadcast video and audio. These services
include production and playout services and satellite newsgathering services (SNG). As
part of our playout services we receive our customers content in a variety of media
and load the content onto high-capacity servers and our digital archive, which store tens
of thousands of hours of broadcast video. Our automated playout facility offers a variety
of value-added services, such as the ability to compile a customers discrete
programming and advertising content into a complete broadcast channel. We also compile a
customers content into multiple broadcast channels, allowing the content to be aired
at different times or with different commercials in different geographic markets. We then
provide automated transmission services for these channels in accordance with our
customers specific playlists.

26

---

---

We
also offer our broadcasting customers various production services on a contractual basis.
We provide satellite newsgathering services (SNG) through our fleet of ten fully-equipped
vans for outside broadcasting (live broadcasts made from outside the television studio by
means of portable cameras linked to our vans, which contain the necessary equipment for
broadcasting them back to the production company), in addition to complete electronic news
gathering crews and packages. A related service we provide uses flyaway units, which are
freestanding satellite uplinks that can be disassembled and transported in packing cases
to the scene of an urgent news story to transmit full quality video and audio signals. We
also offer our customers live broadcast studios and editing facilities in Israel.

In
1996, we were granted the first private license for transmission of television and radio
channels via satellite in Israel and started to provide satellite services for Israeli
governmental and commercial channels. In 2000, we began offering global content management
and distribution services, and have grown from distributing 8 channels in 2000 to
distributing more than 425television and radio channels currently. In 2003, we
opened our playout center and today we provide playout services to more than 90 television
channels.

In
February 2008, we entered into an agreement to acquire from Skynet Satellite Corporation
the real property, assets and licenses of the Hawley Teleport located in Pike County,
Pennsylvania, for a purchase price of $4.25 million. The acquisition is scheduled to close
in the second quarter of 2008 and is subject to a 45-day due diligence period, regulatory
approvals and customary closing conditions. We filed applications with the FCC on February
21, 2008 seeking FCC approval to acquire various wireless and earth station licenses
associated with the Hawley Teleport and operate them on a non-common carrier basis.
Comments on or oppositions to the acquisition must be filed with the FCC by April 4, 2008.

Our
business model has historically resulted in growing revenue streams, strong operating cash
flow and growing contracted backlog as described below. Based on the rapid growth in the
broadcast industry and our increasing penetration of this industry, our revenues grew from
$4.4 million in 2000 to $59.2 million in 2007. In order to minimize our capital
expenditures and reduce unused capacity in our network, we lease RRsat Global
Networks transmission capacity instead of owning our own fleet of satellites or
fiber optic network. Our agreements with our customers for content distribution services
typically extend over terms of three to five years, and as of December 31, 2007, we had
contracted backlog totaling $155.5 million through 2016, of which $59.3 million are
related to services expected to be delivered in 2008, and $48.7 million are related
to services expected to be delivered in 2009. Our contracted backlog increased from
$32.6 million as of December 31, 2003 to $41.9 million as of
December 31, 2004, to $91.2 million as of December 31, 2005, to $114
million as of December 31, 2006 and to $155.5 million as of December 31, 2007.

This
Item 10.B. includes statistical data, market data and other industry data and forecasts,
which we obtained from market research, publicly available information and independent
industry publications and reports that we believe to be reliable sources. These industry
publications generally state that they obtain their information from sources that they
believe to be reliable, but they do not guarantee the accuracy and completeness of the
information. We have not independently verified these data nor sought the consent of any
organization to refer to their reports in this Annual Report, and we do not make any
representation as to the accuracy of these data.

# Our Strengths

We
believe that our RRsat Global Network addresses many of the content management and
distribution needs of broadcasting, video distribution and entertainment companies. Our
business is focused on rapidly growing a loyal customer base, while maintaining capital
and operating efficiency. We believe we benefit from the following strengths:

27

---

---

| |  | Optimized
Independent Global Network.  We believe that the topography and
infrastructure neutrality of our proprietary global network offer unique benefits to our
customers. The unique geographical location of our principal teleport in Israel allows us
to structure our network in a star configuration, transmitting via a single satellite
connection (or one hop) from our principal teleport to virtually anywhere in the world
 an advantage that is currently impossible to attain from a single location in the
United States or Western Europe. This allows our customers to broadcast to specific
regions or globally without the added expense of multiple satellite transmissions, and
allows them to add new regions rapidly and cost effectively. We procure our global networks
transmission capacity from a variety of suppliers, which enables us to select the
transponders (the electronic components on satellites that receive uplink transmissions
from earth and retransmit the downlink signal to earth) that are best suited for a
specific customers needs. Similarly, we offer our customers a combination of
distribution media to meet their individual requirements, such as satellite capacity to
certain target audiences and terrestrial fiber optic capacity to other target audiences.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Breadth
of Value-Added Services.  We provide our customers with a complete package
of content management services in addition to content distribution services. These
content management services, which are suitable for both regional and global
broadcasters, differentiate our service offerings, build customer loyalty and expand the
potential for revenue from each customer. Our content management services include playout
services; remote server control to allow customers to control their playlists over the
Internet; encryption services; satellite newsgathering services (SNG); and studio
services. We utilize state-of-the-art equipment in all of our service offerings, allowing
us to provide highly sophisticated, cost-effective and flexible value-added services that
are tailored to our customers specific needs. For example, we can transmit
customized versions of the same channel to different regions of the world, based upon the
preferred viewing hours in the various target markets. Customized broadcasts can be
augmented with the insertion of advertising material by market, with commercials targeted
to each local audience. This provides our customers with the ability to increase their
profits, by generating advertising revenues in multiple target markets during the same
time slot. Moreover, our experienced engineering team and our relationships with
technology and service providers permit us to adapt rapidly to our customers requirements
and to support new technologies, such as Internet protocol television transmissions and
video on demand (VOD).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Significant
Barriers to Entry. We believe that it would be very difficult for a new
competitor to replicate our global network and breadth of value-added services and to
attain significant market share without expending significant time and resources. To
offer global content distribution services, it would be necessary to procure a critical
mass of transponder capacity on multiple satellite platforms, which would entail
negotiations with multiple suppliers. In addition to incurring the cost of the
acquisition of this capacity, a potential new entrant would need to incur a substantial
long-term financial commitment for the capacity, without any assurance of corresponding
revenues (particularly since our business entails a lengthy sales cycle, typically 6 months
to a year, before receipt of a customer commitment). We also benefit from a variety of
economies of scale that derive from the number of customers we have obtained and the
volume of their requirements. For example, by leasing an entire transponder, we can
efficiently offer our services while enjoying the benefits of power efficiency and lower
costs per customer. In addition, we have established a global network infrastructure that
includes fiber optic connections among four continents, a choice and combination of
transmission media, and a star configuration made possible by the unique geographical
location of our principal teleport. We also benefit from an established network of sales
and marketing agents around the world, and from an experienced engineering team that
rapidly incorporates new technologies into our network.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

28

---

---

| |  | Stable
and Predictable Business Model.  Multi-year contracts represent the
majority of our revenues. Most of our customers, whether they use our global network for
content distribution services or content management services, have entered into long-term
contracts with us  as of December 31, 2007 we had a contracted backlog totaling
$155.5 million through 2016, of which $59.3 million are related to services
expected to be delivered in 2008, and $48.7 million are related to services expected
to be delivered in 2009. We also benefit from our existing customersdedication to
our transmission frequencies and in some cases to our transmission encryption, both of
which are unique to our network and would involve high costs in switching to other
service providers. Finally, we believe that our strong customer orientation and our
commitment to providing personalized, responsive and quality service are important
factors in our high level of customer satisfaction.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Low
Cost Structure. We utilize leased satellite and terrestrial fiber optic
transmission capacity. Our approach of leasing capacity rather than owning this
infrastructure minimizes capital expenditures and potential underutilization of assets,
and facilitates our matching of operating expenses with revenues. Consequently, our
network can be expanded substantially without our having to incur significant capital
expenditures. Because of our network design, we have incurred relatively minimal
indebtedness in growing our business. This approach also minimizes the risks associated
with satellite ownership, such as the risks related to satellite launch and maintenance,
and allows us to switch from older satellites to newer satellites without additional
significant investment. We enjoy significant cost benefits by virtue of the fact that we
design our own network and equipment configuration, acquire the individual equipment
components from manufacturers, perform the integration of our digital platforms and
manage our entire network.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Experienced,
Entrepreneurial Management Team. We believe that our senior officers, in
the years since our creation, have demonstrated entrepreneurial orientation, ability to
build a global business and deliver strong operational and financial performance. We
further believe that our management team has capitalized on their experience in the
global content distribution and telecommunications industries and on our strengths to
create an innovative provider of global content management and distribution services with
a strong business model, and to deliver consistent strong growth in revenues and
profitability.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Our Strategy

Our
objective is to utilize our core competencies to expand, enhance and provide innovative
content management and distribution services. We aim to make our RRsat Global Network the
independent content management and distribution network of choice for the global
television and radio broadcasting industries. Our strategy to attain this goal includes
the following principal components:

| |  | Focus
on broadcasters that seek global content management and distribution services. We
target broadcasters that require global content management and distribution service
capabilities, or regional broadcasters that may desire the capability to roll out their
broadcasts globally. These include large global broadcasters as well as significant
regional broadcasters that are looking to expand to global broadcasts. Most of these
broadcasters place a high priority on cost-effective, high quality solutions, and do not
have dedicated in-house capabilities for content management and distribution. As the
RRsat Global Network brand continues to gain recognition and the market increasingly
acknowledges the scope and quality of our services, we also hope to provide a broader
range of services to the largest global broadcasters to whom we already provide certain
services. We have grown from distributing 8 channels in 2000 to distributing more than
425 television and radio channels currently.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

---

---

| |  | Establish
a local presence in key markets. We intend to expand our presence in the
United States, Asia and other markets where we already operate through subcontractors, by
establishing or selectively pursuing the acquisition of local teleports and playout
centers, and connecting them to our global network, such as the agreement we recently
entered into in February 2008 to acquire the Hawley Teleport in Pennsylvania. We believe
that the acquisition of the Hawley Teleport will be a significant first step in our
strategic plan to build a strong local presence in the North American region, and further
expand the footprint of our RRsat Global Network. We expect to continue to expand in the
United States and subsequently in Asia, although the availability of specific
opportunities may alter this sequence.  According to Euroconsult, the
North American market is expected to continue to be by far the most significant broadcast
market in the near term, and also to produce a large quantity of content that is suitable
for global distribution, while a significant growth is forecast for the Asia Pacific
region which we believe does not have a well-developed broadcast infrastructure. We also
intend to expand our direct sales and marketing efforts in conjunction with the
establishment or acquisition of local teleports and playout centers, first in the United
States and later in Asia, while continuing our strategy elsewhere of working with local
marketing and sales agents who are familiar with their local markets, needs and cultures.
We believe that having our own content management and distribution facilities in these
markets will afford us greater control over our operations and allow us to protect
proprietary information relating to our methods of operation, provide direct control over
our relationships with our customers, facilitate our sales and marketing efforts,
increase our profit margins and afford us access to customers for whom the proximity of
our facilities may be an important factor (particularly customers who use our content
management services, since playout services involve a significant degree of interaction
with our customers).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Provide
an expanded range of innovative, value-added services. Our unique and
comprehensive service offerings allow our customers to utilize us as a one-stop shop for
their global content management and distribution needs. We offer sophisticated
value-added services that allow our customers to focus on developing or acquiring content
while we cost-effectively handle distribution and management for them. We intend to
broaden our service offerings and introduce new and innovative value-added services that
are not currently contemplated. We believe that this approach is appealing to customers
who need to focus on producing and acquiring content, and therefore, attracts new
customers, generates additional sources of revenue from existing customers and encourages
customer loyalty.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Expand
and adapt our service offerings to new technologies. The television and
radio broadcasting industries are undergoing significant changes that are leading to the
introduction of multiple technology standards, with the adoption of high definition
television (HDTV) broadcasts, digital video broadcasting over fiber optic cables, digital
video broadcasting via terrestrial transmitters (DVB-T) and Internet protocol television. We
are currently focusing on supporting video on demand (VOD), high definition television
(HDTV) broadcasts, MPEG 4 and Windows Media 9 broadcasting. We intend to invest in
appropriate infrastructure and personnel to allow us to continue to accommodate global
content management and distribution utilizing the latest technologies. This will allow us
to continue to provide comprehensive services to our customers, and in some cases can
reduce our capacity cost per channel.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Expand
strategic relationships with satellite fleet operators. We work closely
with large satellite fleet operators and intend to explore further avenues of
cooperation. We have entered into strategic agreements with Eutelsat, Intelsat, Shin
Satellite and Telesat Canada (formerly Loral Skynet) for the joint marketing of their
capacity and our value-added services. We believe there are additional opportunities for
strategic cooperation with satellite fleet operators in which we provide value-added
services while they provide transmission capacity. For example, we recently entered into
an agreement with Eutelsat that is designed to offer content providers an efficient and
reliable means for reaching Direct to Home customers, cable television headends (cable
television system control centers that receive and process signals for distribution to
subscribers), and hotels and conference centers in Southeast Asia.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30

---

---

# Industry Background

Changes
in the technology, regulation and economics of the communications industry over the past
three decades have presented increasingly complex challenges and opportunities. The
transmission of voice, data and video content has been dramatically altered by changes in
wireline, wireless and IP technologies. Carriers, satellite operators and other
infrastructure providers have each tried to balance the quality and cost of their
respective technologies. Similarly, broadcasters and other content providers have
strategically tried to leverage different technologies and infrastructure to enable the
most effective content delivery.

Broadcasting
Industry Dynamics

There
are a number of current market trends in the broadcasting industry leading to
significantly increased need for global satellite and terrestrial fiber network
distribution, including:

| |  | Globalization
of content. Technological developments, particularly the massive deployment of
satellite dishes and the transition to digital from analog cable, have prompted a rapid
acceleration in the introduction of new broadcasters and have increasingly led
broadcasters to target a global audience. Content providers are increasingly offering
their programming on a global scale. Broadcasters who appeal to a niche market, such as
speakers of a specific language, are now able to reach their target audience worldwide.
These content providers rely upon networks with the ability to distribute across all
continents in order to achieve global scale.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Expanding
channel lineups. In the last decade, numerous new content providers have begun
broadcasting. Competition between networks for audience and revenue dollars and
competition between service providers for customers, as well as satellite providersoffering
local channels and localized content, are all catalysts for a larger number of channels
becoming available. According to Euroconsult, the number of satellite television channels
grew from approximately 1,000 in 1995 to more than 13,000 in 2005, and is expected to
grow to more than 29,000 television channels by 2013. In 2003, there were 677 channels in
the United States that targeted specific ethnic groups. There are also special interest
broadcasters, such as the Baby Channel, a satellite channel that we distribute, which
offers 24-hour a day commercial-free programming created especially for infants and
toddlers under 3 years old. These new channels will lead to a greater volume of
content to be distributed over satellite and terrestrial fiber networks globally.
According to Euroconsult, the number of satellite television channels worldwide is
expected to grow at a 10% compounded annual growth rate from 2004 to 2012.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | New
broadcasting technology. Increased high definition television (HDTV) adoption and
digital simulcast are expected to lead to even greater increases in the number of
channels available. At the same time, the wider adoption of these technologies will
require increased bandwidth, which we believe will amplify the value of infrastructure
providers such as us. The distribution of the new programming for these channels will
require the use of combined satellite-terrestrial fiber optic networks. According to
Informa Telecoms & Media, a market research firm, the number of homes with high
definition television (HDTV) services is expected to increase by a compounded annual
growth rate of 52% from 2005 to 2010.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

31

---

---

| |  | Emergence
of Internet protocol television. New service providers offering video over the public
Internet open the door for new content providers to enter the industry. The provisioning
of a network such as RRsat Global Network, which integrates satellite-based and
terrestrial fiber optic capacity, will be required to accommodate the rapid and reliable
transmission of the vast amounts of information underlying the growth in traffic and
content created by Internet protocol television.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These
developments have been accompanied by strong economic growth and deregulation in many
regions, which is stimulating demand from newly-authorized broadcasters, communication
operators and direct-to-home service providers. Although the North American market is
expected to continue to be the most significant broadcast market in the near term, the
greatest growth is forecast for the Asia Pacific region.

Broadcasting/Video
Distribution over Satellite and Terrestrial Fiber Networks

Broadcasters, video
distribution and other entertainment companies have actively leveraged both satellite and
terrestrial fiber optic networks for a variety of communications and entertainment
applications.

Historically,
broadcasters, video distribution and other entertainment companies have relied heavily on
satellite systems for the bulk of their distribution needs. A satellite has the advantage
of being able to connect multiple points with a single transmission because satellites, in
essence, blanket an entire coverage area with their signal, known as
point-to-multipoint or footprint coverage. Satellite remains the
best method for broadcasters to transmit ad hoc events occurring at remote locations.
These ad hoc events leverage the ability to use short-term satellite capacity and
transportable uplink ground stations. Recent technological innovations, such as high
definition television (HDTV) programming, require far more satellite capacity to transmit
a given amount of content than standard definition programming, and are expected to grow
rapidly (especially in North America) as programmers seek to increase their audiences by
offering sports and other entertainment programming where the high-definition format can
enhance the content.

The
availability of transmission capacity accompanied by the growth in the number of
broadcasters has increasingly led content providers and broadcasters to seek greater
flexibility and a broader array of service offerings. For instance, when uplink services
were provided only by monopoly national carriers, broadcasters had little choice but to
commit to long-term, fixed transmission plans with few value-added services. A content
provider who wanted to expand the geographic scope of its broadcasts needed to negotiate
new terms with the carrier. Since the deployment of terrestrial fiber optic networks in
the late 1990s, broadcasters have selectively turned to fiber-based delivery as an
alternative method of transport for key events and other common broadcasting needs. In
certain regional and trans-regional markets, terrestrial fiber optic networks provide a
more cost-effective alternative for certain types of applications, such as
point-to-point transmissions, than satellite capacity. Terrestrial fiber optic
networks can provide certain benefits for intercontinental delivery of footage from
pre-planned events and for other media activities, such as international video
distribution for pre- and post-production.

Teleports
and Hybrid Satellite-Terrestrial Fiber Networks

Satellites
and terrestrial fiber networks both offer flexible and versatile transmission and
networking, and they lend themselves well to a variety of communications and entertainment
applications. Although often viewed as competing technologies, they are frequently used to
complement each other for specific customer solutions.

In
order to maximize the benefits from these competing and complementary technologies, hybrid
satellite-terrestrial fiber networks have emerged  networks running traffic over
both satellite and terrestrial fiber systems which are interconnected via a gateway at a
teleport facility. While teleports are the ground-based side of the global satellite
network, they also provide terrestrial fiber networks with access to satellite
transponders. Teleports offer comprehensive solutions by interconnecting via owned or
leased terrestrial fiber networks and owned or leased satellite transponders. Teleports
uniquely bridge incompatible systems and protocols and act as the hubs of broadband
business-to-business networks.

32

---

---

Once
providers of basic uplinking and downlinking services, teleports have evolved into
infrastructure providers of value-added complex solutions to the broadcasting community,
ranging from television program production and post-production to content hosting and
distribution, systems integration to network management. According to a 2007 report by the
World Teleport Association, in 2007 the teleport sector generated revenues of
approximately $15 billion per year and was a critical component of the global
satellite communications industry, producing over 24.0% of world satellite services
revenue.

The
current teleport sector consists of four primary types of service providers, all with
different strategies:

| |  | In-house
broadcasters  a limited number of broadcasters that have internal content
distribution and management capabilities, which they continue to use. Because these
in-house operations serve only one customer, and the customers primary focus is
producing rather than distributing or managing the content, these operations have limited
capabilities. Dedicated in-house operations represent an expensive solution that is not
cost effective and not easily scalable.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Telcos  telecommunications
companies, some with business units focused on satellite services. Many of these
companies are relatively minor players on a global basis because they concentrate on a
specific region, and are tied to their own terrestrial network. Due to a lack of focus on
the satellite and broadcasting sectors, these companies have had difficulty reacting to
the dynamic needs of the industry, although some have carved out specialized business
units to focus on satellite services.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Satellite
fleet operators (hybrids)  satellite carriers that had typically offered only
transmission, but which have recently begun to either acquire or partner with teleports
and terrestrial fiber network operators to create a global hybrid network. These carriers
are typically limited to their own satellite fleet, which means that they are limited
geographically, are not network neutral, focus on providing transmission capacity and
generally cannot offer content management services, and are reticent to compete with
their customers who provide value-added services.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Independents  traditional
teleport operators founded by entrepreneurs to exploit the liberalization of satellite
services in major markets. Traditional teleport operators have continued to innovate and
prosper by reacting to the changing needs of customers, but generally do not offer a
comprehensive solution via hybrid satellite-terrestrial fiber networks. Many of them are
relatively small, resulting in less than global reach, inability to scale to meet
customer needs, only limited savings for their customers, and a lack of resources to
invest in supporting emerging technologies.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# The RRsat Solution

We
integrate state-of-the-art content management services with global content distribution
services to offer our customers comprehensive and flexible solutions, which allow our
customers to broadcast to specific regions or expand to global broadcasts in a
cost-effective manner. This is accomplished through services utilizing a combination of
satellite transmission capacity, terrestrial fiber optic transmission capacity and the
public Internet in a manner that is customized for each customer and its changing needs.
We also provide comprehensive production and playout services for broadcast video and
audio, as well as satellite newsgathering services (SNG).

We
operate our principal teleports in Israel, and use hosted teleports in the United States,
Spain, Hong Kong, Serbia, Australia, Argentina, Hungary, Italy and Russia, to provide
global distribution capabilities. We also recently entered into an agreement in February
2008 to acquire the Hawley Teleport in Pennsylvania. Because of Israels unique
geographic location, our teleports are able to transmit to satellites whose footprint, or
geographic signal coverage, extends over the Americas, Europe, Asia, Australasia and
Africa. By contrast, satellite service operators in the United States cannot broadcast
directly from the same location to both the Pacific Rim countries and to Europe, while
satellite service operators in Western Europe cannot broadcast directly to Australasia.
Therefore, other service operators need to transmit using multiple hops, or satellite
connections, which entails additional cost due to the need to procure more than one space
segment.

33

---

---

In
addition, we do not own or operate a fleet of satellites or fiber optic network, which
greatly reduces our capital expenditures. We lease capacity from owners of satellite
fleets and fiber optic network providers, either on terms that obligate us to pay only for
capacity that we actually use or by making a commitment and reserving blocks of capacity.
This results in an efficient expense model that limits our fixed costs. We attempt to
match lease obligations with customer commitments. At the same time, we have the ability
to increase our capacity as and when required to meet customer needs. Because of our
global reach and flexibility, we believe we offer an attractive rollout strategy that
provides comprehensive services to broadcasters who initially wish to broadcast to one
region but anticipate possible expansion into other regions.

Content
Distribution: Uplink, Downlink and Turnaround Services

We are
an innovative provider of comprehensive transmission services to the global broadcasting
industry. We operate teleports that we own and obtain additional teleport services under
subcontract, to provide uplink, downlink and turnaround services including encryption,
encoding, time delay and localization on both a continuous and occasional basis. We
transmit to 31 satellites and receive transmissions from 58 satellites, which allow our
customers content to be distributed to six continents. Broadcasters use our uplink
services to transmit programming to a satellite, from which the programming is distributed
either to a cable television headend (a cable television, or CATV, system control center
that receives and processes signals for distribution to subscribers), to a satellite
television facility or to Direct to Home consumers.

Our
downlink services involve the reception of a broadcast that is transmitted from a
satellite to a teleport. We operate an array of more than 100 satellite dish antennas to
receive broadcasts from Europe, North America, Africa, the Middle East and Asia. These
services are available on a continuous basis, monitoring for special events. We have also
entered into service contracts on a long-term basis that involve dedicated downlinks from
a total of 58 satellites, including those operated by Eutelsat, Intelsat, NSS, ArabSat,
AsiaSat, Spacecom, SES Sirius, Shin, ABS, Telesat, TürkSat, ISRO, RSCC and HellasSat.

Turnaround
services involve the receipt and immediate re-transmission of broadcasts (for instance,
receipt via a downlink or terrestrial fiber optic cables, and re-transmission via an
uplink). This includes channel distribution and backhaul services (services through which
our RRsat Global Network transmits a live feed from a remote location to a
broadcasters central editing and broadcasting facilities), sports feeds, and other
continuous and occasional feeds.

We
provide continuous year-round global distribution services via satellites or terrestrial
fiber optic on a full-time basis to more than 425 television and radio channels. Moreover,
we provide high-quality, flexible, cost-effective and reliable video broadcast on an
occasional basis, with turnaround between any two continents. The satellite capacity
portion of these services can be provided by the customer, or we can book the segment for
the customer.

Our
principal teleport has more than 100 satellite dish antennas, ranging from 1.2 meters in
diameter to 10.0 meters. We have our technical staff on duty 24 hours a day,
7 days a week, 365 days a year, and provide multiple power supplies, including
primary and back-up generators, uninterruptible power supply, independent air conditioning
back-up systems, and automatic fire detection and extinguishing systems.

34

---

---

Our
satellite services provide transmission over C-band (these frequencies, which have
traditionally been used for video broadcasting, are less susceptible to terrestrial and
atmospheric interference but require large antennas), Ku-band (these frequencies have
shorter wavelengths and require more powerful transponders but use smaller dishes for
reception) and Ka-band satellite transmissions (these frequencies have very short
wavelengths and use much smaller dishes for reception, but offer large bandwidth). Our
uplink services cover every significant population center.
This
allows us to offer comprehensive digital direct to home content management and
distribution services to North America, Europe, the Middle East, Asia and Australia.

In
addition to offering services that are based on satellite transmission, we offer our
customers services involving terrestrial fiber connectivity to and from a variety of
international and domestic news services studios in Israel. Our fiber network extends to
four continents, which allows our customers to choose a transmission medium or combination
of media that best serves their individual needs in the most cost-effective manner. We
provide Internet protocol television (IPTV, where a digital television service is
delivered to subscribing consumers using the Internet Protocol over a broadband
connection), DVB-S and DVB-S2 (the first and second generation European standards for
digital video broadcastingsatellite) transmission capabilities. We also have the
capability to support digital video broadcasting via terrestrial transmitters (DVB-T) when
our customers introduce the use of this standard.

Content
Management: Production and Playout Services

We operate
an automated, high-capacity facility for content management services. Our services enable
our customers to easily expand the number of channels they broadcast. We offer our
customers flexible packages, which we deliver with a high degree of redundancy and
availability. Our automated production and playout facilities offer a variety of
value-added services:

Production Services

Satellite
News Gathering. We supplement the fixed uplink services we provide to customers with
mobile and transportable uplink systems that operate throughout Israel, the territories
administered by the Palestinian Authority and elsewhere in the Middle East. Our mobile
satellite broadcasting vans are equipped with both analog and digital capabilities, with
their own generators and uninterruptible power supply systems for high reliability.

Flyaway
Systems. We also maintain a full array of transportable flyaway systems, which are
freestanding satellite uplink systems that can be disassembled and transported in packing
cases to the scene of an urgent news story (these have been used primarily in Africa and
in remote regions of Europe). Unlike satellite phone links, the flyaway systems provide
full quality video and audio signals.

Electrical
News Gathering Crews and Packages. For the customers who use our satellite
newsgathering systems and the portable cameras linked to our satellite newsgathering vans,
we provide all of the equipment and other crew members needed for external news gathering
 cameras, camera operators, audio kits, audio engineers, lighting kits and an audio
mixer. Customers who use our external newsgathering services only need to provide their
own reporters. These production services supplement our customers on-the-ground
broadcasting capabilities.

Studio
Facilities. We offer a comprehensive range of studio services for broadcast video. We
maintain terrestrial fiber optic connections on a full-time basis to various studios in
Israel and the region, and we can obtain these studios for our customers use when
needed. We recently established a Jerusalem studio facility, which is located to allow our
customers to broadcast news reports against various familiar Jerusalem backgrounds

35

---

---

Edit
Suites. We also offer our customers extensive editing facilities in Israel to support
their broadcasts, which provide them with all the equipment necessary for editing their
programs, advertisements and promos.

Playout Services

Digital
Storage and Archive. We generally receive content directly from broadcasters on
digital media (tapes or CDs), by satellite transmission, over leased terrestrial fiber
optic telecommunications lines, over a broadband Internet connection, or through SmartJog,
a global distribution and file transfer platform for content delivery. In some cases the
content is received from our fleet of mobile satellite newsgathering units. Content that
arrives on tapes or CDs is loaded onto our high-capacity servers and our digital archive,
which store tens of thousands of hours of broadcast video.

Play-out
and Play-lists. We compile a customers discrete programming and advertising
content into a complete broadcast channel. We also compile a customers content into
multiple broadcast channels, allowing the content to be aired at different times or with
different commercials in different geographic markets. These broadcast variations can be
augmented with the insertion of advertisements by market, with advertisements geared to
each local audience. We then provide automated transmission services for these channels in
accordance with our customers specific playlists.

Audio
Dubbing. We offer our customers the possibility to transmit the same program in
different languages, by providing them with multi audio channels together with their video
channel. This allows our customers to use the same transmission in multiple target
markets.

Subtitling.           We
offer our customers the possibility to provide their audiences with subtitles
          in a variety of languages. This also allows our customers to enhance their
          services while using the same transmission in multiple target markets.

Time
Delay. We offer our customers a time delay service for their transmitted channels,
which enables the content to be aired at different times in different geographic
markets.

Standard
Conversion. We provide our customers with fully-managed, multi-channel devices for
tape playout, compatible with all broadcast formats (NTSC, PAL and SECAM). Our services
include conversion from one format to another, depending on the target markets to which
our customers wish to broadcast.

Encryption/Encoding.           For
customers for whom investing in their own encryption system would not be
          economical, we provide in-house encryption and encoding capabilities, based
upon           technology that we license from a third party.

Character
Generator and SMS Insertions. This service permits our customers to insert various
market-specific captions during a program, including advertisements and announcements
received from viewers by SMS phone messages, thereby allowing our customers to
generate additional revenues from advertisements and SMS charges.

Network
Supervision. We offer remote monitoring and control services, mostly through the
public Internet, which allow our customers to supervise and alter the broadcasts that are
transmitted from our facilities, remotely from their own facilities.

36

---

---

Master
Control Room/Control Satellite Center. We continuously monitor and control all signals
going out and all signals received from satellites through our control room, which is
manned 24 hours a day, 7 days a week.

# Network

Our
RRsat Global Network comprises various leased satellite platforms, terrestrial fiber optic
capacity and the use of the public Internet. Our principal teleport in Reem and the
teleport services that we receive under subcontract allow us to provide uplink and
turnaround services to 31 satellites and downlink services from 58 satellites. Some of
these satellites provide coverage for more than one region, and in some cases we lease
multiple transponders on a satellite to achieve coverage of multiple regions.

The
following table lists the satellites from which we lease capacity by their primary
regional coverage:

RRsat Global Network -- Satellite Component

|Europe           | North America | Asia             | MiddleEast       | Africa         | SouthAmerica | Australia      
|---------------- | ------------- | ---------------- | ---------------- | -------------- | ------------ | ---------------
|
|
|
|
|Amos-1           | Galaxy-25     | Eutelsat-W5      | Amos-1           | AtlanticBird-1 | Intelsat-907 | Insat-2E(APR-1)
|Amos-2           | Intelsat-907  | Insat-2E (APR-1) | Amos-2           | Turksat-2A     | Galaxy-23    | Intelsat-10    
|AtlanticBird-1   | AMC-4         | Intelsat-4       | AtlanticBird-1   | Turksat-1C     | Hispasat-1C  | Thaicom-5      
|Turksat-2A       | Galaxy-23     | Intelsat-10      | Turksat-2A       | Intelsat-10    |              | Optus-D2       
|Eutelsat-W1      | Hispasat-1C   | Thaicom-5        | Hotbird-6        | Intelsat-4     |              | NSS-6          
|Hotbird-7A       |               | Telstar-10       | Hotbird-8        | Thaicom-5      |              |                
|Hotbird-6        |               | Asiasat-3S       | Insat-2E         | Intelsat 902   |              |                
|Hotbird-8        |               | Intelsat 902     | Intelsat-10      | Express A4     |              |                
|Turksat-1C       |               | ABS-1            | Thaicom-5        |                |              |                
|Eutelsat-W2      |               |                  | Eutelsat-W1      |                |              |                
|Eurobird-9       |               |                  | Yamal-201        |                |              |                
|Eutelsat Sesat 1 |               |                  | Turksat-1C       |                |              |                
|                 |               |                  | AtlanticBird-4   |                |              |                
|                 |               |                  | Eurobird-9       |                |              |                
|                 |               |                  | Eutelsat Sesat 1 |                |              |                
|                 |               |                  | Express A4       |                |              |                

A
significant portion of the satellite capacity we use (approximately 29.2% as of December
31, 2007) is leased through the agreements described below with British Telecommunications
plc, Eutelsat S.A., Intelsat Global Sales & Marketing Ltd. and The
Türksat Satellite Operator Company:

| |  | British
Telecommunications  British Telecommunications subleases us capacity on the
Hotbird-8 Satellite, which primarily covers Europe. This sublease, providing 6.3% of our
total satellite capacity as of December 31, 2007, extends for five and one half years and
expires in October 2009.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Eutelsat
 Eutelsat leases us capacity on the Hotbird-6 Satellite, which also primarily
covers Europe. This lease, providing 7.2% of our total satellite capacity as of December
31, 2007, extends for 12 years and expires in September 2014, but may be
terminated by either party without penalty after October 1, 2010.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Intelsat
 Intelsat leases us capacity on the Galaxy-25 Satellite, which primarily covers
North America. This lease, providing 5.1% of our total satellite capacity as of December
31, 2007, extends for 10 years and expires in July 2015, but may be terminated
by us without penalty on July 1, 2010. In October 2007, we entered into an agreement
with Intelsat for the lease of additional capacity on the Galaxy-25 Satellite, thus
providing for approximately 3.8% of our total satellite capacity as of December 31, 2007.
This lease extends for 7 years and 9 months and expires in June 2015, but may be
terminated by us without penalty on October 1, 2012.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

37

---

---

| |  | Türksat
 Türksat subleases us capacity on the Hotbird-6 Satellite, which primarily
covers Europe. This sublease, providing 6.8% of our total satellite capacity as of
December 31, 2007, extends for 5 years and expires in November 2010, but may be
terminated by RRsat with one years notice and payment of a termination penalty.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Each
of these agreements is subject to termination in the event of an uncured breach by the
other party.

At
our principal Reem teleport, we operate an array of more than 100 satellite dish
antennas, ranging from 1.2 meters in diameter to 10.0 meters in diameter. In addition to
our principal teleport, we own three auxiliary teleports elsewhere in Israel (Herzliya,
Jerusalem and Tel-Aviv) and utilize hosted teleports in the United States, Spain, Hong
Kong, Serbia, Australia, Argentina, Hungary, Italy, and Russia.

We
maintain hosted terrestrial points of presence (POPs) in four continents, with our leased
terrestrial fiber optic transmission network linking our teleports to our points of
presence (POPs) in the United States (New Jersey, New York, Washington DC and
Pennsylvania), the United Kingdom, Russia, Israel, Italy, Australia and Hungary.

Our
network is an all Internet Protocol network, regardless of whether we are transmitting via
satellite or over terrestrial fiber optics or the Internet. Our uplink, downlink and
turnaround services have been ISO 9001:2000 certified since 2002, which indicates that an
independent firm certified that we have complied with the quality of service standards
developed by the International Organization for Standardization.

Our
network services costs amounted to $15.2 million in 2005, $22million in 2006
and $30.5 million in 2007. As of December 31, 2007, our contractual commitments for the
next five years under our operating network leases amounted to $98 million.

# Customers

Content
providers who use our RRsat Global Network include commercial broadcasters,
government-sponsored broadcasters and religious broadcasters. In 2007, we had more than
300 continuous and occasional customers. Our top ten customers represented 41.0%, 42.4%
and 39.5% of our revenues in 2005, 2006 and 2007, respectively, and no single customer
accounted for more than 9.0%, 6.7% and 6.6% of our revenues during each of these periods,
respectively. For some broadcasters, we provide transmission services for their content
24 hours a day, 7 days a week on a continuous basis, while for others we provide
transmission services for a portion of their content or we transmit their content on an
occasional basis.

The
following table alphabetically lists the top channels to which we provide services in each
category (based on the amount of revenues we generate from servicing each channel; in
cases where these channels acquire our services through intermediaries, the ranking is
based on the amounts that we receive per channel, rather than the amounts that may be paid
by the channels to the intermediaries):

38

---

---

Representative Channels

|Channels for which we provide Continuous Services | Channels for which weprovide Occasional ServicesNews Channels
|------------------------------------------------- | -------------------------------------------------------------
|
|
|
|
|Baby TV                                           | Arirang TV (South Korea)                                     
|Baby First TV                                     | IBA CH-33 (Israel)                                           
|Telemedia InteracTV                               | BVN TV (The Netherlands)                                     
|Conto TV                                          | Kurdsat                                                      
|Fashion TV                                        | MRTV (Myanmar)                                               
|NTD TV                                            | Thai Global Network                                          
|MGM                                               | Turkish Radio and Television                                 
|Music Box                                         | VTV-4 (Vietnam)                                              
|The Israeli Channel                               |                                                              

# Contracted Backlog and
Agreements

Our
agreements with our customers generally extend over terms of three to five years, with an
automatic renewal option for an additional two to five years. As of December 31, 2007, we
had contracted backlog totaling $155.5 million through 2016, of which $59.3 million
are related to services expected to be delivered in 2008, and $48.7 million are
related to services expected to be delivered in 2009. Contracted backlog represents the
actual dollar amount (without discounting to present value) of the expected future
revenues to be received from customers under all long-term contractual agreements. As of
December 31, 2007 the average remaining duration of our contracted backlog, based on a
weighted average basis, was approximately two and a half years. For additional information
regarding our contracted backlog, see Item 5.A. Operating and Financial Review and
Prospects  Operating Results  Overview.

As
of December 31, 2007 we had 217 major long-term service contracts with 125 customers, of
which 37 are due for renewal in the next 12 months. The pricing is typically project
based. Most of our contracts with customers are denominated in U.S. dollars, Euros or NIS,
with the currency of the customer contract generally the same as the currency in which we
are required to pay for the related satellite transmission capacity. Approximately 86% of
our agreements follow a take or pay format, under which the customer is
responsible for the payments over the entire term of the agreement even if the customer
terminates the agreement prior to expiration.

# Sales and Marketing

Our
sales and marketing strategy is to tailor cost-effective solutions to customers
needs based on geographic reach and technical suitability. We market and sell our services
directly to broadcasters. Prospective customers include those who are already broadcasting
through satellite transmission providers, those who are broadcasting through terrestrial
means and wish to initiate satellite transmissions, and potential broadcasters who have
not yet begun transmitting through either terrestrial or satellite means. We strive to
present comprehensive solutions that reflect the optimal medium or media (satellite and
terrestrial fiber optic transmission) for the customers specific requirements.

We
use a combination of a direct sales force and a network of third party agents and
representatives. Our sales force and marketing team are based in Israel and in the United
States, and each sales manager is assigned a geographic region. In addition, certain
members of the marketing and sales team focus on specific needs within the broadcasting
industry, such as mobile satellite broadcasting, occasional use and production services.
We assign a sales representative to maintain the relationship with each customer. The
sales representative works together with our technical department to ensure that we
understand the customers business and needs. They are supplemented by local agents
and representatives, who provide familiarity with the local market and in some cases
specialized technical knowledge.

Strategic
agreements with satellite fleet operators are an additional avenue by which we market our
services. We have entered into strategic agreements with several satellite fleet
operators, pursuant to which we jointly market our services. These agreements generally
provide for the satellite fleet operators to market our value-added playout and production
services to their customers, and in return we receive preferential rates on the related
satellite transmission capacity.

39

---

---

For
example, we have entered into strategic arrangements with Eutelsat, Intelsat, Shin
Satellite and Telesat Canada:

| |  | Eutelsat
(Cross-Sale)  We have joined forces with Eutelsat to offer content providers
efficient and reliable means for reaching Direct to Home platforms, cable headends,
hotels and conference centers in south-east Asia using our digital video platform that
utilizes Ku-bank capacity on Eutelsat-W5 satellite. We have agreed to pay Eutelsat for
the capacity used by us in accordance with a pre-defined schedule. This agreement was
automatically extended through September 2008 and provides for three automatic
renewal periods of one year each.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Intelsat
(Joint Marketing)  We have launched a Pan-Asian distribution platform using the
Insat-2E (Intelsat APR-1) satellite. This platform enables broadcasters and programmers
to target cable headends across most of Asia, including India and Australia, using just
one satellite. We agreed with Intelsat to jointly market content management and
distribution services based on satellite capacity we lease from Intelsat. The agreement
provides that we will make certain payments to Intelsat for the leased capacity and
Intelsat will pay us to the extent it sells any of the services. This agreement extends
through April 2011.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Shin
Satellite (Cross-Sale)  We have joined forces with Shin Satellite to cooperate
in packaging comprehensive transmission solutions for broadcasters and others acquiring
satellite distribution using C-band capacity in Asia, Africa and Australia. The
agreement, which extends through July 2008, provides that, during testing periods of
potential customers, Shin Satellite will provide our potential customers with satellite
capacity at no charge and we will provide Shin Satellites potential customers with
teleport service at no charge.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Telesat
Canada (Cooperation)  We have launched a distribution platform using the
Telstar-10 satellite. This platform enables broadcasters and programmers to target cable
headends across most of Africa and Asia, including India and Australia, using one
satellite. We agreed with Telesat Canada to jointly market content management and
distribution services in conjunction with the satellite capacity we lease from Telesat
Canada. The agreement provides that we make certain payments to Telesat Canada for the
leased capacity and Telesat Canada pays us to the extent it sells any of our services.
This agreement extends through June 2010 and provides for automatic renewal periods of
one year each, unless terminated by either party.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
also market our services by means of our corporate website (www.rrsat.com), advertisements
in trade journals and on third party websites related to the satellite industry, and
participation in industry tradeshows.

We
are active in industry organizations, and we are a member of the World Teleport
Association and the Institute of Electrical and Electronics Engineers (IEEE).

# Competition

We
primarily compete in the market for content distribution services over satellite and
terrestrial fiber networks. This content distribution services market consists of four
types of service providers: in-house distribution departments of broadcasters,
telecommunications companies, satellite fleet operators (hybrids) and independent teleport
operators. Each of these service providers allows for the distribution of content and some
also provide certain content management services. We do not offer pure transmission
capacity or connectivity to the general public and do not compete with telecommunications
companies and satellite fleet operators for this business. As a provider of global,
comprehensive, content management and distribution services, we believe that our most
significant and direct competitor are GlobeCast, which is a subsidiary of France Telecom,
and Arqiva Limited, a subsidiary of Macquarie UK Broadcast Holdings Ltd.

40

---

---

Most
of our customers are broadcasters. A limited number of broadcasters, such as CNN, Fox and
Sky, have internal content management and distribution capabilities, and therefore will
not seek our services except on an occasional basis. However, we believe that most
broadcasters who do not currently possess these capabilities will not establish their own
content management and distribution systems since dedicated in-house operations represent
an expensive solution that is not cost effective and not easily scalable.

We
also compete indirectly with telecommunications companies such as Telespazio (an Italian
telecommunications provider), Vyvx (owned by Level 3) and Telefónica S.A. (the
incumbent Spanish telecommunications provider) in Europe, and REACH and Singapore
Telecommunications in Asia, to the extent that they offer content management and
distribution services. We believe that our competition with these companies is limited
since they are tied to their own terrestrial network and mainly provide regional
broadcasting while we focus on the provision of global content management and distribution
service. In addition, Bezeq  The Israel Telecommunications Corp. Ltd., the
principal domestic telecommunications provider in Israel, which is owned by a private
consortium, has announced its intention to sell its principal teleport at Emek HaEla
in Israel. The primary asset of this teleport is Inmarsat station 711, which provides
telephony communication to ships and mobile devices, but the teleport could be used or
expanded to provide video and audio transmission services, in which case it may be
employed to compete with us.

Satellite
carriers that had typically offered only transmission have recently begun to either
acquire or partner with teleports and terrestrial fiber network operators to create a
global hybrid network. Since we offer our customers a global network, then to the extent
they expect their activities to include value added services, these ventures pose direct
competition to our business. Nevertheless, these carriers usually do not provide the
comprehensive range of value-added services that we offer, mainly since they focus on
providing transmission capacity and are reticent to compete with their customers who
provide value added services. In addition, these carriers are typically limited to their
own satellite fleet, which means that they are limited geographically and are not network
neutral. The satellite carriers that offer some value added services with which we compete
include Intelsat and SES Americom. In addition to our direct competitors, numerous
companies and governments that operate global or regional fleets of satellites in the
United States, Latin America, Europe, the Middle East, Africa and Asia may recommend
individual teleport operators and service providers (who are our competitors in providing
value-added services and service packages) with whom they have relationships. The largest
of these fleet operators are Eutelsat, Intelsat, New Skies Satellites N.V. and SES Global.

In
addition, we compete with independent teleport operators that were founded by
entrepreneurs to exploit the liberalization of satellite services in major markets. These
operators include companies such as Crawford Communications, Ascent Media, Arqiva and
Teleport Internacional Buenos Aires. The specialized business units that were carved out
of large telecommunication companies, such as GlobeCast, which is a subsidiary of France
Telecom, may also be considered as an independent, mainly due to their global network and
ability to innovate and react to the changing needs of customers. In addition, we face
limited competition in providing content management and distribution services from Satlink
Communications Ltd., an Israeli corporation, whose shareholders are GlobeCast,
Eurocom (an Israeli telecommunications group) and Barak (an Israeli Internet and
international telephony service provider). We believe that the independent teleport
operators generally do not offer a comprehensive solution via hybrid satellite-terrestrial
fiber networks such as the one offered by our RRsat Global Network. In addition, with the
exception of GlobeCast and Arqiva, many of the independent operators are relatively small,
resulting in less than global reach, inability to scale to meet customer needs, only
limited savings for their customers, and a lack of resources to invest in supporting
emerging technologies.

41

---

---

We
benefit from the current excess capacity that exists with respect to satellite and
terrestrial fiber optic transmission networks. We lease satellite and terrestrial fiber
optic capacity and offer this capacity as part of a package together with our other
services. The current excess capacity in satellite and terrestrial fiber optic
transmission capacity allows us to lease and offer capacity on competitive terms. We would
be adversely affected were the amount of satellite and terrestrial fiber optic excess
capacity available for video and audio broadcast to decrease, since satellite fleet
operators and terrestrial fiber optic networks might engage in aggressive price
competition and offer our current and potential customers more attractive prices for
capacity than we can offer them. In this case, our current and potential customers may
prefer to obtain capacity directly from our suppliers of capacity rather than procuring a
package of services from us.

In
certain situations, the global content distribution services provided by one vendor may be
indistinguishable in quality from those provided by another. In these situations, the
largest global broadcasters may be influenced by the size and reputation of the service
provider, while pricing can be the most important competitive factor for other
broadcasters. In certain markets, the purchase of satellite transmission capacity may be
influenced by factors in addition to price. Such competitive factors include: a
satellites technical capabilities, power, capacity, permitted frequencies of
operation, broadcast coverage, health, estimated end of life and availability of
additional capacity, the provision of ancillary services by the operator, and the other
users of the satellite. In addition, purchase decisions may be based upon the satellite
operators country of origin and ownership. The low marginal cost of providing
transmission capacity once a satellite is operating could result in adverse pricing
pressure and reductions in anticipated profits. Because customer contracts are generally
for terms of five years or more, there is limited movement of existing customers from one
service provider to another.

# Regulation

Satellite
and fiber optic transmission services are highly regulated industries, both in Israel and
internationally. Obtaining and maintaining the required approvals can involve significant
time and expense. If we fail to obtain particular regulatory approvals, this failure may
delay or prevent our ability to provide services to our customers. In addition, the laws
and regulations to which we are subject could change at any time. The countries,
territories and institutions that regulate us could adopt new laws, policies or
regulations or change their interpretation of existing laws, policies or regulations at
any time. Any of these changes could make it more difficult for us to obtain or maintain
our regulatory approvals or could cause our existing authorizations to be revoked or
terminated. If we fail to obtain regulatory authorizations important to our current
business or our business strategy, this failure could result in decreased revenue,
increased costs and a decline in our profitability.

We
are also subject to fees associated with the regulatory and licensing requirements
discussed above. The countries, territories and institutions that regulate us could change
these fees at any time. Significant increases in the fees to which we are subject in a
particular jurisdiction could negatively impact our plans to provide services in that
jurisdiction or our profitability.

# Israeli Regulation

Ministry of Communications

The
Israeli Ministry of Communications is responsible for granting licenses for the use of
satellite transponders and for the lease of satellite transmission capacity to our
customers, as well as granting us the right to use radio frequencies for the reception,
transmission and turnaround of video, audio and combined signals. The Israeli Ministry of
Communications is also responsible for granting licenses for the operation, installation,
construction and existence of any device for the transmission or reception of signals,
signs and other information by optical or electro-magnetic means in Israel, to the extent
not exempted from such requirement. Our current license is scheduled to expire on
July 31, 2008. The Ministry of Communications has also granted us a trade license
pursuant to the Wireless Telegraphy Ordinance. This license, mandated by our main
operating license, regulates issues of importing communication equipment to Israel and
servicing and trading in equipment, infrastructure and auxiliary equipment in Israel.

42

---

---

Our
license from the Israeli Ministry of Communications to operate our teleports provides
that, without the consent of the Israeli Ministry of Communications, no direct or indirect
control of RRsat may be acquired and no means of control may be transferred in a manner
that would result in a transfer of control.

In
connection with our initial public offering in November 2006, our license was amended to
provide that our entering into an underwriting agreement for that offering and sale of
shares to the public, listing the shares for trading, and depositing shares with a
depositary was not considered a transfer of means of control. In addition, pursuant to the
amendments, transfers of our shares (or other traded means of control, that
is, means of control which have been listed for trade or offered through a prospectus and
are held by the public) that do not result in the transfer of control of RRsat are
permitted without the prior approval of the Ministry of Communications, provided that:

| |  | in
the event of a transfer or acquisition of shares without the consent of the Ministry of
Communications, resulting in the transferee becoming a beneficial holder of 5% or more of
our shares or being entitled to a right to appoint a director or the chief executive
officer (or is a director or the chief executive officer), we must notify the Minister
within 21 days of learning of such transfer; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | in
the event of a transfer or acquisition of shares without the consent of the Ministry of
Communications, resulting in the transferee becoming a beneficial holder of 10% or more
of our shares or having significant influence over us (but which does not result in a
transfer of control of RRsat), we must notify the Minister within 21 days of
learning of such transfer and request the consent of the Minister for such transfer.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Should
a shareholder, other than our shareholders prior to our initial public offering, become a
beneficial holder of 10% or more of our shares or acquire shares in an amount resulting in
such shareholder having significant influence over us without receiving the consent of the
Minister, its holdings will be converted into dormant shares for as long as the
Ministers consent is required but not obtained. The beneficial holder of such
dormant shares will have no rights other than the right to receive dividends and other
distributions to shareholders and the right to participate in rights offerings.

In
accordance with the provisions of our amended license, any shareholder seeking to vote at
a general meeting of our shareholders must notify us prior to the meeting whether or not
its beneficial holdings are subject to the consent of the Ministry of Communications in
view of the restrictions on transfer or acquisition of means of control imposed by the
license. If the shareholder does not provide such notice, its instructions shall be
invalid and its vote shall not be counted.

As
long as our articles of association include the provisions described above and we act in
accordance with such provisions, the breach of these provisions by our shareholders in a
manner that could cause their beneficial holdings to be converted into dormant shares will
not serve in and of itself as the basis for the revocation of our license. Our articles of
association contain the provisions described above.

43

---

---

The
amendments to our license that provide for the dormant shares mechanism described above do
not apply to our shareholders prior to our initial public offering.

Under
Israeli law, the Israeli Prime Minister and the Ministry of Communications, at the request
of the Ministry of Defense and subject to the approval of the Government of Israel, have
the right to determine by order that the use of radio frequencies required to perform
tracking, telemetry, command and monitoring services of satellites, as well as for the
downlink of imagery data in Israel, is a vital service. If such an order is issued, the
Prime Minister and the Ministry of Communications, subject to approval of the government
of Israel, may impose various requirements and limitations that may directly or indirectly
affect us. These requirements and limitations include, among others, limitations on the
identity of our shareholders, requiring that management and control of our company be
carried out in Israel, obligations to provide information, limitations regarding the
identity of our officers, limitations regarding our corporate reorganization and
limitations on transfer of control of our company. In addition, if such an order is issued
with respect to us, the Israeli Prime Minister and Ministry of Communications may impose
limitations on the transfer of information to certain of our officers and shareholders.

Further,
if the Government of Israel determines that the State of Israel is undergoing a state of
emergency, the Ministry of Communications can expropriate any device that is involved in
the transmission of wireless telegraph information, visual signs or electromagnetic waves.
During such an emergency period, the Ministry of Communications can also enact orders to
sell, buy, erect, use or restrict the operation of any such instrument. Any emergency
appropriation or regulation of communications equipment could result in our equipment or
frequencies required for us to operate our business being used by the State of Israel, or
in our being forced to share with the State of Israel control of equipment or frequencies
required for us to conduct our business.

To
date we have been able to obtain all necessary telecommunications licenses for the conduct
of our business, but there can be no assurance that we will be able to renew or maintain
the necessary licenses in the future.

Ministry of Environmental
Protection

Pursuant
to the Pharmacists (Radioactive Elements and Products) Regulations, 1980, or the
Pharmacists Regulations, issued under the Pharmaceutics Ordinance, the Ministry of
Environmental Protection is empowered to grant erection permits and operation permits for
our antennas and other radiation generating equipment. The Ministry of Environmental
Protection has adopted the International Radiation Protection Agencys standard as a
basis for the consents it gives for the erection and operation of antennas.

We
have received a permit from the Ministry of Environmental Protection with regard to our
transmission antennae and other radiation generating equipment, effective through
September 2012. We have retained the Radiation Safety Division of the Committee for Atomic
Energy to perform regular inspections of our facilities, and to certify that we comply
with the guidelines recommended by the International Commission on Non-Ionizing Radiation
Protection.

The
Non-Ionizing Radiation Law (5766-2006), enacted on January 1, 2006, defines the
various powers of the Ministry of the Environmental Protection as they relate, among other
things, to the grant of permits for antenna sites, and sets standards for permitted levels
of non-ionizing radiation emissions and reporting procedures. Pursuant to this law, which
went into effect on January 1, 2007, a request for an operating permit from the
Ministry of Environmental Protection with respect to either new sites or existing sites
requires a building permit for such site(s). Operation of an antenna site without a permit
from the Ministry of Environmental Protection may result in criminal and civil liability
to us or to our officers and directors.

44

---

---

Local Building and Zoning
Permits

The
Planning and Building Law requires that we receive a building permit for the construction
of most of our antennas. The local committee or local licensing authority in each local
authority is authorized to grant building permits. The local committee examines the manner
in which an application for a building permit conforms to the plans applying to the parcel
of land that is the subject of the application, and the extent to which the applicant
meets the requirements set forth in the Planning and Building Law.

The
erection and operation of our Reem teleport site requires building permits from
local and regional zoning authorities. The building permit for our Reem teleport
site has expired at the end of February 2008. We have applied to extend the permit
for an additional year but the zoning authority has not yet determined whether to extend
our permit. If our request is not granted, we intend to appeal the decision. There can be
no assurance that the zoning authority will renew the expired permit, or that we will be
able to renew any of our other licenses or permits when they expire, or that we will be
able to obtain any new licenses or permits that may be required for the operation of our
business.

We
lease an additional approximately 56,000 square feet pursuant to a lease that was entered
into in June 2004 and which expires in June 2013, following our exercise of an extension
option. We currently do not have satellite dishes on this site. If we decide to use this
site in the future for our satellite dish antennas or other services, we will be required
to obtain certain permits and licenses from local and regional zoning authorities.

Other Licenses and Permits

The
use, operation and sale of encryption devices such as those incorporated in our
transmission systems and services require a license from the Israeli Ministry of Defense,
which we have obtained.

The
employment of employees that are required to work on Saturday and Jewish Holidays in
Israel requires a special permit from the Israeli Ministry of Industry, Trade and Labor,
which we are in the process of obtaining. We believe that we will be able to obtain the
permit.

# International Regulation

We
are subject to the regulatory regime of each country in which we propose to provide our
services. The laws and regulatory requirements regulating access to satellite systems vary
from country to country. Some countries have substantially deregulated satellite
communications, while other countries maintain strict monopoly regimes. The application
procedure can be time-consuming and costly, and the terms of licenses vary for different
countries.

The
teleports we use in countries other than Israel are owned and operated by third parties.
We believe our customers and these third parties are responsible for obtaining any
necessary licenses, approvals or operational authority for the transmission of data to and
from the satellites that we, via our suppliers, use. Failure by our customers or suppliers
to obtain and maintain some or all regulatory licenses, authorizations or approvals could
have a material adverse effect on our business.

Although
we believe that we, our customers or our suppliers, as the case may be, will be able to
obtain all required licenses and authorizations and comply with applicable laws, treaties
and regulations necessary to operate effectively, there can be no assurance that we or
they will be successful in doing so.

In
the event that we seek to own and operate teleports in countries other than Israel, we may
be required by those countries to obtain appropriate licenses, approvals, or operational
authority to own and operate earth stations and other teleport facilities.

45

---

---

In
the United States, the FCC regulates satellite and other radiocommunication services.
Entities seeking to operate an earth station or other radiocommunication facility in the
United States must obtain a license from the FCC under Title III of the Communications Act
of 1934, as amended (the Communications Act). We could seek to obtain such a
license on either a common carrier or private carrier basis. In connection with our
February 2008 agreement to acquire the Hawley Teleport in Pennsylvania, we filed
applications with the FCC on February 21, 2008 seeking FCC approval to acquire various
wireless and earth station licenses associated with the Hawley Teleport and operate them
on a non-common carrier basis. Comments on or oppositions to the acquisition must be filed
with the FCC by April 4, 2008. As further discussed below, the Department of Justice, The
Department of Homeland Security and the Federal Bureau of Investigation also my review the
applications for national security concerns.

The
United States has restrictions on the foreign ownership of companies directly or
indirectly holding common carrier wireless licenses that could prevent us from acquiring
or owning our own teleports in the United States to the extent that we seek to operate any
teleport radiocommunication facilities on a common carrier basis. In particular, U.S. law
prohibits more than 20 percent of the capital stock of a common carrier wireless licensee
to be directly owned or voted by non-U.S. citizens or their representatives, by a foreign
government or its representatives or by a foreign corporation. In addition, no more than
25 percent of the capital stock of an entity that directly or indirectly controls a common
carrier wireless licensee may be owned or voted by non-U.S. citizens or their
representatives, by a foreign government or its representatives, or by a foreign
corporation, if the FCC finds that prohibiting such indirect foreign ownership of a common
carrier wireless licensee would serve the public interest. The FCC, however, may allow
indirect foreign ownership levels in excess of 25 percent, and even up to
100 percent, if it finds that the higher levels of foreign ownership are consistent
with the public interest. Although the FCC has adopted a rebuttable presumption in favor
of allowing indirect foreign ownership in excess of 25 percent by investors from
World Trade Organization member countries, including Israel, there can be no assurance
that an applicant will obtain a favorable ruling from the FCC in the future.

Additionally,
entities offering communications services in the United States on a common carrier basis
(whether by satellite or terrestrial facilities) must obtain operating authority from the
FCC under Section 214 of the Communications Act before constructing, acquiring,
operating, or engaging in transmission over any lines of communication. The FCC simplified
the Section 214 authorization process by automatically granting blanket
authority that permits common carriers providing interstate services to construct or
operate domestic transmission lines without applying for domestic Section 214
authorization. This blanket authority, however, does not extend to common carriers
providing international services (on a facilities or resold basis) and any such carriers
must apply for and obtain Section 214 authority prior to providing international services.
In addition, FCC approval under Section 214 of the Communications Act must be obtained
before a domestic or international common carrier or its licenses or assets can be
acquired by a third party. We believe that we are currently operating as a private carrier
in the U.S., and therefore do not require Section 214 authorization from the FCC. If
we acquire a teleport in the future and choose to operate as a common carrier rather than
a private carrier, however, we will need to obtain an international Section 214
authorization in addition to the Title III wireless license(s) described above.

In
addition, the Department of Justice, the Department of Homeland Security and the Federal
Bureau of Investigation review applications to acquire both Title III and Section 214
licenses or authorizations and can require the applicant to enter into an agreement
addressing any national security concerns before the application is granted.

46

---

---

# C. Organizational
structure

We
are organized under the laws of the State of Israel. We have two wholly owned
subsidiaries, a corporation incorporated under the laws of the State of Delaware and a
limited liability company organized under the laws of the Republic of Cyprus. None of our
subsidiaries are significant subsidiaries.

D. Property, plants and equipment

We
lease approximately 112,000 square feet at our main teleport in Reem, Israel. We
occupy approximately 41,000 square feet of this facility pursuant to a lease that was
entered into in November 2001 and which expires in December 2011 following our
exercise of an extension option. These premises serve as the site for establishing,
maintaining and operating our satellite dish antennas and our playout facility, as well as
the base for our fleet of mobile satellite broadcasting vans. We lease an additional
approximately 56,000 square feet adjacent to our principal teleport pursuant to a lease
that was entered into in June 2004 and which expires in June 2013, following our
exercise of an extension option. We also lease an additional approximately 10,500 square
feet adjacent to our principal teleport pursuant to a lease that we entered into in
November 2007 and which expires in December 2011, and we have an option to extend the term
for up to an additional 10 years.

In
May 2006, we entered into a new lease for approximately 3,500 square feet in
Reem, Israel, adjacent to our principal teleport. This lease expires in December
2011 following our exercise of an extension option and we have an option to extend the
term for an additional 4 years.

Our
corporate headquarters are located in an industrial park in Omer, Israel, a suburb of
Beersheba. The headquarters consist of 1,000 square feet and are leased under an agreement
we entered into in February 1, 1998 with Datacom L.R. Communications Ltd., or
Datacom, a company controlled by our Chief Executive Officer, David Rivel (see Item 7.B.
Major Shareholders and Related Party Transactions  Related party
transactions).

In
addition to these facilities, we lease approximately 220 square feet in Herzliya, Israel
that serve as an auxiliary teleport, pursuant to a lease that is renewed on a monthly
basis.

Since
August 2005 we have been leasing approximately 9,300 square feet broadcasting studio
facility located in Jerusalem, Israel. The studio facility lease expires in July 2010
with an option to extend the term for an additional period, of either five or ten years at
our election. Since July 2007 we have also been leasing approximately 3,600 square feet
facility in Jerusalem, Israel. This lease expires in July 2010 with an option to extend
the term for an additional period of up to 15 years.

In
May 2007, we entered into two lease agreements for the lease of two office spaces, one of
approximately 430 square feet and the other of approximately 170 square feet, in
Jerusalem, Israel, to be used for temporary studios and offices. These leases expire in
June 2008 and we have an option to extend until December 2008.

In
March 2007, the Israel Land Administration, or ILA, authorized to allocate to our company
a parcel of land of approximately 538,200 square feet near Galon, Israel, to be used for
erecting our new teleport. In May 2007, our company and the ILA entered into a development
agreement pursuant to which the company undertook to commence building the site of our new
teleport within eighteen months as of the date the approval of the allocation of the land,
and to finish the building by no later than April 1, 2010. Contingent upon our company
complying with the terms of the development agreement, the ILA shall, upon completion of
the building, enter into a lease agreement with our company for a term of forty nine years
as of the date of the approval of the allocation of the land. We have not yet commenced to
develop the site.

47

---

---

In
June 2007, our Delaware subsidiary entered into a lease agreement for the lease of an
office space in Phoenix, Arizona. This lease expires in May 2009.

In
February 2008, we entered into an agreement to acquire from Skynet Satellite Corporation
the real property, assets and licenses of the Hawley Teleport located in Pike County,
Pennsylvania, for a purchase price of $4.25 million. The teleport includes approximately
212 acres and a 3 floor communications building with approximately 40,000 square feet. The
acquisition is scheduled to close in the second quarter of 2008 and is subject to a 45-day
due diligence period, regulatory approvals and customary closing conditions. We filed
applications with the FCC on February 21, 2008 seeking FCC approval to acquire various
wireless and earth station licenses associated with the Hawley Teleport and operate them
on a non-common carrier basis. Comments on or oppositions to the acquisition must be filed
with the FCC by April 4, 2008.

We
believe that our current leases are adequate to meet our needs.

|ITEM 4A. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

Not
applicable.

48

---

---

|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|------- | --------------------------------------------

The
following discussion and analysis is based on our consolidated financial statements,
including the related notes, and should be read in conjunction with them. You can find our
consolidated financial statements in Item 18  Financial Statements.

# A. Operating results

Overview

We
provide global, comprehensive, content management and distribution services to the rapidly
expanding television and radio broadcasting industries. Through our proprietary
RRsat Global Network, composed of satellite and terrestrial fiber optic
transmission capacity and the public Internet, we are able to offer high-quality and
flexible global distribution services for content providers. Our content distribution
services involve the worldwide transmission of video and audio broadcasts over our
state-of-the-art RRsat Global Network infrastructure. Our content management services
involve the digital archiving and sophisticated compilation of a customers
programming and advertising content into one or more broadcast channels, with the ability
to customize broadcast channels by target audience. We then provide automated transmission
services for these channels in accordance with our customers broadcast schedules,
known as playlists. We concurrently provide services to more than 425 television and radio
channels, covering more than 150 countries.

We
lease our transmission capacity from satellite and terrestrial fiber optic network
providers to fulfill the distribution requirements of our customers. By leasing capacity
as required, we minimize our capital expenditure and reduce excess capacity in our
network. Consequently, our network can be expanded substantially without having to incur
significant capital expenditures. Most of our capital expenditures relate to transmission
and playout equipment. Because of our network design, we have incurred relatively minimal
indebtedness in growing our business. We enjoy significant cost benefits since we design
our own network and equipment configuration, acquire the individual equipment components
from manufacturers, perform the integration of our digital platforms and manage our entire
network. Most of our customers have entered into long-term contracts with us, and these
contracts represent the majority of our revenues. This allows us to minimize capital
expenditures and potential underutilization of assets, and facilitates our matching of
operating expenses with revenues.

We
sell our services primarily through a direct sales force in each market, supplemented by
sales agents. These agents often have other business relationships with the customer.

We
formed the company in 1981. In 1996, we were granted the first private license for
transmission of television and radio channels via satellite in Israel and started to
provide satellite services for Israeli governmental and commercial channels. In 2000, we
formed the RRsat Global Network concept and entered into the global content
management and distribution services market. In the last seven years, RRsat has become one
of the few companies worldwide to possess a global network allowing distribution via
satellites, fiber optic lines and the public Internet. In 2003, we opened our playout
center. Today we provide playout services to more than 90 television channels for
distribution through our RRsat Global Network.

In
February 2008, we entered into an agreement to acquire from Skynet Satellite Corporation
the real property, assets and licenses of the Hawley Teleport located in Pike County,
Pennsylvania, for a purchase price of $4.25 million. The acquisition is scheduled to close
in the second quarter of 2008 and is subject to a 45-day due diligence period, regulatory
approvals and customary closing conditions.

49

---

---

We
see a significant financial advantage in strategically leasing our global network. Our
ability to match our supplier and customer contracts and to effectively utilize capacity
on an ongoing basis affects our results.

Revenues.           We
provide content distribution services, such as uplink, downlink, turnaround,
          encryption, encoding, storage, localization and time delay services, and
          integrated content management, such as production and playout services and
          satellite newsgathering services (SNG), on a long term and occasional use
basis,           to over 425 television and radio channels (see Item 4 Information
on the           Company for a detailed description of the services that we
provide).

Most
of our revenues are from monthly services provided to our customers under long-term
contracts. In 2007, 2006 and 2005, 94%, 91% and 91%, respectively, of our revenues were
generated from long-term contracts, and 6%, 9% and 9%, respectively, of our revenues were
generated from occasional services provided to existing customers or to new customers.

Contracted
Backlog. Our backlog of long-term customer contracts provides us with revenue
visibility for the next 12-month period as well as a relatively reliable stream of future
revenues in the next two to five years. As of December 31, 2007, we had contracted backlog
totaling $155.5 million through 2016, of which $59.3 million are related to services
expected to be delivered in 2008, and $48.7 million are related to services expected
to be delivered in 2009. Of our $155.5 million of contracted backlog as of December
31, 2007, $59.3 million are related to services expected to be delivered in 2008,
$48.7 million are related to services expected to be delivered in 2009 and the
balance related to services to be delivered through 2016. Of our $155.5 million
contracted backlog, which we do not recognize as revenue until we actually perform the
services, approximately $134 million, or 86%, is related to obligations to be
provided under non-cancelable agreements and $21.5 million, or 14%, is related to
obligations to be provided under cancelable agreements. Of our $21.5 million contracted
backlog that relates to cancelable agreements, $8.5 million relate to services to be
delivered in 2008, $7.5 million relates to services to be delivered in 2009 and $5.5
relates to services to be delivered from 2010 through 2013. Most of our cancelable
agreements (69.4%) may be canceled by an advanced notice of between 30 to 120 days,
while 27.7% of our cancelable agreements may be canceled at certain predefined exit dates
and 2.9% may be canceled by the customers payment of a penalty equal to between one
and six months fees. We cannot rule out the possibility that we could face contract
terminations arising in the normal course of business or as a result of other market
forces. As of December 31, 2007, the weighted average remaining duration of our contracted
backlog was approximately two and a half years.

Long-term
contracts are generally billed monthly in advance and are usually secured via a cash
deposit for the last one to three months of service. Contracted backlog represents the
actual dollar amount (without discounting to present value) of the expected future
revenues from customers under all long-term contractual agreements. Our contracted backlog
for future services as of December 31, 2005, 2006 and 2007 was $91.2 million,
$114.4 million and $155.5 million, respectively. The increases in contracted backlog
resulted from additional new customer contracts and expansion and renewal of existing
customer contracts.

Pricing.           Various
market forces affect the pricing of our services. We sell our services           at
prevailing market prices, which vary based upon the regions to which the
          distribution is required by our customer, the type of service, the network
          capacity for the distribution needs, the duration of the service under contract
          and the supply of additional value-added services. In general, each service is
          tailored to the customers needs and is priced accordingly.

50

---

---

Geographic
Revenue Breakdown. We have historically derived revenues from customers based in
different geographical areas. The following table sets forth the breakdown of our revenues
on a percentage basis, for the years 2005 through 2007, by the geographical locations of
our customers. Most of our contracts are denominated in U.S. dollars. The services we
render are not necessarily rendered in the same geographic areas as those in which the
customers are located.

| |                                 | Year ended December 31,
| | ------------------------------- | -----------------------
|
|
|
|
| | North America                   |                        
| | Europe                          |                        
| | Asia                            |                        
| | Israel                          |                        
| | Middle East (other than Israel) |                        
| | Rest of world                   |                        
| |                                 |                        
| | Total                           |                        
| |                                 |                        

We
expect that, as a result of our contemplated expansion of our operations in the U.S. and
Asia, the percentage of revenues that we derive from customers located in North America
and Asia will increase.

Customers
and Customer Concentration. We supply our services to customers all over the world and
our sales are derived from a large number of individual customers. During 2007, our
revenues were derived from more than 300 customers. In 2007, our ten largest customers
accounted for 39.5% of total revenues, and no single customer accounted for more than 6.6%
of our total revenues. It is our policy to require a deposit for the last one to three
months of service from most of our customers. Due to these factors and the geographical
dispersion of our customers, we believe that we adequately control our exposure to credit
risks associated with accounts receivable.

Cost
of Revenues. Our cost of revenues represents costs directly related to the operation
of our network, including payments for network services (primarily satellite services),
salaries and depreciation of transmission and playout equipment. The principal component
of cost of revenues is the monthly fees paid to network service providers such as
satellite space segment and teleport services and fiber network leases. We lease our space
segment capacity pursuant to long-term contracts. We can terminate approximately 21% of
our supplier network services contracts within one to three months of notice in the event
of termination of the customer contract or in some cases without cause. We lease
approximately 72% of our space segment capacity on a non-preemptible basis, providing our
network a higher level of reliability to our customers and assurance in the case of
service outage. We believe the remaining preemptible contracts allow us to provide
customers with a cost effective solution. Changes in market conditions, such as in the
supply and demand of satellite capacity, may result in increasing costs, both for our
existing preemptible contracts and for new capacity contracts. If we are unable to
increase our services prices, our gross profit may decline.

Gross
Profit. Our efficiency in matching supplier contracts with customer contracts affects
our gross margins and is reflected in the utilization of our committed capacity on an
ongoing basis. When we are required to commit to long-term capacity leases of network
services, our gross margin may decrease until we are able to utilize the entire capacity.
We may also be subject to price increases for new or renewed network services, and until
we are able to adjust the prices we charge our customers, we may suffer a decrease of
gross margin.

51

---

---

Sales
and Marketing Expenses. Our sales and marketing expenses consist of salary and related
expenses for our direct sales force and success based agent fees for our agents. Our
agreements with agents are nonexclusive unless the agent has identified a potential
customer, in which case he will be granted exclusivity for the sales process with such
customer. If the agent is successful, her or his fees are payable during the term of the
customer contract and are conditioned on the performance of the contracts, and therefore,
we recognize those fees over the contracts term. Those fees may be a percentage of
the marginal profit from the individual customer contract or a percentage of the contract
value. We expect that our selling expenses will continue to increase as we expand our
direct sales and marketing efforts in conjunction with the establishment or acquisition of
local teleports and playout centers in the United States and Asia, while continuing to
employ our strategy in other parts of the world of additionally working with local
marketing and sales agents, who are familiar with their local markets, needs and cultures.
The expansion of our sales and marketing efforts as described above entail an increase of
our direct sales force, resulting in increased wages, travel and overhead costs and
additional success based agent fees, and an investment in marketing activities to create
local brand recognition. We could also face additional expenses depending on the location
of our new local teleports and playout centers.

General
and Administrative Expenses. Our general and administrative expenses consist of
salaries and related costs for employees and other expenses related to administration,
facilities and legal and accounting services. It includes management fees to our principal
shareholders that amounted to $600 thousand in 2005 and 2006 and $398 thousand in
2007 (see Item 7.B. Major Shareholders and Related Party Transactions  Related
party transactions). Our general and administrative expenses include changes in the
provision for doubtful accounts, which, in managements opinion, adequately reflect
the loss included in those debts the company is unlikely to collect. The provision for
doubtful accounts is calculated as a percentage of outstanding receivable balance based on
the age of the debt, past experience and whether the debt has been transferred to a
professional collector. We expect general and administrative expenses to increase for the
foreseeable future as our operations continue to expand, resulting in our need for
additional staff and professional consulting, and as we incur additional expenses relating
to our being a publicly traded company, such as legal and accounting expenses, expenses
relating to our directors and officers insurance policy and expenses
associated with the implementation of the procedures required by the Sarbanes-Oxley Act.
We intend to fund these expenses from our working capital.

Depreciation
and Amortization Expense. Depreciation and amortization is calculated using the
straight-line method over the estimated useful lives of the assets once the assets are
placed into service. We generally depreciate teleport related equipment (satellite dish
antennas, receivers transmitters, playout room equipment, etc.), which represents the
majority of our fixed assets, over a 7-year period, while leasehold improvements are
amortized over the shorter of the respective lease term or the estimated useful life of
the assets, which is typically 10 years.

Share-based
Compensation. Our expenses also include share-based compensation expenses, which are
allocated among cost of revenues, sales and marketing and general and administrative
expenses. Share-based compensation expenses results from the granting of options to
employees under the fair-value based method of accounting (calculated using the
Black-Scholes model) and restricted share units. The share-based compensation expenses are
recorded to expenses over the vesting periods of the individual options or restricted
share units. The intrinsic value of the options outstanding as of December 31, 2007, was
$2.9 million, all related to unvested options. The intrinsic value of the
restricted share units outstanding as of December 31, 2007, was $1.2 million.

Interest
and Marketable Securities Income. Interest and marketable securities income represents
interest income earned (mainly on bank deposits and corporate and government debentures)
and gains from marketable securities invested through brokers in Israel and the United
States.

Currency
Fluctuation and Other Financial Income (Expenses), Net. Currency fluctuation and other
financial income (expenses), net primarily result from currency exchange rate fluctuations
affecting transactions denominated in currencies other than the US dollar, our functional
currency. Other financial income (expenses) relate to bank charges. We expect our currency
fluctuation and other financial income (expenses), net to be volatile as a result of
fluctuations of the exchange rates between the US dollar and other currencies denominating
our transactions, mainly the Euro and the NIS.

52

---

---

Gains
(losses) from Non-cash Change in Fair Value of Embedded Currency Conversion
Derivative. Some of our customers and suppliers contracts are denominated in
currencies that are neither our functional currency nor the functional currency of the
customers or suppliers, as the case may be. For example, in 2004, we entered into supply
agreements denominated in Euro with a vendor in the UK, while the Euro is neither our
functional currency nor the functional currency of the UK vendor. In these cases,
SFAS 133 requires that we separate the currency component from the applicable
customer or supply contract and account for it as a currency derivative and mark this
instrument to market through the statement of operations every period. This adjustment is
included in a separate line on the statement of operations entitled changes in fair
value of embedded currency conversion derivatives. We believe we have been able to
reduce the net foreign currency exposure by matching the relevant contracts to various
similarly denominated revenue contracts with our customers. However, because the revenue
contracts with offsetting exposures are denominated in the functional currencies of the
customers, the currency components are not separately accounted for as derivatives. As a
result, the separation of this currency derivative for accounting purposes has caused and
may continue to cause significant statement of operations volatility for the remainder of
these contracts terms based on the fluctuation of the exchange rate between the U.S.
dollar and these contracts currencies (usually the Euro). The embedded derivative
expenses/income does not represent the actual cash generated or expended in operating
activities. For additional information regarding SFAS 133, see Application of
Critical Accounting Policies  Foreign Currency Embedded Derivatives below.

Income
Taxes. Income tax is computed on the basis of our results in nominal New Israeli
Shekels (NIS) determined for statutory purposes. We are assessed for tax purposes under
the Income Tax Law (Inflationary Adjustments 1985), the purpose of which is to prevent
taxation on inflationary profits. On July 25, 2005, the Israeli Parliament (the
Knesset) passed a tax reform act that provides for a gradual reduction in the corporate
income tax rate as follows: in 2007 the tax rate was reduced to 29.0% and in 2008 the
tax rate will be reduced to  27.0%, in 2009  26.0% and from 2010
onward the tax rate will be 25.0%. Furthermore, beginning in 2010, upon reduction of the
corporate income tax rate to 25.0% capital gains will be subject to tax at the rate of
25.0%. Current and deferred tax balances as of December 31, 2005, 2006 and 2007 are
calculated in accordance with the new tax rates provided in the tax reform. The effect of
the change on the financial statements as of the beginning of 2005 is a decrease in income
tax expense in the amount of $60 thousand.

We
were granted in 2006 an approved enterprise status under the Law for the
Encouragement of Capital Investments, 1959, for our contemplated expansion of export
revenues in the taxable years 2006 to 2012 as compared to our revenues in 2005. Under the
terms of our approved enterprise program, our income from that approved enterprise will be
subject to a reduced tax rate of 25% for a period of up to a total of seven years, to be
calculated on the portion of our taxable income associated to the expansion (calculated on
a pro rated basis to the additional revenues for the taxable year compared to the base
year, which is 2005). Under the terms of the program, which relates to our export of
communications services to television channels and television operators via satellites, we
are required, among other things, to increase the export of our services by at least $100
thousand annually and maintain arms length terms for all related party transactions.
See Item 10.D. Additional Information  Taxation  Taxation in
Israel  Law for the Encouragement of Capital Investments, 1959 for
more information about our approved enterprise status.In 2007 and
2006, we realized tax reductions resulting from the approved enterprise status
in an aggregate amount of $220 thousand and $146 thousand, respectively.

Expansion
Plans. We intend to expand our presence in the United States, Asia and other markets
where we already operate through subcontractors, by establishing or selectively pursuing
the acquisition of local teleports and playout centers, and connecting them to our global
network, such as the agreement we recently entered into in February 2008 to acquire the
Hawley Teleport in Pennsylvania. We believe that having our own content management and
distribution facilities in these markets will afford us greater control over our
operations, allow us to protect proprietary information relating to our methods of
operation, provide direct control over our relationships with our customers, facilitate
our sales and marketing efforts, increase our profit margins and afford us access to
customers for whom the proximity of our facilities may be an important factor
(particularly customers who use our content management services, since playout services
involve a significant degree of interaction with our customers).

53

---

---

# Application of Critical
Accounting Policies

Our
significant accounting policies are more fully described in Note 1 to our
consolidated financial statements in Item 18. However, certain of our accounting policies
are particularly important to the portrayal of our financial position and results of
operations.

Our
discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with
U.S. GAAP. The preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an on-going
basis, we review our accounting policies, assumptions, estimates and judgments to ensure
that our consolidated financial statements are presented fairly and in accordance with
U.S. GAAP. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. However, because future events and their effects
cannot be determined with certainty, actual results may differ from these estimates under
different conditions. Our significant accounting policies are more fully described in the
notes to the accompanying consolidated financial statements.

Functional
and Reporting Currency. Our accounting records are maintained in NIS and U.S. dollars.
The U.S. dollar is the currency of the primary economic environment in which our
operations are conducted and expected to be conducted in the future. Therefore the U.S.
dollar has been determined to be our functional currency. Transactions denominated in
foreign currencies other than the U.S. dollar are translated into the functional currency
using the current exchange rate. Gains and losses from the transaction of foreign currency
balances are recorded in the statement of operations.

Provision
for Doubtful Accounts. The consolidated financial statements include specific
provisions for doubtful debts, which, in managements opinion, adequately reflect the
loss included in those debts whose collection is doubtful. Doubtful debts, which according
to managements opinion, are unlikely to be collected, are written-off from the
companys books, based on a management resolution. Managements determination of
the adequacy of the provision is based on an evaluation of the risk, by considering the
available information on the financial position of the debtors, the volume of their
business, an evaluation of the security received from them and past experience.

Income
Taxes. We account for income taxes under SFAS No. 109 Accounting for Income
Taxes. Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. Deferred tax assets and liabilities are
classified as current or non-current items in accordance with the nature of the assets or
liabilities to which they relate. When there are no underlying assets or liabilities the
deferred tax assets and liabilities are classified in accordance with the period of
expected reversal. Income tax expenses represent the tax payable for the period and the
changes during the period in deferred tax assets and liabilities.

54

---

---

Beginning
with the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48) as of January 1, 2007, we recognize the effect of income tax positions only
if those positions are more likely than not of being sustained. Recognized income tax
positions are measured at the largest amount that is greater than 50% likely of being
realized. Changes in recognition or measurement are reflected in the period in which the
change in judgment occurs. Prior to the adoption of FIN 48, we recognized the effect of
income tax positions only if such positions were probable of being sustained.

Fair
Value of Embedded Currency Conversion Derivatives. We account for derivatives and
hedging activities in accordance with SFAS 133, as amended, which requires that
derivatives instruments within its scope be recorded on the balance sheet at their
respective fair value.

We
do not use derivative instruments to hedge exposures to cash flow, market or foreign
currency risks, but occasionally enter into commercial (foreign currency) contracts in
which a derivative instrument is embedded. For these embedded derivatives, for
which the economic characteristics and risks are not clearly and closely related to the
economic characteristics and risks of the host contract, the changes in fair value are
recorded in the statement of operation.

Accounting
for Stock-Based Compensation. We follow the fair-value based method of accounting for
all of our option plans in accordance with the provisions of SFAS No. 123,
Accounting for Stock-Based Compensation for options granted prior to
December 31, 2005 and SFAS 123R for options and restricted share units grants
after January 1, 2006. The grant date fair value of the options awarded is calculated
using the Black-Scholes model and the associated compensation cost is amortized over their
vesting period. As described in Note 11 to our consolidated financial statements
included in Item 18, we estimate the fair value of stock options issued to employees using
the Black-Scholes option valuation model with certain assumptions that are significant
inputs. The critical assumptions relate to determining the expected life of the option,
considering the outcome of service-related conditions (i.e.,vesting requirements
and forfeitures), expected volatility of the underlying shares as an estimate of the
future price fluctuation for a term commensurate with the expected life of the option,
expected dividend yield on the underlying shares, commensurate with the expected life of
the option, and risk-free interest rate commensurate with the expected term of the option.
These estimates introduce significant judgment into determining the fair value of
stock-based compensation awards. The grant date fair value of the restricted shares units
is calculated using the share price at the date of grant.

Recent
Accounting Pronouncements.

In
February 2007, the FASB issued statement of Financial Accounting Standards No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities- including an
amendment of FASB No. 115 (Statement 159). Statement 159 gives the company the
irrevocable option to carry most financial assets and liabilities at fair value that are
not currently required to be measured at fair value. If the fair value is elected, changes
in fair value would be recorded in earnings at each subsequent reporting date. SFAS 159 is
effective for our 2008 fiscal year. We do not currently expect the adoption of Statement
159 will have a material impact on our financial condition, results of operations and cash
flow.

In
September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurement
(Statement 157). Statement 157 defines fair value, establishes a framework for the
measurement of fair value, and enhances disclosures about fair value measurements. The
statement does not require any new fair value measures. The statement is effective for
fair value measures already required or permitted by other standards for fiscal years
beginning after November 15, 2007. We are required to adopt Statement 157 beginning on
January 1, 2008. Statement 157 is required to be applied prospectively, except for certain
financial instruments. Any transition adjustment will be recognized as an adjustment to
opening retained earnings in the year of adoption. In February 2008, the FASB approved FSP
FAS 157-2, which grants a one-year deferral of Statement 157s fair- value
measurement requirements for nonfinancial assets and liabilities that are not required or
permitted to be measured at fair value on a recurring basis. We do not currently expect
that the adoption of Statement 157 will have a material impact on our financial condition,
results of operations and cash flow.

55

---

---

In
December 2007, the FASB issued FASB Statement No. 141R, Business Combinations
(Statement 141R) and FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements  an amendment to ARB No. 51 (Statement 160).
Statements 141R and 160 require most identifiable assets, liabilities, noncontrolling
interests, and goodwill acquired in a business combination to be recorded at full
fair value and require noncontrolling interests (previously referred to as minority
interests) to be reported as a component of equity, which changes the accounting for
transactions with noncontrolling interest holders. Both Statements are effective for
periods beginning on or after December 15, 2008, and earlier adoption is prohibited.
Statement 141R will be applied prospectively to all noncontrolling interests, including
any that arose before the effective date. We do not currently expect that the adoption of
Statement 141R and 160 will have a material impact on our financial condition, results of
operations and cash flow.

# Results of Operations

The
following table sets forth selected statements of operations data for each of the periods:

|                                           | Year ended December 31,
|------------------------------------------ | -----------------------
|
|
|
|
|Statement of Operations Data:              |                        
|Revenues                                   |                        
|Cost of revenues                           |                        
|                                           |                        
|Gross profit                               |                        
|                                           |                        
|Operating expenses:                        |                        
|Sales and marketing                        |                        
|General and administrative                 |                        
|One time fees associated with the IPO      |                        
|                                           |                        
|Total operating expenses                   |                        
|                                           |                        
|Operating income                           |                        
|Interest and marketable securities income  |                        
|Currency fluctuation and other financial   |                        
|income (expenses), net                     |                        
|Changes in fair value of embedded currency |                        
|conversion derivatives                     |                        
|Other income, net                          |                        
|                                           |                        
|Income before taxes on income              |                        
|Income taxes                               |                        
|                                           |                        
|Net income                                 |                        
|                                           |                        
|Basic income per ordinary share            |                        
|                                           |                        
|Diluted income per ordinary share          |                        
|                                           |                        
|Weighted average number of ordinary shares |                        
|used to compute basic income per ordinary  |                        
|share                                      |                        
|                                           |                        
|Weighted average number of ordinary shares |                        
|used to compute diluted income per         |                        
|ordinary share                             |                        
|                                           |                        

56

---

---

# Year Ended
December 31, 2006 Compared to Year Ended December 31, 2007

|                                                                  | Year ended
|----------------------------------------------------------------- | ----------
|
|
|
|
|Revenues                                                          |           
|Cost of revenues                                                  |           
|                                                                  |           
|Gross profit                                                      |           
|                                                                  |           
|Operating expenses:                                               |           
|Sales and marketing                                               |           
|General and administrative                                        |           
|One time fees associated with the IPO                             |           
|                                                                  |           
|Total operating expenses                                          |           
|                                                                  |           
|Operating income                                                  |           
|Interest and marketable securities income                         |           
|Currency fluctuation and other financial income (expenses), net   |           
|Changes in fair value of embedded currency conversion derivatives |           
|Other income, net                                                 |           
|                                                                  |           
|Income before taxes on income                                     |           
|Income taxes                                                      |           
|                                                                  |           
|Net income                                                        |           
|                                                                  |           

Revenues.           Revenues
were $59.2 million for the year ended December 31, 2007, an           increase
of 36.8%, from $43.3 million in 2006. The increase in revenues was
          primarily due to a $15.1 million increase in revenues from long-term service
          contracts and an increase of $0.9 million in revenues from the provision of
          occasional services.

Cost
of Revenues. Cost of revenues was $38.4 million for the year ended
December 31, 2007, an increase of 40%, from $27.5 million in 2006. This increase
is due primarily to additional payments for transmission capacity resulting from the
expansion of our network as a direct result of the addition of customers on our network.
Network services costs were $30.5 million in the period ended December 31, 2007,
an increase of 40.5%, from $21.7 million in 2006.

As
a percentage of total revenue, cost of revenues increased from 63.4% in 2006 to 64.9% in
2007. The increase in cost of services as a percentage of revenue is primarily due to
payments for transmission capacity acquired as part of the expansion of our network, prior
to being fully utilized in providing services to customers. Secondly, the cost of services
that were denominated in Euro currency resulted in an increased U.S. dollar cost of
service in the translation to the U.S. dollar functional currency, due to the devaluation
of the U.S. dollar against the Euro currency during 2007.

The
other principal components of cost of revenues include depreciation and amortization,
which was $3.0 million in 2007, an increase of 30.5% from $2.3 million in 2006. This
increase is directly attributable to the increase in fixed assets that grew as a direct
result of the addition of customers on our network.

Sales
and Marketing Expenses. Sales and marketing expenses were $3.0 million in the
year ended December 31, 2007, an increase of 64.8% from $1.8 million in 2006. As
described below, the increase in sales and marketing expenses is due to increases in
salaries, wages and benefits, and increases in agents and commission fees paid to third
parties. Sales and marketing expenses as a percentage of revenues were 4.2% and 5.1% in
2006 and 2007, respectively.

57

---

---

Sales
and marketing salaries, wages and benefits, which include commissions paid to our direct
sales representatives, comprised 38.4% and 33.4% of our total sales and marketing expenses
in 2006 and 2007, respectively. Salaries, wages and benefits increased by
$308 thousand from $700 thousand in 2006 to $1.0 million in 2007 due to an
increase in the number of our employees and salary increases.

Agents
and commission fees paid to third parties comprised 49.8% and 52.2% of our total sales and
marketing expenses in 2006 and 2007, respectively. Agent fees increased by
$675 thousand from $900 thousand in 2006 to $1.6 million in 2007 due to additional
fees paid with respect to new contracts.

General
and Administrative Expenses. General and administrative expenses were
$5.8 million in the year ended December 31, 2007, an increase of 60.7% from
$3.6 million in 2006. The increase in the dollar amount of general and administrative
expenses is mainly the result of an increase in salaries, wages and service fees paid to
our general and administrative officers and employees, an increase in professional
services fees and an increase in expenses on provision for doubtful accounts, which was
partially offset by a decrease in management fees.As a percentage of revenues,
general and administrative expenses were 8.3% and 9.7% in 2006 and 2007, respectively.

Salaries,
wages and service fees expenses paid to our general and administrative officers and
employees comprised 53.2% and 49.1% of our total general and administrative expenses in
2006 and 2007, respectively. Salaries, wages and service fees expenses increased by
$388 thousand from 2006 to 2007 mainly due to an increase in the number of employees
and bonus paid due to our companys performance.

Management
fees paid to our principal shareholders decreased from $600 thousand in 2006 to $398
thousand in 2007 due to the new management services agreement, which became effective at
the beginning of 2007.

Professional
services fees, which are legal and audit fees and consulting fees associated with the
preparation for Sarbanes-Oxley compliance, increased from $95 thousand in 2006 to $630
thousand in 2007. The increase in the costs incurred in 2007 was due to costs associated
with the company becoming a public company at the end of 2006.

Expenses
on provision for doubtful accounts increased by $404 thousand from $690 thousand in
the year ended December 31, 2006 to $1.1 million in the year ended December 31, 2007. The
increase is due to an increase in accounts receivables that management has assessed as
doubtful. This is associated with our increased business activities.

One
Time Fees Associated with the IPO. We incurred in the fourth quarter of 2006 a
one-time expense of $1.0 million in connection with the termination of Datacoms
option to purchase ordinary shares in consideration for $500 thousand, and in connection
with special management fees that we paid to Del-Ta Engineering and Kardan Communications
in an aggregate amount of $500 thousand. See Item 7.B. Major Shareholders and
Related Party Transactions  Related party transactions  One Time Fees
Associated with the IPO and Employment Agreements.

Interest
and Marketable Securities Income. Interest and marketable securities income, primarily
representing interest income earned on bank deposits and gains from marketable securities,
was $2.6 million in the year ended December 31, 2007, an increase of
$2.2 million from interest and marketable securities income of $450 thousand in
2006. This increase is primarily the result of full year interest earned on the $47.4
million net proceeds from our initial public offering in November 2006.

Currency
Fluctuation and Other Financial Income (Expenses), Net. Currency fluctuation and other
financial income, net, primarily resulting from currency exchange rate fluctuations
affecting transactions denominated in currencies other than the US dollar, our functional
currency, were $329 thousand in the year ended December 31, 2007, a decrease of
$45 thousand from currency fluctuation and other financial income, net of
$374 thousand in 2006.

58

---

---

Changes
in Fair Value of Embedded Currency Conversion Derivatives. The change in fair value of
embedded currency conversion derivatives resulted in an expense of $646 thousand in the
year ended December 31, 2007, compared to income of $243 thousand in 2006. The change
in the year ended December 31, 2007 is due to the increase of the exchange rate between
the U.S. dollar and the EURO from 1.3170 U.S. dollar/EURO at the end of 2006 to 1.4718
U.S. dollar/EURO as of December 31, 2007, and the respective change in the value of the
U.S. dollar-EURO forward contracts, and due to additional contracts with embedded
derivatives which we entered into during 2007. The change in the year ended December 31,
2006 is due to the increase of the exchange rate between the U.S. dollar and the EURO from
1.1839 U.S. dollar/EURO at the end of 2005 to 1.3170 U.S. dollar/EURO as of December 31,
2006 and the respective change in the value of the U.S. dollar-EURO forward contracts.

Income
Taxes. Income taxes were $2.9 million in the year ended December 31, 2007, a
decrease of 7.8% from $3.2 million in 2006. The decrease is primarily due to the
difference between the definition of capital and assets for Israeli tax purposes that
resulted in finance expenses for tax purposes, which offset our increase in income before
taxes in our consolidated financial statements and reduced the income before tax for tax
purposes, as well as the additional decrease in tax rates from 31% in 2006 to 29% in 2007,
and the increased portion of our taxable income associated with the approved enterprise
reduced tax rate. In addition, the taxes on income in the year ended December 31, 2006
include an expense of $100 thousand for previous years taxes as a result of a
settlement agreement signed with the Israeli tax authorities with respect to the years
2001 to 2003.

Net
Income. Net income was $11.4 million in the year ended December 31, 2007, an
increase of 56.1% from $7.3 million in 2006. The increase is due to an increase in
operating income of $2.6 million, anincrease in interest and marketable securities
income of $2.2 million, a decrease in income from embedded currency conversion derivatives
of $0.9 million and decrease in income taxes of $0.3 million.

# Year Ended
December 31, 2005 Compared to Year Ended December 31, 2006

|                                                                  | Year ended
|----------------------------------------------------------------- | ----------
|
|
|
|
|Revenues                                                          |           
|Cost of revenues                                                  |           
|                                                                  |           
|Gross profit                                                      |           
|                                                                  |           
|Operating expenses:                                               |           
|Sales and marketing                                               |           
|General and administrative                                        |           
|One time fees associated with the IPO                             |           
|                                                                  |           
|Total operating expenses                                          |           
|                                                                  |           
|Operating income                                                  |           
|Interest and marketable securities income                         |           
|                                                                  |           
|Currency fluctuation and other financial income (expenses), net   |           
|                                                                  |           
|Changes in fair value of embedded currency conversion derivatives |           
|Other income, net                                                 |           
|                                                                  |           
|Income before taxes on income                                     |           
|Income taxes                                                      |           
|                                                                  |           
|Net income                                                        |           
|                                                                  |           

Revenues.           Revenues
were $43.3 million for the year ended December 31, 2006, an           increase
of 38.2%, from $31.3 million in 2005. The increase in revenues was
          primarily due to an $11.3 million increase in revenues from long-term service
          contracts and an increase of $700 thousand in revenues from the provision of
          occasional services.

59

---

---

Cost
of Revenues. Cost of revenues was $27.5 million for the year ended
December 31, 2006, an increase of 38.7%, from $19.8 million in 2005. This
increase is due primarily to additional payments for transmission capacity resulting from
the expansion of our network as a direct result of the addition of customers on our
network. Network services costs were $21.7 million in the period ended
December 31, 2006, an increase of 42.8%, from $15.2 million in 2005.

As
a percentage of total revenue, cost of revenues increased from 63.2% in 2005 to 63.4% in
2006.

The
other principal components of cost of revenues include depreciation and amortization which
were $2.3 million in 2006, an increase of 27.8% from $1.8 million in 2005. This
increase is directly attributable to the increase in fixed assets which grew as a direct
result of the addition of customers on our network.

Sales
and Marketing Expenses. Sales and marketing expenses were $1.8 million in the
year ended December 31, 2006, an increase of 7% from $1.7 million in 2005. As
described below, the increase in salaries, wages and benefits was mainly offset by a
decrease in agents and commission fees paid to third parties. Sales and marketing expenses
as a percentage of revenues were 5.4% and 4.2% in 2005 and 2006, respectively.

Sales
and marketing salaries, wages and benefits, which include commissions paid to our direct
sales representatives, comprised 20.5% and 38.4% of our total sales and marketing expenses
in 2005 and 2006, respectively. Salaries, wages and benefits increased $350 thousand
from $350 thousand in 2005 to $700 thousand in 2006 due to an increase in the
number of employees and salary adjustments that occurred in January 2006 and due to
an increase in performance based bonus paid to an employee.

Agents
and commission fees paid to third parties comprised 67.2% and 49.8% of our total sales and
marketing expenses in 2005 and 2006, respectively. Agent fees decreased $300 thousand
from $1.2 million in 2005 to $900 thousand in 2006 due to a decrease in commissions paid
to an agent for certain long term contracts.

General
and Administrative Expenses. General and administrative expenses were
$3.6 million in the year ended December 31, 2006, an increase of 50% from
$2.4 million in 2005. The increase in the dollar amount of general and administrative
expenses is mainly the result of an increase in salaries, wages and service fees paid to
our general and administrative officers and employees and an increase in expenses on
provision for doubtful accounts.As a percentage of revenues, general and
administrative expenses were 7.5% and 8.3% in 2005 and 2006, respectively.

Salaries,
wages and service fees expenses paid to our general and administrative officers and
employees comprised 49.5% and 4.7% of our total general and administrative expenses in
2005 and 2006, respectively. Salaries, wages and service fees expenses increased by
$500 thousand from 2005 to 2006 mainly due to an increase in the number of employees
and bonus paid due to our companys performance.

Management
fees of $600 thousand paid to our principal shareholders did not change from 2005 to 2006.

Expenses
on provision for doubtful accounts increased by $478 thousand from $212 thousand
in the year ended December 31, 2005 to $690 thousand in the year ended December 31,
2006. The increase is due to an increase in accounts receivables that management has
assessed as doubtful. This is associated with the increase in the balance of our accounts
receivables due to increased business activities.

One
Time Fees Associated with the IPO. We incurred in the fourth quarter of 2006 a
one-time expense of $1.0 million in connection with the termination of Datacoms
option to purchase ordinary shares in consideration for $500 thousand, and in connection
with special management fees that we paid to Del-Ta Engineering and Kardan Communications
in an aggregate amount of $500 thousand. See Item 7.B. Major Shareholders and
Related Party Transactions  Related party transactions  One Time Fees
Associated with the IPO and Employment Agreements.

60

---

---

Interest
and Marketable Securities Income. Interest and marketable securities income, primarily
representing interest income earned on bank deposits and gains from marketable securities,
was $450 thousand in the year ended December 31, 2006, an increase of
$310 thousand from interest and marketable securities income of $140 thousand in
2005. This increase is primarily the result of interest earned on the $47.4 million net
proceeds from our initial public offering in November 2006.

Currency
Fluctuation and Other Financial Income (Expenses), Net. Currency fluctuation and other
financial income, net, primarily resulting from currency exchange rate fluctuations
affecting transactions denominated in currencies other than the US dollar, our functional
currency, were $374 thousand in the year ended December 31, 2006, an increase of
$376 thousand from currency fluctuation and other financial expenses, net of
$2 thousand in 2005. The increase is primarily the result of changes in the exchange
rates of the dollar versus the Euro and versus the NIS.

Changes
in Fair Value of Embedded Currency Conversion Derivatives. The change in fair value of
embedded currency conversion derivatives resulted in income of $243 thousand in the year
ended December 31, 2006, compared to an expense of $1.4 million in 2005. The
change in the year ended December 31, 2005 is due to the decrease of the exchange rate
between the U.S. dollar and the EURO from 1.3565 U.S. dollar/EURO at the end of 2004 to
1.1839 U.S. dollar/EURO as of December 31, 2005 and the respective change in the value of
the U.S. dollar-EURO forward contracts. The change in the year ended December 31, 2006 is
due to the increase of the exchange rate between the U.S. dollar and the EURO from 1.1839
U.S. dollar/EURO at the end of 2005 to 1.3170 U.S. dollar/EURO as of December 31, 2006 and
the respective change in the value of the U.S. dollar-EURO forward contracts.

Income
Taxes. Income taxes were $3.2 million in the year ended December 31, 2006, an
increase of 58.4% from $2.0 million in 2005. The increase is primarily due to the
increase in income before taxes on income partially offset by the decrease in tax rates
from 34% in 2005 to 31% in 2006 and by our first application of the approved enterprise
reduced tax rate that has resulted in tax reduction of approximately $150 thousand. In
addition, the taxes on income in the year ended December 31, 2006 include an expense of
$100 thousand for previous years taxes as a result of a settlement agreement signed
with the Israeli tax authorities with respect to the years 2001 to 2003.

Net
Income. Net income was $7.3 million in the year ended December 31, 2006, an
increase of 72.1% from $4.2 million in 2005. The increase is due to an increase in
operating income of $2.0 million andanincrease in income from changes in
fair value of embedded currency conversion derivatives of $1.7 million, which was only
partially offset by an increase in income taxes of $1.2 million.

# Selected Quarterly
Financial Information

The
following tables set forth our unaudited quarterly statements of operations for each of
the eight quarters ended December 31, 2007 as well as this data expressed as a percentage
of our revenues for the quarter presented. You should read these tables in conjunction
with our consolidated financial statements and accompanying notes included in Item 18. We
have prepared this unaudited information on the same basis as our audited consolidated
financial statements.

61

---

---

|                           | Quarter ended
|-------------------------- | -------------
|
|
|
|
|Revenues                   |              
|Cost of revenues           |              
|                           |              
|Gross profit               |              
|                           |              
|Operating expenses:        |              
|Sales and marketing        |              
|General and administrative |              
|One time fees associated   |              
|with the IPO               |              
|                           |              
|Total operating expenses   |              
|                           |              
|Operating income           |              
|Interest and marketable    |              
|securities income          |              
|Currency fluctuation and   |              
|other financial income     |              
|(expenses), net            |              
|Changes in fair value of   |              
|embedded currency          |              
|conversion derivatives     |              
|Other income, net          |              
|                           |              
|Income before taxes on     |              
|income                     |              
|Income taxes               |              
|                           |              
|Net income                 |              
|                           |              

62

---

---

# As a Percentage of
Revenues

|                           | Quarter ended
|-------------------------- | -------------
|
|
|
|
|Revenues                   |              
|Cost of revenues           |              
|                           |              
|Gross profit               |              
|                           |              
|Operating expenses:        |              
|Sales and marketing        |              
|General and administrative |              
|One time fees associated   |              
|with the IPO               |              
|                           |              
|Total operating expenses   |              
|                           |              
|Operating income           |              
|Interest and marketable    |              
|securities income          |              
|Currency fluctuation and   |              
|other financial income     |              
|(expenses), net            |              
|Changes in fair value of   |              
|embedded currency          |              
|conversion derivatives     |              
|Other income, net          |              
|                           |              
|Income before taxes on     |              
|income                     |              
|Income taxes               |              
|                           |              
|Net income                 |              
|                           |              

B.           Liquidity and capital resources

Principal
Sources and Uses of Liquidity. Our principal sources of liquidity are cash from
operations and our cash and cash equivalents and marketable securities. We raised net
proceeds of approximately $47.4 million in our initial public offering in November 2006.
Our current principal liquidity requirements consist of capital expenditures and amounts
owed to suppliers. We usually use our working capital to pay our suppliers, although we
may utilize the lines of credit provided to us by Bank Igud (approximately
$2.6 million) and Bank Leumi (approximately $1.0 million) when an obligation to
pay a supplier precedes the receipt of payments from customers. At present we only utilize
a portion of these lines of credit ($1.0 million from the Bank Leumi credit line and $200
thousand from the Bank Igud credit line) to provide guarantees required under seven of our
long term contracts with our suppliers. Our capital expenditures consist primarily of
transmission and playout equipment as required to provide services to new customers. We
believe that our present working capital is sufficient for our present requirements.

We
intend to expand our presence in the United States, Asia and other markets where we
already operate through subcontractors, by establishing or selectively pursuing the
acquisition of local teleports and playout centers, and connecting them to our global
network. For example, in February 2008 we entered into an agreement to acquire the Hawley
Teleport in Pennsylvania for an aggregate purchase price of approximately $4.25 million.
The cost of acquiring or establishing such operations will include the cost of fixed
assets related to transmission equipment and playout equipment, which we believe can vary
between $3 million to $15 million per teleport, depending, among other things, on the
location of the teleport and the time it will take to establish the local teleport.

63

---

---

Taking
into account our expansion plans, we believe that our cash generated from operations and
cash balances, including our net proceeds from our initial public offering in November
2006, will be sufficient to meet our anticipated cash requirements for at least the next
12 months.

Cash
and Cash Equivalents; Marketable Securities. Cash and cash equivalents were $28.4
million at December 31, 2007, $51.4 million at December 31, 2006 and $2.1 million at
December 31, 2005. The decrease from 2006 to 2007 is primarily attributable to
investment in marketable securities. The increase from 2005 to 2006 is primarily
attributable to our $47.4 million net proceeds from our initial public offering.

| |                                                     | Year ended December 31,
| | --------------------------------------------------- | -----------------------
|
|
|
|
| | Statement of Cash Flows Data:                       |                        
| | Net cash provided by operating activities           |                        
| | Net cash used in investing activities               |                        
| | Net cash provided by (used in) financing activities |                        
| |                                                     |                        
| | Increase (decrease) in cash and cash equivalents    |                        
| | Cash and cash equivalents - beginning of year       |                        
| |                                                     |                        
| | Cash and cash equivalents - end of year             |                        
| |                                                     |                        

Operating Activities

For
the year ended December 31, 2007, net cash provided by operating activities was $13.6
million, an increase of $3.8 million from $9.8 million of net cash provided by operating
activities for the year ended December 31, 2006. The increase resulted primarily from the
$4.1 million increase in net income and the $3.9 million increase in trade receivables
collected, offset by the increase of $1.4 million in premium amortization of
held-to-maturity securities, as well as an increase in trading securities of $1.8 million
which were invested during 2007. For the year ended December 31, 2006, net cash provided
by operating activities was $9.8 million, an increase of $4.0 million from $5.8 million of
net cash provided by operating activities for the year ended December 31, 2005. The
increase resulted primarily from the $3.1 million increase in net income, the $3.3 million
increase in deferred income resulting primarily from deposits received in connection with
new customer contracts and the increase of $1.9 in accounts payable resulting from an our
increased business activities and increase in related expenses, partially offset by
increase of $5.2 million in accounts receivable resulting from the increase in our
revenues and business activities during 2006, as well as trade receivables collected after
the date of the balance sheet.

Investing Activities

For
the year ended December 31, 2007, we used $36.5 million for capital expenditures from
which $31.2 million related to investments net of proceeds of marketable securities
invested during 2007 from the proceeds from our initial public offering in November 2006,
and $5.3 million for capital expenditures for teleport and playout equipment. For the year
ended December 31, 2006, we used $5.9 million for capital expenditures related to our new
studio facilities in Jerusalem as well as for teleport and playout equipment. For the year
ended December 31, 2005, we used $3.0 million for capital expenditures primarily for
teleport and playout equipment.

64

---

---

Financing Activities

During
the year ended December 31, 2007, we did not pay any dividends to our shareholders. During
the years ended December 31, 2006 and 2005, we paid dividends to our shareholders in the
amount of $2.0 million and $2.5 million, respectively.

In
November 2006, we completed our initial public offering and raised net proceeds of $47.4
million in exchange for the issuance of 4,195,000 of our ordinary shares.

C.
          Research and development, patents and licenses, etc.

Not
applicable.

# D. Trend information

See
discussion in Parts A and B of Item 5 Operating Results and Financial Review
and Prospects.

E.
          Off-balance sheet arrangements

We
had no material off-balance sheet arrangements for the fiscal year ended December 31,
2007.

F.
          Tabular disclosure of contractual information

We
have lease agreements for our facilities. One agreement ends on December 31, 2011. Another agreement ends on June 15, 2013, following the exercise of an extension option.
Another agreement ends on December 31, 2011 following an exercise of an
option and has another four-year extension option. Another agreement will end on
December 31, 2011 and has two five-year extension options. Two agreements will end on
July 30, 2010 and have two extension options the first of five years and the second of
ten years. Two agreements will end on June 30, 2008 and  have six months extension
options. Another agreement will end on May 31, 2009. See Part D of Item 4
Information on the Company  Property, plants and equipment.

We
lease cars for employees under operating leases. Those leases are for terms of three years
each with a right to terminate with payment of certain cancellation fee.

We
enter into long term contracts with suppliers for leases of network (satellite and fiber
optic) and teleport services. Approximately 79% of these contractual commitments as of
December 31, 2007 do not provide for early termination, or impose a significant penalty
for early termination. The remaining commitments are either terminable each month or allow
termination if our corresponding contract with a customer is terminated.

65

---

---

The
following are the contractual commitments at December 31, 2007, associated with lease
obligations and contractual commitments:

|                         | Total | Less than
1 year | 2-3
years | 4-5
years | More than
5 years
|------------------------ | ----- | ---------------- | --------- | --------- | -----------------
|
|
|
|
|Operating Leases         |       |                  | $         | 696       |                  
|Operating Car Leases     |       |                  |           | 298       |                  
|Operating Network Leases |       |                  |           | 98,024    |                  
|                         |       |                  |           |           |                  
|Total                    |       |                  | $         | 99,018    |                  
|                         |       |                  |           |           |                  

|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- | ------------------------------------------

A.
          Directors and senior management

Our
directors and executive officers as of the date of this Annual report are as follows:

| | Name                        | Age |  | Position(s)                         
| | --------------------------- | --- |  | ------------------------------------
|
|
|
|
| | Gilad Ramot (1)(5)          | 57  |  | Chairman of the Board               
| | David Rivel                 | 61  |  | Chief Executive Officer and Director
| | Gil Efron                   | 42  |  | Chief Financial Officer             
| | Lior Rival                  | 35  |  | Vice President - Sales and Marketing
| | Ziv Mor                     | 32  |  | Chief Technology Officer            
| | Maya Rival                  | 31  |  | Vice President - Operations         
| | David Assia (2)(3)(4)(5)(6) | 56  |  | Director                            
| | Amit Ben-Yehuda             | 44  |  | Director                            
| | Avi Kurzweil (6)            | 41  |  | Director                            
| | Vered Levy-Ron (2)(3)(4)    | 41  |  | Director                            
| | Alexander Milner (1)(5)     | 68  |  | Director                            
| | Ron Oren                    | 36  |  | Director                            
| | Guy Vaadia (2)(4)(6)        | 44  |  | Director                            

| | (1) | Independent
Director under the applicable NASDAQ Marketplace Rules                (see
explanation below)
| | --- | -----------------------------------------------------------------------------------------------------------

| | (2) | Independent
Director under the applicable NASDAQ Marketplace Rules                and the
applicable rules of the Securities and Exchange Commission (see
               explanation below)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Outside
Director as required by Israels Companies Law (see                explanation
below)
| | --- | -----------------------------------------------------------------------------------------------

| | (4) | Member
of Audit Committee
| | --- | -------------------------

| | (5) | Member
of Compensation Committee
| | --- | --------------------------------

| | (6) | Member
of Investment Committee
| | --- | ------------------------------

Gilad
Ramot, the Chairman of our board of directors since April 2001, is a director and
the Chief Executive Officer of Del-Ta Engineering Equipment Ltd., a holding company and a
defense and aerospace consulting and marketing firm that is one of our principal
shareholders. Mr. Ramot has been the Chief Executive Officer of Del-Ta Engineering
Equipment Ltd. since January 2001. He serves as the Chairman of the Board of General
Engineers Ltd. and General Engineers Lighting and Power Protection Ltd.,
companies engaged in the distribution, marketing and servicing of various electrical
equipment, as a director of Liron Technologies Equipment Ltd., a company engaged in
projects and sales of electric power switching gear, and as the President of Delta
Systems, the representative of Raytheon Company in Israel. Mr. Ramot, who is a
Brigadier General (res.) in the Israel Defense Forces, served as the Israeli Defense
Forces Air Defense Forces Commander from 1994 to 1998. He holds a B.A. in Social
Science from Bar-Ilan University, Israel and an M.A. in Management from the Air War High
College, France.

66

---

---

David
Rivel, our founder and Chief Executive Officer since 1991, is also one of our
directors. Mr. Rivel is an electronic, computers and communications engineer with
over 30 years of experience in radio frequency communications, antennas, video,
television and satellite communication. He is responsible for the development and
implementation of our strategy, our business development and the overall management of our
company. He holds an M.Sc. degree in Electrical Engineering from the Technion 
Israel Institute of Technology, Beer Sheva Campus, and is a member of the IEEE,
World Teleport Association and Society of Satellite Professionals Association. He is the
father of Lior Rival, our Vice President of Sales and Marketing, and Maya Rival, our Vice
President  Operations.

Gil
Efron has been our Chief Financial Officer since January 2006. From
September 2005 until February 2006, Mr. Efron served as Chief Financial
Officer of Earnix Ltd., a software company, and from August 2002 to
March 2005, Mr. Efron served as Chief Financial Officer of
Proficiency Ltd., a software company specializing in product data engineering
collaboration. Prior to that he served in various finance positions, including as Chief
Financial Officer of IP Planet Network Ltd., a satellite communications services and
interactive television software development company, and as a senior auditor with the
Israeli member firm of PricewaterhouseCoopers. Mr. Efron is a certified public
accountant in Israel and holds a B.A. in Economics and Accounting and an M.A. in Business
Administration from the Hebrew University of Jerusalem.

Lior
Rival has been our Vice President  Sales and Marketing since January 2003,
after having served as our Marketing Manager from April 1998 to January 2003.
Mr. Rival holds a B.A. in Management and Communication from the Tel-Aviv Open
University. He is the son of David Rivel, our Chief Executive Officer, and the brother of
Maya Rival, our Vice  President Operations.

Ziv
Mor has been our Chief Technology Officer since December 2006. From January 2003 until
December 2006Mr. Mor served as our Director of Engineering, after having served us
in different technical management roles since November 1997. Mr. Mor holds a
practical engineering degree in Electronics and Communications from ORT College for
Advanced Technologies and Sciences and is currently completing a B.Sc. in Technology
Business and Management at Holon Academic Institute of Technology.

Maya
Rival has been our Vice President  Operations since November 2006, after
having served in different technical roles in our company from 1998 until 2000, and after
serving as our Administration Manager since 2000. In her current position as Vice
President  Operations, Ms. Rival is responsible for our Administration, Human
Resources and Logistics departments. She is the daughter of David Rivel, our Chief
Executive Officer, and the sister of Lior Rival, our Vice President  Sales and
Marketing.

David
Assia, a member of our board of directors since October 2006, is a co-founder of Magic
Software Enterprises Ltd. (NASDAQ: MGIC), and served there in various positions,
including as  Chairman of the Board of Directors and Chief Executive Officer, from 1983
until 2007. Mr. Assia was managing director of Mashov Computers Ltd. between
1980 and 1986 and has served as the Chairman of its Board of Directors since 1989.
Mr. Assia also serves as a director of Aladdin Knowledge Systems Ltd.,
Enformia Ltd., Babylon Ltd., Radview Software, The Weitzman Institute of
Sciences and The Israel Association of Electronics and Software. Mr. Assia holds a
B.A. degree in economics and statistics and an M.B.A. degree, both from Tel Aviv
University.

Amit
Ben-Yehuda, a member of our board of directors since March 2004, is Chief
Executive Officer and a director of Kardan Communications Ltd., a holding company that
focuses in communication companies, which is one of our principal shareholders. Prior to
becoming Chief Executive Officer of Kardan Communications Ltd. in January 2006,
Mr. Ben-Yehuda was Deputy CEO of Kardan Communications Ltd. from January 2005 to
January 2006 and Vice President Business Development of Kardan Communications Ltd.
from October 1999 to January 2005. From late 1996 to late 1999,
Mr. Ben-Yehuda served as the Director of Business Development of Cellcom
Israel Ltd., a leading wireless telecommunications services operator in Israel.
Mr. Ben-Yehuda served as Senior Advisor to the Israeli Ministry of Tourism and the
Israeli Ministry of Interior Affairs from 1992 to 1996. He serves as a director of Kardan
Technologies Ltd., a public company traded on the Tel-Aviv Stock Exchange, and of
several privately held companies, including Baby First TV LLC. Mr. Ben Yehuda holds a
B.A. in Economics and Political Science and an M.B.A. from Tel-Aviv University.

67

---

---

Avi
Kurzweil, a member of our board of directors since January 2006, is the Chief
Financial Officer and a director of Kardan Communications Ltd. and Chief Executive Officer
of Kardan Technologies Ltd. Prior to becoming Chief Financial Officer of Kardan
Communications Ltd. in August 2000, Mr. Kurzweil was Chief Financial Officer of
AlphaCard Ltd., a franchise operator of Visa Credit Cards in Israel from early 1997
to August 2000. He currently serves as a director of Ophir Optronics Ltd., a
company engaged in precision infrared optic components and laser measurement equipment,
which is publicly traded on the Tel-Aviv Stock Exchange, and of several private companies,
including IVP Video Productions Ltd. Mr. Kurzweil holds a B.A. in Economics and
Accounting from Bar-Ilan University and is a certified public accountant in Israel.

Alexander
Milner, a member of our board of directors since December 2006, is the Vice Chairman
of Rapac Communication & Infrastructure Ltd. Mr. Milner was the Managing Director
of Rapac Communication & Infrastructure Ltd. from 1989 until the end of 2006.
Prior to that, Mr. Milner was Corporate Vice President and General Manager of the
communications group of Tadiran Electronic Systems Ltd. Mr. Milner is also the Managing
Director of O.R.T. Technologies Ltd. and the Chairman of Orpak Systems Ltd. and Transway
Ltd.  Mr. Milner received an M.Sc. degree in Electrical Engineering from the
Technionin Israel and is a graduate of the Advanced Management Program from
Insead/Stanford University.

Vered
Levy-Ron, a member of our board of directors since January 2007, is the founder and
president of DaLi Advisory, a business consulting firm for corporations and
executives.  Prior to founding DaLi Advisory in September 2005, Ms. Levy-Ron served
as head of the Prepaid Products and Services Group and as a VP of New Businesses at IDT
Telecom, a subsidiary of IDT Corporation, from February 2002 to July 2005.  Ms.
Levy-Ron was also a strategy management consultant at A.T. Kearney in Paris from 1999 to
2001, at Booz Allen & Hamilton in New York from 1993 to 1999 and at Shaldorin
Tel Aviv from 1990 to 1992.  Ms. Levy-Ron holds a B.A. degree in French and
economics from Tel Aviv University and an M.B.A. degree in finance and international
management from Columbia Business School.

Ron
Oren, a member of our board of directors since March 2006, is the Chief Executive
Officer and President of Rapac Communication & Infrastructure Ltd. Mr. Oren served as
Vice President  Business Development of Rapac Communication &
Infrastructure Ltd. from July 2005 until the end of 2006. Prior to his
engagement at Rapac Communication & Infrastructure Ltd., Mr. Oren served as
the Technology Manager of Delta Film Ltd., the largest importer of photographic
materials and products in Israel, from July 2001 to July 2005, and as the
Logistic Control Manager of Orbotech Ltd., a company that develops equipment for
inspecting and imaging circuit boards and display panels, from February 1999 to
June 2001. He is also a director of various subsidiaries of InterGamma
Investment Ltd., including Del-Ta Engineering Equipment Ltd., Orpak Systems Ltd.
and O.R.T. Technologies Ltd. Mr. Oren holds a B.Sc. in Industrial and Management
Engineering from the Technion  Israel Institute of Technology and an M.B.A.
from the Herzliya Interdisciplinary Center.

Guy
Vaadia, a member of our board of directors since October 2007, is the Chief Executive
Officer of FIBI Holdings Ltd., FIBI Investment House Ltd. and FIBI Investment House A
(1998) Ltd.  Prior to becoming the Chief Executive Officer in February 2005, Mr.
Vaadia served as Chief Business Credit Officer at Bank HaMizrahi from 1995. 
Mr. Vaadia serves as a director of FIBI Investment House Ltd., FIBI Investment House A
(1998) Ltd., Elran (D.D.) Infrastructures Ltd., CRH (Israel) Ltd., InterGamma Investment
Ltd., First International Underwriting and Investments Ltd., FIBI Capital Markets
Ltd., Manof Offering Company Ltd., Shamir Optical Industry Ltd. and FIBI-On
Ltd.  Mr. Vaadia received B.Sc and M.S.C. degrees in Economics, Agriculture and
Management from the Hebrew University in Jerusalem, and an M.B.A. degree from INSEAD at
Fontainebleau.

68

---

---

The
term of each of our directors, other than our Outside Directors, will expire at the time
of our 2008 annual general meeting of shareholders. The term of our Outside Directors will
expire in January 2010. Please also see Item 7.B. Major Shareholders and Related
Party Transactions  Related party transactions for a description of the
shareholders agreement between David Rivel and Del-Ta Engineering, pursuant to which David
Rivel granted Del-Ta Engineering an irrevocable proxy to vote his ordinary shares solely
with respect to the election of directors.

# B. Compensation

The
aggregate direct compensation we paid to our executive officers as a group (5 persons) for
the year ended December 31, 2007 was $3.2 million. This amount includes
$55 thousand that was set aside or accrued to provide for severance and retirement
insurance policies, and $1.7 million that was paid as bonuses pursuant to individual bonus
arrangements provided for in the executive officers employment agreements. This
amount does not include expenses we incurred for other payments, including dues for
professional and business associations, business travel and other expenses and benefits
commonly reimbursed or paid by companies in Israel. In addition, this amount does not
include fees paid to our Chief Executive Officer in consideration for his services as a
director (see below).

We
pay each director an annual fee of $17 thousand, $500 per each meeting of the board
attended and $500 per each meeting of a committee attended, unless such meeting is held
immediately before or after a board meeting, in which case, the fee for such meeting is
$200. In the event that a director attends a meeting by phone or a resolution is adopted
by written consent, then the fee for such action is $150. The compensation of our outside
directors is the same as the compensation of all our other directors.

As
of December 31, 2007, there were outstanding (i) options to purchase 233,100 ordinary
shares granted to our directors and executive officers (one person), at exercise prices
ranging from $5.60 to $8.35 per ordinary share, with an expiration date of June 2012 (see
Item 7.B. Major Shareholders and Related Party Transactions  Related party
transactions), and (ii) 47,670restricted share units granted to our
directors and executive officers (6 persons). Other than as specified in the share
ownership table under Item 7 Major Shareholders and Related Party
Transactions, none of our directors and officers holds more than 1% of our
outstanding shares.

# C. Board practices

Our
current board of directors consists of nine directors, including two outside director as
required by Israeli law.

Other
than the outside directors, who are subject to special election requirements under Israeli
law, our directors are elected by cumulative voting of the shareholders present, in person
or by proxy, at a shareholders meeting convened for that purpose. At the election of
directors, each shareholder so present shall be entitled to as many votes as shall equal
the number of ordinary shares held by such shareholder multiplied by the number of
directors to be elected at the meeting, and such shareholder may cast all of such votes
for a single director nominee or may distribute them among any number of directors
nominees as it may see fit. Although cumulative voting does not assure minority
representation, it may facilitate the ability of a significant minority shareholder or a
group of minority shareholders to elect one or more directors.

69

---

---

Any
increase in the number of our directors above nine members requires an amendment of our
articles of association and approval by a supermajority vote of seventy-five percent (75%)
or more of the votes cast by those shareholders present and voting, not taking into
consideration abstentions. A general meeting may remove a director during the term by a
simple majority vote (except for outside directors, who can be removed only in accordance
with the Israeli Companies Law of 1999, or the Companies Law).

David
Rivel and Del-Ta Engineering are parties to a shareholders agreement, pursuant to which
Mr. Rivel granted Del-Ta Engineering an irrevocable proxy to vote all shares
beneficially owned by him solely with respect to the election of directors. Del-Ta
Engineering agreed to use its voting rights in support of Mr. Rivels election
to our board of directors. For a detailed description of this agreement, see Item 7.B.
Major Shareholders and Related Party Transactions  Related party
transactions.

Each
of our executive officers serves at the discretion of our board of directors and holds
office until his or her successor is elected or his or her resignation or removal.

Since
October 2007, Yigal Berman serves as an observer to our board of directors. In such
capacity, he receives compensation equal to the compensation we pay our directors. Mr.
Bermans background is set forth below:

Yigal
Berman is the Vice President, Chief Financial Officer and Secretary of InterGamma
Investment Ltd., one of our principal shareholders (through its indirect subsidiary
Del-Ta Engineering Equipment Ltd.). Mr. Berman served as our director from June 1993
through October 2007. Mr. Berman serves as the Chairman of the Board of Directors of
Ophthalmic Imaging Systems (OTCBB: OISI), an affiliate of InterGamma Investment Ltd.
that provides imaging systems solutions to the eye care community, as well as a director
of various subsidiaries of InterGamma Investment Ltd., including Rapac Communication
& Infrastructure Ltd., a holding company that primarily operates in the fields of
communication and military systems and is publicly traded on the Tel-Aviv Stock Exchange,
and Orpak Systems Ltd., a company engaged in computerized fuel management and payment
systems, which is publicly traded on the London Stock Exchange. Mr. Berman holds a
B.A. in Economics and an M.B.A. from Tel-Aviv University.

Corporate Governance
Requirements

The
Sarbanes-Oxley Act of 2002, as well as related rules subsequently implemented by the SEC
and NASDAQ, require issuers to comply with various corporate governance practices.

In
general, NASDAQ Marketplace Rules require that the board of directors of a NASDAQ-listed
company have a majority of independent directors, each of whom satisfies the
independence requirements of NASDAQ, and its audit committee must have at
least three members and be comprised only of independent directors, each of whom satisfies
the respective independence requirements of NASDAQ and the Securities and
Exchange Commission. Our board of directors has determined that each of Messrs. Assia,
Milner, Ramot and Vaadia and Ms. Levy-Ron qualifies as an independent director under the
requirements of NASDAQ, and that each of Messrs. Assia and Vaadia and Ms. Levy-Ron (who
serve on our audit committee) qualifies as an independent director under the respective
requirements of the Securities and Exchange Commission and NASDAQ.

70

---

---

In
addition, since we are deemed a foreign private issuer, the NASDAQ Marketplace Rules
generally allow us to follow our home country rules of corporate governance. Therefore,
our independent directors do not have regularly scheduled meetings at which only
independent directors are present, as such meetings are not required by Israeli law, and
we follow our home country rules in connection with shareholder approval requirements and
related party transactions approval requirements. We also do not follow the
requirements of the NASDAQ Marketplace Rules with regard to the nomination process of
directors, and instead, we follow Israeli law and practice, in accordance with which our
directors are recommended by our board of directors for election by our shareholders. For
a discussion of the requirements of Israeli law in this regard, see Item 10.B.
Additional Information  Memorandum and articles of association 
Fiduciary Duties and Approval of Related Party Transactions, 
Shareholders and  Anti-Takeover Provisions. In addition, we do not
distribute hard copies of our annual and interim reports to our shareholders.

Outside Directors

We
are subject to the Companies Law. Under the Companies Law, an Israeli company whose shares
have been offered to the public or whose shares are listed for trading on a stock exchange
in or outside of Israel, is required to elect at least two outside directors to serve on
its board of directors, which we have elected in January 2007. At least one of the outside
directors is required to have financial and accounting expertise, unless
another member of the audit committee, who is an independent director under the NASDAQ
Marketplace Rules, has financial and accounting expertise, and the other
outside director or directors are required to have professional expertise, all
as defined under the Companies Law. Our board of directors has determined that our outside
director, Mr. David Assia, is independent under the applicable Securities and Exchange
Commission and NASDAQ Marketplace Rules and has financial and accounting
expertise, and our other outside director, Ms. Vered Levy-Ron, is independent under
the applicable Securities and Exchange Commission and NASDAQ Marketplace Rules and has
professional expertise.

A
person may not serve as an outside director if at the date of the persons election
or within the prior two years the person, or his or her relatives, partners, employers or
entities under the persons control, have or had any affiliation with us or any
entity controlling, controlled by or under common control with us. Under the Companies
Law, affiliation includes:

| |  | an
employment relationship,
| | - | ---------------------------

| |  | a
business or professional relationship maintained on a regular basis,
| | - | ----------------------------------------------------------------------

| |  | control,
and
| | - | ------------

| |  | service
as an office holder, excluding service as a director in a private company prior to the
first offering of its shares to the public if such director was appointed or elected as a
director of the private company in order to serve as an outside director following the
initial public offering.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

An
office holder is defined as any director, managing director, general manager,
chief executive officer, executive vice president, vice president, other manager directly
subordinate to the general manager or any other person assuming the responsibilities of
any of these positions regardless of that persons title. Each person listed in the
table under Director and senior management is an office holder.

A
person may not serve as an outside director if that persons position or other
business activities create, or may create, a conflict of interest with the persons
service as a director or may otherwise interfere with the persons ability to serve
as a director. If at the time any outside director is to be elected all members of the
board are of the same gender, then the outside director to be elected must be of the other
gender. There is also a restriction on interlocking boards: A director of a company may
not be elected as an outside director of another company if, at that time, a director of
the other company is acting as an outside director of the first company. Until the lapse
of two years from the termination of office, a company may not engage an outside director
to serve as an office holder and cannot employ or receive services from that person,
either director or indirectly, including through a corporation controlled by that person.

71

---

---

Outside
directors are elected by a majority vote at a shareholders meeting. In addition to
the majority vote, the shareholder approval of the election of an outside director must
satisfy either of two additional tests:

| |  | the
majority includes at least one-third of the shares voted by shareholders other than our
              controlling shareholders; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------

| |  | the
total number of shares, other than shares held by controlling shareholders, voted against
the election of the outside director does not exceed 1% of the aggregate voting rights of
our company.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Companies Law provides for an initial three-year term for an outside director, which may
be extended for additional three-year terms, subject to certain requirements. An outside
director may be removed only by the same special majority required for his or her election
or by a court, and then only if the outside director ceases to meet the statutory
qualifications for election or if he or she breaches a duty of loyalty to our company. In
the event of a vacancy in the position of an outside director, if there are then fewer
than two outside directors, our board of directors is required under the Companies Law to
call a special shareholders meeting as promptly as practical to elect a new outside
director. David Assia and Vered Levy-Ron are our outside directors under the Companies
Law. Their term of office will expire in 2010.

Outside
directors may be compensated only in accordance with regulations adopted under the
Companies Law. The compensation of an outside director must be determined prior to the
persons consent to serve as an outside director. Compensation of all directors
requires the approval of our audit committee, board of directors and shareholders, in that
order. Our outside directors receive the same compensation we pay our other directors (see
Compensation above).

Committees of the Board
of Directors

Our
board of directors has established an audit committee, a compensation committee and an
investment committee.

Audit
Committee. Under the Companies Law, the board of directors of any public
company must establish an audit committee. The audit committee must consist of at least
three directors and must include all of the outside directors. The audit committee may not
include the chairman of the board, any director employed by us or providing services to us
on a regular basis, a controlling shareholder or any of a controlling shareholders
respective relatives. In addition, under the listing requirements of the NASDAQ Global
Market, we also are required to maintain an audit committee. Our audit committee consists
of Guy Vaadia and our two outside directors, David Assia and Vered Levy-Ron, each of which
is an independent director under the respective requirements of the Securities and
Exchange Commission and NASDAQ. Our audit committee meets as often as it determines to be
necessary and appropriate, but not less than every three months.

The
audit committees duties include providing assistance to the board of directors in
fulfilling its legal and fiduciary obligations in matters involving our accounting,
auditing, financial reporting, internal control and legal compliance functions by
approving the services performed by our independent accountants and reviewing their
reports regarding our accounting practices and systems of internal accounting controls.
The audit committee also oversees the audit efforts of our independent accountants and
takes those actions as it deems necessary to satisfy itself that the accountants are
independent of management. Under the Companies Law, the audit committee also is required
to monitor deficiencies in the administration of our company, including by consulting with
the internal auditor, and to review and approve related party transactions.

72

---

---

Compensation
Committee. Our compensation committee consists of three directors,
Alexander Milner, Gilad Ramot and David Assia, our outside director. The compensation
committees duties include making recommendations to the board of directors regarding
the issuance of equity incentive awards under our equity incentive plan and determines
salaries and bonuses for our executive officers and incentive compensation for our other
employees. The compensation committee meets at least twice a year, with further meetings
to occur, or actions to be taken by unanimous written consent, when deemed necessary or
desirable by the committee or its chairperson.

Investment
Committee. Our investment committee consists of three directors, Avi
Kurzweil, Guy Vaadia and David Assia, our outside director. The investment
committees duties include reviewing and making recommendations to the board of
directors regarding the companys investment policies. The investment committee meets
at least twice a year, with further meetings to occur, or actions to be taken by unanimous
written consent, when deemed necessary or desirable by the committee.

Internal Auditor

Under
the Companies Law, the board of directors also must appoint an internal auditor nominated
following the recommendation of the audit committee. The primary role of the internal
auditor is to examine whether a companys actions comply with the law and proper
business procedure. The internal auditor may be an employee of ours but may not be an
interested party or office holder, or a relative of any interested party or office holder,
and may not be a member of our independent accounting firm or its representative. The
Companies Law defines an interested party as a holder of 5% or more of our
shares or voting rights, any person or entity that has the right to nominate or appoint at
least one of our directors or our general manager, or any person who serves as one of our
directors or as our general manager. Our internal auditor is Brightman Almagor & Co.,
a member firm of Deloitte Touche Tohmatsu.

# D. Employees

As
of December 31, 2007, we had 142 employees, of whom 111 were in operations, 12 were in
sales and marketing, and 19 were in general and administration; as of December 31, 2006,
we had 126 employees, of whom 100 were in operations, 9 were in sales and marketing, and
17 were in general and administration; and as of December 31, 2005, we had 107
employees, of whom 90 were in operations, 5 were in sales and marketing, and 12 were in
general and administration. Competition for personnel in the telecommunications industry
is intense. We have never experienced any work stoppage and we believe that our employee
relations are good.

Most
of our employees are located in Israel. Certain provisions of Israeli law and of the
collective bargaining agreements between the Histadrut (General Federation of Labor in
Israel) and the Coordination Bureau of Economic Organizations (the Israeli federation of
employers organizations) apply to our Israeli employees by order of the Israeli
Ministry of Industry, Trade and Labor. These provisions principally concern the maximum
length of the work day and the work week for employees. Furthermore, under these
provisions, the wages of most of our employees are automatically adjusted in accordance
with cost of living adjustments, as determined on a nationwide basis and under agreements
with the Histadrut based on changes in the Israeli consumer price index. The amounts and
frequency of such adjustments are modified from time to time. In addition, Israeli law
determines minimum wages, procedures for dismissing employees, minimum severance pay that
we must pay and other conditions of employment.

73

---

---

Israeli
law generally requires the payment by Israeli employers of severance pay upon the
retirement or death of an employee, or upon termination of employment by the employer or,
in certain circumstances, by the employee. We currently fund a portion of our ongoing
severance obligations by making monthly payments for severance insurance policies. In
addition, according to the National Insurance Law, Israeli employees and employers are
required to pay specified amounts to the National Insurance Institute, which is similar to
the United States Social Security Administration. These contributions entitle the
employees to benefits during periods of unemployment, work injury, maternity leave,
disability, and military reserve duty, and in the event of the bankruptcy or winding-up of
their employer. These amounts also include payments for national health insurance payable
by employees. The payments to the National Insurance Institute are determined
progressively in accordance with wages. They currently range from 9% to 15% of wages up to
certain wage levels, of which the employee contributes approximately 66% and the employer
contributes approximately 34%. A majority of our full-time employees are covered by
general and/or individual life and pension insurance policies providing customary benefits
to employees, including retirement and severance benefits. Pursuant to an order issued in
December 2007 by the Israeli Minister of Industry, Trade and Labor, new provisions
relating to pension arrangements in the collective bargaining agreements between the
Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic
Organizations (the Israeli federation of employers organizations) will apply to all
employees in Israel, including our employees. According to these provisions, all employees
employed for at least nine months (or six months commencing in 2009) will be entitled to
pension benefits to be funded by preset monthly contributions of the employee and the
employer.

# E. Share ownership

Share Ownership by
Directors and Executive Officers

For
information regarding ownership of our ordinary shares by our directors and executive
officers, see Item 7.A. Major Shareholders and Related Party Transactions
 Major shareholders.

2006 Israel Equity
Incentive Plan

We
have adopted an equity incentive plan under Section 102 of the Israeli Income Tax
Ordinance, or Section 102, which provides certain tax benefits in connection with
share-based compensation to employees, officers and directors. This plan, our 2006 Israel
Equity Incentive Plan, was approved by the Israeli Tax Authority.

Under
our equity incentive plan, we may grant our directors, officers and employees restricted
shares, restricted share units and options to purchase our ordinary shares under
Section 102. We may also grant other persons awards under our equity incentive plan.
However, such other persons (controlling shareholders, services providers, etc.) will not
enjoy the tax benefits provided by Section 102. The total number of ordinary shares
that are available for grant under our plan is 441,000, which is reduced by two shares for
each restricted share unit or restricted share that we grant under the plan and by one
share for each option that we grant under the plan.

As
of December 31, 2007, we had granted 104,828 restricted share units under the plan (net of
units that were forfeited or expired), 60,366 of which were outstanding on that date. No
other awards were granted under the plan as of December 31, 2007.

74

---

---

The
Israeli Tax Authority approved our equity incentive plan under the capital gains tax track
of Section 102. Based on Israeli law currently in effect and the election of the
capital gains tax track, and provided that options, restricted shares and restricted
shares units granted or, upon their exercise or vesting, the underlying shares, issued
under the plan are held by a trustee for the two years following the date in which such
awards are granted, our employees, officers and directors will be (i) entitled to
defer any taxable event with respect to the awards until the underlying shares are sold,
and (ii) subject to capital gains tax of 25% on the sale of the shares. However, if
we grant awards at a value below the underlying shares market value at the date of
grant, the 25% capital gains tax rate will apply only with respect to capital gains in
excess of the underlying shares market value at the date of grant and the remaining
capital gains will be taxed at the grantees regular tax rate. We may not recognize
expenses pertaining to the employees restricted shares, restricted share units and
options for tax purposes.

Restricted
shares, restricted share units and options granted under our equity incentive plan will
generally vest over four years from the grant date. Any option not exercised within ten
years of the grant date will expire unless extended by the compensation committee. If we
terminate the employment of an employee for cause, all of his or her vested and unvested
options expire immediately and all unvested restricted shares and unvested restricted
share units expire immediately. If we terminate the employment of an employee for any
other reason, the employee may exercise his or her vested options within sixty days of the
date of termination and shall be entitled to any rights upon vested restricted shares and
vested restricted share units to be delivered to the employee to the extent that they were
vested prior to the date his or her employment terminates.

If
during the sixty-day period after termination of employment, the employee is subject to a
blackout period pursuant to our insider trading policy or otherwise, during
which, the employee may not sell underlying shares, then the employee may exercise any
unexercised options, which were vested on the date of termination of employment, until the
later of (a) twenty-five days after the blackout period is lifted; or (b) sixty
days from the date of termination of employment.

An
employee who terminates his or her employment with us due to retirement or disability may
exercise his or her options within one year of the date of retirement or within two years
of the date of the disability. Any rights upon vested restricted share or vested
restricted share units shall be delivered to the employee to the extent that they were
vested within the thirtieth day after employment terminates. Any expired or unvested
options, restricted shares, restricted share units restricted return to the plan for
reissuance.

75

---

---

|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|------- | -------------------------------------------------

# A. Major shareholders

The
following table shows information as of March 18, 2008 for (i) each person who, to
the best of our knowledge, beneficially owns more than 5% of our outstanding ordinary
shares, (ii) each of our executive officers and directors and (iii) our executive
officers and directors as a group. The information in the table below is based on
17,286,762 ordinary shares outstanding as of March 18, 2008. Except as otherwise set forth
below, the street address of the beneficial owners is c/o RRsat Global Communications
Network Ltd., 4 Hagoren Street, Industrial Park, Omer 84965, Israel.Each of
our outstanding ordinary shares has identical rights in all respects.

| | Name                                      | Number of Ordinary Shares
Beneficially Owned(1) | Percentage of OrdinaryShares
| | ----------------------------------------- | ----------------------------------------------- | ----------------------------
|
|
|
|
| | Executive Officers and Directors          |                                                 |                             
| | Gilad Ramot                               |                                                 |                             
| | David Rivel (2)                           |                                                 |                             
| | Gil Efron                                 |                                                 |                             
| | Lior Rival                                |                                                 |                             
| | Maya Rival                                |                                                 |                             
| | Ziv Mor                                   |                                                 |                             
| | David Assia                               |                                                 |                             
| | Amit Ben-Yehuda                           |                                                 |                             
| | Avi Kurzweil                              |                                                 |                             
| | Vered Levy-Ron                            |                                                 |                             
| | Alexander Milner                          |                                                 |                             
| | Ron Oren                                  |                                                 |                             
| | Guy Vaadia                                |                                                 |                             
| | All directors and officers as a group (13 |                                                 |                             
| | persons)(2)                               |                                                 |                             
| |                                           |                                                 |                             
| | Other 5% Shareholders                     |                                                 |                             
| | Del-Ta Engineering Equipment Ltd. (3)     |                                                 |                             
| | Kardan Communications Ltd. (4)            |                                                 |                             

---

| | * | Less
than 1%.
| | - | -------------

| | (1) | Excludes
outstanding restricted share units that do not vest within 60 days of
               March 18, 2008.
| | --- | -------------------------------------------------------------------------------------------------------------

| | (2) | Based
on Schedule 13G/A filed with the Securities and Exchange Commission on
               January 28, 2008 and on other information provided to us. Includes
currently                exercisable options to purchase (i) 37,800 ordinary shares at an
exercise price                of $5.60 per share, and (ii) 37,800 ordinary shares at an
exercise price of                $6.16 per share. These ordinary shares are deemed
outstanding for the purpose of                computing the percentage owned by David
Rivel (that is, they are included in                both the numerator and the
denominator) but they are disregarded for the purpose                of computing the
percentage owned by any other shareholder.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Based
on Schedule 13G/A filed with the Securities and Exchange Commission on
               January 28, 2008 and on other information provided to us. The address of
Del-Ta                Engineering Equipment Ltd. is 8 Shaul Hamelech Blvd.
Tel-Aviv 64733,                Israel. Del-Ta Engineering Equipment Ltd. is a
wholly-owned subsidiary of                Rapac Communication & Infrastructure Ltd.
As of December 31, 2007,                InterGamma Investment Ltd., a company
publicly traded on the Tel-Aviv Stock                Exchange, beneficially owned shares
of Rapac Communication &               Infrastructure Ltd. representing
approximately 71% of the voting power of                Rapac Communication & Infrastructure
Ltd. As of December 31, 2007, Mr.                Tanhum Oren beneficially owned shares of
InterGamma Investment Ltd.                representing approximately 63% of the
voting power of InterGamma                Investment Ltd. Del-Ta Engineering
Equipment Ltd. directly holds 6,085,800                ordinary shares. InterGamma
International Trade Founded by InterGamma                Investments Co., a wholly owned
subsidiary of Del-Ta Engineering                Equipment Ltd., directly holds
174,269 ordinary shares. In addition, Del-Ta                Engineering Equipment Ltd.
may be deemed the beneficial owner of additional                2,111,240 ordinary shares
that are beneficially owned by Mr. Rivel, by                virtue of the
irrevocable proxy for the election of directors that                Mr. Rivel has
granted to Del-Ta Engineering Equipment Ltd. Mr. Oren                disclaims beneficial
ownership of the ordinary shares beneficially owned by                Del-Ta Engineering
Equipment Ltd. except to the extent of his interest in                InterGamma
Investment Ltd.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

76

---

---

| | (4) | Based
on Schedule 13G/A filed with the Securities and Exchange Commission on
               January 15,2008 and on other information provided to us. The
address of                Kardan Communications Ltd. is 154 Menachem Begin Road
Tel-Aviv 64921,                Israel. Kardan Israel Ltd., a company publicly traded
on the Tel-Aviv Stock                Exchange, beneficially owns all the shares of Kardan
Communications Ltd. As                of December 31, 2007, Kardan N.V., a company
publicly traded on the Euronext                Amsterdam Market and the Tel-Aviv Stock
Exchange, beneficially owned shares of                Kardan Israel Ltd. representing
approximately 71% of the voting power of Kardan                Israel Ltd.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Based
on Schedule 13G/A filed with the Securities and Exchange Commission by Del-Ta Engineering
Equipment Ltd. and David Rivel, on January 28, 2008 and on other information provided
to us, (A) during 2007, (i) InterGamma International Trade Founded by InterGamma
Investments Co., a wholly owned subsidiary of Del-Ta Engineering Equipment Ltd.,
acquired 64,700 ordinary shares in ordinary brokerage transactions, and (ii) David Rivel
sold an aggregate of 445,934 ordinary shares in ordinary brokerage transactions, and (B)
from January 1, 2008 through March 18, 2008, (i) InterGamma International Trade Founded by
InterGamma Investments Co. acquired 109,569 ordinary shares in ordinary brokerage
transactions, and (ii) David Rivel sold an aggregate of 71,326 ordinary shares in ordinary
brokerage transactions.

According
to our transfer agent, as of March 18, 2008, we had two holders of record of our ordinary
shares in the United States, including Cede & Co., the nominee of The Depository Trust
Company, holding 4,931,722 ordinary shares representing approximately 28.53% of
outstanding shares. The number of record holders in the United States is not
representative of the number of beneficial holders nor is it representative of where such
beneficial holders are resident since many of these ordinary shares were held by brokers
or other nominees.

B.
          Related party transactions

Shareholders Agreements

In
December 2000, we entered into an agreement with our shareholders, pursuant to which
each of Del-Ta Engineering, Kardan Communications, Gmul Amgal Investments Ltd. and
David Rivel were granted the following rights: anti-dilution protection, preemptive
rights, the right to appoint directors to our board of directors, specified veto rights,
rights of first refusal and registration rights. The December 2000 agreement also
provided for the payment of management fees to our principal shareholders. See
Management Services Agreements below. This agreement was amended in
December 2003, among other things, to revise the terms relating to the election of
directors. In 2004, Gmul Amgal Investments Ltd. sold all of its ordinary shares in
our company to our other shareholders. The agreement was terminated in connection with our
initial public offering in November 2006.

77

---

---

Two
of our principal shareholders, Del-Ta Engineering and David Rivel, have entered into a
shareholders agreement, pursuant to which Mr. Rivel granted Del-Ta Engineering an
irrevocable proxy to vote all shares beneficially owned by him at shareholders meetings on
any matter relating to the election of directors, including their removal, substitution or
replacement. Del-Ta is entitled to exercise the irrevocable proxy in its sole discretion,
but will be required to inform Mr. Rivel in advance how it intends to exercise its
rights. Del-Ta Engineering agreed to use its voting rights in support of
Mr. Rivels election to our board of directors. In addition, Mr. Rivel
granted Del-Ta a right of first refusal with respect to any proposed sale of his ordinary
shares, whether in a transaction on a stock exchange or in a private transaction,
including sales through a blind trust, except for sales to specified permitted
transferees. Del-Ta Engineering will be required to compensate Mr. Rivel in certain
cases in the event Del-Ta Engineering does not exercise its right of first refusal. The
shareholders agreement had an initial term of three years that commenced at the time of
our initial public offering in November 2006. At the end of each year, the agreement
automatically extends for an additional one year period beyond the then current three year
term unless either party notifies the other during the month of April in any year that it
does not wish to extend the agreement, in which case the agreement will expire at the end
of the then applicable initial or extended three years term. We have been advised by these
principal shareholders that in November 2007, the term of the agreement extended until
November 2010. Furthermore, the agreement will terminate on the earlier of (i) 30
days after the date on which the aggregate holdings of Del-Ta Engineering and David Rivel
represent less than 47% of our outstanding share capital and (ii) two years after the
date Mr. Rivel is no longer our chief executive officer, unless Del-Ta Engineering
and all the directors representing Del-Ta Engineering on our board of directors voted
against the removal of Mr. Rivel from his position as our chief executive officer.

In
October 2006, our principal shareholders, Del-Ta Engineering, Kardan Communications
and David Rivel, entered into an agreement providing each principal shareholder with a
right to tag along to any proposed sale of ordinary shares or other securities of the
company by Del-Ta Engineering or Kardan Communications. The tag along right does not apply
to sales on a stock exchange and sales to specified permitted transferees. Each principal
shareholder shall have the right to tag along based on its pro rata share of our ordinary
shares at the time of the proposed sale. The agreement has an initial term of three years
that commenced at the time of our initial public offering in November 2006. At the end of
each year, the agreement will automatically extend for an additional one year period
beyond the then current three year term unless one of the parties notifies the other
parties at least 90 days prior to the end of the year that it does not wish to extend
the agreement, in which case the agreement will expire at the end of the then applicable
initial or extended three years term. Furthermore,
the agreement will terminate with respect to any shareholder on the date such
shareholders holdings represent less than 10% of our outstanding share capital.

Registration Rights
Agreement

Our
principal shareholders, Del-Ta Engineering, Kardan Communications and David Rivel, to whom
we refer to as the entitled shareholders, have the right, subject to various conditions
and limitations, to include their shares in registration statements relating to our
securities.

Demand
Registration Rights. At any time beginning no earlier than six months after the
closing of our initial public offering in November 2006, each of the three entitled
shareholders has the right, on no more than one occasion, to demand that we register
ordinary shares under the Securities Act, subject to certain limitations, including that
the aggregate offering price to the public equals at least $5 million. We may defer
the filing of any registration statement for up to 120 days once in any 12-month
period if our board of directors determines that the filing would be detrimental to our
shareholders and us. The underwriters have the right, subject to certain limitations, to
limit the number of shares included in the registration.

Form F-3
Registration Rights. At any time after we become eligible to file a registration
statement on Form F-3, the entitled shareholders may, subject to certain terms and
conditions, require us to file a registration statement on Form F-3, provided
the aggregate offering price to the public, not including the underwriters discounts
and commissions, equals at least $2 million. However, we shall not be required to
effect more than two registrations on Form F-3 in any twelve-month period, and we
may, in certain circumstances, defer the registration for up to 120 days once in any
12-month period if our board of directors determines that the filing would be detrimental
to our shareholders and us. The underwriters have the right, subject to certain
limitations, to limit the number of shares included in the registration.

78

---

---

Piggyback
Registration Rights. In addition, the entitled shareholders received piggyback
registration rights with respect to the registration under the Securities Act of ordinary
shares. In the event we propose to register any ordinary shares under the Securities Act
either for our account or for the account of other shareholders, the entitled shareholders
will be entitled to receive notice of the registration and to include shares in any such
registration, subject to limitations. Piggyback registration rights are also subject to
the right of the underwriters of an offering to limit the number of shares included in the
registration. We may terminate or withdraw any piggyback registration prior to the
effectiveness of the registration whether or not any entitled shareholder has elected to
include securities in the registration.

Expenses
of Registration. All expenses in effecting these registrations, including the
reasonable fees and expenses of one counsel for the selling shareholders in the event that
our counsel does not make itself available for the selling shareholders for this purpose,
with the exception of underwriting discounts and selling commissions, will be borne by us.
However, we will not pay for the expenses of any demand registration or F-3 registration
if the request is subsequently withdrawn by the entitled shareholders, subject to
specified exceptions.

Expiration
of Registration Rights. The registration rights described above will expire, with
respect to each holder, on the earlier of: (i) the date that the holder is eligible
to sell all of its shares subject to these registration rights under Rule 144(k) of
the Securities Act within any 90-day period; and (ii) the lapse of five years
following the completion of our initial public offering. If, after five years, any shares
cannot be sold without any volume limitations in any 90-day period without registration in
compliance with Rule 144(k) of the Securities Act, we agreed to use our best efforts
to assist such entitled shareholder in disposing of such shares so long as we will not be
required to bear any expense or subject ourselves to any liability in connection with, or
as a result of, such assistance.

Management Services
Agreements

The
December 2000 agreement referred to above provided that we enter into management
services agreements with each of the shareholders that were party to the agreement,
pursuant to which (i) Del-Ta Engineering received an annual management fee in the
amount of $100 thousand; (ii) Each of Kardan Communications and Gmul received an
annual management fee in the amount of $50 thousand; and (iii) David Rivel
received an annual management fee in the amount of $20 thousand. Accordingly, in
April 2001, we entered into management agreements with Del-Ta Engineering, Kardan
Communications and David Rivel, pursuant to which they were required to provide us with
specified management and consulting services in consideration for the amounts stated
above. These agreements provided for a three year term. The payments pursuant to these
agreements aggregated $220 thousand in 2001, $220 thousand in 2002 and
$220 thousand in 2003. All amounts of management fees set forth above and below do
not include value added tax, or VAT (currently 15.5%).

In
March 2004, we entered into new agreements with Del-Ta Engineering, Kardan
Communications and David Rivel, which superseded the April 2001 management services
agreements effective as of January 2004. These agreements set forth the management
and consulting services that such shareholders were obligated to provide us and the annual
management fees payable thereunder as follows: (i) $220 thousand to Del-Ta
Engineering; (ii) $100 thousand to Kardan Communications; and
(iii) $100 thousand to David Rivel. These agreements provide for a one year term
and were extended each year thereafter. In 2005, the annual management fees payable under
the agreements were increased such that: (i) Del-Ta Engineering was entitled to an
annual management fee of $285 thousand; (ii) Kardan Communications was entitled
to an annual management fee of $205 thousand; and (iii) David Rivel was entitled
to an annual management fee of $110 thousand. The payments pursuant to these
agreements aggregated $420 thousand in 2004, $600 thousand in 2005 and
$600 thousand in 2006.

79

---

---

In
October 2006, we entered into a new agreement with Del-Ta Engineering and Kardan
Communications, which superseded the March 2004 management services agreements
effective as of January 2007, and we terminated the management services agreement
with David Rivel effective as of January 2007. This agreement sets forth the
management and consulting services that Del-Ta Engineering and Kardan Communications are
obligated to provide us and the annual management fees payable thereunder as follows:
(i) $235 thousand to Del-Ta Engineering and (ii) $163 thousand to
Kardan Communications. This agreement provided initially for a one year term and renews
automatically for one year periods unless terminated by us or, jointly, by Del-Ta
Engineering and Kardan Communications. Each of Del-Ta Engineering and Kardan
Communications agreed not to terminate or amend the agreement without the consent of the
other service provider. Del-Ta Engineering and Kardan Communications also agreed that for
so long as each has a representative serving on our board of directors, neither party will
vote at any shareholder vote in favor of terminating or not renewing the agreement. The
payments pursuant to this agreement aggregated $398 thousand in 2007.

One Time Fees Associated
with the IPO

In
the fourth quarter of 2006, we paid each of Del-Ta Engineering and Kardan Communications a
one-time payment of $250 thousand for special management services rendered to us
during 2006 beyond the services they were required to provide pursuant to the management
services agreements described above, including consulting services relating to market
evaluation and strategy planning in preparation for our initial public offering,
determination of the appropriate securities market for us, selection of underwriters and
contribution to the preparation of the prospectus relating to our initial public offering.

Employment Agreements

In
March 2006, we entered into a service agreement (which replaced an agreement of
March 2001) with Datacom, a company controlled by Mr. Rivel, which was amended
in September 2006, pursuant to which Datacom agreed to provide us with the services
of David Rivel as our Chief Executive Officer. We believe this agreement is equivalent to
an employment agreement. The term of the agreement is through December 31, 2011.
Either party may terminate the agreement upon 180 days prior written notice. If
we elect to terminate the agreement on or prior to December 31, 2008, other than as a
result of (A) a material breach by Datacom or Mr. Rivel, or
(B) Mr. Rivels death, we will pay Datacom a fee in the amount of $250
thousand plus VAT. If the agreement is terminated as a result of Mr. Rivels
death, we will pay Datacom a fee in the amount of $300 thousand plus VAT.

Pursuant
to the agreement, Datacom was entitled to NIS 102,700 plus VAT per month through
December 2006 and to NIS 122,765 per month (adjusted to the Israeli CPI from
August 2006) plus VAT beginning January 2007 as compensation for
Mr. Rivels services as our Chief Executive Officer. Datacom is also entitled to
a bonus of 6% of our annual net income up to $4 million in 2006 and up to
$1 million thereafter, 8% of our annual net income above $4 million and up to
our historical highest annual net income in 2006 and above $1 million and up to our
historical highest annual net income thereafter, 10% of our annual net income above our
historical highest annual net income and up to 120% of our historical highest annual net
income, and 15% of our annual net income above 120% of our historical highest annual net
income. For the purpose of determining the bonus, taxes, management fees to other
shareholders and specified expenses and losses are excluded from the calculation of annual
net income. In addition, the agreement provides that the 2006 bonus shall not be less than
the 2005 bonus. We also provide Mr. Rivel with certain benefits that are customary
for senior officers in Israel, such as the use of a company car and reimbursement of home
telephone expenses.

80

---

---

Pursuant
to this agreement, Mr. Rivel was granted options to purchase a total of 233,100
ordinary shares. The options vest in five installments over a period of four years,
beginning on December 31, 2006, when approximately1/6 of the
options vested. These options are exercisable at exercise prices ranging from $5.60 per
ordinary share to $8.35 per ordinary share. Unvested options will expire upon termination
of the service agreement and vested options will expire 6 months following
termination of the services agreement.

In
addition, we granted Datacom an option to purchase ordinary shares in the event that we
consummate an initial public offering of our shares (or a similar transaction, such as a
reverse merger with a public company) prior to December 31, 2009. The option was
exercisable only in whole into a number of shares equal to 5% of our issued share capital
immediately prior to the offering at an exercise price equal to 85% of the initial
offering price per share. However, pursuant to the terms of the agreement, on
June 22, 2006, we exercised a right to terminate the option in consideration for a
one-time payment of $500 thousand that was paid in the fourth quarter of 2006.

We
have also agreed to indemnify Datacom and David Rivel for any expense or loss they may
incur as a result of claims made against Datacom and David Rivel, which would have been
indemnifiable by us or subject to insurance coverage had the claim been made directly
against David Rivel as our office holder.

We
have also agreed with David Rivel that following the expiration or termination of the
agreement with Datacom for any reason other than as a result of Mr. Rivels
death, we will pay Mr. Rivel, in consideration for a non-competition undertaking on
his part, which shall extend between 12 and 24 months depending on the date the
Datacom agreement terminates or expires, $150 thousand if the agreement terminates on
or before December 31, 2008, $350 thousand if the agreement terminates during
2009, $450 thousand if the agreement terminates during 2010 and $650 thousand if
the agreement terminates or expires during 2011. In the event the Datacom agreement
terminates on or before December 31, 2008, we will not be required to make this
payment to Mr. Rivel if we decide not to enforce such undertaking.

We
also have employment agreements with Lior Rival, our Vice President  Sales and
Marketing, who is the son of David Rivel, and with Maya Rival, our Vice-President
Operations, who is the daughter of David Rivel. These agreements can be terminated at will
without notice, except as required by Israeli law. The terms of their employment are
substantially similar to the terms of employment of company employees in comparable
positions. The compensation paid to Lior Rival and Maya Rival is included in the aggregate
direct compensation amount reported under Item 6 Directors, Senior Management and
Employees  Compensation.

Commercial Agreements

| |  | In
February 2006, we entered into a service agreement with Baby First TV LLC, or BFTV
LLC, a company in which Kardan Communications, one of our principal shareholders, holds
53.0% of the share capital and one of our directors serves as a director. Under this
agreement, BFTV LLC agreed to purchase from us international playout and uplink services
over a period of three years in consideration for monthly payments of $31.4 thousand
until May 31, 2006 and $33.7 thousand for the remainder of the agreements
term. In November 2006, we entered into an amendment to this agreement for additional
services, pursuant to which the monthly payments were increased to $40.0 thousand for the
remainder of the agreements term.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In
January 2007 we entered into another service agreement with BFTV LLC pursuant to which
BFTV LLC agreed to purchase from us certain international playout and fiber connectivity
services in consideration for monthly payments of $10.1 thousand.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In
September 2007 we entered into another service agreement with BFTV LLC pursuant to which
BFTV LLC agreed to purchase from us certain international playout and uplink services in
consideration for monthly payments of $20.2 thousand. BFTV LLC was also granted an option
pursuant to the service agreement to purchase from us Internet streaming services in
consideration for a monthly fee of $500. In addition, BFTV LLC agreed to pay us $15 for
each smartcard ordered from us.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

81

---

---

| |  | In
May 2001, we entered into a service agreement with IVP-Ivory Video Productions Ltd.,
a company in which Kardan Communications holds 40.0% of the share capital and one of our
directors serves as a director. Under this agreement, IVP-Ivory Video Productions Ltd.
agreed to purchase from us certain video link and satellite transmission services over an
initial period of two years (which was later on extended for an additional period of five
and a half years), in consideration for monthly payments of $39.4 thousand.
According to the agreement, we are responsible and bear all of the costs for obtaining
all permits from all authorities required in Israel for the performance of the services.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our
corporate headquarters in Omer, Israel are currently leased under an agreement with
Datacom, entered into in February 1998. The agreement provides for monthly lease
payments of $1 thousand.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Guarantees and Obligations

In
addition, InterGamma agreed with the Ministry of Communications to cause us to fulfill our
obligations under our principal license from the Israeli Ministry of Communications.

Indemnification and
Insurance

We
have entered into an insurance, indemnification and exculpation agreement with each of our
directors and executive officers and purchased directors and officers
liability insurance. The insurance, indemnification and exculpation agreements and our
articles of association require us to indemnify our directors and officers to the full
extent permitted by law. See Item 10.B. Additional Information  Memorandum and
articles of association  Exculpation, Indemnification and Insurance of Directors and
Officers.

C.
          Interests of experts and counsel

Not
applicable.

82

---

---

|ITEM 8. | FINANCIAL INFORMATION
|------- | ---------------------

A.
          Consolidated statements and other financial information

You
can find our consolidated financial statements in Item 18 Financial
Statements.

Legal proceedings

We
are not party to any material litigation and are not aware of any pending or threatened
litigation that could have a material adverse effect upon our business, operating results
or financial condition.

Dividend policy

We
distributed to our shareholders cash dividends of $2.5 million and $2.0 million
in 2005 and 2006, respectively. During 2007, we did not distribute any dividends to our
shareholders.

In
March 2008, our board of directors adopted a new dividend policy to distribute each year
not more than 50% of our cumulative retained earnings, subject to applicable law, our contractual
obligations and provided that such distribution would not be detrimental to our cash needs
or to any plans approved by our board of directors. Our board of directors will consider,
among other factors, our expected results of operations, financial condition, contractual
restrictions, planned capital expenditures, financing needs and other factors that our
board of directors deems relevant in order to reach its conclusion that a distribution of
dividends will not prevent us from satisfying our existing and foreseeable obligations as
they become due. Dividend declaration is not guaranteed and is subject to our board
of directors sole discretion, which may elect to pay or not pay dividends in the
future or change our dividend policy.

The
distribution of dividends is also limited by Israeli law, which permits the distribution
of dividends only out of cumulative retained earnings or out of retained earnings over the
prior two years, provided that there is no reasonable concern that the payment of the
dividend will prevent us from satisfying our existing and foreseeable obligations as they
become due. Furthermore, the distribution of dividends may be subject to Israeli
withholding taxes. See Item 10.B. Additional Information  Memorandum and
articles of association  Dividends and Item 10.D. Additional Information
 Taxation  Taxation in Israel, respectively.

# B. Significant changes

Except
as otherwise disclosed in this Annual Report, there has been no significant change in our
financial position since December 31, 2007.

83

---

---

|ITEM 9. | THE OFFER AND LISTING
|------- | ---------------------

A.
          Offer and listing details

Our
ordinary shares began trading publicly on the NASDAQ Global Market on November 1,
2006 under the symbol RRST, and commenced trading on the NASDAQ Global Select
Market on January 1, 2008. Prior to November 1, 2006, there was no public market for
our ordinary shares.

The
following table sets forth, for the periods indicated, the high and low sale prices of our
ordinary shares as reported by the NASDAQ Global Market and the NASDAQ Global Select
Market:

|                                       | High | Low
|-------------------------------------- | ---- | ---
|
|
|
|
|2006 (from November 1, 2006)           |      |    
|2007                                   |      |    
|                                       |      |    
|2006                                   |      |    
|Fourth quarter (from November 1, 2006) |      |    
|                                       |      |    
|2007                                   |      |    
|First quarter                          |      |    
|Second quarter                         |      |    
|Third quarter                          |      |    
|Fourth quarter                         |      |    
|                                       |      |    
|Most recent six months                 |      |    
|September 2007                         |      |    
|October 2007                           |      |    
|November 2007                          |      |    
|December 2007                          |      |    
|January 2008                           |      |    
|February 2008                          |      |    
|March 2008 (through March 20, 2008)    |      |    

On
March 20, 2008, the last reported sale price of our ordinary shares on the NASDAQ Global
Select Market was $15.96 per share. According to our transfer agent, as
of March 18, 2008, there were five holders of record of our ordinary shares.

# B. Plan of distribution

Not
applicable.

# C. Markets

Our
ordinary shares began trading publicly on the NASDAQ Global Market on November 1,
2006 under the symbol RRST, and commenced trading on the NASDAQ Global Select
Market on January 1, 2008.

84

---

---

# D. Selling shareholders

Not
applicable.

# E. Dilution

Not
applicable.

# F. Expenses of the issue

Not
applicable.

|ITEM 10. | ADDITIONAL INFORMATION
|-------- | ----------------------

# A. Share capital

Not
applicable.

B.
          Memorandum and articles of association

Incorporation

We
were incorporated under the laws of the State of Israel in August 1981. Our
registration number with the Israeli Registrar of Companies is 51-089629-3. Our purpose
under our memorandum of association is to engage in any business permitted by law.

Ordinary Shares

Our
authorized share capital consists of 20,000,000 ordinary shares, par value NIS 0.01 per
share. As of March 18, 2008, we had 17,286,762 ordinary shares outstanding.

The
holders of our ordinary shares are entitled to one vote for each share held of record on
all matters submitted to a vote of the shareholders, except in the election of directors
in which our shareholders are entitled to cumulative voting (see Item 6.C.
Directors, Senior Management and Employees  Board practices). Holders of
our ordinary shares are entitled to receive ratably such dividends, if any, as may be
declared by our board of directors out of funds legally available therefor.

85

---

---

In
the event of our liquidation, dissolution or winding up, after payment of all of our debts
and liabilities, the holders of our ordinary shares are entitled to share ratably in all
assets. These rights may be affected by the grant of preferential liquidation or dividend
rights to the holders of a class of shares that may be authorized in the future. Our
ordinary shares have no preemptive or conversion rights or other subscription rights.

The
Companies Law and our articles of association provide that the rights of a particular
class of shares may not be modified without the vote of a majority of the affected class,
unless otherwise provided for in the terms of the issuance of such class.

Shareholder Meetings

Under
the Companies Law, an annual meeting of our shareholders must be held once every calendar
year and not more than 15 months from the date of the previous annual shareholders
meeting. In addition, our board of directors may, in its discretion, convene additional
meetings as special shareholders meetings. The board of directors also is required to
convene a special shareholders meeting upon the demand of any of the following: two
directors; one quarter of the directors in office; the holder or holders of at least 5% of
our share capital, provided they hold at least 1% of the voting rights in our company; or
the holder or holders of at least 5% of the voting rights in our company. Our articles of
association provide that each shareholder of record is entitled to receive prior notice of
any shareholders meeting in accordance with the requirements of the Companies Law, which
is currently at least 21 days.

The
quorum required for a meeting of shareholders consists of at least two shareholders
present in person or by proxy holding at least 331/3% of the
voting power. A meeting adjourned for lack of a quorum will be adjourned to the next day
at the same time and place, or any time and place as our directors designate in a notice
to the shareholders. At the reconvened meeting, the required quorum consists of two
shareholders holding at least 10% of the issued and outstanding share capital. The
chairman of the board of directors presides at each of our shareholders meetings. The
chairman of the meeting does not have an additional or casting vote.

As
described above under Item 4.B. Information on the Company  Business Overview
 Regulation Israeli Regulation  Ministry of Communications, any
shareholder seeking to vote at a general meeting of our shareholders must notify us prior
to the meeting whether or not its beneficial holdings are subject to the consent of the
Ministry of Communications in view of the restrictions on transfer or acquisition of means
of control imposed by our license. If the shareholder does not provide such notice, its
instructions shall be invalid and its vote shall not be counted.

Resolutions

All
resolutions at shareholders meetings will be deemed adopted if approved by the holders of
a majority of the voting power represented and voting at the meeting, except for the
following decisions which require a different majority:

(1)       
          a voluntary liquidation  a majority of 75% of the shareholders voting
          at the shareholders meeting is needed.

(2)       
          a compromise or arrangement between a company and its creditors or shareholders,
          reorganization, stock split and reverse stock split have to be approved by the
          majority in number of the persons participating in the vote (except for
          abstentions) together holding three quarters of the value at the vote. In
          addition, these resolutions must be approved by a court.

(3)       
          election and dismissal of directors (except for outside directors)  see
          Item 6.C. Directors, Senior Management and Employees  Board
          practices.

86

---

---

(4)       
          amendment to the articles of association.

(5)       .nomination
and dismissal of an outside director  see Item 6.C. Directors, Senior
Management and Employees  Board practices  Outside directors.

(6)       
          related party transactions  see  Fiduciary Duties and
          Approval of Related Party Transactions below.

(7)       
          exculpation, indemnification or insurance of directors  see
          Exculpation, Indemnification and Insurance of Directors and
          Officers below.

(8)       
          compensation for a director that is different than the compensation for the
          other directors.

Election of Directors

Other
than the outside directors, who are subject to special election requirements under Israeli
law, our directors are elected by cumulative voting of the shareholders present, in person
or by proxy, at a shareholders meeting. See Item 6.C. Directors, Senior Management
and Employees  Board practices.

A
director may nominate an alternate director, as long as the alternate qualifies to serve
as a director.

Dividends

The
holders of our ordinary shares are entitled to their proportionate share of any cash
dividend, share dividend or dividend in kind distributed with respect to our ordinary
shares. We may declare dividends out of retained earnings. Even in the absence of retained
earnings, we may declare dividends out of earnings generated over the two most recent
fiscal years (Profit Test). In either case, our board of directors must reasonably believe
that the dividend will not render us unable to meet our current or foreseeable obligations
when due (Solvency Test). If we do not comply with the Profit Test, a court may
nevertheless allow us to distribute a dividend, provided the court is convinced that the
Solvency Test is satisfied.

Our
articles of association provide that the board of directors may declare and distribute
dividends without the approval of the shareholders.

Shareholder Duties

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 to refrain from abusing his or her power
in the company, including when voting in a shareholders meeting or in a class meeting on
matters such as the following:

| |  | an
amendment to our articles of association;
| | - | --------------------------------------------

| |  | an
increase in our authorized share capital;
| | - | --------------------------------------------

| |  | a
merger; or
| | - | ------------

| |  | approval
of related party transactions that require shareholder approval.
| | - | -------------------------------------------------------------------------

In
addition, any controlling shareholder, any shareholder who knows that he or she possesses
the power to determine the outcome of a shareholders meeting or a shareholders class
meeting and any shareholder who has the power to prevent the appointment of an office
holder, is under a duty to act with fairness towards the company. The Companies Law does
not define the substance of this duty of fairness, except to state that the remedies
generally available upon a breach of contract will also apply in the event of a breach of
the duty to act with fairness, taking into account the position in the company of those
who breached the duty of fairness.

87

---

---

Fiduciary Duties and
Approval of Related Party Transactions

Fiduciary
duties. The Companies Law codifies the fiduciary duties that office
holders, which under the Companies Law includes our directors and executive officers, owe
to a company. An office holders fiduciary duties consist of a duty of loyalty and a
duty of care.

The
duty of loyalty requires an office holder to act in good faith and for the benefit of the
company, including to avoid any conflict of interest between the office holders
position in the company and personal affairs, and prohibits any competition with the
company or the exploitation of any business opportunity of the company in order to receive
personal advantage for himself or herself or for others. This duty also requires an office
holder to reveal to the company any information or documents relating to the
companys affairs that the office holder has received due to his or her position as
an office holder. A company may approve any of the acts mentioned above provided that all
the following conditions apply: the office holder acted in good faith and neither the act
nor the approval of the act prejudices the good of the company and, the office holder
disclosed the essence of his personal interest in the act, including any substantial fact
or document, a reasonable time before the date for discussion of the approval.

The
duty of care requires an office holder to act with a level of care that a reasonable
office holder in the same position would employ under the same circumstances. This
includes the duty to use reasonable means to obtain information regarding the advisability
of a given action submitted for his or her approval or performed by virtue of his or her
position and all other relevant information material to these actions.

Compensation.           Under
the Companies Law, unless the articles of association provide otherwise,           the
compensation arrangements for officers who are not directors require           approval
of the board of directors. Our articles provide that transactions           concerning
compensation of an office holder who is not a director require only           the
approval of our board of directors, a committee of our board of directors or
          the chief executive officer. Arrangements regarding the compensation of
          directors require the approval of the audit committee, the board and the
          shareholders, in that order.

Disclosure
of personal interest. The Companies Law requires that an office holder
promptly disclose to the company any personal interest that he or she may have and all
related material information or documents known to him or her, in connection with any
existing or proposed transaction by the company. Personal interest, as defined
by the Companies Law, includes a personal interest of any person in an act or transaction
of the company, including a personal interest of his relative or of a corporation in which
that person or a relative of that person is a 5% or greater shareholder, a holder of 5% or
more of the voting rights, a director or general manager, or in which he or she has the
right to appoint at least one director or the general manager. Personal
interest does not apply to a personal interest stemming merely from holding shares
in the company.

The
office holder must make the disclosure of his personal interest no later than the first
meeting of the companys board of directors that discusses the particular
transaction. This duty does not apply to the personal interest of a relative of the office
holder in a transaction unless it is an extraordinary transaction. The
Companies Law defines an extraordinary transaction as a transaction that is
not in the ordinary course of business, not on market terms or that is likely to have a
material impact on the companys profitability, assets or liabilities, and a
relative as a spouse, sibling, parent, grandparent, descendent, spouses
descendant and the spouse of any of the foregoing.

88

---

---

Approvals.           The
Companies Law provides that a transaction with an office holder or a
          transaction in which an office holder has a personal interest requires board
          approval, unless the transaction is an extraordinary transaction or the
articles           of association provide otherwise. Under our articles of association,
the board           of directors may authorize a committee of the board or the chief
executive           officer to approve such a transaction. The transaction may not be
approved if it           is adverse to our interest. If the transaction is an
extraordinary transaction,           or if it concerns exculpation, indemnification or
insurance of an office holder,           then the approvals of the companys audit
committee and the board of           directors are required. Exculpation,
indemnification, insurance or compensation           of a director also requires
shareholder approval. The audit committee may not           approve the transaction
unless, at the time of the approval, at least two           members of the audit
committee were outside directors and at least one of them           was present at the
meeting at which the audit committee approved the           transaction.

A
director who has a personal interest in a matter that is considered at a meeting of the
board of directors or the audit committee generally may not attend that meeting or vote on
that matter, unless a majority of the board of directors or the audit committee has a
personal interest in the matter. If a majority of the board of directors or the audit
committee has a personal interest in the transaction, shareholder approval also would be
required.

Shareholders

The
Companies Law imposes on a controlling shareholder of a public company the same disclosure
requirements described above as it imposes on an office holder. For this purpose, a
controlling shareholder is any shareholder who has the ability to direct the
companys actions, including any shareholder holding 25% or more of the voting rights
if no other shareholder owns more than 50% of the voting rights in the company. Two or
more shareholders with a personal interest in the approval of the same transaction are
deemed to be one shareholder.

Approval
of the audit committee, the board of directors and our shareholders, in that order, is
required for:

| |  | extraordinary
transactions, including a private placement, with a controlling shareholder or
              in which a controlling shareholder has a personal interest; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
terms of compensation or employment of a controlling shareholder or his or her relative,
              as an officer holder or employee of our company.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------

The
shareholders approval must include the majority of shares voted at the meeting. In
addition to the majority vote, the shareholder approval must satisfy either of two
additional tests:

| |  | the
majority includes at least one-third of the shares voted by shareholders who have no
              personal interest in the transaction; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
total number of shares, other than shares held by the disinterested shareholders, that
voted against the approval of the transaction does not exceed 1% of the aggregate voting
rights of our company.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Exculpation,
Indemnification and Insurance of Directors and Officers

Indemnification of Office
Holders

Under
the Companies Law, a company may, if permitted by its articles of association,
indemnify an office holder for any of the following liabilities or expenses that they
may incur due to an act performed or failure to act in his or her capacity as the
companys office holder:

89

---

---

| |  | monetary
liability imposed on the office holder in favor of a third party in a judgment,
                   including a settlement or an arbitral award confirmed by a court,
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | reasonable
legal costs, including attorneys fees, expended by an office holder as a result of
an investigation or proceeding instituted against the office holder by a competent
authority, provided that such investigation or proceeding concludes without the filing of
an indictment against the office holder and either:
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | no
financial liability was imposed on the office holder in lieu of criminal proceedings, or
| | - | -------------------------------------------------------------------------------------------

| |  | financial
liability was imposed on the office holder in lieu of criminal proceedings but the
alleged criminal offense does not require proof of criminal intent, and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | reasonable
legal costs, including attorneys fees, expended by the office holder or for which
the office holder is charged by a court:
| | - | --------------------------------------------------------------------------------------------------------------------------------------

| |  | in
an action brought against the office holder by the company, on behalf of the company or
on                             behalf of a third party,
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------

| |  | in
a criminal action in which the office holder is found innocent, or
| | - | ---------------------------------------------------------------------

| |  | in
a criminal action in which the office holder is convicted but in which proof of criminal
                            intent is not required.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------

Under
the Companies Law, a company may indemnify an office holder in respect of some
liabilities, either in advance of an event or following an event. If a company undertakes
to indemnify an office holder in advance of an event, the indemnification, other than
litigation expenses, must be limited to foreseeable events in light of the companys
actual activities when the company undertook such indemnification, and reasonable amounts
or standards, as determined by the board of directors.

Insurance of Office
Holders

Under
the Companies Law, a company may, if permitted by its articles of association, obtain
insurance for an office holder against liabilities incurred in his or her capacity as an
office holder. These liabilities include a breach of duty of care to the company or a
third party, including a breach arising out of negligent conduct of the office holder, a
breach of duty of loyalty and any monetary liability imposed on the office holder in favor
of a third party.

Exculpation of Office
Holders

Under
the Companies Law, a company may, if permitted by its articles of association, exculpate
an office holder from a breach of duty of care in advance of that breach. Under our
articles of association we may also exculpate an officer retroactively, to the extent
permitted by law. Our articles of association provide for exculpation both in advance or
retroactively, to the extent permitted under Israeli law. A company may not exculpate an
office holder from a breach of duty of loyalty towards the company or from a breach of
duty of care concerning dividend distribution or a purchase of the companys shares
by the company or other entities controlled by the company.

90

---

---

Limitations on
Exculpation, Indemnification and Insurance

There
are certain general limitations on the ability of an Israeli company to indemnify, insure
or exculpate an office holder. A company may indemnify or insure an office holder against
a breach of duty of loyalty only to the extent that the office holder acted in good faith
and had reasonable grounds to assume that the action would not prejudice the company. In
addition, an Israeli company may not indemnify, insure or exculpate an office holder
against a breach of duty of care if committed intentionally or recklessly (excluding mere
negligence), or committed with the intent to derive an unlawful personal gain, or for a
fine or forfeit levied against the office holder in connection with a criminal offense.

Our
articles of association allow us to indemnify, exculpate and insure our office holders to
the fullest extent permitted under the Companies Law, provided that procuring this
insurance or providing this indemnification or exculpation is approved by the audit
committee and the board of directors, as well as by the shareholders if the office holder
is a director. Our articles of association also allow us to indemnify any person who is
not our office holder, including an employee, agent, consultant or contractor who is not
an office holder.

Our
audit committee, board of directors and shareholders have resolved to indemnify our
directors and officers to the full extent permitted by law and by our articles of
association for liabilities not covered by insurance and that are of certain enumerated
types of events. In addition, we have entered into an insurance, indemnification and
exculpation agreement with each of our directors and executive officers.

Anti-Takeover Provisions

Mergers
and Acquisitions. The Companies Law requires the parties to a proposed
merger to file a merger proposal with the Israeli Registrar of Companies, specifying
certain terms of the transaction. Each merging companys board of directors and
shareholders must approve the merger. Shares in one of the merging companies held by the
other merging company or certain of its affiliates are disenfranchised for purposes of
voting on the merger. A merging company must inform its creditors of the proposed merger.
Any creditor of a party to the merger may seek a court order blocking the merger, if there
is a reasonable concern that the surviving company will not be able to satisfy all of the
obligations of the parties to the merger. Moreover, a merger may not be completed until at
least 50 days have passed from the time that the merger proposal was filed with the
Israeli Registrar of Companies and at least 30 days have passed from the approval of
the shareholders of each of the merging companies.

Tender
Offer. The Companies Law provides that certain ownership thresholds in
public companies may be crossed only by means of a tender offer made to all shareholders.
A purchaser must conduct a tender offer in order to purchase shares in publicly held
companies if, as a result of the purchase, the purchaser would hold more than 25% of the
voting rights of a company in which no other shareholder holds more than 25% of the voting
rights, or the purchaser would hold more than 45% of the voting rights of a company in
which no other shareholder holds more than 45% of the voting rights. A tender offer is not
required if: (i) the shares are acquired in a private placement that is approved by
the shareholders with the knowledge that as a result the purchaser would hold more than
25% or 45% of the voting rights, as applicable, (ii) the purchaser crosses the 25%
threshold by purchasing shares from a shareholder who held more than 25% of the voting
rights immediately prior to the transaction, or (iii) the purchaser crosses the 45%
threshold by purchasing shares from a shareholder who held more than 45% of the voting
rights immediately prior to the transaction.

Under
the Companies Law, a person may not purchase shares of a public company if, following the
purchase, the purchaser would hold more than 90% of the companys shares or of any
class of shares, unless the purchaser makes a tender offer to purchase all of the target
companys shares or all the shares of the particular class, as applicable. If, as a
result of the tender offer, the purchaser acquires more than 95% of the companys
shares or a particular class of shares, the Companies Law provides that the purchaser
automatically acquires ownership of the remaining shares. However, if the purchaser is
unable to purchase 95% or more of the companys shares or class of shares, the
purchaser may not own more than 90% of the shares or class of shares of the target
company.

91

---

---

Ownership
Limitations. Our license from the Israeli Ministry of Communications to
operate our teleports provides that, without the consent of the Israeli Ministry of
Communications, no direct or indirect control of RRsat may be acquired and no means of
control may be transferred in a manner that would result in a transfer of control. Our
license was amended in connection with our initial public offering in November 2006 to
provide, among other things, that should a shareholder, other than our shareholders prior
to the initial public offering, become a beneficial holder of 10% or more of our shares or
acquire shares in an amount resulting in such shareholder having significant influence
over us without receiving the consent of the Minister, its holdings will be converted into
dormant shares for as long as the Ministers consent is required but not obtained.
The beneficial holder of such dormant shares will have no rights other than the right to
receive dividends and other distributions to shareholders and the right to participate in
rights offerings. For additional information regarding the provisions of our amended
license as it relates to restrictions on the transfer of control, see Item 4.B.
Information on the Company  Business Overview  Regulation  Israeli
Regulation  Ministry of Communications.

Tax
Law. Israeli tax law treats some acquisitions, such as a stock-for-stock
swap between an Israeli company and a foreign company, less favorably than U.S. tax law.
For example, Israeli tax law may subject a shareholder who exchanges his ordinary shares
for shares in a foreign corporation to immediate taxation.

Transfer Agent and
Registrar

The
transfer agent and registrar for our ordinary shares is American Stock Transfer &
Trust Company, New York, New York.

# C. Material contracts

Summaries
of the following material contracts are included in this Annual Report in the places
indicated:

| | Material Contract                                                                                                                       |  | Location                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------
|
|
|
|
| | Registration Rights Agreement, dated September 13, 2006, among the Registrant and certain shareholders named therein                    |  | Item 7.B. "Major Shareholders and Related Party Transactions - Related party transactions - Registration Rights Agreement."
| |                                                                                                                                         |  |                                                                                                                            
| | Management Services Agreement, dated October 5, 2006, among the Registrant, Del-Ta Engineering Ltd. and Kardan Communications Ltd.      |  | Item 7.B. "Major Shareholders and Related Party Transactions - Related party transactions - Management Services Agreement."
| |                                                                                                                                         |  |                                                                                                                            
| | Allotment Agreement, dated October 31, 2005, between the Registrant and Eutelsat S.A.                                                   |  | Item 4.B. "Information on the Company - Business Overview - Network."                                                      
| |                                                                                                                                         |  |                                                                                                                            
| | Dedicated Video Solutions Service Order Contract, dated May 13, 2005, between the Registrant and Intelsat Global Sales & Marketing Ltd. |  | Item 4.B. "Information on the Company - Business Overview - Network."                                                      
| |                                                                                                                                         |  |                                                                                                                            
| | Intelsat Transponder Service Order, dated September 30, 2007, between the Registrant and Intelsat Global Sales & Marketing Ltd.         |  | Item 4.B. "Information on the Company - Business Overview - Network."                                                      
| |                                                                                                                                         |  |                                                                                                                            
| | Contract for Satellite Services, dated January 12, 2004, between the Registrant and British Telecommunications plc                      |  | Item 4.B. "Information on the Company - Business Overview - Network."                                                      
| |                                                                                                                                         |  |                                                                                                                            
| | Agreement for the Sublease of Transponder Capacity, dated May 2005, between the Registrant and The Türksat Satellite Operator Company   |  | Item 4.B. "Information on the Company - Business Overview - Network."                                                      

92

---

---

Each
summary of a material contract is qualified in its entirety by the text of the material
contract, which is filed (or incorporated by reference) as an exhibit to this Annual
Report.

# D. Exchange controls

Non-residents
of Israel who own our ordinary shares may freely convert all amounts received in Israeli
currency in respect of such ordinary shares, whether as a dividend, liquidation
distribution or as proceeds from the sale of the ordinary shares, into freely-repatriable
non-Israeli currencies at the rate of exchange prevailing at the time of conversion
(provided in each case that the applicable Israeli income tax, if any, is paid or
withheld).

Until
May 1998, Israel imposed extensive restrictions on transactions in foreign currency. These
restrictions were largely lifted in May 1998. Since January 1, 2003, all exchange control
restrictions have been eliminated although there are still reporting requirements for
foreign currency transactions. Legislation remains in effect, however, pursuant to which
currency controls can be imposed by administrative action at any time.

The
State of Israel does not restrict in any way the ownership or voting of our ordinary
shares by non-residents of Israel, except with respect to subjects of countries that are
in a state of war with Israel.

# E. Taxation

Taxation in Israel

The
following is a discussion of the material tax consequences under Israeli tax laws relating
to the ownership and disposition of our ordinary shares and of the Israeli government
programs we benefit from. This discussion does not address all aspects of Israeli tax law
that may be relevant to a particular investor in light of his or her personal investment
circumstances or to some types of investors subject to special treatment under Israeli
law. Examples of this kind of investor include banks, financial institutions, insurance
companies and securities dealers; persons that own, directly or indirectly, on the date
the dividend was distributed or during the prior 12 months, 10% or more of our outstanding
voting rights; or a foreign corporation if Israeli residents hold 25% or more of its
shares or have the right to 25% or more of its income or profits.

Some
parts of this discussion are based on new tax legislation that has not been subject to
judicial or administrative interpretation. Therefore, the views expressed in the
discussion may not be accepted by the tax authorities in question. The discussion should
not be construed as legal or professional tax advice and does not cover all possible tax
considerations.

93

---

---

Corporate Tax Structure
in Israel

Israeli
companies were subject to corporate tax at the rate of 29% of their taxable income in
2007. The rate was 34% for 2005 and 31% for 2006, and is scheduled to decline to 27% in
2008, 26% in 2009, and 25% in 2010 and subsequent years.

Special Provisions
Relating to Taxation Under Inflationary Conditions

We
are taxed under the Income Tax Law (Inflationary Adjustments), 1985, which we refer to as
the Inflationary Adjustments Law. The Inflationary Adjustments Law was designed to
neutralize the erosion of capital investments in businesses and to prevent tax benefits
resulting from the deduction of inflationary financial expenses. The law applies a
supplementary set of inflationary adjustments to the normal taxable profit computed
according to historic cost principles. The Inflationary Adjustments Law provides tax
deductions and adjustments to depreciation deductions and unlimited tax loss carryforwards
to mitigate the effects resulting from an inflationary economy.

The
Inflationary Adjustments Law is highly complex. Its principal features can be described as
follows:

| |  | Where
a companys equity, as calculated under the Inflationary Adjustments Law, exceeds
the  depreciated cost of its fixed assets (as defined in the Inflationary
Adjustments Law), a deduction from taxable income is permitted equal to this
excess multiplied by the applicable annual rate of inflation. The maximum
deduction permitted in any single tax year is 70% of taxable income, with the
unused portion permitted to be carried forward indefinitely, linked to the Israeli
consumer price index.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Where
a companys depreciated cost of fixed assets exceeds its equity, then the excess  multiplied
by the applicable annual rate of inflation is added to taxable income.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Subject
to specified limitations, depreciation deductions on fixed assets and losses are  adjusted
for inflation based on the change in the consumer price index.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

Under
the Inflationary Adjustments Law, results for tax purposes are measured in real terms, in
accordance with changes in the Israeli consumer price index. The difference between the
change in the Israeli consumer price index and the exchange rate of Israeli currency in
relation to the dollar may in future periods cause significant differences between taxable
income and the income measured in dollars as reflected in our consolidated financial
statements.

On
February 26, 2008, the Israeli Parliament (the Knesset) enacted the Income Tax Law
(Inflationary Adjustments) (Amendment No. 20) (Restriction of Effective Period), 2008,
which we refer to as the Inflationary Adjustments Amendment. In accordance with the
Inflationary Adjustments Amendment, the effective period of the Inflationary Adjustments
Law will cease at the end of the 2007 tax year and as from the 2008 tax year the
provisions of the law shall no longer apply, other than the transitional provisions
intended at preventing distortions in the tax calculations.

In
accordance with the Inflationary Adjustments Amendment, commencing the 2008 tax year,
income for tax purposes will no longer be adjusted to a real (net of inflation)
measurement basis. Furthermore, the depreciation of inflation immune assets and carried
forward tax losses will no longer be linked to the Israeli consumer price index.
Accordingly, these amounts were adjusted until the end of the 2007 tax year after which
they will cease to be linked to the Israeli consumer price index.

94

---

---

Taxation of Non-Israeli
Shareholders

Dividends

Our
shareholders who are non-residents of Israel (both individuals and corporations) will be
subject to Israeli income tax at the rate of 20% (or 25% in the case of a shareholder that
holds, directly or indirectly, including with others, at least 10% of certain means of
control in the company on the date the dividends are distributed or during the prior year) on dividends that they receive from us. This tax will be withheld
at the source. Under the U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a
holder of our ordinary shares who is a U.S. resident is 25%.

Capital Gains

Israeli
law imposes a capital gains tax on the sale of capital assets by an Israeli resident, and
on the sale by non-residents of Israel of capital assets located in Israel (or of direct
or indirect rights to assets located in Israel), including shares of RRsat and securities
held by us. The Israeli Income Tax Ordinance distinguishes between Real Gain
and Inflationary Surplus. Inflationary Surplus is the portion of the gain
attributable to the increase in the Israeli consumer price index between the date of
purchase and the date of sale. Real Gain is the excess of the total capital gain over the
Inflationary Surplus. Inflationary Surplus that accrued after December 31, 1993 is
exempt from tax.

Our
shareholders who are non-residents of Israel will be exempt from Israeli taxation on
capital gains from the sale of our ordinary shares, provided that our ordinary shares are
publicly traded on a recognized stock exchange or regulated market outside of Israel, such
as the NASDAQ Global Market, and provided that such capital gains are not derived from a
permanent establishment in Israel and that such shareholders did not acquire their shares
prior to the issuers initial public offering. In addition, the U.S.-Israel Tax
Treaty exempts U.S. residents who hold an interest of less than 10% in an Israeli company
from Israeli capital gains tax in connection with such sale, provided that their holdings
did not equal or exceed 10% at any time in the 12 months prior to a sale of their
shares.

Law for the Encouragement
of Capital Investments, 1959

The
Law for the Encouragement of Capital Investments, 1959, known as the Investment Law,
provides certain incentives for capital investments in a production facility (or other
eligible assets). An investment program that is implemented in accordance with the
provisions of the Investment Law, referred to as an Approved Enterprise, is
entitled to benefits. These benefits may include cash grants from the Israeli government
and tax benefits, based upon, among other things, the location of the facility in which
the investment is made or the election of the grantee.

The
Investment Law was significantly amended effective April 2005. We will continue to
enjoy our current tax benefits in accordance with the provisions of the Investment Law
prior to its revision. Since we do not expect to be granted any benefits in the future in
light of the limitations of the amended Investment Law, the following discussion is
primarily a summary of the Investment Law prior to its amendment.

Under
the Investment Law prior to its amendment, a company that wished to receive benefits had
to receive an approval from the Investment Center of the Israeli Ministry of Industry,
Trade and Labor, or Investment Center. Each certificate of approval for an Approved
Enterprise relates to a specific investment program in the Approved Enterprise, delineated
both by the financial scope of the investment and by the physical characteristics of the
facility or the asset.

An
Approved Enterprise may elect to forego any entitlement to the grants otherwise available
under the Investment Law and, instead, participate in an alternative benefits program.
Under the alternative package of benefits, a companys undistributed income derived
from an Approved Enterprise is eligible for reduced tax rates and, in some cases (which is
not the case for our Approved Enterprise), may also be fully exempt from corporate tax for
a defined period of time. If a company has more than one Approved Enterprise program or if
only a portion of its capital investments are approved, its effective tax rate is the
result of a weighted combination of the applicable rates. The tax benefits from any
certificate of approval relate only to taxable profits attributable to the specific
Approved Enterprise. Income derived from activity that is not integral to the activity of
the Approved Enterprise must be allocated among the different Approved Enterprises and
therefore does not enjoy tax benefits.

95

---

---

A
company that has an Approved Enterprise program is eligible for further tax benefits if it
qualifies as a foreign investors company. A foreign investors company eligible
for benefits is essentially a company that is more than 25% owned (measured by both share
capital, and combined share and loan capital) by non-Israeli residents. A company which
qualifies as a foreign investors company and has an Approved Enterprise program is
eligible for tax benefits for a ten year benefit period. Income derived from the Approved
Enterprise program will be subject to a reduced tax rate for those ten years, provided
that the company qualifies as a foreign investors company. The tax rates and related
levels of foreign investments are set forth in the following table:

|Rate of
Reduced Tax | Reduced Tax Period | Percent of
Foreign Ownership
|------------------- | ------------------ | ----------------------------
|
|
|
|
|25%                 | 7 years            | 0-25%                       
|25%                 | 10 years           | 25-48.99                    
|20%                 | 10 years           | 49-73.99                    
|15%                 | 10 years           | 74-89.99                    
|10%                 | 10 years           | 90-100                      

A
company that has elected to participate in the alternative benefits program and that
subsequently pays a dividend out of the income derived from the Approved Enterprise during
the tax exemption period will be subject to corporate tax in respect of the amount
distributed at the rate that would have been applicable had the company not elected the
alternative benefits program (generally 10% to 25%). If the dividend is distributed during
the benefit period or within the following 12 years (the 12-year limitation does not
apply to a foreign investors company), the dividend recipient is taxed at the
reduced withholding tax rate of 15%. After this period, the withholding tax rate is 25%.

The
Investment Law also provides that an Approved Enterprise is entitled to accelerated
depreciation on its property and equipment that are included in an approved investment
program.

We
were granted in 2006 an Approved Enterprise status under the Investment Law
for our contemplated expansion of export revenues in the taxable years 2006 to 2012 as
compared to our revenues in 2005. Under the terms of our Approved Enterprise program, our
income from that Approved Enterprise will be subject to a reduced tax rate of 25% for a
period of up to a total of seven years, to be calculated on the portion of our taxable
income associated to the expansion (calculated on a pro rated basis to the additional
revenues for the taxable year compared to the base year, which is 2005).Under
the terms of the program, which relates to our export of communications services to
television channels and television operators via satellites, we are required, among other
things, to increase the export of our services by at least $100 thousand annually and
maintain arms length terms for all related party transactions. In 2007 and 2006, we
realized tax reductions resulting from the approved enterprise status in an
aggregate amount of $220thousand and $146 thousand, respectively.

The
benefits available to an Approved Enterprise are conditioned upon terms stipulated in the
Investment Law and regulations and the criteria set forth in the applicable certificate of
approval. If we do not fulfill these conditions in whole or in part, the benefits can be
canceled and we may be required to refund the amount of the benefits, linked to the
Israeli consumer price index and with the addition of interest.

96

---

---

There
can be no assurance that we will comply with the above conditions in the future. In
addition, it is possible that we may not be able to operate in a way that maximizes
utilization of the benefits under the Investment Law.

U.S. Federal Income Tax
Consequences

The
following is a summary of the material U.S. federal income tax consequences of the
ownership and disposition of ordinary shares. The following discussion is not exhaustive
of all possible tax considerations. This summary is based upon the Internal Revenue Code
of 1986, as amended (the Code), regulations promulgated under the Code by the
U.S. Treasury Department (including proposed and temporary regulations), rulings, current
administrative interpretations and official pronouncements of the Internal Revenue Service
(the IRS), and judicial decisions, all as currently in effect and all of which
are subject to differing interpretations or to change, possibly with retroactive effect.
Such change could materially and adversely affect the tax consequences described below. No
assurance can be given that the IRS would not assert, or that a court would not sustain, a
position contrary to any of the tax consequences described below.

This
discussion does not address state, local, or foreign tax consequences of the ownership and
disposition of ordinary shares. (See Taxation in Israel above).

This
summary is for general information only and does not address all aspects of the U.S.
federal income taxation that may be important to particular holder in light of its
investment or tax circumstances or to holders subject to special tax rules, such as:
banks; financial institutions; insurance companies; dealers in stocks, securities, or
currencies; traders in securities that elect to use a mark-to-market method of accounting
for their securities holdings; tax-exempt organizations; real estate investment trusts;
regulated investment companies; qualified retirement plans, individual retirement
accounts, and other tax-deferred accounts; expatriates of the United States; persons
subject to the alternative minimum tax; persons holding ordinary shares as part of a
straddle, hedge, conversion transaction, or other integrated transaction; persons who
acquired ordinary shares pursuant to the exercise of any employee stock option or
otherwise as compensation for services; persons actually or constructively holding 10% or
more of our voting stock; and U.S. Holders (as defined below) whose functional currency is
other than the U.S. dollar.

This
discussion is not a comprehensive description of all of the U.S. federal tax consequences
that may be relevant with respect to the ownership and disposition of ordinary shares. We
urge you to consult your own tax advisor regarding your particular circumstances and the
U.S. federal income and estate tax consequences to you of owning and disposing of ordinary
shares, as well as any tax consequences arising under the laws of any state, local, or
foreign or other tax jurisdiction and the possible effects of changes in U.S. federal or
other tax laws.

This
summary is directed solely to holders that hold their ordinary shares as capital assets
within the meaning of Section 1221 of the Code, which generally means as property held for
investment. For purposes of this discussion, the term U.S. Holder means a
beneficial owner of ordinary shares that is any of the following:

| | n | a
citizen or resident of the United States or someone treated as a U.S. citizen or resident
                  for U.S. federal income tax purposes;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | n | a
corporation (or other entity taxable as a corporation for U.S. federal income tax
purposes)                   created or organized in or under the laws of the United
States, any state thereof, or                   the District of Columbia;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | an
estate, the income of which is subject to U.S. federal income taxation regardless of its
                  source;
| | - | ---------------------------------------------------------------------------------------------------------------------

97

---

---

| | n | a
trust if a U.S. court can exercise primary supervision over the trust's administration
and                   one or more U.S. persons are authorized to control all substantial
decisions of the                   trust; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | a
trust in existence on August 20, 1996 that has a valid election in effect under
applicable                   Treasury Regulations to be treated as a U.S. person.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
term Non-U.S. Holder means a beneficial owner of ordinary shares that is not a
U.S. Holder. As described in Taxation of Non-U.S. Holders below, the tax
consequences to a Non-U.S. Holder may differ substantially from the tax consequences to a
U.S. Holder. Certain aspects of U.S. federal income tax relevant to a Non-U.S. Holder also
are discussed below.

If
a partnership (including for this purpose any entity treated as a partnership for U.S.
federal income tax purposes) is a beneficial owner of ordinary shares, the U.S. federal
income tax consequences to a partner in the partnership will generally depend on the
status of the partner and the activities of the partnership. A holder of ordinary shares
that is a partnership and the partners in such partnership should consult their own tax
advisors regarding the U.S. federal income tax consequences of the ownership and
disposition of ordinary shares.

Distributions Paid on the
Ordinary Shares

We
currently do not intend to pay cash dividends in the foreseeable future. Subject to the
discussion below under Passive Foreign Investment Company Considerations, a
U.S. Holder will be required to include in gross income as ordinary dividend income the
amount of any distributions paid on the ordinary shares, including the amount of any
Israeli taxes withheld, to the extent that those distributions are paid out of our current
or accumulated earnings and profits as determined for U.S. federal income tax purposes.
Subject to the discussion below under Passive Foreign Investment Company
Considerations, any distributions in excess of our earnings and profits will be
applied against and will reduce the U.S. Holders tax basis in its ordinary shares
and, to the extent they exceed that tax basis, will be treated as gain from a sale or
exchange of those ordinary shares. We do not expect to maintain calculations of our
earnings and profits under United States federal income tax principles. Our dividends will
not qualify for the dividends-received deduction applicable in some cases to U.S.
corporations. Dividends paid in NIS, including the amount of any Israeli taxes withheld,
will be includible in the income of a U.S. Holder in a U.S. dollar amount calculated by
reference to the exchange rate in effect on the date they are included in income by the
U.S. Holder, regardless of whether the payment in fact is converted into U.S. dollars. Any
gain or loss resulting from currency exchange fluctuations during the period from the date
the dividend is includible in the income of the U.S. Holder to the date that payment is
converted into U.S. dollars will be treated as ordinary income or loss.

For
taxable years beginning before January 1, 2011, a non-corporate U.S. holders
qualified dividend income is subject to tax at reduced rates not exceeding
15%. For purposes of determining whether U.S. holders will have qualified dividend
income, qualified dividend income generally includes dividends paid by a
foreign corporation if either:

| | (a) | the
stock of the corporation is readily tradable on an established securities
               market in the U.S., or
| | --- | -------------------------------------------------------------------------------------------------------------------

| | (b) | the
corporation is eligible for benefits of a comprehensive income tax treaty
               with the U.S. which includes an information exchange program and is
determined                to be satisfactory by the U.S. Secretary of the Treasury. The
Internal Revenue                Service, or IRS, has determined that the U.S.-Israel Tax
Treaty is satisfactory                for this purpose.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
addition, under current law a U.S. Holder must hold his ordinary shares for more than 60
days during the 120 day period beginning 60 days prior to the ex-dividend date and meet
other holding period requirements.

98

---

---

Dividends
paid by a foreign corporation will not qualify for the reduced rates, however, if such
corporation is treated, for the tax year in which the dividend is paid or the preceding
tax year, as a passive foreign investment company (PFIC ) for U.S. federal
income tax purposes. We do not believe that we will be classified as a PFIC for U.S.
federal income tax purposes for our current taxable year or that we were classified as a
PFIC in a prior taxable year. However, see the discussion under Passive
Foreign Investment Company Considerations below. The reduced rate applicable to
dividend distributions does not apply to tax years beginning after December 31, 2010.

Subject
to the discussion below under Information Reporting and Back-up Withholding, a
Non-U.S. Holder will not be subject to U.S. federal income or withholding tax on dividends
received on ordinary shares unless that income is effectively connected with the conduct
by that Non-U.S. Holder of a trade or business in the United States.

Foreign Tax Credit

Any
dividend income resulting from distributions we pay to a U.S. Holder with respect to the
ordinary shares will be treated as foreign source income for U.S. foreign tax credit
purposes, which may be relevant in calculating such holders foreign tax credit
limitation. Subject to certain conditions and limitations, Israeli tax withheld on
dividends may be deducted from taxable income or credited against a U.S. Holders
U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is
calculated separately with respect to specific classes of income. For this purpose,
distributions characterized as dividends distributed by us will generally constitute
passive category income or, in the case of certain U.S. Holders, general
category income. The rules relating to the determination of foreign source income
and the foreign tax credit are complex, and the availability of a foreign tax credit
depends on numerous factors. Each U.S. Holder should consult with its own tax advisor to
determine whether its income with respect to the ordinary shares would be foreign source
income and whether and to what extent that U.S. Holder would be entitled to the credit.

Disposition of Ordinary
Shares

Upon
the sale or other disposition of ordinary shares, subject to the discussion below under
Passive Foreign Investment Company Considerations, a U.S. Holder will
recognize capital gain or loss equal to the difference between the amount realized on the
disposition and the holders adjusted tax basis in the ordinary shares. U.S. Holders
should consult their own advisors with respect to the tax consequences of the receipt of a
currency other than U.S. dollars upon such sale or other disposition.

Gain
or loss upon the disposition of the ordinary shares will be treated as long-term capital
gain or loss if, at the time of the sale or disposition, the ordinary shares were held for
more than one year. Long-term capital gain realized by a non-corporate U.S. Holder is
currently subject to a maximum U.S. federal income tax rate of 15%. If the U.S. Holder has
held the ordinary shares for one year or less, such capital gain or loss will be
short-term capital gain or loss taxable as ordinary income at such U.S. Holders
marginal income tax rate. The deductibility of capital losses by a U.S. Holder is subject
to limitations. In general, any gain or loss recognized by a U.S. Holder on the sale or
other disposition of ordinary shares will be U.S. source income or loss for U.S. foreign
tax credit purposes, unless a different result is achieved under the U.S.-Israel Tax
Treaty.

In
the event there is an Israeli income tax on gain from the disposition of ordinary shares,
such tax should generally be the type of tax that is creditable for U.S. tax purposes;
however, because it is likely that the source of any such gain would be a U.S. source, a
U.S. foreign tax credit may not be available. U.S. Holders should consult their own tax
advisors concerning the source of income for U.S. foreign tax credit purposes, the effect
of the U.S.-Israel Tax Treaty on the source of income and the ability to claim the foreign
tax credit.

99

---

---

Subject
to the discussion below under Information Reporting and Back-up Withholding, a
Non-U.S. Holder will not be subject to U.S. federal income or withholding tax on any gain
realized on the sale or exchange of ordinary shares unless:

| |  | that
gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or
              business in the United States, or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| |  | in
the case of any gain realized by an individual Non-U.S. Holder, that holder is present in
the United States for 183 days or more in the taxable year of the sale or exchange, and
other conditions are met.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Passive Foreign
Investment Company Considerations

Special
U.S. federal income tax rules apply to U.S. Holders owning shares of a PFIC. We will be
classified as a PFIC for any taxable year in which, after applying look-through rules, 75%
or more of our gross income consists of specified types of passive income, or 50% or more
of the average value of our assets consists of passive assets, which generally means
assets that generate, or are held for the production of, passive income. For this purpose,
passive income includes dividends, interest, certain types of royalties and rents and the
excess of gains over losses from the disposition of assets that produce these types of
income. Passive income may also include amounts derived by reason of the temporary
investment of funds, including those raised in our initial public offering of ordinary
shares. If we were classified as a PFIC, a U.S. Holder could be subject to increased tax
liability upon the sale or other disposition of ordinary shares or upon the receipt of
amounts treated as excess distributions. Under these rules, the excess
distribution and any gain would be allocated ratably over the U.S. Holders holding
period for the ordinary shares, and the amount allocated to the current taxable year and
any taxable year prior to the first taxable year in which we were a PFIC would be taxed as
ordinary income. The amount allocated to each of the other taxable years would be subject
to tax at the highest marginal rate in effect for the applicable class of taxpayer for
that year, and an interest charge for the deemed deferral benefit would be imposed on the
resulting tax allocated to such other taxable years. The tax liability with respect to the
amount allocated to years prior to the year of the disposition, or excess
distribution, cannot be offset by any net operating losses. In addition, holders of
stock in a PFIC may not receive a step-up in basis on shares acquired from a
decedent. 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.

We
believe that we were not a PFIC for U.S. federal income tax purposes in any prior taxable
year and that we will not be classified as a PFIC for the current taxable year, but we
cannot be certain whether we will be treated as a PFIC for the current year or any future
taxable year. Our belief that we will not be a PFIC for the current year is based on our
estimate of the fair market value of our intangible assets following our initial public
offering, including goodwill, not reflected in our consolidated financial statements under
U.S. GAAP, and our projection of our income for the current year. If the IRS successfully
challenged our valuation of our intangible assets, it could result in our classification
as a PFIC. Additionally, it is unclear how the valuation rules apply to intangible assets
in a situation where the issuer becomes a public company in the middle of the year.
Moreover, because PFIC status is based on our income and assets for the entire taxable
year, it is not possible to determine whether we will be a PFIC for the current taxable
year until after the close of the year. In the future, in calculating the value of our
intangible assets, we will value our total assets, in part, based on our total market
value determined using the average of the selling price of our ordinary shares on the last
trading day of each calendar quarter. We believe this valuation approach is reasonable.
However, it is possible that the IRS will challenge the valuation of our intangibles,
which may result in our being a PFIC. While we intend to manage our business so as to
avoid PFIC status, to the extent consistent with our other business goals, we cannot
predict whether our business plans will allow us to avoid PFIC status or whether our
business plans will change in a manner that affects our PFIC status determination. In
addition, because the market price of our ordinary shares is likely to fluctuate and the
market price of the shares of technology companies has been especially volatile, and
because that market price may affect the determination of whether we will be considered a
PFIC, we cannot assure that we will not be considered a PFIC for any taxable year.

100

---

---

The
PFIC rules described above will not apply to a U.S. Holder if the U.S. Holder makes an
election to treat us as a qualified electing fund. However, a U.S Holder may make a
qualified electing fund election only if we furnish the U.S. Holder with certain tax
information. We currently do not provide this information, and we currently do not intend
to take actions necessary to permit you to make a qualified electing fund election in the
event we are determined to be a PFIC. As an alternative to making this election, a U.S.
Holder of PFIC stock which is publicly-traded may in certain circumstances avoid certain
of the tax consequences generally applicable to holders of a PFIC by electing to mark the
stock to market annually and recognizing as ordinary income or loss each year an amount
equal to the difference as of the close of the taxable year between the fair market value
of the PFIC stock and the U.S. Holders adjusted tax basis in the PFIC stock. Losses
would be allowed only to the extent of net mark-to-market gain previously included by the
U.S. Holder under the election for prior taxable years. This election is available for so
long as our ordinary shares constitute marketable stock, which includes stock
of a PFIC that is regularly traded on a qualified exchange or other
market. Generally, a qualified exchange or other market includes a
national market system established pursuant to Section 11A of the Securities Exchange Act
of 1934. A class of stock that is traded on one or more qualified exchanges or other
markets is regularly traded on an exchange or market for any calendar year
during which that class of stock is traded, other than in de minimis quantities, on
at least 15 days during each calendar quarter. We believe that the NASDAQ Global Market
will constitute a qualified exchange or other market for this purpose. However, no
assurances can be provided that our ordinary shares will continue to trade on the NASDAQ
Global Market or that the shares will be regularly traded for this purpose.

The
rules applicable to owning shares of a PFIC are complex, and each U.S. Holder should
consult with its own tax advisor regarding the consequences of investing in a PFIC.

Information Reporting and
Back-up Withholding

Generally,
information reporting requirements will apply to dividends paid on ordinary shares or
proceeds received on the disposition of ordinary shares paid within the United States
(and, in certain cases, outside the United States) to U.S. Holders other than certain
exempt recipients, such as corporations. Furthermore, backup withholding (currently at
28%) may apply to such amounts if the U.S. Holder fails to (i) provide a correct taxpayer
identification number, (ii) report interest and dividends required to be shown on its U.S.
federal income tax return, or (iii) make other appropriate certifications in the required
manner. U.S. Holders who are required to establish their exempt status generally must
provide such certification on IRS Form W-9.

Payments
to Non-U.S. Holders of distributions on, or proceeds from the disposition of, ordinary
shares are generally exempt from information reporting and backup withholding. However, a
Non-U.S. Holder may be required to establish that exemption by providing certification of
non-U.S. status on an appropriate IRS Form W-8.

Backup
withholding is not an additional tax. Amounts withheld as backup withholding from a
payment to you may be credited against your U.S. federal income tax liability and you may
obtain a refund of any excess amounts withheld by filing the appropriate claim for refund
with the IRS and furnishing any required information in a timely manner.

101

---

---

F.           Dividends and paying agents

Not
applicable.

# G. Statements by experts

Not
applicable.

# H. Documents on display

We
are subject to certain of the information reporting requirements of the Securities and
Exchange Act of 1934, as amended. As a foreign private issuer, we are exempt
from the rules and regulations under the Securities Exchange Act prescribing the
furnishing and content of proxy statements, and our officers, directors and principal
shareholders are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Securities Exchange Act, with respect to their
purchase and sale of the ordinary shares. In addition, we are not required to file reports
and financial statements with the Securities and Exchange Commission as frequently or as
promptly as U.S. companies whose securities are registered under the Securities Exchange
Act. However, we file with the Securities and Exchange Commission an annual report on Form
20-F containing consolidated financial statements audited by an independent accounting
firm. We also furnish quarterly reports on Form 6-K containing unaudited financial
information after the end of each of the first three quarters. We intend to post our
Annual Report on Form 20-F on our website (www.rrsat.com) promptly following the filing of
our Annual Report with the Securities and Exchange Commission.

This
report and other information filed or to be filed by us can be inspected and copied at the
public reference facilities maintained by the Securities and Exchange Commission at:

Securities
and Exchange Commission100
F Street, NEPublic
Reference RoomWashington,
D.C. 20549

Copies
of these materials can also be obtained from the Public Reference Section of the
Securities and Exchange Commission, 100 F Street, NE, Washington, D.C. 20549, at
prescribed rates.

The
Securities and Exchange Commission maintains a website at www.sec.gov that contains
reports, proxy and information statements, and other information regarding registrants
that make electronic filings with the Securities and Exchange Commission using its EDGAR
system.

Additionally,
documents referred to in this Annual Report may be inspected at our principal executive
offices located at 4 Hagoren Street, Industrial Park, Omer 84965, Israel.

I. Subsidiary information

Not
applicable.

102

---

---

|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Market
risks relating to our operations result primarily from changes in interest rates and
currency fluctuations.  In order to limit our exposure, we seek to engage with our
customers in the currency equal to the currency of the network services contract
purchased from suppliers.  Our objective is to reduce exposure and fluctuations in
earnings and cash flows associated with changes in interest rates and foreign currency
rates.  We do not use financial instruments for hedging purposes. However, we are not
always able to apply this policy or to match the term of the customer contract with the
term of the supplier contract and may then be exposed to currency rates fluctuations.

As
of the end of the reported period, we invested our excess cash in bank accounts and
deposits located with banks located in Israel and in the United States.  These
instruments had maturities of three months or less when acquired.  Due to the short-term
nature of these investments, we believe that there is no material exposure to interest
rate risk arising from our investments.  We invested some of the excess cash we had in
longer-term financial instruments in order to achieve a higher yield.  Those funds are
managed by two brokerage firms located in Israel and two brokerage firms located in the
United States based on our investment policy, reviewed from time to time with us and we
believe that there is no material exposure to the principal amount or to interest rate
risks arising from these longer-term investments.  Due to the credit rate and the
dispersion we believe that there is no material exposure to the principal amount or to
interest rate risks arising from these longer-term investments.

|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- | ------------------------------------------------------

Not
applicable.

103

---

---

PART II

|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- | -----------------------------------------------

There
are no defaults, dividend arrearages or delinquencies that are required to be disclosed.

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

There
are no material  modifications to, or  qualifications  of, the rights of security holders
that are required to be disclosed.

The
effective date of our first registration statement, filed on Form F-1 under the
Securities Act of 1933 (No. 333-137930) relating to the initial public offering of our
ordinary shares, was October 31, 2006.  The offering commenced on November 1, 2006 and
terminated after the sale of all the securities registered.  The offering was managed by
CIBC World Markets Corp., Thomas Weisel Partners LLC, William Blair & Company, C.E.
Unterberg, Towbin, LLC and Maxim Group LLC.

In
the offering, we sold 4,195,000 ordinary shares for an aggregate offering price of $52.4
million and the selling shareholder sold 175,000 shares for an aggregate offering price
of $2.2 million.  The amount of underwriting discount paid by us in the offering was $3.7
million and the expenses of the offering, not including the underwriting discount, were
approximately $1.5 million.

The
net proceeds that we received as a result of the offering were approximately $47.4
million.  As of December 31, 2007, all of our net proceeds were in cash equivalents and
marketable securities.   None of the net proceeds of the offering was paid directly or
indirectly to any director, officer, general partner of ours or to their associates,
persons owning ten percent or more of any class of our equity securities, or to any of
our affiliates.

|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Disclosure controls and procedures

We
performed an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
period covered by this report.  Based on this evaluation, our Chief Executive Officer and
Chief Financial Officer, concluded that our disclosure controls and procedures as of the
end of the period covered by this report, were effective to provide reasonable assurance
(i) that information required to be disclosed in filings and submissions under the
Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, and (ii) that
information required to be disclosed in reports that we file or submit under the Exchange
Act is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.

104

---

---

Management report on internal control over financial reporting

Our
management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
to provide reasonable assurance regarding the reliability of our financial reporting and
the preparation of financial statements for external purposes in accordance with U.S.
generally accepted accounting principles.

Management
assessed our internal control over financial reporting as of December 31, 2007, the end
of our fiscal year.  In making this assessment, management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in "Internal
Control  Integrated Framework".

Based
on our assessment, management has concluded that our internal control over financial
reporting was effective as of December 31, 2007 to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for
external reporting purposes in accordance with U.S. generally accepted accounting
principles.  We reviewed the results of management's assessment with the Audit Committee
of our Board of Directors.

Our
independent registered public accounting firm, Somekh Chaikin, a member firm of KPMG
International, independently assessed the effectiveness of the company's internal control
over financial reporting.  Somekh Chaikin has issued an attestation report, which is
included on pages F-3-F-4 of this Annual Report on Form 20-F.

Inherent limitations on effectiveness of controls

Internal
control over financial reporting has inherent limitations. Internal control over
financial reporting is a process that involves human diligence and compliance and is
subject to lapses in judgment and breakdowns resulting from human failures.  Internal
control over financial reporting also can be circumvented by collusion or improper
management override.  Because of such limitations, there is a risk that material
misstatements will not be prevented or detected on a timely basis by internal control
over financial reporting.  However, these inherent limitations are known features of the
financial reporting process.  Therefore, it is possible to design into the process
safeguards to reduce, though not eliminate, this risk.

Changes in internal control over financial reporting

During
the period covered by this report, no changes in our internal controls over financial
reporting have occurred that materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.

|ITEM 16. | Reserved.
|-------- | ---------

105

---

---

|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT
|--------- | --------------------------------

Our
board of directors has determined that Mr. David Assia is an "audit committee financial
expert" and that he is independent under the applicable Securities and Exchange
Commission and NASDAQ Marketplace Rules.

|ITEM 16B. | CODE OF ETHICS
|--------- | --------------

In
October 2006, our board of directors adopted a code of ethics that applies to all of our
employees, directors and officers, including the Chief Executive Officer, Chief Financial
Officer, principal accounting officer and controller and other individuals who perform
similar functions. The code of ethics has been posted on our website at www.rrsat.com.

|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- | --------------------------------------

Fees and services

The
table below summarizes the total remuneration that we paid during 2006 and 2007 to our
independent accountants, Somekh Chaikin, a member firm of KPMG International.

|                       | Year Ended
December 31, 2006 | Year Ended
December 31, 2007
|---------------------- | ---------------------------- | ----------------------------
|
|
|
|
|Audit fees             |                              |                             
|Audit-related fees (1) |                              |                             
|Tax fees (2)           |                              |                             
|All other fees         |                              |                             
|                       |                              |                             
|Total                  |                              |                             
|                       |                              |                             

---

|(1) | "Audit-related
fees" are fees related to services performed in connection with our      registration
statement on Form F-1 for our initial public offering and our Annual Report on      Form
20-F.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | "Tax
fees" are fees for professional services rendered by our auditors for tax compliance,
     tax advice on actual or contemplated transactions, tax consulting associated with
international      transfer prices and employee benefits.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Audit committee's pre-approval policies and procedures

Our
audit committee chooses and engages the independent auditors to audit our consolidated
financial statements, with the approval of our shareholders as required by Israeli law.
 Our management is required to obtain the audit committee's approval before engaging our
independent auditors to provide any audit or permitted non-audit services to us.  This
policy, which is designed to assure that such engagements do not impair the independence
of our auditors, requires pre-approval from the audit committee on an annual basis for
the various audit and non-audit services that may be performed by our auditors.

Our
audit committee is not permitted to approve the engagement of our auditors for any
services that would be inconsistent with maintaining the auditor's independence or that
are not permitted by applicable law.

106

---

---

|ITEM 16D. | EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
|--------- | --------------------------------------------------------

None.

|ITEM 16E. | PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|--------- | ---------------------------------------------------------------------

None.

107

---

---

PART III

|ITEM 17. | FINANCIAL STATEMENTS
|-------- | --------------------

Not
applicable.

|ITEM 18. | FINANCIAL STATEMENTS
|-------- | --------------------

See
pages F-1 to F-34 below.

108

---

---

|ITEM 19. | EXHIBITS
|-------- | --------

|1.1 | Memorandum
of Association of the Registrant and an amendment thereto (translated from
Hebrew)(incorporated              herein by reference to Exhibit 3.1 to the Registrant's
Form F-1, Commission File No. 333-137930, filed on              October 10, 2006).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|1.2 | Amendment
to Memorandum of Association of the Registrant (translated from Hebrew)(incorporated
herein by              reference to Exhibit 3.5 to the Registrant's Form F-1, Commission
File No. 333-137930, filed on October 10,              2006).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|1.3 | Amended
and Restated Articles of Association of the Registrant (incorporated herein by reference
to              Exhibit 3.4 to the Registrant's Form F-1, Commission File No. 333-137930,
filed on October 10, 2006).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 | Registration
Rights Agreement, dated September 13, 2006, among the Registrant and certain shareholders
named              therein (incorporated herein by reference to Exhibit 10.1 to the
Registrant's Form F-1, Commission File              No. 333-137930, filed on October 10,
2006).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2 | RRsat
Global Communications Network Ltd. 2006 Israel Equity Incentive Plan (incorporated herein
by reference              to Exhibit 10.2 to the Registrant's Form F-1, Commission File
No. 333-137930, filed on October 10, 2006).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.3 | Lease
Agreement, dated November 28, 2001, between Zu'aretz Avraham and the Registrant and an
amendment              thereto (translated from Hebrew) (incorporated herein by reference
to Exhibit 10.3 to the Registrant's              Form F-1, Commission File No.
333-137930, filed on October 10, 2006).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 | Form
of Insurance, Indemnification and Exculpation Agreement between the Registrant and each
of its directors              and executive officers (incorporated herein by reference to
Exhibit 10.4 to the Registrant's Form F-1,              Commission File No. 333-137930,
filed on October 10, 2006).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.5 | Special
License to Render Telecommunication Services, Amendment No. 1, issued to the Registrant
on July 24,              2003 by the Israeli Ministry of Communications, and an amendment
thereto, dated October 4, 2006 (translated              from Hebrew) (incorporated herein
by reference to Exhibit 10.7 to the Registrant's Form F-1, Commission File
             No. 333-137930, filed on October 10, 2006).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.6 | Management
Services Agreement, dated October 5, 2006, among the Registrant, Del-Ta Engineering Ltd.
and              Kardan Communications Ltd. (translated from Hebrew) (incorporated herein
by reference to Exhibit 10.8 to the              Registrant's Form F-1, Commission File
No. 333-137930, filed on October 10, 2006).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.7 | Allotment
Agreement, dated October 31, 2005, between the Registrant and Eutelsat S.A.+
(incorporated herein              by reference to Exhibit 10.9 to the Registrant's Form
F-1, Commission File No. 333-137930, filed on October              10, 2006).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.8 | Dedicated
Video Solutions Service Order Contract, dated May 13, 2005, between the Registrant and
Intelsat              Global Sales & Marketing Ltd.+ (incorporated herein by reference to
Exhibit 10.10 to the Registrant's              Form F-1, Commission File No. 333-137930,
filed on October 10, 2006).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.9 | Intelsat
Transponder Service Order, dated September 30, 2007, between the Registrant and Intelsat
Global              Sales & Marketing Ltd.+
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

109

---

---

|4.10 | Contract
for Satellite Services, dated January 12, 2004, between the Registrant and British
             Telecommunications plc+ (incorporated herein by reference to Exhibit 10.11
to the Registrant's Form F-1,              Commission File No. 333-137930, filed on
October 10, 2006).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.11 | Agreement
for the Sublease of Transponder Capacity, dated May 2005, between the Registrant and The
Turksat              Satellite Operator Company+ (incorporated herein by reference to
Exhibit 10.12 to the Registrant's Form F-1,              Commission File No. 333-137930,
filed on October 10, 2006).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8 | List
of significant subsidiaries.
|- | ---------------------------------

|12.1 | Certification
of the Chief Executive Officer as required by Rule 13a-14(a).
|---- | ---------------------------------------------------------------------------

|12.2 | Certification
of the Chief Financial Officer as required by Rule 13a-14(a).
|---- | ---------------------------------------------------------------------------

|13.1 | Certification
of the Chief Executive Officer as required by Rule 13a-14(b) and Section 1350 of Chapter
63 of              Title 18 of the United States Code.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.2 | Certification
of the Chief Financial Officer as required by Rule 13a-14(b) and Section 1350 of Chapter
63 of              Title 18 of the United States Code.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|15 | Consent
of KPMG Somekh Chaikin, Independent Registered Public Accounting Firm.
|-- | ------------------------------------------------------------------------------

|+ | Confidential
treatment requested as to certain portions, which portions have been filed
         separately with the Securities and Exchange Commission.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------

110

---

---

RRsat Global Communications
Network Ltd.
and its Subsidiaries

Financial Statements
As of December 31, 2007



---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                    
|--------------------
|Financial Statements
|                    

# Contents

|                                                                       | Page  
|---------------------------------------------------------------------- | ------
|
|
|
|
|Report of Independent Registered Public Accounting Firm                | F - 3 
|                                                                      
|Balance Sheets                                                         | F - 5 
|                                                                      
|Statements of Operations                                               | F - 7 
|                                                                      
|Statements of Changes in Shareholders' Equity and Comprehensive Income | F - 8 
|                                                                      
|Statements of Cash Flows                                               | F - 9 
|                                                                      
|Notes to the Financial Statements                                      | F - 11

F - 2

---

---

Report
of Independent Registered Public Accounting FirmThe
Board of Directors and Shareholders of RRsat Global Communications Network Ltd.

We have audited the accompanying
consolidated balance sheets of RRsat Global Communications Network Ltd. (the Company) as
of December 31, 2007 and 2006, and the related consolidated statements of operations,
shareholders equity and comprehensive income, and cash flows for each of the years
in the three-year period ended December 31, 2007. We also have audited the Companys
internal control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control  Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Companys management
is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying managements
report under Item 15  Controls and procedures . Our responsibility is to express an
opinion on these consolidated financial statements and an opinion on the Companys
internal control over financial reporting based on our audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the consolidated financial statements included
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. Our
audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.

A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A companys
internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the
financial statements.

F - 3

---

---

Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2007 and 2006, and the results of
their operations and their cash flows for each of the years in the three-year period
ended December 31, 2007, in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31,
2007, based on criteria established in InternalControl  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.

Somekh Chaikin
Certified Public Accountants (Isr.)
Member Firm of KPMG International

Tel-Aviv, Israel
March 24, 2008

F - 4

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|              
|--------------
|Balance Sheets
|              

# In thousands except
share data

|                                                          | Note | December 31
2006 | December 31
2007
|--------------------------------------------------------- | ---- | ---------------- | ----------------
|
|
|
|
|Current assets                                            |      |                  |                 
|Cash and cash equivalents                                 |      |                  |                 
|Marketable securities                                     |      |                  |                 
|Accounts receivable:                                      |      |                 
|Trade (net of provision for doubtful accounts of $987     |      |                 
|and $1,882 as of December 31, 2006 and 2007 respectively) |      |                  |                 
|Other                                                     |      |                  |                 
|Related parties                                           |      |                  |                 
|Fair value of embedded currency conversion derivatives    |      |                  |                 
|Deferred taxes                                            |      |                  |                 
|Prepaid expenses                                          |      |                  |                 
|                                                          |      |                  |                 
|                                                          |      |                 
|Total current assets                                      |      |                  |                 
|                                                          |      |                 
|Deposits and long-term receivables                        |      |                  |                 
|                                                          |      |                 
|Marketable securities                                     |      |                  |                 
|                                                          |      |                 
|Prepaid expenses                                          |      |                  |                 
|                                                          |      |                 
|Assets held for employee severance payments               |      |                  |                 
|                                                          |      |                 
|Fixed assets, at cost, less accumulated depreciation      |      |                 
|and amortization                                          |      |                  |                 
|                                                          |      |                  |                 
|                                                          |      |                 
|Total assets                                              |      |                  |                 
|                                                          |      |                  |                 

F - 5

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                          
|--------------------------
|Balance Sheets (Continued)
|                          

In thousands except share data

|                                                          | Note | December 31
2006 | December 31
2007
|--------------------------------------------------------- | ---- | ---------------- | ----------------
|
|
|
|
|Liabilities and shareholders' equity                      |      |                  |                 
|                                                          |      |                 
|Current liabilities                                       |      |                 
|Accounts payable:                                         |      |                 
|Trade                                                     |      |                  |                 
|Other                                                     |      |                  |                 
|Fair value of embedded currency                           |      |                 
|conversion derivatives                                    |      |                  |                 
|Related parties                                           |      |                  |                 
|Deferred income                                           |      |                  |                 
|                                                          |      |                  |                 
|                                                          |      |                 
|Total current liabilities                                 |      |                  |                 
|                                                          |      |                  |                 
|                                                          |      |                 
|Long - term liabilities                                   |      |                 
|Deferred income                                           |      |                  |                 
|Liability in respect of employee severance payments       |      |                  |                 
|Deferred taxes                                            |      |                  |                 
|                                                          |      |                  |                 
|                                                          |      |                 
|Total long - term liabilities                             |      |                  |                 
|                                                          |      |                  |                 
|                                                          |      |                 
|Total liabilities                                         |      |                  |                 
|                                                          |      |                  |                 
|                                                          |      |                 
|Commitments, contingent liabilities and liens             |      |                  |                 
|                                                          |      |                 
|Shareholders' equity                                      |      |                  |                 
|Share capital:                                            |      |                 
|Ordinary share NIS 0.01 par value each (20,000,000 shares |      |                 
|authorized as of December 31, 2006 and 2007; 17,242,300   |      |                 
|and 17,286,762 shares issued and fully paid as of         |      |                 
|December 31, 2006 and 2007)                               |      |                  |                 
|Additional paid in capital                                |      |                  |                 
|Retained earnings                                         |      |                  |                 
|Accumulated other comprehensive loss                      |      |                  |                 
|                                                          |      |                  |                 
|                                                          |      |                 
|Total shareholders' equity                                |      |                  |                 
|                                                          |      |                  |                 
|                                                          |      |                 
|Total liabilities and shareholders' equity                |      |                  |                 
|                                                          |      |                  |                 
|                                                          |      |                  |                 

The
accompanying notes are an integral part of these financial statements

F - 6

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                        
|------------------------
|Statements of Operations
|                        

In thousands except share data

|                                           |  | Year ended December 31
|------------------------------------------ |  | ----------------------
|
|
|
|
|Revenues                                   |  |                       
|Cost of revenues                           |  |                       
|                                           |  |                       
|                                           |  |                       
|Gross profit                               |  |                       
|                                           |  |                       
|Operating expenses                         |  |                       
|Sales and marketing                        |  |                       
|General and administrative                 |  |                       
|One time fees associated with the IPO      |  |                       
|                                           |  |                       
|                                           |  |                       
|Total operating expenses                   |  |                       
|                                           |  |                       
|                                           |  |                       
|Operating income                           |  |                       
|Interest and marketable securities income  |  |                       
|Currency fluctuation and other financing   |  |                       
|income (expenses), net                     |  |                       
|Changes in fair value of embedded currency |  |                       
|conversion derivatives                     |  |                       
|Other income, net                          |  |                       
|                                           |  |                       
|Income before taxes on income              |  |                       
|Income taxes                               |  |                       
|                                           |  |                       
|Net income                                 |  |                       
|                                           |  |                       
|                                           |  |                       
|Income per Ordinary Share                  |  |                       
|Basic income per Ordinary Share            |  |                       
|                                           |  |                       
|                                           |  |                       
|Diluted income per Ordinary Share          |  |                       
|                                           |  |                       
|                                           |  |                       
|Weighted average number of Ordinary        |  |                       
|Shares used to compute basic income per    |  |                       
|Ordinary Share                             |  |                       
|                                           |  |                       
|                                           |  |                       
|Weighted average number of Ordinary        |  |                       
|Shares used to compute diluted income per  |  |                       
|Ordinary Share                             |  |                       
|                                           |  |                       
|                                           |  |                       

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

F - 7

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                                                      
|----------------------------------------------------------------------
|Statements of Changes in Shareholders' Equity and Comprehensive Income
|                                                                      

In thousands except share data

|                           | Ordinary shares | Additionalpaid-incapital | Retainedearnings | Accumulatedothercomprehensiveloss | Total
|-------------------------- | --------------- | ------------------------ | ---------------- | --------------------------------- | -----
|
|
|
|
|Balance as of              |                 |                          |                  |                                   |      
|January 1, 2005            |                 |                          |                  | 12,908,700                        |      
|                           |                 |                         
|Changes during 2005        |                 |                         
|                           |                 |                         
|Exercise of                |                 |                         
|stock options              |                 |                          |                  | 138,600                           |      
|Stock based                |                 |                         
|compensation               |                 |                          |                  | -                                 |      
|Dividend paid              |                 |                         
|$0.19 / share              |                 |                          |                  | -                                 |      
|Net income                 |                 |                          |                  | -                                 |      
|                           |                 |                          |                  |                                   |      
|                           |                 |                         
|Balance as of              |                 |                         
|December 31, 2005          |                 |                          |                  | 13,047,300                        |      
|                           |                 |                         
|Changes during 2006        |                 |                         
|Ordinary shares issued     |                 |                          |                  | 4,195,000                         |      
|Stock based                |                 |                         
|compensation               |                 |                          |                  | -                                 |      
|Dividend paid              |                 |                         
|$0.15 / share              |                 |                          |                  | -                                 |      
|Net income                 |                 |                          |                  | -                                 |      
|                           |                 |                          |                  |                                   |      
|                           |                 |                         
|Balance as of              |                 |                         
|December 31, 2006          |                 |                          |                  | 17,242,300                        |      
|                           |                 |                         
|Changes during 2007        |                 |                         
|                           |                 |                         
|Vesting of RSU's           |                 |                          |                  | 44,462                            |      
|Stock based                |                 |                         
|compensation               |                 |                          |                  | -                                 |      
|Comprehensive - income:    |                 |                         
|Other comprehensive        |                 |                         
|loss -unrecognized change  |                 |                         
|in investment securities   |                 |                         
|net of tax effect of $0.27 |                 |                          |                  | -                                 |      
|Net income                 |                 |                          |                  | -                                 |      
|                           |                 |                          |                  |                                   |      
|Total comprehensive        |                 |                         
|income                     |                 |                          |                  | -                                 |      
|                           |                 |                          |                  |                                   |      
|Balance as of              |                 |                         
|December 31, 2007          |                 |                          |                  | 17,286,762                        |      
|                           |                 |                          |                  |                                   |      
|                           |                 |                          |                  |                                   |      

*
Less than 1$

The
accompanying notes are an integral part of these financial statements

F - 8

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                        
|------------------------
|Statements of Cash Flows
|                        

In thousands

|                                                          | Year ended December 31
|--------------------------------------------------------- | ----------------------
|
|
|
|
|Cash flows from operating activities                      |                       
|Net income                                                |                       
|                                                          |                       
|Adjustments required to reconcile net income to net       |                       
|cash provided by operating activities:                    |                       
|Deprecation and amortization                              |                       
|Provision for losses in accounts receivable               |                       
|Deferred taxes                                            |                       
|Discount accretion and premuim amortization               |                       
|of held- to- maturity securities, net                     |                       
|Discount accretion and premuim amortization               |                       
|of available- for- sale securities, net                   |                       
|Changes in liability for employee severance payments, net |                       
|Capital gains on sale of fixed assets, net                |                       
|Expenses in relation to options granted                   |                       
|Changes in fair value of embedded currency                |                       
|conversion derivatives                                    |                       
|Changes in assets and liabilities:                        |                       
|Increase in trading securities, net                       |                       
|Increase in accounts receivable - trade                   |                       
|Decrease (increase) in related parties, net               |                       
|Decrease (increase) in accounts receivable - other        |                       
|Decrease (increase) in prepaid expenses                   |                       
|Decrease (increase) in deposits and                       |                       
|long-term receivables                                     |                       
|Increase (decrease) in accounts payable                   |                       
|Increase in deferred income                               |                       
|                                                          |                       
|                                                          |                       
|Net cash provided by operating activities                 |                       
|                                                          |                       
|                                                          |                       

The accompanying
notes are an integral part of these financial statements

F - 9

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                    
|------------------------------------
|Statements of Cash Flows (Continued)
|                                    

In thousands

|                                                    | Year ended December 31
|--------------------------------------------------- | ----------------------
|
|
|
|
|Cash flows from investing activities                |                       
|Investment in fixed assets                          |                       
|Investment in other assets                          |                       
|Investment in securities available- for- sale       |                       
|Investment in securities held- to- maturity         |                       
|Proceeds from securities available- for- sale       |                       
|Proceeds from securities held- to- maturity         |                       
|Proceeds from sale of fixed assets                  |                       
|                                                    |                       
|                                                    |                       
|Net cash used in investing activities               |                       
|                                                    |                       
|                                                    |                       
|Cash flows from financing activities                |                       
|Dividend paid                                       |                       
|Proceeds from issuance of Ordinary Shares, net      |                       
|of offering costs of $ 5,046, in 2006               |                       
|Bank credit, net                                    |                       
|                                                    |                       
|                                                    |                       
|Net cash provided by (used in) financing activities |                       
|                                                    |                       
|                                                    |                       
|Increase (decrease) in cash and cash equivalents    |                       
|                                                    |                       
|Balance of cash and cash equivalents at beginning   |                       
|of year                                             |                       
|                                                    |                       
|                                                    |                       
|Balance of cash and cash equivalents at end of year |                       
|                                                    |                       
|                                                    |                       
|A. Non-cash transactions                            |                       
|                                                    |                       
|Investment in fixed assets                          |                       
|                                                    |                       
|                                                    |                       
|B. Supplementary cash flow information              |                       
|                                                    |                       
|Income taxes paid                                   |                       
|                                                    |                       
|                                                    |                       

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

F - 10

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

In
thousands except share data

Note
1  Organization and Summary of Significant Accounting Policies

| | A. | General
| | -- | -------

| | RRsat
Global Communications Network Ltd. was formed in 1981 and it engages in providing global,
end-to-end, content distribution and management services to television and radio
broadcasting industries through satellite, terrestrial fiber optic and Internet.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 6, 2006, the Company completed an initial public offering of its ordinary shares
and listing on the NASDAQ Global Market. The Company issued 4,195,000 shares at a price
of $ 12.50 per share.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | B. | Basis
of presentation
| | -- | ---------------------

| | The
accompanying consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and include the
accounts of the Company and its wholly-owned subsidiaries in the United States and in
Cyprus. The accounts of its subsidiaries are consolidated from the date of their
inception. All intercompany balances and transactions have been eliminated in
consolidation.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | Functional
and reporting currency
| | -- | ---------------------------------

| | The
accounting records of the Company are maintained in New Israeli Shekels (NIS) and U.S.
dollars. The currency of the primary economic environment in which the operations of the
company are conducted is the U.S. dollar. Therefore it has been determined to be the
companys functional currency.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Transactions
denominated in foreign currencies other than the U.S. dollar are translated into the
functional currency using current exchange rate. Gains and losses from the transaction of
foreign currency balances are recorded in the statement of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | Cash
and cash equivalents
| | -- | -------------------------

| | All
highly liquid investments with original maturity of three months or less from the date of
deposit are considered to be cash equivalents.
| | --------------------------------------------------------------------------------------------------------------------------------------------

| | E. | Marketable
securities
| | -- | ---------------------

| | The
Company accounts for marketable securities under the Statement of Financial Accounting
Standards No. 115 Accounting for Certain Investments in Debt and Equity Securities (Statement
115).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Marketable
securities at December 31, 2007 and 2006 consist of U.S. Agenciesdebentures,
corporate debentures, corporate shares, government debentures mutual funds, and treasury
notes. The Company classifies its debt securities in one of three categories: trading,
available- for- sale, or held- to- maturity and its equity securities into trading.
Trading securities are bought and held principally for the purpose of selling them in the
near term. Held to maturity debt securities are those securities in which the Company has
the ability and intent to hold the security until maturity. All securities not included
in trading or held- to- maturity are classified as available- for- sale.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 11

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
1  Organization and Summary of Significant Accounting Policies (contd)

| | E. | Marketable
securities (Contd)
| | -- | ------------------------------

| | Trading
and available for sale securities are recorded at fair value.The fair value of debt
securities and equity securities are based on quoted market prices at the reporting date
for those investments. Held to maturity debt securities are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or discounts. Unrealized holding
gains and losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of the related tax effect, on available for sale securities are excluded
from earnings and are reported as a separate component of accumulated other comprehensive
income (loss) until realized. Realized gains and losses from the sale of available for
sale securities are determined on a specific identification basis.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
decline in the market value of any available for sale or held to maturity security below
cost that is deemed to be other- than- temporary results in an impairment to reduce the
carrying amount to fair value. The impairment is charged to earnings and a new cost basis
for the security is established. To determine whether an impairment is other- than-
temporary, the Company considers whether it has the ability and intent to hold the
investment until a market price recovery and considers whether evidence indicating the
cost of the investment is recoverable outweighs evidence to the contrary. Evidence
considered in this assessment includes the reasons for the impairment, the severity and
duration of the impairment, changes in value subsequent to year end, forecasted
performance of the investee, and the general market condition in the geographic area or
industry the investee operates in.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Premiums
and discounts are amortized or accreted over the life of the related held to maturity or
available for sale security as an adjustment to yield using the effective interest
method. Such amortization and accretion is included in the Interest and marketable
securities income line item in the consolidated statements of operations. Dividend
and interest income are recognized when earned.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | F. | Provision
for doubtful accounts
| | -- | -------------------------------

| | The
financial statements include specific provisions for doubtful debts, which, in managements
opinion, adequately reflect the loss included in those debts the collection of which is
doubtful. Doubtful debts, which according to Companys management opinion are
unlikely to be collected, are written-off from the Companys books, based on a
management resolution. Managements determination of the adequacy of the provision
is based, inter alia, on an evaluation of the risk, by considering the available
information on the financial position of the debtors, the volume of their business, an
evaluation of the security received from them and past experience. The changes in the
provision during the year:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                            | Year ended December 31
| | -------------------------- | ----------------------
|
|
|
|
| | Opening balance            |                       
| | Additions during the year  |                       
| | Deductions during the year |                       
| |                            |                       
| |                            |                       
| | Closing balance            |                       
| |                            |                       
| |                            |                       

F - 12

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
1  Organization and Summary of Significant Accounting Policies (contd)

| | G. | Assets
held for employee severance benefits
| | -- | -------------------------------------------

| | Assets
held for employee severance benefits represent contributions to severance pay funds and
cash surrender value of life insurance policies that are recorded at their current
redemption value.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | H. | Fixed
assets
| | -- | ------------

| | Fixed
assets are stated at cost less accumulated depreciation and amortization.
| | -------------------------------------------------------------------------------

| | Depreciation
and amortization are calculated by the straight-line method on the basis of the estimated
useful lives of the assets using the following annual rates:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                        | % | 
| | ------------------------------------------------------ | - | 
|
|
|
|
| | Communication equipment                                |   | 
| | Office furniture and equipment                         |   | 
| | Motor vehicles                                         |   | 
| | Leasehold improvements are amortized straight line     |   | 
| | over the shorter of the lease term or estimated useful |   | 
| | life of the assets                                     |   | 
| |                                                        |   | 

| | I. | Stock
compensation plans
| | -- | ------------------------

| | Effective
January 1, 2006, the Company adoptet FASB Statement No. 123(R), Share- Based Payment(Statement 123(R)). This statement replaces FASB Statement No. 123, Accounting for
Stock- Based Compensation (Statement 123) and supersedes Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees. Statement 123(R)
requires that all stock- based compensation be recognized as an expense in the financial
statements and that such cost be measured at the fair value of the award. This statement
was adopted using the modified prospective method of application, which requires the
Company to recognize compensation cost on a prospective basis. Under this method, the
Company began recognizing compensation cost on a straight- line basis over the requisite
service period of the award for new awards modified, repurchased or cancelled after
January 1, 2006, based on the grant date fair value of these awards, adjusted for
estimate forfeitures if any.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 13

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
1  Organization and Summary of Significant Accounting Policies (contd)

| | J. | Income
per Ordinary Share
| | -- | -------------------------

| | Basic
and diluted income per Ordinary Share is presented in conformity with Statement of
Financial Accounting Standard No. 128, Earnings Per Share, for all years
presented. Basic income per Ordinary Share is calculated by dividing the net income
attributable to Ordinary Shares by the weighted average number of Ordinary Shares
outstanding. The diluted income per Ordinary share calculation is similar to basic income
per share except that the weighted average of common shares outstanding is increased to
include the number of additional common shares that would have been outstanding if the
dilutive potential common shares such as options had been exercised.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table summarizes information related to the computation of basic and diluted
income per Ordinary Share for the years indicated.
| | ---------------------------------------------------------------------------------------------------------------------------------------------

| |                                            | Year ended December 31
| | ------------------------------------------ | ----------------------
|
|
|
|
| | Income per Ordinary Share                  |                       
| | Net income attributable to Ordinary Shares |                       
| |                                            |                       
| | Weighted average number of Ordinary Shares |                       
| | outstanding used in basic income per       |                       
| | Ordinary Share calculation                 |                       
| | Add assumed exercise of outstanding        |                       
| | dilutive potential Ordinary Shares         |                       
| |                                            |                       
| |                                            |                       
| | Weighted average number of Ordinary Shares |                       
| | outstanding used in diluted income per     |                       
| | Ordinary Share calculation                 |                       
| |                                            |                       
| |                                            |                       
| | Basic income per Ordinary Share            |                       
| |                                            |                       
| |                                            |                       
| | Diluted income per Ordinary Share          |                       
| |                                            |                       
| |                                            |                       

| | K. | Income
taxes
| | -- | ------------

| | The
Company accounts for income taxes under Statement of Financial Accounting Standard No.
109 Accounting for Income Taxes (Statement 109).
| | -----------------------------------------------------------------------------------------------------------------------------------------------

| | Income
taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 14

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
1  Organization and Summary of Significant Accounting Policies (contd)

| | K. | Income
taxes (contd)
| | -- | ---------------------

| | Deferred
tax assets and liabilities are classified as current or non current items in accordance
with the nature of the assets or liabilities to which they relate. When there are no
underlying assets or liabilities the deferred tax assets and liabilities are classified
in accordance with the period of expected reversal. Income tax expenses represent the tax
payable for the period and the changes during the period in deferred tax assets and
liabilities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Beginning
with the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes(FIN 48) as of January 1, 2007, the Company recognizes the effect of income tax
positions only if those positions are more likely than not of being sustained. Recognized
income tax positions are measured at the largest amount that is greater than 50% likely
of being realized. Changes in recognition or measurement are reflected in the period in
which the change in judgement occurs. Prior to the adoption of FIN 48, the Company
recognized the effect of income tax positions only if such positions were probable of
being sustained.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | L. | Use
of estimates
| | -- | ----------------

| | The
preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities and
the reported amounts of revenues and expenses during the reporting period. Actual results
may differ from such estimates.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | M. | Revenue
recognition
| | -- | -------------------

| | Revenues
from services are recognized in accordance with Staff Accounting Bulletin No. 104 Revenue
Recognition in Financial Statements when there is persuasive evidence of an
arrangement, no significant obligations in respect of installation remain, the price is
fixed or determinable and the collection of the resulting receivable is probable.
Revenues from services are recognized on a straight-line basis, over the contractual term
of the arrangement during which services are rendered, which generally extends over terms
of three to five years with an automatic renewal option for an additional two to five
years. Deposits received for the latest one-six months of long-term service arrangements
are not recognized as revenues until the related services are provided.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenues
from sales of communication equipments are recognized upon the delivery to the customer
and the transfer of the principal risks and rewards arising from ownership over the sold
products.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
1  Organization and Summary of Significant Accounting Policies (contd)

| | N. | Impairment
of long-lived assets and certain intangibles
| | -- | -------------------------------------------------------

| | Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (hereinafter  Statement 144),
requires that long-lived assets be reviewed for impairment 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 estimated undiscounted future cash flows expected to be generated
by the asset. If the carrying amount of an asset exceeds its estimated undiscounted
future cash flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds its fair value. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | O. | Liability
in respect of employee severance payments
| | -- | ---------------------------------------------------

| | The
Company records its obligation with respect of employee severance payments as if it was
payable at each balance sheet date (the shut-down method) in accordance with
the provisions of EITF 88-1, Determination of Vested Benefit Obligation for a Defined
Benefit Pension Plan. The liability is recognized on an undiscounted basis and is
calculated on the basis of the latest salary of each employee multiplied by the number of
years of employment as of the balance sheet date.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | P. | Fair
value of embedded currency conversion derivatives
| | -- | ------------------------------------------------------

| | The
Company accounts for derivatives and hedging activities in accordance with Statement No.
133 Accounting for Derivatives Instruments and Hedging Activities(Statement
133), as amended, which requires that all derivatives instruments be recorded on
the balance sheet at their respective fair value. The Company does not use derivative
instruments to hedge exposures to cash flow, market or foreign currency risks, but
occasionally enters into commercial (foreign currency) contracts in which a derivative
instrument is embedded. For these embedded derivatives, for which the
economic characteristics and risks are not clearly and closely related to the economic
characteristics and risks of the host contract, the changes in fair value are recorded in
the statement of operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Q. | Concentration
of credit risk
| | -- | ----------------------------

| | Financial
instruments that may subject the Company to significant concentrations of credit risk
consist principally of cash and cash equivalents, marketable securities and trade
accounts receivable. Cash and cash equivalents are deposited with major financial
institutions in Israel and USA. The Company invests in securities with maturity dates up
to 3 years with credit ratings of A and above.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company performs ongoing credit evaluations of the financial condition of its customers.
The risk of collection associated with trade receivables is reduced by the large number
and geographical dispersion of the Companys customer base and the Companys
policy of requiring collateral or security on sales to customers.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 16

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
1  Organization and Summary of Significant Accounting Policies (contd)

| | R. | Recent
accounting pronouncements
| | -- | --------------------------------

| | In
February 2007, the FASB issued statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities- including an amendment
of FASB No. 115 (Statement 159). Statement 159 gives the company the irrevocable
option to carry most financial assets and liabilities at fair value that are not
currently required to be measured at fair value. If the fair value is elected, changes in
fair value would be recorded in earnings at each subsequent reporting date. SFAS 159 is
effective for the Companys 2008 fiscal year. The Company believes that the adoption
of Statement 159 will not have a material impact on the Companys financial
condition, results of operations and cash flow.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
September 2006, the FASB issued FASB Statement No.157,Fair Value Measurement (Statement
157). Statement 157 defines fair value, establishes a framework for the measurement of
fair value, and enhances disclosures about fair value measurements. The statement does
not require any new fair value measures. The statement is effective for fair value
measures already required or permitted by other standards for fiscal years beginning
after November 15, 2007. The company is required to adopt Statement 157 beginning on
January 1, 2008. Statement 157 is required to be applied prospectively, except for
cerrtain financial instruments. Any transition adjustment will be recognized as an
adjustment to opening retained earnings in the year of adoption. In February 2008, the
FASB approved FSP FAS 157-2, which grants a one- year deferral of Statement 157s
fair- value measurement requirements for nonfinancial assets and liabilities that are not
rquired or permitted to be measured at fair value on a recurring basis. The Company
believes that the adoption of Statement 157 will not have a material impact on the Companys
financial condition, results of operations and cash flow.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2007, the FASB issued FASB Statement No. 141R, Business Combinations (Statement
141R) and FASB Statement No. 160, Noncontrolling Interests in Consolidated Finacial
Statements- an amendment to ARB No. 51 (Statement 160). Statements 141R and 160
require most identifiable assets, liabilities, noncontrolling interests, and goodwill
acquired in a business combination to be recorded at full fair value and
require noncontrolling interests (previously referred to as minority interests) to be
reported as a component of equity, which changes the accounting for transactions with
noncontrolling interest holders. Both Statements are effective for periods beginning on
or after December 15, 2008, and earlier adoption is prohibited. Statement 141R will be
applied prospectively to all noncontrolling interests, including any that arose before
the effective date. The Company believes that the adoption of Statement 141R and 160 will
not have a material impact on the Companys financial condition, results of
operations and cash flow.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | S. | Reclassifications
| | -- | -----------------

| | Certain
prior year amounts have been reclassified to conform to the current year presentation.
Such reclassifications did not have any impact on the Companys shareholdersequity
or net income.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 17

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
2  Cash and Cash Equivalents

| |                             | December 31
2006 | December 31
2007
| | --------------------------- | ---------------- | ----------------
|
|
|
|
| | Denominated in U.S. dollars |                  |                 
| | Denominated in Euro         |                  |                 
| | Denominated in NIS          |                  |                 
| | Other                       |                  |                 
| |                             |                  |                 
| |                             |                  |                 
| |                             |                  |                 
| |                             |                  |                 
| |                             |                  |                 

Note
3  Marketable Securities

| | A. | The
carrying amount, gross unrealized holding gains, gross unrealized holding
          losses, and fair value of available for sale and held to maturity debt
          securities by major security type and class of security at December 31,
          2007 are as follows:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                      | NetCarryingamount | Grossunrealizedholdinggains | Grossunrealizedholding(losses) | Fair value
| | ------------------------------------ | ----------------- | --------------------------- | ------------------------------ | ----------
|
|
|
|
| | At December 31, 2007                 |                   |                             |                                |           
| | Available- for- sale:                |                   |                            
| | Agencies debentures - current        |                   |                             |                                | 2,001     
| |                                      |                   |                             |                                |           
| |                                      |                   |                             |                                | 2,001     
| |                                      |                   |                             |                                |           
| | At December 31, 2006                 |                   |                             |                                | -         
| |                                      |                   |                             |                                |           
| |                                      |                   |                            
| | At December 31, 2007                 |                   |                            
| | Held- to- maturity:                  |                   |                            
| | Corporate debentures- current        |                   |                             |                                | 21,808    
| | Corporate debentures- Non current    |                   |                             |                                | 5,699     
| | US Agencie's debentures- current     |                   |                             |                                | 1,013     
| | US Agencie's debentures- Non current |                   |                             |                                | 1,023     
| |                                      |                   |                             |                                |           
| |                                      |                   |                             |                                | 29,543    
| |                                      |                   |                             |                                |           
| | At December 31, 2006                 |                   |                             |                                | -         
| |                                      |                   |                             |                                |           
| |                                      |                   |                             |                                |           

F - 18

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
3  Marketable Securities (contd)

| | B. | Maturities
of debt securities classified as available- for- sale and held- to-           maturity
were as follows at December 31, 2007 :
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------

| |                                       | Carrying
amount | Fair value
| | ------------------------------------- | --------------- | ----------
|
|
|
|
| | Available- for- sale:                 |                 |           
| | Current maturities                    |                 |           
| |                                       |                 |           
| |                                       |                 |           
| |                                       |                 |           
| | Held- to- maturity:                   |                 |           
| | Current maturities                    |                 |           
| | Due after one year through five years |                 |           
| |                                       |                 |           
| |                                       |                 |           
| |                                       |                 |           
| |                                       |                 |           

| | C. | Proceeds from the sale of investment securities available for sale were
          $1,062 in 2007 ; gross realized losses included in Interest and marketable
          securities income in 2007 were $13 .
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | The
Company also maintains a $3,469 portfolio of investment securities           classified
as trading (December 31 2006- $1,454). Net realized gains on trading           securities
during the years ended December 31, 2007 and 2006 were $223 and           $18
respectively, and are included in interest and marketable securities income.
          Net unrealized gains on trading securities held at year end and included in
          other income for 2007 and 2006 were $123 and $73 respectively.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | E. | Gross
unrealized losses on investment securities and the fair value of the           related
securities, aggregated by investment category and length of time that
          individual securities have been in a continuous unrealized loss position, at
          December 31, 2007, were as follows:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                         | Less than 12 months | Total
| | ----------------------- | ------------------- | -----
|
|
|
|
| | Available for sale:     |                     |      
| | US Agencie's debentures |                     |      
| |                         |                     |      
| |                         |                     |      
| |                         |                     |      
| | Held to maturity:       |                     |      
| | Corporate debentures    |                     |      
| | US Agencie's debentures |                     |      
| |                         |                     |      
| |                         |                     |      
| |                         |                     |      
| |                         |                     |      

| | Agencies
debentures: The unrealized losses on investments in U.S. Agencies debentures were
caused by interest rate increases. The contractual terms of these investments do not
permit the issuer to settle the securities at a price less than the amortized cost of the
investment. Because the Company has the ability and intent to hold these investments
until a market price recovery or maturity, these investments are not considered other
than temporarily impaired.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Corporate
debentures: The unrealized losses on investments in debentures were caused by interest
rate increases. The contractual terms of these investments do not permit the issuer to
settle the securities at a price less than the amortized cost of the investment. Because
the Company has the ability and intent to hold these investments until a market price
recovery or maturity, these investments are not considered other than temporarily
impaired.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 19

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
4  Other Receivables

| |                         | December 31
2006 | December 31
2007
| | ----------------------- | ---------------- | ----------------
|
|
|
|
| | Government institutions |                  |                 
| | Other                   |                  |                 
| |                         |                  |                 
| |                         |                  |                 
| |                         |                  |                 
| |                         |                  |                 

Note 5  Deposits and Long-Term Receivables

| |                        | December 31
2006 | December 31
2007
| | ---------------------- | ---------------- | ----------------
|
|
|
|
| | Long-term deposits (1) |                  |                 
| | Prepaid expenses (2)   |                  |                 
| |                        |                  |                 
| |                        |                  |                 
| |                        |                  |                 
| |                        |                  |                 
| |                        |                  |                 

| | (1) | Deposits
in respect of operating leases of motor vehicles.
| | --- | ----------------------------------------------------------

| | (2) | Prepaid
expenses for the last one to six months of long-term service agreements           with
suppliers. As of December 31, 2007 the balance includes an amount of $ 593
          (December 31, 2006  $ 541) and an amount equivalent to $ 474 in Euro
          (December 31, 2006  $ 458).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note
6  Fixed Assets, at Cost, Less Accumulated Depreciation and Amortization

| |                                           | December 31
2006 | December 31
2007
| | ----------------------------------------- | ---------------- | ----------------
|
|
|
|
| | Communications equipment                  |                  |                 
| | Office furniture and equipment            |                  |                 
| | Motor vehicles                            |                  |                 
| | Leasehold improvements                    |                  |                 
| |                                           |                  |                 
| |                                           |                  |                 
| | Accumulated depreciation and amortization |                  |                 
| |                                           |                  |                 
| |                                           |                  |                 
| | Fixed assets , net                        |                  |                 
| |                                           |                  |                 
| |                                           |                  |                 

| | Depreciation
and amortization expenses for the years ended December 31, 2005, 2006 and 2007 are $ 1,760
and $ 2,274 and $ 2,971, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

F - 20

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
7  Accounts Payable  Other

| |                                 | December 31
2006 | December 31
2007
| | ------------------------------- | ---------------- | ----------------
|
|
|
|
| | Liabilities regarding employees |                  |                 
| | Government institutions         |                  |                 
| | Accrued expenses                |                  |                 
| | Other                           |                  |                 
| |                                 |                  |                 
| |                                 |                  |                 
| |                                 |                  |                 
| |                                 |                  |                 

Note
8  Deferred Income

| | Deferred
income represents an advance payment for the last one to six months of long-term service
agreements with customers.
| | ----------------------------------------------------------------------------------------------------------------------------

| | The
service agreements with the customer are for various periods the last of which ends in
2016.
| | ------------------------------------------------------------------------------------------------

Note
9  Liability in respect of Employee Severance Payments

| | Under
Israeli law and labor agreements the Company is required to pay severance payments to
each employee who was employed by the Company for over one year and has been terminated
by the Company or resigned under certain specified circumstances. The Companys
liability for severance payment is covered mainly by deposits with insurance companies in
the name of the employee and/or by purchase of insurance policies. The liability is
covered by the amounts deposited, including accumulated income thereon as well as by the
unfunded provision. Withdrawals from the funds may be made only for the purpose of
disbursement of severance pay.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Expenses
recorded in respect of provision for employee severance payments for the years ended
December 31, 2005, 2006 and 2007 are $ 55, $290, and $ 351, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note
10  Commitments, Contingent Liabilities and Liens

| | A. | The Company has several lease agreements for its facilities, which will
          end until December 31, 2011 and have some extension options. In addition the
          Company is engaged in long-term operating network leases. The annual payments
          the Company is committed to pay over the next five years (including the
          options), as of December 31, 2007, are as follows:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                     | 
| | ------------------- | 
|
|
|
|
| | 2008                | 
| | 2009                | 
| | 2010                | 
| | 2011                | 
| | 2012                | 
| | 2013 and thereafter | 
| |                     | 
| |                     | 
| |                     | 
| |                     | 
| |                     | 

| | Rental
expenses under the lease agreements for the years ended December 31, 2005, 2006 and 2007
are $86, $159 and $232 respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------

F - 21

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
10  Commitments, Contingent Liabilities and Liens (Contd)

| | B. | As
at balance sheet date the balance of liabilities and guarantees           (guarantees
provided by the banks to third parties) are as follows:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                           | December 31
2006 | December 31
2007
| | --------------------------------------------------------- | ---------------- | ----------------
|
|
|
|
| | Guarantees                                                |                  |                 
| | Performance guarantees (commercial guarantees provided by |                  |                 
| | the banks to third parties)                               |                  |                 
| |                                                           |                  |                 
| |                                                           |                  |                 

| | The
guarantees were granted to third parties (vendors) to secure the Companys
performance under such contracts (broadcasting services and leases). Guarantees were
provided for one year period and are renewed each year according to the vendors
contract terms and conditions. The guaranties may be exercised by the third party at any
time, subject to the terms in the contracts between the Company and the third party.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | The
Company has 2 lines of credit provided to it by Bank Igud (approximately           $2.2
million) and Bank Leumi (approximately $1 million). From time to time the
          Company uses it lines of credit to provide guarantees required under its long
          term contracts with its suppliers. The commitment fees are 0.1% from the total
          line of credit for each year. The Banks are allowed to cancel or change the
line           of credit with 30 days notice.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | On
March 11, 2007, the Israel Land Administration, or ILA, authorized to           allocate
the Company a parcel of land of approximately 538,200 square feet near           Galon,
Israel. In May 2007, the Company and the ILA entered into a development
          agreement pursuant to which the Company undertook to commence building a
          Teleport on the site within eighteen months as of the date the approval of the
          allocation of the land, and to finish the building by no later than April 1,
          2010. Contingent upon the Company complying with the terms of the development
          agreement, the ILA shall, upon completion of the building, enter into a lease
          agreement with the Company for a term of 49 years effectively starting from the
          date the Company and the ILA entered into a development agreement, with an
          extension option of additional 49 years, as of the date of the approval of the
          allocation of the land. The Company has not yet commenced to develop the site.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
 payments under the lease agreement were prepaid, classified as non- current
asset under prepaid expenses with amortization occuring on a straight- line basis over
the lease term.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | E. | The
Company has applied to extend the building permit of the Companys           Re-em
teleport site that has expired at the end of February 2008 for an           additional
year but the zoning authority has not yet determined whether to           extend the
Companys permit. If the Companys request is not granted,           the
Company intends to appeal the decision but there can be no assurance that           the
zoning authority will renew the expired permit.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 22

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
11  Share Capital

| | A. | Ordinary
shares
| | -- | ---------------

| | All
of the issued and outstanding Ordinary Shares of the Company are duly authorized, validly
issued, fully paid and non-assessable. The Ordinary Shares of the Company are not
redeemable and have no preemptive rights. The ownership or voting of Ordinary Shares by
non-residents of Israel is not restricted in any way by the Companys memorandum of
association, its articles of association or the laws of the State of Israel, except that
citizens of countries which are, or have been, in a state of war with Israel may not be
recognized as owners of Ordinary Shares.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, should a shareholder, other than the Companys existing shareholders prior
to the Initial Public Offering, become a beneficiary holder of 10% or more of the Companys
shares or acquire shares in an amount resulting in such shareholder having significant
influence over the Company without receiving the consent of the Minister of
Communication, its holdings will be converted into dormant shares for as long as the
Ministers consent is required but not obtained. The beneficial holder of such
dormant shares will have no rights other than the right to receive dividends and other
distributions to shareholders and the right to participate in such offerings.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 6, 2006, the Company completed an initial public offering of its ordinary shares
and listing on the NASDAQ Global Market. The Company issued 4,195,000 shares at a price
of $ 12.50 per share.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | B. | Employees stock
options
| | -- | ------------------------

| | (1) | Options
granted to the CEO
| | --- | --------------------------

| | In
2001, the Company signed an agreement with its CEO. The agreement included an option plan
for the CEO only. According to the plan, the CEO was entitled to 308,700 options, which
were vested over a period of between one to five years. Each option entitles the holder
to purchase one ordinary share of the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company applied Statement 123 in respect of options granted to the CEO and recorded
compensation expense of $ 21 thousand in the year ended December 2005 using the
Black-Scholes model. The expense was charged to General and Administrative expenses. As
at December 31, 2005, all of the options were exercised.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 15, 2006, the Company signed an agreement with its CEOs wholly-owned company
regarding his compensation for managing services. The agreement will be in effect up to
the end of 2011.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | According
to the agreement there is an option plan for the CEO, which entitles him to 233,100
options (hereinafter  the 2006 options). The 2006 options shall vest, according to
a graded- schedule, in five installments over a period of four years, beginning on
December 31, 2006. Each option entitles the holder to purchase one ordinary share of the
Company.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 23

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
11  Share Capital (contd)

| | Employees stock
options (contd)
| | ---------------------------------

| | B. | The
following table summarizes information relating to the 2006 options           outstanding
as of December 31, 2007:
| | -- | ----------------------------------------------------------------------------------------------------------------------

| | Number of
options | Remaining
contractual
life (in years) | Exercise
Price (in $) | Grant date
fair value per
Share (in $) | Grant date
intrinsic
Value (in $) | Aggregate
intrinsic value
as of
December,31
2007
(in $)
| | ----------------- | ------------------------------------- | --------------------- | -------------------------------------- | --------------------------------- | -------------------------------------------------------
|
|
|
|
| |                   | 37,800                                |                       |                                        | 4                                 |                                                        
| |                   | 37,800                                |                       |                                        | 4                                 |                                                        
| |                   | 44,100                                |                       |                                        | 4                                 |                                                        
| |                   | 50,400                                |                       |                                        | 4                                 |                                                        
| |                   | 63,000                                |                       |                                        | 4                                 |                                                        
| |                   |                                       |                       |                                        |                                   |                                                        
| |                   | 233,100                               |                       |                                        |                                   |                                                        
| |                   |                                       |                       |                                        |                                   |                                                        

| | The
fair value of the common stock was determined on December 21, 2005 and no significant
events affected the valuation between December 21, 2005 and the date of the grant.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2007, there was approximately $ 277 of unrecognized compensation cost
related to non-vested options to be recognized over the weighted average period 3.25
years.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of each option granted in 2006 was estimated on the date of grant under
Black-Scholes model, assuming dividend yield of zero percent, due to dividend adjustment
mechanism and using the following assumptions:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (1) | Risk-Free, annual
interest rate of 4.68%, which represents the risk free interest rate of US zero-coupon
Government Bonds.
| | --- | --------------------------------------------------------------------------------------------------------------------------

| | (2) | Weighted
average expected life of 4 years, that the options granted are expected to be outstanding.
| | --- | ---------------------------------------------------------------------------------------------------

| | (3) | Expected  average
volatility of 39.51%, which represents a weighted average standard deviation rate for the
stock prices of similar companies traded in the NASDAQ National Market.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 24

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
11  Share Capital (contd)

| | B. | Employees stock
options (contd)
| | -- | ---------------------------------

| | The
options activities are as follows:
| | --------------------------------------

| |                                             | Number of
shares | Weighted average
exercise price | Weighted-
Average
grant-date
fair value
| | ------------------------------------------- | ---------------- | ------------------------------- | ---------------------------------------
|
|
|
|
| | Balance at January 1, 2005                  |                  |                                 |                                        
| | Exercised                                   |                  |                                 |                                        
| |                                             |                  |                                 |                                        
| |                                             |                  |                                
| | Balance at December 31, 2005                |                  |                                 |                                        
| |                                             |                  |                                
| | Granted                                     |                  |                                 |                                        
| |                                             |                  |                                 |                                        
| |                                             |                  |                                
| | Balance at December 31, 2006 and 2007       |                  |                                 |                                        
| |                                             |                  |                                 |                                        
| |                                             |                  |                                
| | Options exercisable as at December 31, 2007 |                  |                                 |                                        
| |                                             |                  |                                 |                                        
| |                                             |                  |                                 |                                        

| | As
of December 31, 2007, none of the 2006 options were exercised or forfeited and no new
options were granted during 2007.
| | --------------------------------------------------------------------------------------------------------------------------

| | (2) | Restricted
shares units granted to employees
| | --- | --------------------------------------------

| | In
the fourth quarter of 2006, the Company adopted an equity incentive plan (the Plan).
| | -----------------------------------------------------------------------------------------

| | Under
the Plan, the Company may grant its directors, officers and employees restricted shares,
restricted share units and options to purchase its ordinary shares.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
total number of ordinary shares that will be available for grant under the plan is
441,000 shares. The plan is under Section 102 of the Israeli Income Tax Ordinance which
provides certain tax benefits in connection with share-based compensation to employees,
officers and directors.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
October 31, 2006, the Company has granted 105,840 restricted shares units which will be
vested over four years from the grant date. The grant date fair value of the restricted
shares was 12.5$ per share.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 25

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
11  Share Capital (contd)

| | B. | Employees stock
options (contd)
| | -- | ---------------------------------

| | Restricted
share units activity during the periods indicated is as follows:
| | ---------------------------------------------------------------------------

| |                                  | Number ofrestrictedshares units | Weightedaverageexerciseprice | Weightedaverageremainingcontractualterm | Aggregateintrinsicvalue
| | -------------------------------- | ------------------------------- | ---------------------------- | --------------------------------------- | -----------------------
|
|
|
|
| | Balance at January 1, 2005       |                                 |                              |                                         | -                      
| | Granted                          |                                 |                              |                                         | 105,840                
| |                                  |                                 |                              |                                         |                        
| | Balance at December 31, 2006     |                                 |                              |                                         | 105,840                
| | Vested                           |                                 |                              |                                         | (44,462                
| | Forfeited                        |                                 |                              |                                         | (1,012                 
| | Balance at December 31, 2007     |                                 |                              |                                         | 60,366                 
| |                                  |                                 |                              |                                         |                        
| | Exercisable at December 31, 2007 |                                 |                              |                                         | -                      
| |                                  |                                 |                              |                                         |                        
| |                                  |                                 |                              |                                         |                        

| | As
of December 31, 2007, there was approximately $940 unrecognized cost related to non-
vested restricted shares to be vested over 2.83 years.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

| | The
following summarizes the allocation of stock-based compensation charge for the 2006
options and the restricted shares units granted:
| | ----------------------------------------------------------------------------------------------------------------------------------------

| |                            | Year ended December 31
| | -------------------------- | ----------------------
|
|
|
|
| | Cost of revenues           |                       
| | Sales and marketing        |                       
| | General and administrative |                       
| |                            |                       
| |                            |                       
| |                            |                       
| |                            |                       
| |                            |                       

F - 26

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
12  Revenues

| | The
Company has one operating segment
| | -------------------------------------

| | The
Company does not report the revenues for each service, as it is impracticable to do so.
| | -------------------------------------------------------------------------------------------

| | Revenues
by geographic areas:
| | -----------------------------

| |                                 | Year ended December 31
| | ------------------------------- | ----------------------
|
|
|
|
| | North America                   |                       
| | Europe                          |                       
| | Asia                            |                       
| | Israel                          |                       
| | Middle East (other than Israel) |                       
| | Rest of the world               |                       
| |                                 |                       
| |                                 |                       
| |                                 |                       
| |                                 |                       
| |                                 |                       

Note
13  One Time Fees Associated with the IPO

| | The
Company paid, in the fourth quarter of 2006, a one-time payment in a total amount of $
500 to two of its shareholders for special management services rendered during 2006,
beyond the services they were required to provide pursuant to the management services
agreements described in Note 15E. The Company also paid a one time payment of $500 to its
CEOs wholly-owned company (Datacom), according to the service agreement between
Datacom and the Company, for the exercise of a right to terminate an option granted to
Datacom to purchase ordinary shares in the initial public offering of the Company
Ordinary Shares.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note
14  Interest and marketable securities income

| |                                             | Year ended December 31
| | ------------------------------------------- | ----------------------
|
|
|
|
| | Interest on deposits, net                   |                       
| | Interest on securities                      |                       
| | Discount accretion and premuim amortization |                       
| | of held- to- maturity securities, net       |                       
| | Discount accretion and premuim amortization |                       
| | of available- for- sale securities, net     |                       
| | Profits from trading securities             |                       
| |                                             |                       
| |                                             |                       
| |                                             |                       
| |                                             |                       
| |                                             |                       

F - 27

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
15  Taxes on Income

| | A. | Tax
expenses included in the statement of operations
| | -- | ----------------------------------------------------

| |                                    | Year ended December 31
| | ---------------------------------- | ----------------------
|
|
|
|
| | Current taxes *                    |                       
| | Taxes in respect to previous years |                       
| | Deferred taxes                     |                       
| |                                    |                       
| |                                    |                       
| |                                    |                       
| |                                    |                       

| | *
All pre-tax income and income tax expenses are derived from Israeli activities.
| | ---------------------------------------------------------------------------------

| | B. | Adjustments
for inflation
| | -- | -------------------------

| | Income
tax is computed on the basis of the Companys results in nominal NIS determined for
statutory purposes. The Company is assessed for tax purposes under the Income Tax Law
(Inflationary Adjustments 1985), the purpose of which is to prevent taxation on
inflationary profits.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 26, 2008, the Israeli Income Tax Law (Inflationary Adjustments) (Amendment No.
20) (Restriction of Period of Application)  2008 (the Amendment) was
passed by the Knesset. According to the Amendment, the Inflationary Adjustments Law will
no longer be applicable subsequent to the 2007 tax year, except for certain transitional
provisions.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Further,
according to the Amendment, commencing with the 2008 tax year, the adjustment of income
for the effects of inflation for tax purposes will no longer be calculated. Additionally,
depreciation on fixed assets and tax loss carryforwards will no longer be linked to
future changes in the CPI, such that these amounts will continue to be linked only to the
CPI as of the end of the 2007 tax year and will not be linked to CPI changes after this
date.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | Tax
benefits under the Law for Encouragement of Capital Investment
               (hereinafter  theInvestment Law)
| | -- | -------------------------------------------------------------------------------------------------------------------

| | In
August 2006, the Company received from the Investment Center approval to it being
considered to be an approved enterprise as defined in the Investment Law for
its export expansion plan as from the 2006 tax year. Any income from that approved
enterprise will be subject to a reduced tax rate of 25% for a period up to a total of
seven years. Under the terms of the program, which relates to the Companys export
of communication services to television channels and television operations via satellites
the Company is required to fulfill certain conditions and management of the Company
believes that as of the date of the financial statements the Company complies with those
conditions.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | On
July 25, 2005, the Knesset passed the Law for the Amendment of the Income Tax
          Ordinance (No. 147 and Temporary Order)  2005 (hereinafter           Amendment
147). The Amendment provides for a gradual reduction in the company           tax rate in
the following manner: in 2006 the tax rate will be 31%, in 2007            29%, in
2008  27%, in 2009 - 26% and from 2010 onward the           tax rate will
be 25%. Furthermore, as from 2010, upon reduction of the company           tax rate to
25%, capital gains will be subject to tax of 25%.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Current
and deferred tax balances as at December 31, 2007 are calculated in accordance with the new
tax rates specified in Amendment 147 as aforementioned.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

F - 28

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
15  Taxes on Income (contd)

| | E. | Reconciliation
between the tax on the pre-tax adjusted earnings and the tax                expenseincluded
in the statement of operations
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------

| |                                             | Year ended December 31
| | ------------------------------------------- | ----------------------
|
|
|
|
| | Statutory tax rate                          |                       
| |                                             |                       
| |                                             |                       
| | Earnings before taxes on income as          |                       
| | reported in the statement of operations     |                       
| |                                             |                       
| |                                             |                       
| | Computed "expected" tax expense             |                       
| |                                             |                       
| | Non-deductible expenses, net                |                       
| | Effect of change in tax rate                |                       
| | Effect of Approved Enterprise tax rate      |                       
| | Taxes in respect to previous years          |                       
| | Differences between the definition of       |                       
| | capital and assets for Israeli tax purposes |                       
| | Other differences                           |                       
| |                                             |                       
| |                                             |                       
| |                                             |                       
| |                                             |                       
| |                                             |                       

F - 29

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
15  Taxes on Income (contd)

| | F. | Deferred
taxes
| | -- | --------------

| | As
of December 31, 2006 and 2007, deferred tax assets and liabilities consists of future tax
assets (liabilities) attributable to the following
| | -----------------------------------------------------------------------------------------------------------------------------------------------

| |                                        | December 31
2006 | December 31
2007
| | -------------------------------------- | ---------------- | ----------------
|
|
|
|
| | Deferred tax assets:                   |                  |                 
| |                                        |                  |                 
| | Provision for doubtful debts           |                  |                 
| | Vacation pay accruals                  |                  |                 
| | Stock-based compensation               |                  |                 
| | Foreign currency embedded              |                  |                 
| | derivatives                            |                  |                 
| | Severance pay fund                     |                  |                 
| |                                        |                  |                 
| |                                        |                  |                 
| | Gross deferred tax assets              |                  |                 
| |                                        |                  |                 
| | Valuation allowance for deferred       |                  |                 
| | tax assets                             |                  |                 
| |                                        |                  |                 
| |                                        |                  |                 
| | Deferred tax assets                    |                  |                 
| |                                        |                  |                 
| |                                        |                  |                 
| | Deferred tax liabilities:              |                  |                 
| |                                        |                  |                 
| | Fixed assets                           |                  |                 
| | Foreign currency embedded              |                  |                 
| | derivatives                            |                  |                 
| | Other                                  |                  |                 
| |                                        |                  |                 
| |                                        |                  |                 
| |                                        |                  |                 
| |                                        |                  |                 
| |                                        |                  |                 
| | Deferred tax assets (liabilities), net |                  |                 
| |                                        |                  |                 
| |                                        |                  |                 

| | In
assessing the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 30

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
15  Taxes on Income (contd)

| | F. | Deferred
taxes (contd)
| | -- | -----------------------

| | Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the periods in
which the deferred tax assets are deductible, management believes it is more likely than
not that the Company will realize the benefits of these deductible differences. The
amount of the deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward period are
reduced.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | G. | 
| | -- | 

| | In
June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 (FIN 48), which, among other things, requires applying
a more-likely-than-notthreshold to the recognition and derecognition of tax
positions. Effective January 1, 2007, the Company adopted the provisions of FIN 48. As of
the date of the adoption of FIN 48, the Company has no material unrecognized tax benefit
which would favorably affect the effective income tax rate in future periods and do not
believe there will be any significant increases or decreases within the next twelve
months. The Company has elected to classify interest and penalties related to
unrecognized tax benefits, if and when required, as part of income tax expense in the
consolidated statements of operations. No interest or penalties have been accrued at the
date of adoption. The Company files income tax returns in Israel. As of December 31,
2007, the Israeli tax returns of the Company are open to examination by the Israeli tax
authorities for the tax years of 2004 through 2007.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 31

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
16  Transactions and Balances with Related Parties

| | A. | Transactions
with related parties
| | -- | ---------------------------------

| |                                           | Year ended December 31
| | ----------------------------------------- | ----------------------
|
|
|
|
| | Revenues from sales and services (C)      |                       
| |                                           |                       
| | General and administrative (D)            |                       
| |                                           |                       
| | One time fees associated with the IPO (F) |                       
| |                                           |                       
| | Management's fees to shareholders (E)     |                       
| |                                           |                       

| | B. | Balances
with related parties
| | -- | -----------------------------

| |                   | December 31
2006 | December 31
2007 |  
| | ----------------- | ---------------- | ---------------- | -
|
|
|
|
| | Trade receivables |                  |                  | $
| |                   |                  |                 
| | Other receivables |                  |                  | $
| |                   |                  |                 
| | Other payables    |                  |                  | $

| | C. | Revenues
from related parties
| | -- | -----------------------------

| | The
Company is engaged with customers, which are related parties of one of its shareholders.
| | --------------------------------------------------------------------------------------------

| | D. | The
Company leases its headquarters facilities from one of its shareholders.
| | -- | ----------------------------------------------------------------------------

F - 32

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
16  Transactions and Balances with Related Parties (contd)

| | E. | Managements
fees to shareholders
| | -- | ---------------------------------

| | In
March 2004, the Company entered into new agreements with Del-Ta Engineering (Shareholder,
hereinafter- Del-Ta)), Kardan Communications (Shareholder, hereinafter- Kardan) and David
Rivel (hereinafter-CEO), which superseded the April 2001 management services agreements
effective as of January 2004. These agreements set forth the management and consulting
services that such shareholders were obligated to provide the Company and the annual
management fees payable thereunder as follows: (i) $220 thousand to Del-Ta; (ii) $100
thousand to Kardan; and (iii) $100 thousand to the CEO. These agreements provide for a
one year term and were extended each year thereafter. In 2005, the annual management fees
payable under the agreements were increased such that: (i) Del-Ta was entitled to an
annual management fee of $285 thousand; (ii) Kardan was entitled to an annual management
fee of $205 thousand; and (iii) The CEO was entitled to an annual management fee of $110
thousand. The payments pursuant to these agreements aggregated $420 thousand in 2004,
$600 thousand in 2005 and $600 thousand in 2006.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
October 2006, the Company entered into a new agreement with Del-Ta and Kardan, which
supersedes the March 2004 management services agreements effective as of January 2007,
and we terminated the management services agreement with the CEO effective as of January
2007. This agreement sets forth the management and consulting services that Del-Ta and
Kardan are obligated to provide us and the annual management fee payable thereunder as
follows: (i) $235 thousand to Del-Ta and (ii) $163 thousand to Kardan. This agreement
provided initially for a one year term and renews automatically for one year periods
unless terminated by the Company or, jointly, by Del-Ta and Kardan. Each of Del-Ta and
Kardan agreed not to terminate or amend the agreement without the consent of the other
service provider. Del-Ta Engineering and Kardan also agreed that for so long as each has
a representative serving on the Compamys board of directors, neither party will
vote any shareholder vote in favor of terminating or not renewing the agreement. The
payments pursuant to this agreement aggregated $398 thousand in 2007.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | F. | One
time fees associated with the IPO
| | -- | -------------------------------------

| | See
Note 13.
| | ------------

F - 33

---

---

RRsat Global Communications Network Ltd
and its subsidiaries

|                                 
|---------------------------------
|Notes to the Financial Statements
|                                 

Note
17  Subsequent event

| | In
February 2008, The Company entered into an agreement to acquire from SkyNet Satellite
Corporation the real property, assets and licenses of the Hawley Teleport located in Pike
County, Pennsylvania, for a purchase price of $4.25 million. The parcel of land contains
approximately 200 acres, and buildings with approximately 40,000 square feet. The
acquisition is scheduled to close in the second quarter of 2008 and is subject to a
45-day due diligence period and customary closing conditions.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 34

---

---

# SIGNATURES

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

| |  | RRSAT GLOBAL COMMUNICATIONS NETWORK LTD.By: /s/ David Rivel
David RivelChief Executive Officer
| |  | ------------------------------------------------------------------------------------------------------------

| |  | By: /s/ Gil Efron
Gil EfronChief Financial Officer
| |  | ----------------------------------------------------------------

Date: March 24, 2008



---

---