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

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

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

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

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

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| 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                                 | 29        |
| Item 4A. | Unresolved Staff Comments                                  | 59        |
| Item 5.  | Operating and Financial Review and Prospects               | 60        |
| Item 6.  | Directors, Senior Management and Employees                 | 78        |
| Item 7.  | Major Shareholders and Related Party Transactions          |  90  |
| Item 8.  | Financial Information                                      |  96  |
| Item 9.  | The Offer and Listing                                      |  97  |
| Item 10. | Additional Information                                     |  99  |
| Item 11. | Quantitative and Qualitative Disclosures about Market Risk |  117 |
| Item 12. | Description of Securities Other than Equity Securities     |  118 |

| Item 13.  | Defaults, Dividend Arrearages and Delinquencies                              |  119 |
|-----------|------------------------------------------------------------------------------|-----------|
| Item 14.  | Material Modifications to the Rights of Security Holders and Use of Proceeds |  119 |
| Item 15.  | Controls and Procedures                                                      |  119 |
| Item 16.  | Reserved                                                                     |  120 |
| Item 16A. | Audit Committee Financial Expert                                             |  121 |

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| Item 16B. | Code of Ethics                                                         |  121 |
|-----------|------------------------------------------------------------------------|-----------|
| Item 16C. | Principal Accountant Fees and Services                                 |  121 |
| Item 16D. | Exemption from the Listing Standards for Audit Committee               |  122 |
| Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |  122 |
| Item 16F. | Change in Registrant's Certifying Accountant                           |  122 |
| Item 16G. | Corporate Governance                                                   |  122 |

| Item 17. | Financial Statements |  123 |
|----------|----------------------|-----------|
| Item 18. | Financial Statements |  123 |
| Item 19. | Exhibits             |  124 |

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

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

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

|                                                                                                |   | Year ended December 31,                                                          |       |
|-----------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|------------|
|                                                                                                |   | 2006                                                                             |       |   | 2007 |   |   | 2008 |   |   | 2009 |   |   | 2010 |   |
|                                                                                                |   |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                |   | (in thousands, except share per share data and cash dividend per ordinary share) |       |
| Statements of Operations Data:                                                                      |   |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                                                            |   | $                                                                                | 43,284     |   |   | $ | 59,221 |   |   | $ | 78,993 |   |   | $ | 93,687 |   |   | $ | 102,027 |   |
| Cost of revenue                                                                                     |   |                                                                             | 27,451     |   |   |   | 38,419 |   |   |   | 53,477 |   |   |   | 64,548 |   |   |   | 75,962 |   |
| Gross profit                                                                                        |   |                                                                             | 15,833     |   |   |   | 20,802 |   |   |   | 25,516 |   |   |   | 29,139 |   |   |   | 26,065 |   |
| Operating expenses:                                                                                 |   |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales and marketing                                                                                 |   |                                                                             | 1,831      |   |   |   | 3,017 |   |   |   | 3,914 |   |   |   | 5,554 |   |   |   | 6,380 |   |
| General and administrative                                                                          |   |                                                                             | 3,588      |   |   |   | 5,767 |   |   |   | 6,582 |   |   |   | 8,391 |   |   |   | 9,194 |   |
| One time fees associated with the IPO                                                               |   |                                                                             | 1,000      |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |
| Total operating expenses                                                                            |   |                                                                             | 6,419      |   |   |   | 8,784 |   |   |   | 10,496 |   |   |   | 13,945 |   |   |   | 15,574 |   |
| Operating income                                                                                    |   |                                                                             | 9,414      |   |   |   | 12,018 |   |   |   | 15,020 |   |   |   | 15,194 |   |   |   | 10,491 |   |
| Interest and marketable securities income                                                           |   |                                                                             | 450        |   |   |   | 2,631 |   |   |   | 1,111 |   |   |   | 639 |   |   |   | 681 |   |
| Currency fluctuation and other financial income (expenses), net                                     |   |                                                                             | 374        |   |   |   | 329 |   |   |   | 177 |   |   |   | 299 |   |   |   | (1,268 | ) |
| Change in fair value of embedded currency conversion derivatives                                    |   |                                                                             | 243        |   |   |   | (646 | ) |   |   | 1,342 |   |   |   | (1,326 | ) |   |   | 1,254 |   |
| Other income, net                                                                                   |   |                                                                             | 4          |   |   |   | 4 |   |   |   | 10 |   |   |   | 26 |   |   |   | -- |   |
| Income before taxes on income                                                                       |   |                                                                             | 10,485     |   |   |   | 14,336 |   |   |   | 17,660 |   |   |   | 14,832 |   |   |   | 11,158 |   |
| Income taxes                                                                                        |   |                                                                             | 3,180      |   |   |   | 2,932 |   |   |   | 4,228 |   |   |   | 3,254 |   |   |   | 2,448 |   |
| Net income                                                                                          |   | $                                                                                | 7,305      |   |   | $ | 11,404 |   |   | $ | 13,432 |   |   | $ | 11,578 |   |   |   | 8,710 |   |
| Basic income per ordinary share                                                                     |   | $                                                                                | 0.53       |   |   | $ | 0.66 |   |   | $ | 0.78 |   |   | $ | 0.67 |   |   | $ | 0.50 |   |
| Diluted income per ordinary share                                                                   |   | $                                                                                | 0.53       |   |   | $ | 0.65 |   |   | $ | 0.77 |   |   | $ | 0.67 |   |   | $ | 0.50 |   |
| Weighted average number of ordinary shares used to   compute basic income per ordinary share   |   |                                                                             | 13,746,467 |   |   |   | 17,249,710 |   |   |   | 17,290,099 |   |   |   | 17,310,005 |   |   |   | 17,330,024 |   |
| Weighted average number of ordinary shares used to   compute diluted income per ordinary share |   |                                                                             | 13,793,694 |   |   |   | 17,418,180 |   |   |   | 17,399,375 |   |   |   | 17,399,324 |   |   |   | 17,380,677 |   |
| Cash dividend per ordinary share                                                                    |   | $                                                                                | 0.15       |   |   | $ | - |   |   | $ | 0.61 |   |   | $ | 0.49 |   |   | $ | 0.38 |   |

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|                                                                |   | As of December 31, |   |
|---------------------------------------------------------------------|--------|--------------------|--------|
|                                                                |   | 2006               |   |   | 2007 |   |   | 2008 |   |   | 2009 |   |   | 2010 |   |
|                                                                |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                |   | (in thousands)     |   |
| Balance Sheet Data:                                                 |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                           |   | $                  | 51,393 |   |   | $ | 28,409 |   |   | $ | 34,749 |   |   | $ | 14,941 |   |   | $ | 13,091 |   |
| Marketable securities (long and short term) and short term deposits |   |               | 1,454  |   |   |   |  35,013 |   |   |   | 11,845 |   |   |   |  32,608 |   |   |   |  22,516 |   |
| Working capital                                                     |   |               | 54,275 |   |   |   | 57,154 |   |   |   | 39,348 |   |   |   | 46,207 |   |   |   | 37,378 |   |
| Total assets                                                        |   |               | 79,133 |   |   |   | 95,390 |   |   |   | 104,487 |   |   |   | 115,121 |   |   |   | 120,495 |   |
| Total liabilities                                                   |   |               | 15,788 |   |   |   | 20,231 |   |   |   | 26,137 |   |   |   | 33,178 |   |   |   | 36,083 |   |
| Retained earnings                                                   |   |               | 12,025 |   |   |   | 23,429 |   |   |   | 26,309 |   |   |   | 29,407 |   |   |   | 31,555 |   |
| Shareholders' equity                                                |   |               | 63,345 |   |   |   | 75,159 |   |   |   | 78,350 |   |   |   | 81,943 |   |   |   | 84,412 |   |

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

|   | · | the future growth of the global broadcast market, the global content management and distribution services market and the global MSS market; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the general economic conditions in the markets in which we, our customers and our suppliers operate; |
|--------|--------|------------------------------------------------------------------------------------------------------|

|   | · | our ability to lease additional satellite or terrestrial fiber capacity or extend existing leases 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 further expand our presence in the United States; |
|--------|--------|----------------------------------------------------------------|

----

|   | · | our plans to expand our presence in Asia, Europe and other markets in which most of our operations are hosted facilities, by acquiring or establishing our own teleports and production facilities; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | our ability to successfully integrate businesses and assets we acquired in 2008 and intend to acquire in the future; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------|

|   | · | 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 and global MSS utilizing the latest technologies; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | our ability to enter into strategic arrangements with satellite fleet operators and other telecommunications service providers; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | · | the growth of the North American, European and Asia Pacific broadcast markets; |
|--------|--------|--------------------------------------------------------------------------------|

|   | · | the growth of new technologies, such as high definition television (HDTV), three dimensional television (3D TV) 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 licenses by the Israeli Ministry of Communications and the U.S. Federal Communications Commission ("FCC"); |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------|

|   | · | our ability to extend our building and other permits for our principal teleports in Re'em, Emek Ha'ela and the Hawley Teleport which we acquired in 2008; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | our belief that our current owned and leased facilities 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. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | 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; |
|--------|--------|--------------------------------------------------------------------|

|   | · | expand our sales and marketing infrastructure and capabilities on an international basis; and |
|--------|--------|-----------------------------------------------------------------------------------------------|

|   | · | develop regulatory compliance programs in foreign jurisdictions. |
|--------|--------|------------------------------------------------------------------|

----

|   | · | market conditions in the broadcast and telecommunications industries; |
|--------|--------|-----------------------------------------------------------------------|

|   | · | changes in global economic conditions; |
|--------|--------|----------------------------------------|

|   | · | 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; |
|--------|--------|-------------------------------------------------------------------|

----

|   | · | changes in the utilization of transmission capacity; |
|--------|--------|------------------------------------------------------|

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

|   | · | changes in regulatory and compliance requirements; and |
|--------|--------|--------------------------------------------------------|

|   | · | currency fluctuation that may change the level of our costs and revenues |
|--------|--------|--------------------------------------------------------------------------|

----

|   | · | the level of liquidity available for our shares; |
|--------|--------|--------------------------------------------------|

|   | · | sales by one or more of our controlling shareholders of significant amount of shares; |
|--------|--------|---------------------------------------------------------------------------------------|

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

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

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

|   | · | results of integration of acquired assets and businesses; |
|--------|--------|-----------------------------------------------------------|

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

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

----

|   | · | 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. |
|--------|--------|------------------------------------------------------------------------------------------------|

----

----

----

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|   | · | 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 Ministry of Communications 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 Ministry of Communications within 21 days of learning of such transfer and request the consent of the Ministry of Communications for such transfer. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

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|   | · | 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. |
|--------|--------|---------------------------------------------------------------|

|   | · | 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. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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|   | · | 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 teleports in Israel allow us to structure our network in a star configuration, transmitting via a single satellite connection (or one hop) from these teleports 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, terrestrial fiber capacity to other target audiences and Internet distribution to other target audiences. Our company has made substantial investments in state-of-the art technology in anticipation of the fourth generation of the Inmarsat services which will allow for higher bandwidth data transmissions and allow seamless transition from the current third generation services to the new fourth generation services. Our company has also entered into agreements with third party service providers in order to allow broader coverage and an array of value-added services. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | 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 3 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 electrical power efficiency and lower costs per customer.  In addition, we have established a global network infrastructure that includes fiber connections among four continents, a choice and combination of transmission media, and a star configuration made possible by the unique geographical location of our Re'em teleport and our teleport in Emek Ha'ela, which we acquired in 2008.  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. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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, 2010 we had a contracted backlog totaling $187.9 million through 2020, of which $79.0 million are related to services expected to be delivered in 2011, and $55.6 million are related to services expected to be delivered in 2012.  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 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. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | New Services Offerings.  We provide our customers with a broad array of MSS, including telephony, fax and data transmission services, as well as value-added services, such as email, fleet tracking and electronic billing.  Our company has invested in state-of-the-art technology which is capable of providing a wide array of MSS utilizing the same infrastructure and using automated management systems.  Our MSS technology enables us to reduce the costs of infrastructure and to service a larger number of customers using a reduced work force.  We have built a new concept in the field of MSS, in which our customers receive an end-to-end telecommunications solution, which eliminates the need for them to purchase special software to handle their communications needs at remote locations.  Our solution allows our customer to use their existing office software (such as email) at sea or in the field, as if they were in their offices. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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 its 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 consistently deliver profitability and strong growth in revenues. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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.  We have grown from distributing 8 channels in 2000 to distributing more than 590 television and radio channels currently.  In addition, we provide Internet streaming services to more than 140 television and radio channels. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Expand our footprint within the largest broadcasters. As the RRsat Global Network brand continues to gain recognition and the market increasingly acknowledges the scope and quality of our services, we also seek to provide a broader range of services to the largest global broadcasters to whom we already provide certain services.  We intend to continue to expand the services we provide to the largest broadcasters as they look for complex global distribution and content management solutions to support the large number of television channels they produce and broadcast.  We believe the large broadcasters are broadcasting a significant portion of the television channels around the globe, are expanding their distribution of television content to the global market, and are creating additional local versions of their content for the different local television viewers. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Establish a local presence in key markets.  We intend to expand our presence in the United States, Europe, 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 our 2008 acquisition of the Hawley Teleport in Pennsylvania.  We believe that the acquisition of the Hawley Teleport is 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 Europe and 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 Europe and 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, further meet the broadcasters growing requirements for cost-effective end-to-end digital media management, 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 distribution and MSS 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 content management for them.  We intend to broaden our service offerings and introduce new and innovative value-added services.  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 and services.  The television and radio broadcasting industries are undergoing significant changes that are leading to the introduction of multiple technology standards, with the increased penetration of HDTV broadcasts and emerging 3DTV, digital video broadcasting over fiber transmission, digital video broadcasting via terrestrial transmitters (DVB-T) and Internet protocol television.  We are currently focusing on supporting video on demand (VOD), HDTV broadcasts, 3DTV 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 we could reduce our capacity cost per channel.  We intend to develop our MSS business by expanding our relationships with other providers in the supply chain of those services, and invest in appropriate infrastructure to expand the services we can offer our MSS customers. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Expand strategic relationships with satellite fleet operators and other telecommunications service providers.  We work closely with large satellite fleet operators and telecommunications service providers and intend to explore further avenues of cooperation.  We have entered into strategic agreements with British Telecom (BT), Intelsat, Thaicom (formerly Shin Satellite) and APT (formerly Loral Skynet and Telesat Canada) 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 would provide value-added services while they would provide transmission capacity.  For example, in 2007 we entered into a cooperation agreement with Loral Skynet (which was subsequently assigned to Telesat Canada and to APT), which was amended in 2010, for the joint marketing of a platform designed to offer TV and radio channels efficient and reliable means for reaching cable and satellite head-ends throughout Asia and Africa.  In 2010, we entered into an agreement with British Telecom under which RRsat will gain access to BT’s media switch in London, which will enable RRsat to link into BT's Global Media Network, its satellite services, and will allow RRsat to offer its customers additional dedicated bandwidth for short-term event coverage. BT’s media customers will in turn benefit from the ability to link into the RRsat Global Network for global distribution. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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 revenues 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 to approximately 27,000 in 2009.  There are also special interest broadcasters, such as the BabyTV 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. Additional growth comes from special interest ethnic channels.  The world’s population is becoming increasingly mobile and increasingly connected, and geographic borders no longer are a physical constraint to population shifts.  These shifts in population result in the increasing penetration of ethnic satellite television channels. These new channels will lead to a greater volume of content being distributed over satellite and terrestrial fiber networks globally. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | New broadcasting technology.  Increased HDTV adoption, newly emerging 3DTV technologies 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 our company.  The distribution of the new programming for these channels will require the use of combined satellite-terrestrial fiber networks. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Emergence of television alternatives.  Alternative content distribution mechanisms are causing content providers to rethink their means of reaching their audiences.  New Internet Protocol television (IPTV) operators are using IP technology to provide services similar to cable television, reaching out to television sets with wither external or built-in set-top boxes.  According to Point Topic, a leading websource on broadband statistics and analysis, in 2010 the total number of IPTV subscribers worldwide stood at 41.9 million, representing 36.7% growth over the previous year.  New service providers offering video over the public Internet open the door for new content providers to enter the industry using the rapid and reliable transmission of vast amounts of information over the Internet, which will still require a network such as the RRsat Global Network, which integrates satellite-based and terrestrial fiber capacity to deliver content to such service providers.  During 2010 we began delivering content to Mobile TV operators, which provide television content over cellular networks. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | In-house broadcasters – broadcasters that have internal content distribution and management capabilities, which they continue to use.  Because these in-house operations serve only one customer, mainly for the local markets of the broadcasters, and the customer's primary focus is producing rather than distributing or managing the content, these operations have limited capabilities.  We believe that dedicated in-house operations represent an expensive solution that is not cost effective and not easily scalable and is limited in the ability to deliver complex distribution and content management solutions. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | 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. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Europe                                                                                                                                                       | North America                                   | Asia                                                                           | Middle East                                                                                                                                                                                                               | Africa                                                                                  | South America           | Australia                                                                   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------|--------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|-------------------------|-----------------------------------------------------------------------------|
| Amos-2Amos-3AtlanticBird-1Eurobird-9AEutelsat Sesat 1Eutelsat-W2AEutelsat-W3AEutelsat-W6Eutelsat-W7Hotbird-6Hotbird-8Hotbird-9Intelsat 10-02Telstar-12  | Galaxy-19Galaxy-23Hispasat-1CIntelsat-805  | ABS-1Agila 2Apstar-2RAsiasat-5Insat-2E (APR-1)Intelsat-10Thaicom-5   | Amos-2Amos-3Asiasat-5AtlanticBird-1AtlanticBird-4AEurobird-2Eurobird-9AEutelsat Sesat 1Eutelsat-W6Eutelsat-W7Express AM44Hotbird-6Hotbird-8Hotbird-9Insat-2E (APR-1)Intelsat-10Intelsat 10-02Thaicom-5Telstar-12Yamal-201 | AtlanticBird-1Intelsat-7Intelsat-10Intelsat 10-02Intelsat-802Telstar-11NThaicom-5  | Hispasat-1CIntelsat-805 | Asiasat-5Insat-2E(APR-1)Intelsat-10NSS-6Optus-D2Thaicom-5    |

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| Channels for which we provide Continuous Services                                 |   | Channels for which weprovide Occasional Services                                                                                                               |
|----------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Commercial Channels                                                                    |   | Governmental Channels                                                                                                                                          |   | Religious Channels |   |  and News and Sports Channels |
| Baby First TVBaby TVConto TVFashion TVKIDSCO TVMGMMusic One TVIPN TVNTD TVPRO TVRTG TV |   | BVN TV (The Netherlands)CCTV (China)Channel One RussiaKurdsatMRTV (Myanmar)RTP (Portugal)Thai Global NetworkSverige TV (Sweden)VTV-4 (Vietnam)Voice of America |   | 3 Angels BroadcastingApostolic Oneness NetworkCGNChannel New LifeDaystar GOD TVHope TVMTA ChannelSupreme MasterTBN TVThe Word Network  |   | Al Jazeera ChannelAll Sports Network (ASN)Fox NewsFox Sports HDIsrael's Channel 10Israel's Channel 2Israel's Sport5 ChannelsRussia TodaySky News HD |

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|   | · | 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 June 2011 following an extension until the expected end-of-life of the satellite. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Thaicom (Cooperation) – We have launched a distribution platform using the Thaicom 5 satellite which provides coverage of Asia.  Pursuant to the agreement, which extends for 5 years until August 2013, we agreed to make certain payments to Thaicom for the leased capacity and Thaicom agreed to pay us to the extent it sells any of our services.  The agreement contains minimum commitments regarding capacity lease that we agreed to maintain during the term of the agreement. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | APT (Cooperation) – We have launched a distribution platform using the Telstar-10 satellite, which was recently renamed Apstar-2R.  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 APT to jointly market content management and distribution services in conjunction with the satellite capacity we lease from APT.  The agreement provides that we make certain payments to APT for the leased capacity and APT pays us to the extent it sells any of our services.  This agreement extends through December 2012 and provides for automatic renewal periods of one year each, unless terminated by either party.  However, if we achieve a certain threshold of capacity utilization, we have an option to renew the agreement through June 2015. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | British Telecom(BT) (Teaming) – We have signed a strategic alliance with British Telecom's Media and Broadcast Division.  The alliance will combine our companies' capabilities in content management and global distribution services with BT’s Global Media Network and existing satellite portfolio. RRsat will gain access to BT’s media switch in London which will allow RRsat to link into BT's Global Media Network and satellite services and will allow RRsat to offer its customers additional dedicated bandwidth for short-term event coverage.  BT’s media customers will be able to link into the RRsat Global Network allowing for global distribution.  This agreement extends through July 2020. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | 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 Ministry of Communications 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 Ministry of Communications within 21 days of learning of such transfer and request the consent of the Director General of the Ministry of Communications for such transfer. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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|                            |   | Year ended December 31,             |   |
|---------------------------------|--------|-------------------------------------|--------|
|                            |   | 2008                                |   |   | 2009 |   |   | 2010 |   |
|                            |   | (as a percentage of total revenues) |   |
| North America                   |   |                                | 24.5   | % |   |   | 22.4 | % |   |   | 24.0 | % |
| Europe                          |   |                                | 40.8   |   |   |   | 42.2 |   |   |   | 44.6 |   |
| Asia                            |   |                                | 11.1   |   |   |   | 11.3 |   |   |   | 9.1 |   |
| Israel                          |   |                                | 6.9    |   |   |   | 6.9 |   |   |   | 7.2 |   |
| Middle East (other than Israel) |   |                                | 11.7   |   |   |   | 13.0 |   |   |   | 13.6 |   |
| Rest of world                   |   |                                | 4.9    |   |   |   | 4.3 |   |   |   | 1.5 |   |
| Total                           |   |                                | 100    | % |   |   | 100 | % |   |   | 100 | % |

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|                                                                                                      |   | Year ended December 31,                         |       |
|-----------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|------------|
|                                                                                                      |   | 2008                                            |       |   | 2009 |   |   | 2010 |   |
|                                                                                                      |   |                                            |       |   |   |   |   |   |   |
|                                                                                                      |   | (in thousands, except share and per share data) |       |
| Statement of Operations Data:                                                                             |   |                                            |       |   |   |   |   |   |   |
| Revenues                                                                                                  |   | $                                               | 78,993     |   |   | $ | 93,687 |   |   | $ | 102,027 |   |
| Cost of revenues                                                                                          |   |                                            | 53,477     |   |   |   | 64,548 |   |   |   | 75,962 |   |
| Gross profit                                                                                              |   |                                            | 25,516     |   |   |   | 29,139 |   |   |   | 26,065 |   |
| Operating expenses:                                                                                       |   |                                            |       |   |   |   |   |   |   |   |   |   |
| Sales and marketing                                                                                       |   |                                            | 3,914      |   |   |   | 5,554 |   |   |   | 6,380 |   |
| General and administrative                                                                                |   |                                            | 6,582      |   |   |   | 8,391 |   |   |   | 9,194 |   |
| Total operating expenses                                                                                  |   |                                            | 10,496     |   |   |   | 13,945 |   |   |   | 15,574 |   |
| Operating income                                                                                          |   |                                            | 15,020     |   |   |   | 15,194 |   |   |   | 10,491 |   |
| Interest and marketable securities income                                                                 |   |                                            | 1,111      |   |   |   | 639 |   |   |   | 681 |   |
| Currency fluctuation and other financial expenses, net                                                    |   |                                            | 177        |   |   |   | 299 |   |   |   | (1,268 | ) |
| Changes in fair value of embedded currency conversion derivatives                                         |   |                                            | 1,342      |   |   |   | (1,326 | ) |   |   | 1,254 |   |
| Other income, net                                                                                         |   |                                            | 10         |   |   |   | 26 |   |   |   | -- |   |
| Income before taxes on income                                                                             |   |                                            | 17,660     |   |   |   | 14,832 |   |   |   | 11,158 |   |
| Income taxes                                                                                              |   |                                            | 4,228      |   |   |   | 3,254 |   |   |   | 2,448 |   |
| Net income                                                                                                |   | $                                               | 13,432     |   |   | $ | 11,578 |   |   | $ | 8,710 |   |
| Basic income per ordinary share                                                                           |   | $                                               | 0.78       |   |   | $ | 0.67 |   |   | $ | 0.50 |   |
| Diluted income per ordinary share                                                                         |   | $                                               | 0.77       |   |   | $ | 0.67 |   |   | $ | 0.50 |   |
| Weighted average number of ordinary shares used to    compute basic income per ordinary share   |   |                                            | 17,290,099 |   |   |   | 17,310,005 |   |   |   | 17,330,024 |   |
| Weighted average number of ordinary shares used to    compute diluted income per ordinary share |   |                                            | 17,399,375 |   |   |   | 17,399,324 |   |   |   | 17,380,677 |   |

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|                                                              |   | Year ended                                               |   |
|-------------------------------------------------------------------|--------|----------------------------------------------------------|--------|
|                                                              |   | December 31, 2009                                        |   |   | December 31, 2010 |   |
|                                                              |   | (in thousands and as a percentage oftotal revenues) |   |
| Revenues                                                          |   | $                                                        | 93,687 |   |   |   | 100 | % |   | $ | 102,027 |   |   |   | 100 | % |
| Cost of revenues                                                  |   |                                                     | 64,548 |   |   |   | 68.9 |   |   |   | 75,962 |   |   |   | 74.5 |   |
| Gross profit                                                      |   |                                                     | 29,139 |   |   |   | 31.1 |   |   |   | 26,065 |   |   |   | 25.6 |   |
| Operating expenses:                                               |   |                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales and marketing                                               |   |                                                     | 5,554  |   |   |   | 5.9 |   |   |   | 6,380 |   |   |   | 6.3 |   |
| General and administrative                                        |   |                                                     | 8,391  |   |   |   | 9.0 |   |   |   | 9,194 |   |   |   | 9.0 |   |
| Total operating expenses                                          |   |                                                     | 13,945 |   |   |   | 14.9 |   |   |   | 15,574 |   |   |   | 15.3 |   |
| Operating income                                                  |   |                                                     | 15,194 |   |   |   | 16.2 |   |   |   | 10,491 |   |   |   | 10.3 |   |
| Interest and marketable securities income                         |   |                                                     | 639    |   |   |   | 0.7 |   |   |   | 681 |   |   |   | 0.6 |   |
| Currency fluctuation and other financial income (expenses), net   |   |                                                     | 299    |   |   |   | 0.3 |   |   |   | (1,268 | ) |   |   | (1.2 | ) |
| Changes in fair value of embedded currency conversion derivatives |   |                                                     | (1,326 | ) |   |   | (1.4 | ) |   |   | 1,254 |   |   |   | 1.2 |   |
| Other income, net                                                 |   |                                                     | 26     |   |   |   | 0.0 |   |   |   | -- |   |   |   | 0.0 |   |
| Income before taxes on income                                     |   |                                                     | 14,832 |   |   |   | 15.8 |   |   |   | 11,158 |   |   |   | 11.0 |   |
| Income taxes                                                      |   |                                                     | 3,254  |   |   |   | 3.5 |   |   |   | 2,448 |   |   |   | 2.4 |   |
| Net income                                                        |   | $                                                        | 11,578 |   |   |   | 12.3 |   |   | $ | 8,710 |   |   |   | 8.6 |   |

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|                                                              |   | Year ended                                               |   |
|-------------------------------------------------------------------|--------|----------------------------------------------------------|--------|
|                                                              |   | December 31, 2008                                        |   |   | December 31, 2009 |   |
|                                                              |   | (in thousands and as a percentage oftotal revenues) |   |
| Revenues                                                          |   | $                                                        | 78,993 |   |   |   | 100 | % |   | $ | 93,687 |   |   |   | 100 | % |
| Cost of revenues                                                  |   |                                                     | 53,477 |   |   |   | 67.7 |   |   |   | 64,548 |   |   |   | 68.9 |   |
| Gross profit                                                      |   |                                                     | 25,516 |   |   |   | 32.3 |   |   |   | 29,139 |   |   |   | 31.1 |   |
| Operating expenses:                                               |   |                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales and marketing                                               |   |                                                     | 3,914  |   |   |   | 5.0 |   |   |   | 5,554 |   |   |   | 5.9 |   |
| General and administrative                                        |   |                                                     | 6,582  |   |   |   | 8.3 |   |   |   | 8,391 |   |   |   | 9.0 |   |
| Total operating expenses                                          |   |                                                     | 10,496 |   |   |   | 13.3 |   |   |   | 13,945 |   |   |   | 14.9 |   |
| Operating income                                                  |   |                                                     | 15,020 |   |   |   | 19.0 |   |   |   | 15,194 |   |   |   | 16.2 |   |
| Interest and marketable securities income                         |   |                                                     | 1,111  |   |   |   | 1.4 |   |   |   | 639 |   |   |   | 0.7 |   |
| Currency fluctuation and other financial income (expenses), net   |   |                                                     | 177    |   |   |   | 0.2 |   |   |   | 299 |   |   |   | 0.3 |   |
| Changes in fair value of embedded currency conversion derivatives |   |                                                     | 1,342  |   |   |   | 1.7 |   |   |   | (1,326 | ) |   |   | (1.4 | ) |
| Other income, net                                                 |   |                                                     | 10     |   |   |   | 0.0 |   |   |   | 26 |   |   |   | 0.0 |   |
| Income before taxes on income                                     |   |                                                     | 17,660 |   |   |   | 22.3 |   |   |   | 14,832 |   |   |   | 15.8 |   |
| Income taxes                                                      |   |                                                     | 4,228  |   |   |   | 5.4 |   |   |   | 3,254 |   |   |   | 3.5 |   |
| Net income                                                        |   | $                                                        | 13,432 |   |   |   | 16.9 |   |   | $ | 11,578 |   |   |   | 12.3 |   |

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|                                                          |   | Year ended December 31, |    |   |
|---------------------------------------------------------------|--------|------------------------------|---------|--------|
|                                                          |   | 2008                         |    |   | 2009 |   |   | 2010 |
|                                                          |   |                         |    |   |   |   |   |   |
|                                                          |   | (in thousands)               |
| Statement of Cash Flows Data:                                 |   |                         |    |   |   |   |   |   |
| Net cash provided by operating activities                     |   | $                            | 20,314  |   |   | $ | 16,954 |   |   | $ | 9,351 |   |
| Net cash used in investing activities                         |   |                         | (3,422  | )      |   |   | (28,282 | ) |   |   | (4,639 | ) |
| Net cash used in financing activities                         |   |                         | (10,552 | )      |   |   | (8,480 | ) |   |   | (6,562 | ) |
| Increase (decrease) in cash and cash equivalents              |   | $                            | 6,340   |   |   | $ | (19,808 | ) |   | $ | (1,850 | ) |
| Cash and cash equivalents — beginning of year |   |                         | 28,409  |   |   |   | 34,749 |   |   |   | 14,941 |   |
| Cash and cash equivalents — end of year       |   | $                            | 34,749  |   |   | $ | 14,941 |   |   | $ | 13,091 |   |

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|                     |   | Total          |    |   | Less than1 year |   |   | 2-3years |   |   | 4-5years |   |   | More than5 years |   |
|--------------------------|--------|----------------|---------|--------|----------------------|--------|--------|----------|--------|--------|----------|--------|--------|------------------|--------|
|                     |   | (in thousands) |    |
| Operating Leases         |   | $              | 2,376   |   |                 | $      | 644    |     |   | $      | 992      |   |   | $                | 740    |   |   | $ | -- |   |
| Operating Car Leases     |   |           | 1,274   |   |                 |   | 687    |     |   |   | 587      |   |   |             | --     |   |   |   | -- |   |
| Operating Network Leases |   |           | 118,946 |   |                 |   | 41,337 |     |   |   | 48,172   |   |   |             | 23,128 |   |   |   | 6,309 |   |
| Total                    |   | $              | 122,596 |   |                 | $      | 42,668 |     |   | $      | 49,751   |   |   | $                | 23,868 |   |   | $ | 6,309 |   |

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

| Name                        |   | Age    |   | Position(s) |
|-----------------------------|--------|--------|--------|-------------|
| Gilad Ramot (1)(5)          |   |   | 60     |        | Chairman of the Board |
| David Rivel                 |   |   | 64     |        | Chief Executive Officer and Director |
| David Aber                  |   |   | 55     |        | Chief Financial Officer |
| Lior Rival                  |   |   | 38     |        | Vice President – Sales and Marketing |
| Ziv Mor                     |   |   | 35     |        | Chief Technology Officer and Vice President –Business Development |
| Maya Rival                  |   |   | 34     |        | Vice President – Operations |
| David Assia (2)(3)(4)(5)(6) |   |   | 59     |        | Director |
| Amit Ben-Yehuda             |   |   | 47     |        | Director |
| Dan Levinson (6)            |   |   | 40     |        | Director |
| Vered Levy-Ron (2)(3)(4)    |   |   | 44     |        | Director |
| Alexander Milner (1)(5)     |   |   | 71     |        | Director |
| Ron Oren                    |   |   | 39     |        | Director |
| Guy Vaadia (2)(4)(6)        |   |   | 47     |        | Director |

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

|   |  (2) | "Independent Director" under the applicable NASDAQ Marketplace Rules, the applicable rules of the Securities and Exchange Commission and Israel's Companies Law (see explanation below) |
|--------|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | 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. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | if the person or his or her relatives, partners, employers, supervisors or entities under the person's control, maintains a business or professional relationship, even if such relationship is not on a regular basis, other than a negligible business or professional relationship, or |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | if the person received compensation as an outside director in excess of the amounts permitted by the Companies Law and regulations thereunder. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | the majority includes at least a majority of the shares voted by shareholders other than our controlling shareholders or shareholders who have a personal interest in the election of the outside directors (excluding a personal interest that is not related to a relationship with the controlling shareholders); or |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the total number of shares held by non-controlling shareholders and disinterested shareholders that voted against the election of the outside director does not exceed 2% of the aggregate voting rights of our company. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| Name                                                          |   | Number of Ordinary Shares Beneficially Owned(1) |      |   | Percentage of Ordinary Shares |   |
|---------------------------------------------------------------|--------|-------------------------------------------------|-----------|--------|-------------------------------|--------|
| Executive Officers and Directors                              |   |                                            |      |   |                          |   |
| Gilad Ramot                                                   |   |                                            | 12,840    |   |                          |   | * |   |
| David Rivel (2)                                               |   |                                            | 2,268,740 |   |                          |   | 12.91 | % |
| David Aber                                                    |   |                                            | -         |   |                          |   | - |   |
| Lior Rival                                                    |   |                                            | 22,936    |   |                          |   | * |   |
| Maya Rival                                                    |   |                                            | 8,004     |   |                          |   | * |   |
| Ziv Mor                                                       |   |                                            | 12,000    |   |                          |   | * |   |
| David Assia (3)                                               |   |                                            | 2,480     |   |                          |   | * |   |
| Amit Ben-Yehuda                                               |   |                                            | 3,336     |   |                          |   | * |   |
| Dan Levinson                                                  |   |                                            | -         |   |                          |   | - |   |
| Vered Levy-Ron (3)                                            |   |                                            | 2,480     |   |                          |   | * |   |
| Alexander Milner                                              |   |                                            | -         |   |                          |   | - |   |
| Ron Oren                                                      |   |                                            | -         |   |                          |   | - |   |
| Guy Vaadia                                                    |   |                                            | -         |   |                          |   | - |   |
| All directors and officers as a group (13 persons)(2)(3) |   |                                            | 2,332,816 |   |                          |   | 13.27 | % |
| Other 5% Shareholders                                         |   |                                            |      |   |                          |   |   |   |
| Del-Ta Engineering Equipment Ltd. (4)                         |   |                                            | 6,810,367 |   |                          |   | 39.26 | % |
| Kardan Communications Ltd. (5)                                |   |                                            | 4,233,600 |   |                          |   | 24.41 | % |

|   | (1) | Excludes outstanding options that do not vest within 60 days of March 15, 2011. |
|--------|-----|---------------------------------------------------------------------------------|

|   | (2) | Based on Schedule 13G/A filed with the Securities and Exchange Commission on February 2, 2011 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; (ii) 37,800 ordinary shares at an exercise price of $6.16 per share; (iii) 44,100 ordinary shares at an exercise price of $6.77 per share; (iv) 50,400 ordinary shares at an exercise price of $7.45 per share; and (v) 63,000 ordinary shares at an exercise price of $8.35 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. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | (3) | Consists of vested options to purchase our ordinary shares. |
|--------|-----|-------------------------------------------------------------|

|   | (4) | Based on Schedule 13G/A filed with the Securities and Exchange Commission on February 2, 2011 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.  Based on information provided to us by Del-Ta Engineering Equipment Ltd., as of February 2, 2011, Inter-Gamma Investment Company Ltd., a company publicly traded on the Tel-Aviv Stock Exchange, beneficially owned shares of Rapac Communication & Infrastructure Ltd. representing approximately 56.38% of the voting power and share capital of Rapac Communication & Infrastructure Ltd.  Based on information provided to us by Del-Ta Engineering Equipment Ltd., as of February 2, 2011, Mr. Tanhum Oren beneficially owned shares of Inter-Gamma Investment Company Ltd. representing approximately 87.44% of the voting power and share capital of Inter-Gamma Investment Company Ltd.  Del-Ta Engineering Equipment Ltd. directly holds 6,139,300 ordinary shares.  InterGamma International Trade Founded by InterGamma Investments Co., a wholly owned subsidiary of Del-Ta Engineering Equipment Ltd., directly holds 671,067 ordinary shares.  In addition, Del-Ta Engineering Equipment Ltd. may be deemed the beneficial owner of an additional 2,268,740 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 Inter-Gamma Investment Company Ltd. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Based on Schedule 13G/A filed with the Securities and Exchange Commission on January 31, 2011 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, 2010, 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 73.67% of the voting power of Kardan Israel Ltd. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

----

----

|   | · | We entered into various service agreements with Baby First TV LLC, or BFTV LLC, a company in which Kardan Communications, one of our principal shareholders, holds 30.1% of the share capital and one of our directors serves as a director.  Under these agreements, BFTV LLC agreed to purchase from us certain playout and uplink services in consideration for an aggregate monthly payment of approximately $59 thousand plus €4.5 thousand, as of March 2011.  The agreements are due to expire through 2011-2013. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We entered into various service agreements with IVP-Ivory Video Productions Ltd., a company in which Kardan Communications holds 53.6% of the share capital and one of our directors serves as a director.  Under these agreements IVP-Ivory Video Productions Ltd. agreed to purchase from us certain uplink and connectivity services, in consideration for an aggregate monthly payment of approximately $12 thousand plus €14 thousand, as of March 2011.  The agreements are due to expire through 2011. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

|                         |   | High   |   |   | Low    |   |
|------------------------------|--------|--------|--------|--------|--------|--------|
|                         |   |   |   |   |   |   |
| 2006 (from November 1, 2006) |   | $      | 15.89  |   |   | $      | 11.25 |   |
| 2007                         |   | $      | 26.50  |   |   | $      | 10.35 |   |
| 2008                         |   | $      | 19.99  |   |   | $      | 7.27 |   |
| 2009                         |   | $      | 15.68  |   |   | $      | 9.50 |   |
| 2010                         |   | $      | 12.50  |   |   | $      | 6.70 |   |

----

| 2009           |   |   |   |   |   |   |
|----------------|--------|--------|--------|--------|--------|--------|
| First quarter  |   | $      | 13.70  |   |   | $      | 9.50 |   |
| Second quarter |   | $      | 15.68  |   |   | $      | 9.52 |   |
| Third quarter  |   | $      | 13.21  |   |   | $      | 11.00 |   |
| Fourth quarter |   | $      | 12.78  |   |   | $      | 9.61 |   |

| 2010           |   |   |   |   |   |   |   |   |
|----------------|--------|--------|--------|--------|--------|--------|--------|--------|
| First quarter  |   | $      | 12.50  |   |   | $      | 9.52   |   |
| Second quarter |   | $      | 12.11  |   |   | $      | 8.54   |   |
| Third quarter  |   | $      | 9.05   |   |   | $      | 7.02   |   |
| Fourth quarter |   | $      | 9.25   |   |   | $      | 6.70   |   |

| Most recent six months              |   |   |   |   |   |   |   |   |
|-------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
| September 2010                      |   | $      | 8.45   |   |   | $      | 7.25   |   |
| October 2010                        |   | $      | 9.25   |   |   | $      | 8.17   |   |
| November 2010                       |   | $      | 9.24   |   |   | $      | 6.95   |   |
| December 2010                       |   | $      | 7.85   |   |   | $      | 6.70   |   |
| January 2011                        |   | $      | 8.03   |   |   | $      | 7.40   |   |
| February 2011                       |   | $      | 7.94   |   |   | $      | 7.10   |   |
| March 2011 (through March 18, 2011) |   | $      | 7.65   |   |   | $      | 7.23   |   |

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

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----

|   | · | 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. |
|--------|--------|---------------------------------------------------------------------------|

----

----

|   | · | 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 or as a service provider to the company, including through a company controlled by a controlling shareholder. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | · | the total number of shares held by disinterested shareholders that voted against the approval of the transaction does not exceed 2% of the aggregate voting rights of our company. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | 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: |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | m | 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: |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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----

|   | · | the purchaser acquires more than 95% of the company's shares or a particular class of shares and a majority of the shareholders that did not have a personal interest accepted the offer; or |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the purchaser acquires more than 98% of the company's shares or a particular class of shares; |
|--------|--------|-----------------------------------------------------------------------------------------------|

----

| Material Contract                                                                                                                                                                                                                        |   | Location                                                                                      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
| Space Segment Access Agreement, dated March 30, 2009, between Inmarsat Global Limited and the Registrant.                                                                                                                                |   | Item 4.B "Information on the Company – Business overview – Overview."        |
| Network Services Distribution Agreement, dated March 30, 2009, between Inmarsat Global Limited and the Registrant.                                                                                                                       |   | Item 4.B "Information on the Company – Business overview – Overview."        |
| Amendment to Network Services Distribution Agreement, dated March 23, 2010, between Inmarsat Global Limited and the Registrant.                                                                                                          |   | Item 4.B "Information on the Company – Business overview – Overview."   |
| Letter agreement, dated July 1, 2009, between Zu'aretz Avraham and the Registrant granting the registrant an option to extend the lease for the main teleport in Re'em, Israel, for two additional terms of five years.             |   | Item 4.D. "Information on the Company – Property, plants and equipment."                |
| Unprotected Lease Agreement, dated March 28, 2010, between Nahalot Bareket – Agricultural Cooperative Ltd. and the registrant, for the lease of the registrant new headquarters at the Airport City Industrial Zone, Israel.  |   | Item 4.D. "Information on the Company – Property, plants and equipment."                |
| Addendum to the Unprotected Lease Agreement, dated June 6, 2010, between Nahalot Bareket – Agricultural Cooperative Ltd. and the registrant, for an additional lease at the Airport City Industrial Zone, Israel.                  |   | Item 4.D. "Information on the Company – Property, plants and equipment."                |

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----

----

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|   | · | 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; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | · | 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 |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|

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----

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|   | § | any "excess distribution" paid on ordinary shares, which means the excess (if any) of the total distributions received by you during the current taxable year over 125% of the average distributions received by you during the three preceding taxable years (or during the portion of your holding period for the ordinary shares prior to the current taxable year, if shorter); and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | any gain recognized on the sale or other taxable disposition (including a pledge) of ordinary shares. |
|--------|--------|-------------------------------------------------------------------------------------------------------|

|   | § | any excess distribution or gain will be allocated ratably over your holding period for the ordinary shares; |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | § | the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC will be treated as ordinary income in the current year; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | the amount allocated to each of the other years will be treated as ordinary income and taxed at the highest applicable tax rate in effect for that year; and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | the resulting tax liability from any such prior years will be subject to the interest charge applicable to underpayments of tax. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

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

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

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

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

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

|               |   | Year Ended December 31, 2009 |   |   | Year Ended December 31, 2010 |   |
|--------------------|--------|------------------------------|--------|--------|------------------------------|--------|
|               |   | (in thousands)               |   |
| Audit fees         |   | $                            | 159    |   |                         | $      | 223 |   |
| Audit-related fees |   |                         | --     |   |                         |   | 11 |   |
| Tax fees (1)       |   |                         | 16     |   |                         |   | 45 |   |
| All other fees     |   |                         | --     |   |                         |   | -- |   |
| Total              |   | $                            | 175    |   |                         | $      | 279 |   |

| (1) | "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. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| ITEM 16F. | CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT |
|-----------|----------------------------------------------|

| ITEM 16G. | CORPORATE GOVERNANCE |
|-----------|----------------------|

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

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

----

| 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. 3, issued to the Registrant on October 29, 2008 by the Israeli Ministry of Communications (translated from Hebrew) (incorporated herein by reference to Exhibit 4.5 to the Registrant's Annual Report on Form 20-F for the year ended December 31, 2008, filed on March 24, 2009). |
| 4.6  | Purchase and Sale Agreement, dated February 13, 2008, between Skynet Satellite Corporation and RRsat Global Communications Inc. (incorporated herein by reference to Exhibit 4.6 to the Registrant's Annual Report on Form 20-F for the year ended December 31, 2008, filed on March 24, 2009).                                                             |
| 4.7  | Agreement, dated March 26, 2008, between Bezeq, The Israel Telecommunications Corp. Limited and the Registrant (English summary of Hebrew original) (incorporated herein by reference to Exhibit 4.7 to the Registrant's Annual Report on Form 20-F for the year ended December 31, 2008, filed on March 24, 2009).                                         |
| 4.8  | Letter agreement, dated July 1, 2009, between Zu'aretz Avraham and the Registrant (translated from Hebrew) (incorporated herein by reference to Exhibit 4.8 to the Registrant's Annual Report on Form 20-F for the year ended December 31, 2009, filed on March 18, 2010).+                                                                                 |
| 4.9  | Special License to Render Telecommunication Services, Amendment No. 4, issued to the Registrant on June 25, 2009 by the Israeli Ministry of Communications (translated from Hebrew) (incorporated herein by reference to Exhibit 4.9 to the Registrant's Annual Report on Form 20-F for the year ended December 31, 2009, filed on March 18, 2010).         |
| 4.10 | Space Segment Access Agreement, dated March 30, 2009, between Inmarsat Global Limited and the Registrant (incorporated herein by reference to Exhibit 4.10 to the Registrant's Annual Report on Form 20-F for the year ended December 31, 2009, filed on March 18, 2010).+                                                                                  |

----

| 4.11     | Network Services Distribution Agreement, dated March 30, 2009, between Inmarsat Global Limited and the Registrant (incorporated herein by reference to Exhibit 4.11 to the Registrant's Annual Report on Form 20-F for the year ended December 31, 2009, filed on March 18, 2010).+    |
|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.12     | Special License to Render Telecommunication Services, Amendment No. 5, issued to the registrant on January 12, 2011, by the Israeli Ministry of Communications (translated from Hebrew).                                                                                                         |
| 4.13     | Amendment to Network Services Distribution Agreement, dated March 23, 2010, between Inmarsat Global Limited and the Registrant. +                                                                                                                                                                |
| 4.14     | Unprotected Lease Agreement, dated March 28, 2010, between Nahalot Bareket – Agricultural Cooperative Ltd. and the Registrant (translated from Hebrew).+                                                                                                                                   |
| 4.15     | Addendum to the Unprotected Lease Agreement, dated June 6, 2010, between Nahalot Bareket – Agricultural Cooperative Ltd. and the Registrant (Translated from Hebrew).+                                                                                                                     |
| 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).                                                                                                                                                                                                                      |
| 13.113.2 | 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.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 Somekh Chaikin, Member Firm of KPMG International, Independent Registered Public Accounting Firm.                                                                                                                                                                                     |

| + | Confidential treatment granted by the Securities and Exchange Commission as to certain portions. |
|---|--------------------------------------------------------------------------------------------------|

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

|                                                                                      |   |   |   |   |   |   |   |   | Page   |
|-------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                      |   |   |   |   |   |   |   |   |   |
| Report of Independent Registered Public Accounting Firm                                   |   |   |   | F - 3  |
|                                                                                      |   |   |   |   |   |   |   |   |   |
| Consolidated Balance Sheets                                                               |   |   |   |   |   |   | F - 5  |
|                                                                                      |   |   |   |   |   |   |   |   |   |
| Consolidated Statements of Operations                                                     |   |   |   |   |   | F - 7  |
|                                                                                      |   |   |   |   |   |   |   |   |   |
| Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income | F - 8  |
|                                                                                      |   |   |   |   |   |   |   |   |   |
| Consolidated Statements of Cash Flows                                                     |   |   |   |   |   | F - 10 |
|                                                                                      |   |   |   |   |   |   |   |   |   |
| Notes to the Financial Statements                                                         |   |   |   |   |   | F - 13 |

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|                            | Somekh Chaikin | Telephone                            | 972 3  684  8000 |
|---------------------------------|----------------|--------------------------------------|--------------------------------------|
| KPMG Millennium Tower           | Fax            | 972 3  684  8444 |
| 17 Ha'arba'a Street, PO Box 609 | Internet       | www.kpmg.co.il                       |
| Tel Aviv 61006 Israel           |           |                                 |

dent 

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| Consolidated Balance Sheets    |   |   |   |   |   |   |   |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
|                           |   |   |   |   |   |   |   |   |   |   |
| In thousands except share data |   |   |   |   |   |   |   |   |

|                                                                  |   |   |   |   | December 31 |   |    | December 31 |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|-------------|--------|---------|-------------|--------|
|                                                                  |   | Note   |   |   | 2009        |   |    | 2010        |   |
|                                                                  |   |   |   |   |        |   |    |        |   |
| Current assets                                                        |   |   |   |   |        |   |    |        |   |
| Cash and cash equivalents                                             |   |   | 1E; 2  |   |        | $      | 14,941  |        |   | $ | 13,091 |   |
| Short- term deposits                                                  |   |   |   |   |        |   | 9,900   |        |   |   | - |   |
| Marketable securities                                                 |   |   | 1F; 3  |   |        |   | 22,708  |        |   |   | 22,516 |   |
| Accounts receivable:                                                  |   |   |   |   |        |   |    |        |   |   |   |   |
|   Trade (net of provision for doubtful accounts of $4,484   |   |   |   |   |        |   |    |        |   |   |   |   |
|   and $5,641 as of December 31, 2009 and 2010 respectively) |   |   | 1G     |   |        |   | 16,765  |        |   |   | 19,860 |   |
|   Other                                                     |   |   | 4      |   |        |   | 559     |        |   |   | 1,312 |   |
| Fair value of embedded currency conversion derivatives                |   |   | 1S     |   |        |   | 1,703   |        |   |   | 2,078 |   |
| Deferred taxes                                                        |   |   | 1N; 14 |   |        |   | 1,507   |        |   |   | 1,657 |   |
| Prepaid expenses                                                      |   |   |   |   |        |   | 1,984   |        |   |   | 2,145 |   |
|                                                                  |   |   |   |   |        |   |    |        |   |   |   |   |
| Total current assets                                                  |   |   |   |   |        |   | 70,067  |        |   |   | 62,659 |   |
|                                                                  |   |   |   |   |        |   |    |        |   |   |   |   |
| Deposits and long-term receivables                                    |   |   | 5      |   |        |   | 1,030   |        |   |   | 2,201 |   |
|                                                                  |   |   |   |   |        |   |    |        |   |   |   |   |
| Long- term prepaid expenses                                           |   |   | 10D    |   |        |   | 7,787   |        |   |   | 7,709 |   |
|                                                                  |   |   |   |   |        |   |    |        |   |   |   |   |
| Deferred taxes                                                        |   |   | 1N; 14 |   |        |   | 505     |        |   |   | 501 |   |
|                                                                  |   |   |   |   |        |   |    |        |   |   |   |   |
| Assets held for employees severance payments                          |   |   | 1H     |   |        |   | 1,664   |        |   |   | 2,015 |   |
|                                                                  |   |   |   |   |        |   |    |        |   |   |   |   |
| Fixed assets, at cost, less accumulated                               |   |   |   |   |        |   |    |        |   |   |   |   |
| depreciation and amortization                                         |   |   | 1I; 6  |   |        |   | 29,119  |        |   |   | 40,779 |   |
|                                                                  |   |   |   |   |        |   |    |        |   |   |   |   |
| Goodwill                                                              |   |   | 1J; 16 |   |        |   | 3,734   |        |   |   | 3,734 |   |
|                                                                  |   |   |   |   |        |   |    |        |   |   |   |   |
| Intangible assets,  at cost, less accumulated amortization  |   |   | 1K; 16 |   |        |   | 1,215   |        |   |   | 897 |   |
|                                                                  |   |   |   |   |        |   |    |        |   |   |   |   |
| Total assets                                                          |   |   |   |   |        | $      | 115,121 |        |   | $ | 120,495 |   |

----

| Consolidated Balance Sheets (Continued) |   |   |   |   |   |   |   |
|-----------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                    |   |   |   |   |   |   |   |   |   |   |
| In thousands except share data          |   |   |   |   |   |   |   |   |

|                                                           |   |   |   |   | December 31 |   |    | December 31 |   |
|----------------------------------------------------------------|--------|--------|--------|--------|-------------|--------|---------|-------------|--------|
|                                                           |   | Note   |   |   | 2009        |   |    | 2010        |   |
|                                                           |   |   |   |   |        |   |    |        |   |
| Liabilities and shareholders’ equity                     |   |   |   |   |        |   |    |        |   |
|                                                           |   |   |   |   |        |   |    |        |   |
| Current liabilities                                            |   |   |   |   |        |   |    |        |   |
| Accounts payable:                                              |   |   |   |   |        |   |    |        |   |
|  Trade                                                    |   |   |   |   | $           | 11,275 |    |        | $      | 13,194 |   |
|  Other                                                    |   |   | 14I;7  |   |        |   | 2,255   |        |   |   | 2,455 |   |
| Fair value of embedded currency                                |   |   |   |   |        |   |    |        |   |   |   |   |
| conversion derivatives                                         |   |   | 1S     |   |        |   | 2,000   |        |   |   | 1,121 |   |
| Related parties                                                |   |   |   |   |        |   | 4       |        |   |   | 55 |   |
| Deferred income                                                |   |   | 1P; 8  |   |        |   | 8,326   |        |   |   | 8,456 |   |
|                                                           |   |   |   |   |        |   |    |        |   |   |   |   |
| Total current liabilities                                      |   |   |   |   |        |   | 23,860  |        |   |   | 25,281 |   |
|                                                           |   |   |   |   |        |   |    |        |   |   |   |   |
| Long-term liabilities                                          |   |   |   |   |        |   |    |        |   |   |   |   |
| Deferred income                                                |   |   | 1P; 8  |   |        |   | 6,731   |        |   |   | 7,619 |   |
| Liability in respect of employees severance payments           |   |   | 9      |   |        |   | 1,699   |        |   |   | 2,058 |   |
| Deferred taxes                                                 |   |   | 1N; 14 |   |        |   | 888     |        |   |   | 1,125 |   |
|                                                           |   |   |   |   |        |   |    |        |   |   |   |   |
| Total long-term liabilities                                    |   |   |   |   |        |   | 9,318   |        |   |   | 10,802 |   |
|                                                           |   |   |   |   |        |   |    |        |   |   |   |   |
| Total liabilities                                              |   |   |   |   |        |   | 33,178  |        |   |   | 36,083 |   |
|                                                           |   |   |   |   |        |   |    |        |   |   |   |   |
| Commitments, contingent liabilities and liens                  |   |   | 10     |   |        |   |    |        |   |   |   |   |
|                                                           |   |   |   |   |        |   |    |        |   |   |   |   |
| Shareholders' equity                                           |   |   | 11     |   |        |   |    |        |   |   |   |   |
| Share capital:                                                 |   |   |   |   |        |   |    |        |   |   |   |   |
| Ordinary shares NIS 0.01 par value each (20,000,000 shares     |   |   |   |   |        |   |    |        |   |   |   |   |
|   authorized as of December 31, 2009 and 2010; 17,326,716 |   |   |   |   |        |   |    |        |   |   |   |   |
|   and 17,346,561 shares issued and fully paid as of       |   |   |   |   |        |   |    |        |   |   |   |   |
|   December 31, 2009 and 2010, respectively)               |   |   |   |   |        |   | 40      |        |   |   | 40 |   |
| Additional paid in capital                                     |   |   |   |   |        |   | 52,521  |        |   |   | 52,893 |   |
| Retained earnings                                              |   |   |   |   |        |   | 29,407  |        |   |   | 31,555 |   |
| Accumulated other comprehensive loss                           |   |   |   |   |        |   | (25     | )           |   |   | (76 | ) |
|                                                           |   |   |   |   |        |   |    |        |   |   |   |   |
| Total shareholders’ equity                               |   |   |   |   |        | $      | 81,943  |        |   | $ | 84,412 |   |
|                                                           |   |   |   |   |        |   |    |        |   |   |   |   |
| Total liabilities and shareholders’ equity               |   |   |   |   |        | $      | 115,121 |        |   | $ | 120,495 |   |

----

| Consolidated Statements of Operations |   |   |   |   |   |   |   |   |
|---------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                  |   |   |   |   |   |   |   |   |   |   |
| In thousands except share data        |   |   |   |   |   |   |   |   |

|                                          |   |   |   |   | Year ended December 31 |   |
|-----------------------------------------------|--------|--------|--------|--------|------------------------|--------|
|                                          |   | Note   |   |   | 2008                   |   |   | 2009 |   |   | 2010 |   |
|                                          |   |   |   |   |                   |   |   |   |   |   |   |   |
| Revenues                                      |   |   | 1P; 12 |   |                   | $      | 78,993 |   |   | $ | 93,687 |   |   | $ | 102,027 |   |
| Cost of revenues                              |   |   |   |   |                   |   | 53,477 |   |   |   | 64,548 |   |   |   | 75,962 |   |
|                                          |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                  |   |   |   |   |                   |   | 25,516 |   |   |   | 29,139 |   |   |   | 26,065 |   |
| Operating expenses                            |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Sales and marketing                           |   |   |   |   |                   |   | 3,914 |   |   |   | 5,554 |   |   |   | 6,380 |   |
| General and administrative                    |   |   |   |   |                   |   | 6,582 |   |   |   | 8,391 |   |   |   | 9,194 |   |
|                                          |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Total operating expenses                      |   |   |   |   |                   |   | 10,496 |   |   |   | 13,945 |   |   |   | 15,574 |   |
|                                          |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income                              |   |   |   |   |                   |   | 15,020 |   |   |   | 15,194 |   |   |   | 10,491 |   |
| Interest and marketable securities income     |   |   | 13     |   |                   |   | 1,111 |   |   |   | 639 |   |   |   | 681 |   |
| Currency fluctuation and other financing      |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| income (expenses), net                        |   |   |   |   |                   |   | 177 |   |   |   | 299 |   |   |   | (1,268 | ) |
| Changes in fair value of embedded currency    |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| conversion derivatives                        |   |   | 1S     |   |                   |   | 1,342 |   |   |   | (1,326 | ) |   |   | 1,254 |   |
| Other income, net                             |   |   |   |   |                   |   | 10 |   |   |   | 26 |   |   |   | - |   |
| Income before taxes on income                 |   |   |   |   |                   |   | 17,660 |   |   |   | 14,832 |   |   |   | 11,158 |   |
| Income taxes                                  |   |   | 1N; 14 |   |                   |   | 4,228 |   |   |   | 3,254 |   |   |   | 2,448 |   |
| Net income                                    |   |   |   |   |                   | $      | 13,432 |   |   | $ | 11,578 |   |   | $ | 8,710 |   |
|                                          |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Income per Ordinary Share                     |   |   | 1M     |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Basic income per Ordinary Share               |   |   |   |   |                   |   | 0.78 |   |   |   | 0.67 |   |   |   | 0.50 |   |
|                                          |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted income per Ordinary Share             |   |   |   |   |                   |   | 0.77 |   |   |   | 0.67 |   |   |   | 0.50 |   |
|                                          |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of Ordinary           |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|  Shares used to compute basic income per |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|  Ordinary Share                          |   |   |   |   |                   |   | 17,290,099 |   |   |   | 17,310,005 |   |   |   | 17,330,024 |   |
|                                          |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of Ordinary           |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Shares used to compute diluted income per     |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Ordinary Share                                |   |   |   |   |                   |   | 17,399,375 |   |   |   | 17,399,324 |   |   |   | 17,380,677 |   |

----

| Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income |   |   |   |   |
|-------------------------------------------------------------------------------------------|--------|--------|--------|--------|
|                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| In thousands except share data                                                            |   |   |   |   |   |   |

|                            |   |            |       |   |    |   |   |       |   |   |          |   |   | Accumulated |   |   |   |   |
|---------------------------------|--------|-----------------|------------|--------|---------|--------|--------|------------|--------|--------|---------------|--------|--------|-------------|--------|--------|--------|--------|
|                            |   |            |       |   |    |   |   | Additional |   |   |          |   |   | other       |   |   |   |   |
|                            |   | Ordinary shares |       |   | paid-in |   |   | Retained   |   |   | comprehensive |   |   |        |   |
|                            |   | Share           |       |   | Amount  |   |   | capital    |   |   | earnings      |   |   | loss        |   |   | Total  |   |
| Balance as of                   |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |
| January 1, 2008                 |   |            | 17,286,762 |   |    | $      | 40     |       |   | $      | 51,691        |   |   | $           | 23,429 |   |   | $      | (1 | ) |   | $ | 75,159 |   |
|                            |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
| Changes during 2008             |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
|                            |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
| Vesting of RSU's                |   |            | 20,021     |   |    |   | * -    |       |   |   | -             |   |   |        | -      |   |   |   | - |   |   |   | * - |   |
| Stock based                     |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
|  compensation              |   |            | -          |   |    |   | -      |       |   |   | 415           |   |   |        | -      |   |   |   | - |   |   | $ | 415 |   |
| Dividend paid                   |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
|  $0.32 per share           |   |            | -          |   |    |   | -      |       |   |   | -             |   |   |        | (5,532 | )      |   |   | - |   |   | $ | (5,532 | ) |
| Dividend paid                   |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
|  $0.29 per share           |   |            | -          |   |    |   | -      |       |   |   | -             |   |   |        | (5,020 | )      |   |   | - |   |   | $ | (5,020 | ) |
| Comprehensive - income:         |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive             |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
| loss -unrealized change         |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
| in investment securities,       |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
|  net of deferred tax       |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
|  benefit of $37            |   |            | -          |   |    |   | -      |       |   |   | -             |   |   |        | -      |   |   |   | (104 | ) |   | $ | (104 | ) |
| Net income                      |   |            | -          |   |    |   | -      |       |   |   | -             |   |   |        | 13,432 |   |   |   | - |   |   |   | 13,432 |   |
| Total comprehensive             |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
| income                          |   |            | -          |   |    |   | -      |       |   |   | -             |   |   |        | 13,432 |   |   |   | (104 | ) |   |   | 13,328 |   |
| Balance as of                   |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
| December 31, 2008               |   |            | 17,306,783 |   |    | $      | 40     |       |   | $      | 52,106        |   |   | $           | 26,309 |   |   | $      | (105 | ) |   | $ | 78,350 |   |
|                            |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
| Changes during 2009             |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
|                            |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
| Vesting of RSU's                |   |            | 19,933     |   |    |   | * -    |       |   |   | -             |   |   |        | -      |   |   |   | - |   |   |   | * - |   |
| Stock based                     |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
|  compensation              |   |            | -          |   |    |   | -      |       |   |   | 415           |   |   |        | -      |   |   |   | - |   |   | $ | 415 |   |
| Dividend paid                   |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
|  $0.32 per share           |   |            | -          |   |    |   | -      |       |   |   | -             |   |   |        | (5,538 | )      |   |   | - |   |   | $ | (5,538 | ) |
| Dividend paid                   |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
|  $0.17 per share           |   |            | -          |   |    |   | -      |       |   |   | -             |   |   |        | (2,942 | )      |   |   | - |   |   | $ | (2,942 | ) |
| Comprehensive - income:         |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive             |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
| loss -unrealized change         |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
|  in investment securities, |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
|  net of deferred tax       |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
|  benefit of $27            |   |            | -          |   |    |   | -      |       |   |   | -             |   |   |        | -      |   |   |   | 80 |   |   |   | 80 |   |
| Net income                      |   |            | -          |   |    |   | -      |       |   |   | -             |   |   |        | 11,578 |   |   |   | - |   |   |   | 11,578 |   |
| Total comprehensive             |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
| income                          |   |            | -          |   |    |   | -      |       |   |   | -             |   |   |        | 11,578 |   |   |   | 80 |   |   |   | 11,658 |   |
| Balance as of                   |   |            |       |   |    |   |   |       |   |   |          |   |   |        |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009               |   |            | 17,326,716 |   |    | $      | 40     |       |   | $      | 52,521        |   |   | $           | 29,407 |   |   | $      | (25 | ) |   | $ | 81,943 |   |

| * | Less than $1 |
|---|--------------|

----

| Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income (continued) |   |   |
|-------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |
| In thousands except share data                                                                        |   |   |   |   |

|                            |   |            |       |   |    |   |   |       |   |   |          | Accumulated |   |   |   |   |
|---------------------------------|--------|-----------------|------------|--------|---------|--------|--------|------------|--------|--------|---------------|-------------|--------|--------|--------|--------|
|                            |   |            |       |   |    |   |   | Additional |   |   |          |        |   | other  |   |   |   |   |
|                            |   | Ordinary shares |       |   | paid-in |   |   | Retained   |   |   | comprehensive |        |   |   |   |
|                            |   | Share           |       |   | Amount  |   |   | capital    |   |   | earnings      |        |   | loss   |   |   | Total |   |
| Balance as of                   |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |
|  January 1, 2010           |   |            | 17,326,716 |   |    | $      | 40     |       |   | $      | 52,521        |        |   | $      | 29,407 |   |   | $ | (25 | ) |   | $ | 81,943 |   |
|                            |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Changes during 2010             |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Vesting of RSU's                |   |            | 19,845     |   |    |   | * -    |       |   |   | -             |        |   |   | -      |   |   |   | - |   |   |   | * - |   |
| Stock based                     |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
|  compensation              |   |            | -          |   |    |   | -      |       |   |   | 372           |        |   |   | -      |   |   |   | - |   |   |   | 372 |   |
| Dividend paid                   |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
|  $0.23 per share           |   |            | -          |   |    |   | -      |       |   |   | -             |        |   |   | (3,963 | )      |   |   | - |   |   |   | (3,963 | ) |
| Dividend paid                   |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
|  $0.15per share            |   |            | -          |   |    |   | -      |       |   |   | -             |        |   |   | (2,599 | )      |   |   | - |   |   |   | (2,599 | ) |
| Comprehensive - income:         |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive             |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
| income -unrealized change       |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
|  in investment securities, |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
|  net of deferred tax       |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
|  expense of $24            |   |            | -          |   |    |   | -      |       |   |   | -             |        |   |   | -      |   |   |   | (75 | ) |   |   | (75 | ) |
| Other comprehensive             |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
|  income -reclassification  |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
|  adjustments for gains     |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
|  of marketable securities, |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
|  net of tax effect of $8,  |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
|  reclassified into income  |   |            | -          |   |    |   | -      |       |   |   | -             |        |   |   | -      |   |   |   | 24 |   |   |   | 24 |   |
| Net income                      |   |            | -          |   |    |   | -      |       |   |   | -             |        |   |   | 8,710  |   |   |   | - |   |   |   | 8,710 |   |
| Total comprehensive             |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
| income                          |   |            | -          |   |    |   | -      |       |   |   | -             |        |   |   | 8,710  |   |   |   | (51 | ) |   |   | 8,659 |   |
| Balance as of                   |   |            |       |   |    |   |   |       |   |   |          |        |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2010               |   |            | 17,346,561 |   |    | $      | 40     |       |   | $      | 52,893        |        |   | $      | 31,555 |   |   | $ | (76 | ) |   | $ | 84,412 |   |

| * | Less than $1 |
|---|--------------|

----

| Consolidated Statements of Cash Flows |   |   |   |   |   |   |   |
|---------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                  |   |   |   |   |   |   |   |   |   |   |
| In thousands                          |   |   |   |   |   |   |   |   |   |

|                                                      |   | Year ended December 31 |   |
|-----------------------------------------------------------|--------|------------------------|--------|
|                                                      |   | 2008                   |   |   | 2009 |   |   | 2010 |   |
| Cash flows from operating activities                      |   |                   |   |   |   |   |   |   |   |
| Net income                                                |   | $                      | 13,432 |   |   | $ | 11,578 |   |   | $ | 8,710 |   |
|                                                      |   |                   |   |   |   |   |   |   |   |   |   |   |
| Adjustments required to reconcile net income to net       |   |                   |   |   |   |   |   |   |   |   |   |   |
| cash provided by operating activities:                    |   |                   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                             |   |                   | 3,971  |   |   |   | 5,584 |   |   |   | 6,454 |   |
| Provision for losses in accounts receivable               |   |                   | 972    |   |   |   | 2,421 |   |   |   | 1,157 |   |
| Deferred taxes                                            |   |                   | 324    |   |   |   | (1,346 | ) |   |   | 107 |   |
| Discount accretion and premium amortization               |   |                   |   |   |   |   |   |   |   |   |   |   |
|  of held- to- maturity securities, net               |   |                   | (635   | ) |   |   | 299 |   |   |   | (15 | ) |
| Discount accretion and premium amortization               |   |                   |   |   |   |   |   |   |   |   |   |   |
|  of available- for- sale securities, net             |   |                   | (246   | ) |   |   | (396 | ) |   |   | (422 | ) |
| Changes in liability for employee severance payments, net |   |                   | 49     |   |   |   | (38 | ) |   |   | 8 |   |
| Capital gains on sale of fixed assets, net                |   |                   | (10    | ) |   |   | (26 | ) |   |   | - |   |
| Stock- based compensation                                 |   |                   | 415    |   |   |   | 415 |   |   |   | 372 |   |
| Changes in fair value of embedded currency                |   |                   |   |   |   |   |   |   |   |   |   |   |
| conversion derivatives                                    |   |                   | (1,342 | ) |   |   | 1,326 |   |   |   | (1,254 | ) |
| Loss (profit) from trading securities, net                |   |                   | 551    |   |   |   | (340 | ) |   |   | (164 | ) |
|                                                      |   |                   |   |   |   |   |   |   |   |   |   |   |
| Changes in assets and liabilities:                        |   |                   |   |   |   |   |   |   |   |   |   |   |
| Increase in accounts receivable - trade                   |   |                   | (1,778 | ) |   |   | (7,959 | ) |   |   | (4,252 | ) |
| Increase (decrease) in related parties, net               |   |                   | 13     |   |   |   | (21 | ) |   |   | 51 |   |
| Decrease (increase) in accounts receivable - other        |   |                   | 101    |   |   |   | (142 | ) |   |   | (753 | ) |
| Increase in prepaid expenses, net                         |   |                   | (471   | ) |   |   | (594 | ) |   |   | (161 | ) |
| Decrease (increase) in deposits and                       |   |                   |   |   |   |   |   |   |   |   |   |   |
|  long-term receivables                               |   |                   | (687   | ) |   |   | 761 |   |   |   | (1,171 | ) |
| Increase (decrease) in accounts payable                   |   |                   | 3,886  |   |   |   | 2,504 |   |   |   | (334 | ) |
| Increase in deferred income                               |   |                   | 1,769  |   |   |   | 2,928 |   |   |   | 1,018 |   |
|                                                      |   |                   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                 |   | $                      | 20,314 |   |   | $ | 16,954 |   |   | $ | 9,351 |   |

----

| Consolidated Statements of Cash Flows (Continued) |   |   |   |   |   |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                              |   |   |   |   |   |   |   |   |   |   |
| In thousands                                      |   |   |   |   |   |   |   |   |   |

|                                                      |   | Year ended December 31 |    |
|-----------------------------------------------------------|--------|------------------------|---------|
|                                                      |   | 2008                   |    |   | 2009 |   |   | 2010 |   |
|                                                      |   |                   |    |   |   |   |   |   |   |
| Cash flows from investing activities                      |   |                   |    |   |   |   |   |   |   |
| Investment in fixed assets                                |   | $                      | (11,026 | ) |   | $ | (7,955 | ) |   | $ | (15,265 | ) |
| Investment in other assets                                |   |                   | (195    | ) |   |   | (161 | ) |   |   | - |   |
| Proceeds (investment) in short- term deposits             |   |                   | -       |   |   |   | (9,900 | ) |   |   | 9,900 |   |
| Business combination (See C below)                        |   |                   | (15,573 | ) |   |   | - |   |   |   | - |   |
| Investment in available- for- sale securities             |   |                   | (21,689 | ) |   |   | (16,804 | ) |   |   | (10,298 | ) |
| Decrease (increase) in trading securities, net            |   |                   | 1,877   |   |   |   | (13 | ) |   |   | (37 | ) |
| Proceeds from available- for- sale securities             |   |                   | 18,707  |   |   |   | 1,846 |   |   |   | 10,281 |   |
| Proceeds from held- to- maturity securities               |   |                   | 24,462  |   |   |   | 4,652 |   |   |   | 780 |   |
| Proceeds from sale of fixed assets                        |   |                   | 15      |   |   |   | 53 |   |   |   | - |   |
|                                                      |   |                   |    |   |   |   |   |   |   |   |   |   |
| Net cash used in investing activities                     |   | $                      | (3,422  | ) |   | $ | (28,282 | ) |   | $ | (4,639 | ) |
|                                                      |   |                   |    |   |   |   |   |   |   |   |   |   |
| Cash flows from financing activities                      |   |                   |    |   |   |   |   |   |   |   |   |   |
| Dividend paid                                             |   | $                      | (10,552 | ) |   | $ | (8,480 | ) |   | $ | (6,562 | ) |
| Net cash used in financing activities                     |   | $                      | (10,552 | ) |   | $ | (8,480 | ) |   | $ | (6,562 | ) |
|                                                      |   |                   |    |   |   |   |   |   |   |   |   |   |
| Increase (decrease) in cash and cash equivalents          |   | $                      | 6,340   |   |   | $ | (19,808 | ) |   | $ | (1,850 | ) |
|                                                      |   |                   |    |   |   |   |   |   |   |   |   |   |
| Balance of cash and cash equivalents at beginning of year |   | $                      | 28,409  |   |   | $ | 34,749 |   |   | $ | 14,941 |   |
|                                                      |   |                   |    |   |   |   |   |   |   |   |   |   |
| Balance of cash and cash equivalents at end of year       |   | $                      | 34,749  |   |   | $ | 14,941 |   |   | $ | 13,091 |   |
|                                                      |   |                   |    |   |   |   |   |   |   |   |   |   |
| A. Non-cash transactions                                  |   |                   |    |   |   |   |   |   |   |   |   |   |
|                                                      |   |                   |    |   |   |   |   |   |   |   |   |   |
| Investment in fixed assets                                |   | $                      | 306     |   |   | $ | 679 |   |   | $ | 3,132 |   |
|                                                      |   |                   |    |   |   |   |   |   |   |   |   |   |
| B. Supplementary cash flow information                    |   |                   |    |   |   |   |   |   |   |   |   |   |
|                                                      |   |                   |    |   |   |   |   |   |   |   |   |   |
| Income taxes paid                                         |   | $                      | 3,392   |   |   | $ | 5,208 |   |   | $ | 3,027 |   |

----

| Consolidated Statements of Cash Flows (Continued) |   |   |   |   |   |   |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                              |   |   |   |   |   |   |   |   |   |   |
| In thousands                                      |   |   |   |   |   |   |   |   |   |

|                                            |   | Year ended December 31 |   |
|-------------------------------------------------|--------|------------------------|--------|
|                                            |   | 2008                   |   |   | 2009 |   |   | 2010 |   |
|                                            |   |                   |   |   |   |   |   |   |   |
| C. Business combination (See Note 15B)          |   |                   |   |   |   |   |   |   |   |
|                                            |   |                   |   |   |   |   |   |   |   |
| Investment in fixed assets                      |   | $                      | 3,748  |   |   | $ | - |   |   | $ | - |   |
| Investment in other assets and prepaid expenses |   |                   | 6,840  |   |   |   | - |   |   |   | - |   |
| Investment in intangible assets                 |   |                   | 1,251  |   |   |   | - |   |   |   | - |   |
| Investment in goodwill                          |   |                   | 3,734  |   |   |   | - |   |   |   | - |   |
| Net cash paid                                   |   | $                      | 15,573 |   |   | $ | - |   |   | $ | - |   |

----

| 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 incorporated 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, and mobile communications services through satellites (MSS).                                                                                                                  |
|                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                              |   |   |   |   |   |   |   |   |   |   |
|                                                                 | 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 rates. Gains and losses from the translation of foreign currency balances are recorded in the statement of operations.                                                                                                                                                                                              |
|                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                              |   |   |   |   |   |   |   |   |   |   |
|                                                                 | D.                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Principles of Consolidation       |   |   |   |   |   |   |   |   |
|                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                              |   |   |   |   |   |   |   |   |   |   |
|                                                                 | The accompanying consolidated financial statements include the accounts of RRsat Global Communications Network Ltd. and its owned subsidiaries (collectively, the Company).  All significant intercompany balances and transactions have been eliminated in consolidation.                                                                                                                                                                             |
|                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                              |   |   |   |   |   |   |   |   |   |   |
|                                                                 | E.                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Cash and cash equivalents         |   |   |   |   |   |   |   |   |
|                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                              |   |   |   |   |   |   |   |   |   |   |
|                                                                 | All highly liquid deposits with original maturity of three months or less from the date of deposit are considered to be cash equivalents.                                                                                                                                                                                                                                                                                                                        |

----

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

| Note 1 - Organization and Summary of Significant Accounting Policies (cont’d) |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                  |   |
|-------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|
|                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                  |   |   |   |   |   |   |   |   |   |   |
|                                                                                | F.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | Marketable securities |   |   |   |   |   |   |   |   |
|                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                  |   |   |   |   |   |   |   |   |   |   |
|                                                                                | Marketable securities at December 31, 2010 and 2009 consist of U.S. Agency 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.                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                  |   |   |   |   |   |   |   |   |   |   |
|                                                                                | Trading and available for sale securities are recorded at fair value. The fair value of debt securities and equity securities is based on quoted market prices in active markets 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.                                                                                                                                                                                                                                                                                                                                  |
|                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                  |   |   |   |   |   |   |   |   |   |   |
|                                                                                | Premiums and discounts on debt securities 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                  |   |   |   |   |   |   |   |   |   |   |
|                                                                                | In April 2009, the FASB issued ASC 320-10 (formerly known as FSP FAS 115-2) and ASC 958-320 (formerly known as FAS 124-2), “Recognition and Presentation of Other-Than-Temporary Impairments” (ASC 320-10 and ASC 958-320), which amends the recognition guidance for other-than-temporary impairments (OTTI) of debt securities and expands the financial statements disclosures for OTTI on debt and equity securities. When an other-than-temporary impairment has occurred, the amount of the other-than-temporary impairment recognized in earnings depends on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss.                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                  |   |   |   |   |   |   |   |   |   |   |
|                                                                                | If the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to other factors is recognized in other comprehensive income, net of applicable income taxes. Standards ASC 320-10 and ASC 958-320 did not have material effect on the Company’s financial statements. |

----

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

| Note 1 - Organization and Summary of Significant Accounting Policies (cont’d) |   |   |   |   |
|-------------------------------------------------------------------------------------|--------|--------|--------|--------|
|                                                                                |   |   |   |

|   | G.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Provision for doubtful accounts |   |   |   |   |   |   |   |   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |   |   |   |   |   |   |   |   |   |   |
|   | The financial statements include general and 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 |   |
|----------------------------|--------|------------------------|--------|
|                       |   | 2008                   |   |   | 2009 |   |   | 2010 |   |
|                       |   |                   |   |   |   |   |   |   |   |
| Opening balance            |   | $                      | 1,882  |   |   | $ | 2,188 |   |   | $ | 4,484 |   |
| Additions during the year  |   |                   | 972    |   |   |   | 2,421 |   |   |   | 2,024 |   |
| Deductions during the year |   |                   | (666   | ) |   |   | (125 | ) |   |   | (867 | ) |
|                       |   |                   |   |   |   |   |   |   |   |   |   |   |
| Closing balance            |   | $                      | 2,188  |   |   | $ | 4,484 |   |   | $ | 5,641 |   |

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

|                                     |   |   | %      |   |
|------------------------------------------|--------|--------|--------|--------|
| Buildings                                |   |   | 2.5    |   |
| Communication equipment                  |   |   | 10-15  |   |
| Office furniture and equipment           |   |   | 6-33   |   |
| Motor vehicles                           |   |   | 15     |   |
| Leasehold improvements are amortized     |   |   |   |   |
| over estimated useful life of the assets |   |   | 10     |   |

----

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

| Note 1 - Organization and Summary of Significant Accounting Policies (cont’d) |   |   |   |   |
|-------------------------------------------------------------------------------------|--------|--------|--------|--------|

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |              |   |   |   |   |   |   |   |   |   |   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|   | J.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | Goodwill          |   |   |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |              |   |   |   |   |   |   |   |   |   |   |
|   | Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is reviewed for impairment at least annually, on December 31 or upon the occurrence of a trigger event. In accordance with the provisions of FASB ASC Topic 350, Intangibles - Goodwill and Other (Statement No. 142, Goodwill and Other Intangible Assets), the goodwill impairment test is a two step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |              |   |   |   |   |   |   |   |   |   |   |
|   | The goodwill recorded in the acquisition from Bezeq represents future synergy in the company’s content management and distribution services resulting from the use of the Emeq Haela facility for expanding its business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |              |   |   |   |   |   |   |   |   |   |   |
|   | No impairment loss was recognized in 2009 and 2010. See also Note 16.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |              |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |              |   |   |   |   |   |   |   |   |   |   |
|   | K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | Intangible Assets |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |              |   |   |   |   |   |   |   |   |   |   |
|   | Intangible assets are stated at cost less accumulated amortization.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |              |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |              |   |   |   |   |   |   |   |   |   |   |
|   | Amortization is calculated by the straight-line method on the basis of the estimated useful lives of the assets using annual rates between 10-33%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

|   |                          | Amortization          |
|--------|-------------------------------|-----------------------|
|   |                          | percentage            |
|   | Amortizing intangible assets: |                  |
|   |                          | Franchise agreement   | 18-33 |
|   |                          | Brand name            | 18.2 |
|   |                          | Customer relationship | 18-33 |
|   |                          | Licenses              | 10 |

|   | Intangible assets are tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. There were no such triggering events in 2009 and 2010.                                                                                                                                                                   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
|   | L.                                                                                                                                                                                                                                                                                                                                                                             |   | Stock compensation plans |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
|   | The Company accounts for its employees stock-based compensation awards in accordance with ASC Topic 718, Compensation - Stock Compensation. ASC Topic 718 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 awards ultimately expected to vest (net of forfeitures). |
|   |                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
|   | The Company recognizes the cost of awards with graded vesting based on a straight- line method.                                                                                                                                                                                                                                                                                |

----

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

| Note 1 - Organization and Summary of Significant Accounting Policies (cont’d) |   |   |   |   |
|-------------------------------------------------------------------------------------|--------|--------|--------|--------|

|   | M.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Income per Ordinary Share |   |   |   |   |   |   |   |   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                      |   |   |   |   |   |   |   |   |   |   |
|   | 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 outstanding potential common shares, during the period if dilutive. Potential common shares arise from stock options and unvested restricted share units. The dilutive effect is reflected by the application of the treasury stock method. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                      |   |   |   |   |   |   |   |   |   |   |
|   | 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 |       |
|--------------------------------------------|--------|------------------------|------------|
|                                       |   | 2008                   |       |   | 2009 |   |   | 2010 |   |
| Income per Ordinary Share                  |   |                   |       |   |   |   |   |   |   |
| Net income attributable to Ordinary Shares |   | $                      | 13,432     |   |   | $ | 11,578 |   |   | $ | 8,710 |   |
| Weighted average number of Ordinary Shares |   |                   |       |   |   |   |   |   |   |
| outstanding used in basic income per       |   |                   |       |   |   |   |   |   |   |   |   |   |
| Ordinary Share calculation                 |   |                   | 17,290,099 |   |   |   | 17,310,005 |   |   |   | 17,330,024 |   |
| Add assumed exercise of outstanding        |   |                   |       |   |   |   |   |   |   |   |   |   |
| dilutive potential Ordinary Shares         |   |                   | 109,276    |   |   |   | 89,319 |   |   |   | 50,653 |   |
|                                       |   |                   |       |   |   |   |   |   |   |   |   |   |
| Weighted average number of Ordinary Shares |   |                   |       |   |   |   |   |   |   |
| outstanding used in diluted income per     |   |                   |       |   |   |   |   |   |   |   |   |   |
| Ordinary Share calculation                 |   |                   | 17,399,375 |   |   |   | 17,399,324 |   |   |   | 17,380,677 |   |
|                                       |   |                   |       |   |   |   |   |   |   |   |   |   |
| Basic income per Ordinary Share            |   |                   | 0.78       |   |   |   | 0.67 |   |   |   | 0.50 |   |
|                                       |   |                   |       |   |   |   |   |   |   |   |   |   |
| Diluted income per Ordinary Share          |   |                   | 0.77       |   |   |   | 0.67 |   |   |   | 0.50 |   |

----

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

| Note 1 - Organization and Summary of Significant Accounting Policies (cont’d) |   |   |   |   |
|-------------------------------------------------------------------------------------|--------|--------|--------|--------|

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |             |   |   |   |   |   |   |   |   |   |   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|   | N.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 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 statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |             |   |   |   |   |   |   |   |   |   |   |
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |             |   |   |   |   |   |   |   |   |   |   |
|   | The Company records interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |             |   |   |   |   |   |   |   |   |   |   |
|   | O.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Use of estimates |   |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |             |   |   |   |   |   |   |   |   |   |   |
|   | The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; fair value of acquisitions; allowances for doubtful accounts; the valuation of embedded derivatives, valuation of deferred tax assets, investments in marketable securities, share-based compensation, income tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions. |

----

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

| Note 1 - Organization and Summary of Significant Accounting Policies (cont’d) |   |   |   |   |
|-------------------------------------------------------------------------------------|--------|--------|--------|--------|

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                 |   |   |   |   |   |   |   |   |   |   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|   | P.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | Revenue recognition                                  |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                 |   |   |   |   |   |   |   |   |   |   |
|   | The Company recognizes revenues 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 one to five years. Deposits received in advance are not recognized as revenues until the related services are provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                 |   |   |   |   |   |   |   |   |   |   |
|   | Revenues from sales of communication equipment are recognized upon the delivery to the customer and the transfer of the principal risks and rewards arising from ownership over the sold products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                 |   |   |   |   |   |   |   |   |   |   |
|   | VAT collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from revenues in the consolidated statements of operation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                 |   |   |   |   |   |   |   |   |   |   |
|   | Q.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | Long-lived assets                                    |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                 |   |   |   |   |   |   |   |   |   |   |
|   | In accordance with Impairment or Disposal of Long-Lived Assets Subsections of FASB ASC Subtopic 360-10, Property, Plant, and Equipment - Overall, (FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), long lived assets, such as fixed assets, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                 |   |   |   |   |   |   |   |   |   |   |
|   | R.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | Liability in respect of employees severance payments |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                 |   |   |   |   |   |   |   |   |   |   |
|   | The Company records its obligation with respect of employees severance payments as if it was payable at each balance sheet date (the “shut-down method”). The liability is recognized on an undiscounted basis and is calculated on the basis of the latest salary of each employee in Israel multiplied by the number of years of employment as of the balance sheet date. Employee benefits subject to section 14 of the Israel Severance pay law- 1963 are accounted for as defined contribution plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

----

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

| Note 1 - Organization and Summary of Significant Accounting Policies (cont’d) |   |   |   |   |
|-------------------------------------------------------------------------------------|--------|--------|--------|--------|

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                   |   |   |   |   |   |   |   |   |   |   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|   | S.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | Fair value of embedded currency conversion derivatives |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                   |   |   |   |   |   |   |   |   |   |   |
|   | The Company accounts for derivative and hedging activities in accordance with FASB ASC Topic 815, Derivatives and Hedging (Statement No. 133, Accounting for Derivative Instruments and Certain Hedging Activities, 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. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                   |   |   |   |   |   |   |   |   |   |   |
|   | T.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 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 the U.S. The Company invests in securities with original maturity dates of up to three 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                   |   |   |   |   |   |   |   |   |   |   |
|   | U.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | Fair Value Measurements                                |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                   |   |   |   |   |   |   |   |   |   |   |
|   | On January 1, 2008, the Company adopted the provisions of FASB Statement No. 157, Fair Value Measurements, included in ASC Topic 820, Fair Value Measurements and Disclosures, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.                                                                                                                              |

----

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

| Note 1 - Organization and Summary of Significant Accounting Policies (cont’d) |   |   |   |   |
|-------------------------------------------------------------------------------------|--------|--------|--------|--------|

|   |   |   |   |   |   |
|--------|--------|--------|--------|--------|--------|

|   | V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Recently issued accounting standards |   |   |   |   |   |   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------|--------|--------|--------|--------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                 |   |   |   |   |   |   |   |   |   |   |
|   | In July 2010, the FASB issued ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which significantly increases disclosures about credit quality of financing receivables and the allowance for credit losses, and requires disclosures to be made at a greater level of disaggregation. The adoption of this guidance in 2011 will affect the Company’s disclosures relating to notes receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                 |   |   |   |   |   |   |   |   |   |   |
|   | In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements (EITF Issue No. 08 1, “Revenue Arrangements with Multiple Deliverables”). ASU 2009 13 amends FASB ASC Subtopic 605 25, Revenue Recognition—Multiple-Element Arrangements, to eliminate the requirement that all undelivered elements have vendor specific objective evidence of selling price (VSOE) or third party evidence of selling price (TPE) before an entity can recognize the portion of an overall arrangement fee that is attributable to items that already have been delivered. In the absence of VSOE and TPE for one or more delivered or undelivered elements in a multiple element arrangement, entities will be required to estimate the selling prices of those elements. The overall arrangement fee will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling price. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                 |   |   |   |   |   |   |   |   |   |   |
|   | Application of the “residual method” of allocating an overall arrangement fee between delivered and undelivered elements will no longer be permitted upon adoption of ASU 2009-13. Additionally, the new guidance will require entities to disclose more information about their multiple element revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company expects that the adoption of ASU 2009-13 in 2011 will not have a material impact on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

----

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

| Note 2 - Cash and Cash Equivalents |   |   |   |   |   |   |   |   |
|------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|

|                        |   | December 31 |   |   | December 31 |   |
|-----------------------------|--------|-------------|--------|--------|-------------|--------|
|                        |   | 2009        |   |   | 2010        |   |
|                        |   |        |   |   |        |   |
| Denominated in U.S. dollars |   | $           | 10,339 |   |        | $      | 11,034 |   |
| Denominated in Euro         |   |        | 4,312  |   |        |   | 1,947 |   |
| Denominated in NIS          |   |        | 274    |   |        |   | 108 |   |
| Other                       |   |        | 16     |   |        |   | 2 |   |
|                        |   |        |   |   |        |   |   |   |
|                        |   | $           | 14,941 |   |        | $      | 13,091 |   |

| 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 are as follows: |

|                                        |   |      |   |   | Gross      |   |   | Gross      |   |   |       |   |
|---------------------------------------------|--------|-----------|--------|--------|------------|--------|--------|------------|--------|--------|------------|--------|
|                                        |   |      |   |   | unrealized |   |   | unrealized |   |   |       |   |
|                                        |   | Amortized |   |   | holding    |   |   | holding    |   |   |       |   |
|                                        |   | cost      |   |   | gains      |   |   | (losses)   |   |   | Fair value |   |
| As of December 31, 2010                |   |      |   |   |       |   |   |       |   |   |       |   |
| Available- for- sale:                       |   |      |   |   |       |   |   |       |   |   |       |   |
| Corporate debentures- current               |   | $         | 18,207 |   |       | $      | 42     |       |   | $      | (161       | )      |   | $ | 18,088 |   |
| US Agency and other governmental            |   |      |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
|     debentures- current |   |      | 2,816  |   |       |   | 31     |       |   |   | (12        | )      |   |   | 2,835 |   |
|                                        |   | $         | 21,023 |   |       | $      | 73     |       |   | $      | (173       | )      |   | $ | 20,923 |   |
|                                        |   |      |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
| As of  December 31, 2009     |   |      |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Available- for- sale:                       |   |      |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Corporate debentures- Non current           |   | $         | 15,546 |   |       | $      | 68     |       |   | $      | (136       | )      |   | $ | 15,478 |   |
| US Agency debentures- current               |   |      | 5,035  |   |       |   | 43     |       |   |   | (8         | )      |   |   | 5,070 |   |
|                                        |   | $         | 20,581 |   |       | $      | 111    |       |   | $      | (144       | )      |   | $ | 20,548 |   |
|                                        |   |      |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Held- to- maturity:                         |   |      |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Corporate debentures- current               |   | $         | 765    |   |       | $      | 10     |       |   | $      | -          |   |   | $ | 775 |   |
|                                        |   | $         | 765    |   |       | $      | 10     |       |   | $      | -          |   |   | $ | 775 |   |

----

| 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: |

|                  |   | December 31 2009 |   |   | December 31 2010 |   |
|-----------------------|--------|------------------|--------|--------|------------------|--------|
|                  |   | Amortized        |   |   |             |   |   | Amortized |   |   |   |   |
|                  |   | cost             |   |   | Fair value       |   |   | cost |   |   | Fair value |   |
| Available- for- sale: |   |             |   |   |             |   |   |   |   |   |   |   |
| Current maturities    |   | $                | 20,581 |   |             | $      | 20,548 |   |   | $ | 21,023 |   |   | $ | 20,923 |   |
|                  |   | $                | 20,581 |   |             | $      | 20,548 |   |   | $ | 21,023 |   |   | $ | 20,923 |   |
| Held- to- maturity:   |   |             |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Current maturities    |   | $                | 765    |   |             | $      | 775 |   |   | $ | - |   |   | $ | - |   |
|                  |   | $                | 765    |   |             | $      | 775 |   |   | $ | - |   |   | $ | - |   |

|   | C.     | Proceeds from the sale of investment securities available for sale were $10,281  in 2010 (2009- $1,846) ; gross realized gains included in interest and marketable securities income in 2010 were $31 (2009-gross realized gains of $123).                                                                                                                                                                                                                                                                                   |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |
|   | D.     | The Company also maintains a $1,593 portfolio of investment securities classified as trading (December 31 2009- $1,395). Net realized gains on trading securities during the year ended December 31 2010 were $187 (For year ended December 31 2009- net realized gains were $281), and are included in interest and marketable securities income. Net unrealized losses on trading securities held at year end and included in interest and marketable securities income for 2010 were $23 (Net unrealized gains for 2009- $59). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |
|   | E.     | Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and period that individual securities have been in a continuous unrealized loss position were as follows:                                                                                                                                                                                                                                                                                             |

| At December 31, 2010                   |   | Less than 12 months |   |   | Total      |   |
|---------------------------------------------|--------|---------------------|--------|--------|------------|--------|
|                                        |   | Unrealized          |   |   |       |   |   | Unrealized |   |   |   |   |
|                                        |   | losses              |   |   | Fair value |   |   | losses |   |   | Fair value |   |
| Available for sale:                         |   |                |   |   |       |   |   |   |   |   |   |   |
| Corporate debentures                        |   | $                   | (161   | )      |       | $      | 9,619 |   |   | $ | (161 | ) |   | $ | 9,619 |   |
| US Agency and other governmental            |   |                |   |   |       |   |   |   |   |   |   |   |   |   |   |   |
|     debentures- current |   |                | (12    | )      |       |   | 776 |   |   |   | (12 | ) |   |   | 776 |   |
|                                        |   | $                   | (173   | )      |       | $      | 10,395 |   |   | $ | (173 | ) |   | $ | 10,395 |   |
|                                        |   |                |   |   |       |   |   |   |   |   |   |   |   |   |   |   |
| At December 31, 2009                   |   | Less than 12 months |   |   |       | Total  |   |
|                                        |   | Unrealized          |   |   |       |   |   |   | Unrealized |   |   |   |   |   |
|                                        |   | losses              |   |   | Fair value |   |   | losses |   |   | Fair value |   |
| Available for sale:                         |   |                |   |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Corporate debentures                        |   | $                   | (136   | )      |       | $      | 6,731 |   |   | $ | (136 | ) |   | $ | 6,731 |   |
| US Agency and other governmental            |   |                |   |   |       |   |   |   |   |   |   |   |   |   |   |   |
|     debentures- current |   |                | (8     | )      |       |   | 1,505 |   |   |   | (8 | ) |   |   | 1,505 |   |
|                                        |   | $                   | (144   | )      |       | $      | 8,236 |   |   | $ | (144 | ) |   | $ | 8,236 |   |

----

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

| Note 3 - Marketable Securities (cont’d) |
|-----------------------------------------------|
|                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                          |   | US Agency and other governmental debentures: The unrealized losses on investments in U.S. Agency debentures were caused by increases in interest rates. 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 increases in interest rates. 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. |
|                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Note 4 - Other Receivables                    |   |   |   |   |   |   |   |   |   |   |

|                    |   | December 31 |   |   | December 31 |   |
|-------------------------|--------|-------------|--------|--------|-------------|--------|
|                    |   | 2009        |   |   | 2010        |   |
|                    |   |        |   |   |        |   |
| Government institutions |   | $           | 447    |   |        | $      | 1,261 |   |
| Other                   |   |        | 112    |   |        |   | 51 |   |
|                    |   |        |   |   |        |   |   |   |
|                    |   | $           | 559    |   |        | $      | 1,312 |   |

| Note 5 - Deposits and long-term receivables |   |   |   |   |   |   |   |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|

|                   |   | December 31 |   |   | December 31 |   |
|------------------------|--------|-------------|--------|--------|-------------|--------|
|                   |   | 2009        |   |   | 2010        |   |
|                   |   |        |   |   |        |   |
| Long-term deposits (1) |   | $           | 85     |   |        | $      | 166 |   |
| Prepaid expenses (2)   |   |        | 945    |   |        |   | 2,035 |   |
|                   |   |        |   |   |        |   |   |   |
|                   |   | $           | 1,030  |   |        | $      | 2,201 |   |

|   | (1)    |   | Deposits in respect of operating leases of motor vehicles.                                                                                                                                                                                                                                      |   |   |   |   |
|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
|   |   |   |                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |
|   | (2)    |   | Prepaid expenses for the last one to three months of long-term service agreements with suppliers. As of December 31, 2010 the balance includes an amount of $1,442 (December 31, 2009 - $ 587) in U.S. dollars and an amount equivalent to $593  in Euro (December 31, 2009 - $ 358). |

----

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

| Note 6 - Fixed Assets, at Cost, Less Accumulated Depreciation and Amortization |   |   |   |   |
|--------------------------------------------------------------------------------|--------|--------|--------|--------|

|                                      |   | December 31 |   |   | December 31 |   |
|-------------------------------------------|--------|-------------|--------|--------|-------------|--------|
|                                      |   | 2009        |   |   | 2010        |   |
|                                      |   |        |   |   |        |   |
| Land                                      |   | $           | 379    |   |        | $      | 379 |   |
| Building                                  |   |        | 5,928  |   |        |   | 10,762 |   |
| Communications equipment                  |   |        | 35,199 |   |        |   | 47,266 |   |
| Office furniture and equipment            |   |        | 2,430  |   |        |   | 3,022 |   |
| Motor vehicles                            |   |        | 729    |   |        |   | 759 |   |
| Leasehold improvements                    |   |        | 4,339  |   |        |   | 4,568 |   |
|                                      |   |        | 49,004 |   |        |   | 66,756 |   |
| Accumulated depreciation and amortization |   |        | 19,885 |   |        |   | 25,977 |   |
|                                      |   |        |   |   |        |   |   |   |
| Fixed assets , net                        |   | $           | 29,119 |   |        | $      | 40,779 |   |

|                              | Depreciation and amortization expense for the years ended December 31, 2008, 2009 and 2010 are $ 3,913, $ 5,175 and $6,058, respectively. |
|-----------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Note 7 - Accounts Payable - Other |                                                                                                                                                |   |   |   |   |   |   |   |

|                            |   | December 31 |   |   | December 31 |   |
|---------------------------------|--------|-------------|--------|--------|-------------|--------|
|                            |   | 2009        |   |   | 2010        |   |
|                            |   |        |   |   |        |   |
| Liabilities regarding employees |   | $           | 1,120  |   |        | $      | 1,598 |   |
| Government institutions         |   |        | 227    |   |        |   | 39 |   |
| Accrued expenses                |   |        | 720    |   |        |   | 596 |   |
| Other                           |   |        | 188    |   |        |   | 222 |   |
|                            |   | $           | 2,255  |   |        | $      | 2,455 |   |

| Note 8 - Deferred Income |                                                                                                                                   |   |   |   |   |   |   |   |   |   |
|--------------------------|----------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                     |                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                     | Deferred income represents advance payments approximating the last one to three months of long-term service agreements with customers. |
|                     |                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                     | The service agreements with the customer are for various periods the last of which ends in 2020.                                       |

----

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

| Note 9 - Liability in Respect of Employees Severance Payments |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |
|---------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
|                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| A.                                                            | Under Israeli law and labor agreements, the Company is required to make severance payments to retired or terminated employees and to employees leaving employment in certain other circumstances. In respect of the liability to the employees, individual insurance policies are purchased and deposits are made with recognized severance pay funds and/or by purchase of  insurance policies of the Company. The liability for severance pay is calculated on the basis of the latest salary paid to each employee multiplied by the number of years of employment. The liability is covered by the amounts deposited including accumulated income thereon as well as by the unfunded provision.                                                                                                                                        |
|                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| B.                                                            | According to Section 14 to the Severance Pay Law ("Section 14") the payment of monthly deposits by a company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to the employees that have entered into agreements with the company pursuant to such Section 14.  Commencing 2009, the Company has entered into agreements with a majority of its employees in order to implement Section 14. Therefore, beginning that date, the payment of monthly deposits by the Company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to those employees that have entered into such agreements and therefore the Company incurs no additional liability since that date with respect to such employees. |
|                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| C.                                                            | Expenses recorded in respect of provision for employees severance payments for the years ended  December 31, 2008, 2009 and 2010 are $ 367, $321, and $359, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

----

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

| Note 10 - Commitments, Contingent Liabilities and Liens |   |   |                                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |
|---------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                    |   |   |                                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                                                    | A.     |   | The Company has several lease agreements for its facilities, the last of which will end by July 31, 2015 and which 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 and thereafter (including the options), as of December 31, 2010, are as follows: |

| 2011                |   | $      | 42,668  |   |
|---------------------|--------|--------|---------|--------|
| 2012                |   |   | 28,414  |   |
| 2013                |   |   | 21,337  |   |
| 2014                |   |   | 13,844  |   |
| 2015                |   |   | 10,024  |   |
| 2016 and thereafter |   |   | 6,309   |   |
|                |   |   |    |   |
|                |   | $      | 122,596 |   |

|   |   |   | Operating lease expenses under long- term operating network leases for the years ended December 31, 2008, 2009 and 2010 are $40,764, $45,900 and $50,990 respectively. Rental expenses under the lease agreements for the years ended December 31, 2008, 2009 and 2010 are $284, $327 and $436 respectively. |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |
|   | B.     |   | As at balance sheet date the amounts of guarantees are as follows:                                                                                                                                                                                                                                           |   |   |   |

|                                              |   | December 31 |   |   | December 31 |   |
|---------------------------------------------------|--------|-------------|--------|--------|-------------|--------|
|                                              |   | 2009        |   |   | 2010        |   |
|                                              |   |        |   |   |        |   |
| Guarantees provided by the banks to third parties |   | $           | 3,314  |   |        | $      | 2,270 |   |

|   |   |   | 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 periods between one to five years and are renewed each year according to the vendor’s contract terms and conditions.  The  guarantees may be exercised by the third party at any time, subject to the terms in the contracts between the Company and the third party. |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

| Note 10 - Commitments, Contingent Liabilities and Liens (cont’d) |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |
|------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |
|                                                                   | C.     |   | The Company has two lines of credit provided to it by Bank Igud (approximately $2.8 million) and Bank Leumi (approximately $2 million). From time to time the Company uses its 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 (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 an 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, and has informed the ILA of the delay due to delays in obtaining building permits from the regional Building Zoning Committee. Cancelation of the development agreement may result in refund of the fees paid for the land less a 15% termination fee and 6% per annum fee. In the opinion of the Company, there is a remote chance that the ILA will cancel the allocation of the land to the Company. |
|                                                                   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |
|                                                                   |   |   | All payments under the lease agreement were prepaid, classified as non- current asset under prepaid expenses with amortization occurring on a straight- line basis over the expected lease term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

----

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

| Note 10 - Commitments, Contingent Liabilities and Liens (cont’d) |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
|------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
|                                                                   | E.     |   | The construction and operation of the Re'em teleport site and the Emek Ha'ela 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 the Company's Re'em teleport site has expired on October 20, 2009.  The Company has applied to extend the permit for an additional 3-year term but the request was denied on January 6, 2011.  On March 20, 2011, the Company appealed the decision to the District Building and Zoning Appeals Committee. In addition,  on November 4, 2010, the Company received an indictment filed against our company by the Shikmim Regional Building and Zoning Committee with the Ashkelon Magistrate Court in Israel for allegedly using, building and erecting structures and antennas at our Re'em Teleport, without proper permits.  A hearing over the indictment is scheduled for April 27, 2011.  In the opinion of the Company's legal advisers, the minimum fine which will be imposed on our company, should it be convicted, will be NIS 10 thousand (approximately $2.8 thousand). However, according to the law the court has discretion to impose higher fines.   |
|                                                                   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
|                                                                   | F.     |   | Screenpeaks Ltd., a former Israeli customer, filed a complaint on May 22, 2008 against the Company and the Israeli Ministry of Communications ("MOC") in the Tel Aviv District Court. The complaint alleges that the Company unlawfully terminated services to the plaintiff in accordance with the instructions of the MOC. The plaintiff is seeking damages from the Company and the MOC in the amount of NIS 23,000 (approximately $6,481). As part of the legal procedure the MOC filed with the court a third party statement claiming it will seek remedies from the Company for any damage it will incur as a result of a court decision in the favour of the plaintiff. The Company rejects the allegations and is contesting the claim vigorously. On May 27, 2009 the District Court decided that the proceedings will first examine the question of whether on the date the MOC instructed to terminate the agreement between the Company and the customer, the agreement fulfilled the terms and conditions of the license issued to the Company by the MOC.                                                                                                                                                                                                                                                    |
|                                                                   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
|                                                                   |   |   | In the opinion of the Company's management and legal advisers, in the event the plaintiff prevails, the amount the Company will be required to pay will likely be immaterial. Therefore, no provision has been made in the consolidated financial statements with respect to the claim.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
|                                                                   | G.     |   | On September 14, 2010, the Company's Chief Executive Officer received a summons to an investigation under warning at the Enforcement and Regulation Administration at the Israeli Ministry of  Industry, Trade and Labor, or MOITAL, for the suspected violations of Section 6B of the Israeli Minimum Wage Law and Section 2 to the Israeli Equal Opportunities at Work Law, following a complaint filed by a former employee of the company whose employment was terminated while allegedly undergoing fertility treatments and an investigation conducted by MOITAL following such complaint.  According to an arrangement reached with MOITAL, the Company's former Chief Financial Officer, who was the Company's Chief Financial Officer at the time the former employee's employment with the company was terminated,  appeared at such investigation and answered questions regarding such suspected violations.  The investigation has not yet concluded. Following its investigation, on March 2, 2011, MOITAL notified the Company that it decided to close the file with respect to the suspected violations of Section 6B of the Israeli Minimum Wage Law with a warning.                                                                                              |
|                                                                   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
|                                                                   |   |   | The investigation in respect of the suspected violation of the Israeli Equal Opportunities at Work Law has not yet concluded and the results of the investigation are unknown. In the opinion of the Company's legal advisers, the chances that MOITAL will file an indictment against the company for the suspected violation are low.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

----

| 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.                                                                                                                 |
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                    | The Company's license from the Israeli Ministry of Communications to operate its teleports provides that, without the consent of the Israeli Minister of Communications, no means of control of the Company may be acquired or transferred, directly or indirectly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                    | In connection with the Company's initial public offering in November 2006, the Company's license was amended to provide that the Company's 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 depository was not considered a transfer of means of control.  In addition, pursuant to the amendments, transfers of the Company's shares that do not result in the transfer of control of the Company 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), the Company must notify the Ministry of Communications 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 the Company (but which does not result in a transfer of control of the Company), the Company must notify the Ministry of Communications within 21 days of learning of such transfer and request the consent of the Ministry of Communications for such transfer. |
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                    | 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. |
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                    | The Company's license also states that means of control of the Company, or of an interested shareholder of the Company (which generally would include a holder of 5% of the Company's voting power or other means of control), cannot be pledged unless such pledge agreement includes a condition that prohibits the exercise of the pledge without obtaining the advance written approval of the Minster of Communication.                                                                                                                                                                                                                                                                                                                                       |

----

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

| Note 11 - Share Capital (cont'd) |   |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
|----------------------------------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                             |   |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                             | B.     |   | Employees' stock options                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |
|                             |   |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                             | (1)    |   | Options granted to the CEO                                                                                                                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
|                             |   |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                             |   |   | On March 15, 2006, the Company signed an agreement with the CEO's wholly-owned company  regarding his compensation for management 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. |
|                             |   |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                             |   |   | The following table summarizes information relating to the 2006 options outstanding as of  December 31, 2010:                                                                                                                                                                                                                                                |

|      |    |   |            |   |   |         |   |   |           |   |   |         |   |   | Aggregate       |   |
|-----------|---------|--------|-----------------|--------|--------|--------------|--------|--------|----------------|--------|--------|--------------|--------|--------|-----------------|--------|
|      |    |   |            |   |   |         |   |   |           |   |   |         |   |   | intrinsic value |   |
|      |    |   |            |   |   |         |   |   |           |   |   |         |   |   | as of           |   |
|      |    |   | Remaining       |   |   |         |   |   | Grant date     |   |   | Grant date   |   |   | December 31,    |   |
| Number of |    |   | contractual     |   |   | Exercise     |   |   | fair value per |   |   | intrinsic    |   |   | 2010            |   |
| options   |    |   | life (in years) |   |   | Price (in $) |   |   | Share (in $)   |   |   | Value (in $) |   |   | (in $)          |   |
|      |    |   |            |   |   |         |   |   |           |   |   |         |   |   |            |   |
|      | 37,800  |   |            |   | 1      |         |   |   | 5.60           |   |   |         | 5.60   |   |            |   | - |   |   |   | 74,466 |   |
|      | 37,800  |   |            |   | 1      |         |   |   | 6.16           |   |   |         | 5.60   |   |            |   | - |   |   |   | 53,298 |   |
|      | 44,100  |   |            |   | 1      |         |   |   | 6.77           |   |   |         | 5.60   |   |            |   | - |   |   |   | 35,280 |   |
|      | 50,400  |   |            |   | 1      |         |   |   | 7.45           |   |   |         | 5.60   |   |            |   | - |   |   |   | 6,048 |   |
|      | 63,000  |   |            |   | 1      |         |   |   | 8.35           |   |   |         | 5.60   |   |            |   | - |   |   |   | - |   |
|      | 233,100 |   |            |   |   |         |   |   |           |   |   |         |   |   |            |   |   |   |   |   | 169,092 |   |

|   |   |   | 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, 2010, there was approximately $21 of unrecognized compensation cost related to non-vested options to be recognized over the weighted average period 0.25 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 represented the risk free interest rate of  US zero-coupon Government Bonds.                                                                                         |
|   |   |   |                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
|   |   | (2)    | Weighted average expected life of 4 years.                                                                                                                                                                                     |   |   |   |   |   |   |
|   |   |   |                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
|   |   | (3)    | Expected average volatility of 39.51%, which represented a weighted average standard deviation rate for the stock prices of similar companies traded in the NASDAQ  National Market.                                 |

----

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

| Note 11 - Share Capital (cont'd) |   |                                   |                                |   |   |   |   |   |   |
|----------------------------------|--------|----------------------------------------|-------------------------------------|--------|--------|--------|--------|--------|--------|
|                             |   |                                   |                                |   |   |   |   |   |   |   |   |   |   |
|                             | B.     |                                   | Employees' stock options (cont'd)   |   |   |   |   |   |   |   |
|                             |   |                                   |                                |   |   |   |   |   |   |   |   |   |   |
|                             | (1)    |                                   | Options granted to the CEO (cont'd) |   |   |   |   |   |   |
|                             |   |                                   |                                |   |   |   |   |   |   |
|                             |   | The options activities are as follows: |                                |   |   |   |

|                                                               |   |      |    |   |             |   |   | Weighted-  |   |
|--------------------------------------------------------------------|--------|-----------|---------|--------|------------------|--------|--------|------------|--------|
|                                                               |   |      |    |   |             |   |   | Average    |   |
|                                                               |   | Number of |    |   | Weighted average |   |   | grant-date |   |
|                                                               |   | shares    |    |   | exercise price   |   |   | fair value |   |
|                                                               |   |      |    |   |             |   |   |       |   |
| Options outstanding at December 31, 2007, 2008, 2009 and 2010 |   |      | 233,100 |   |             | $      | 6.99   |       |   | $ | 1.83 |   |
|                                                               |   |      |    |   |             |   |   |       |   |   |   |   |
| Options exercisable as at December 31, 2008                        |   |      | 75,600  |   |             | $      | 6.58   |       |   | $ | 1.83 |   |
|                                                               |   |      |    |   |             |   |   |       |   |   |   |   |
| Options exercisable as at December 31, 2009                        |   |      | 119,700 |   |             | $      | 6.20   |       |   | $ | 1.83 |   |
|                                                               |   |      |    |   |             |   |   |       |   |   |   |   |
| Options exercisable as at December 31, 2010                        |   |      | 170,100 |   |             | $      | 5.88   |       |   | $ | 1.83 |   |

|   |   | From grant date through December 31, 2010, none of the 2006 options were exercised or forfeited and no new options were granted during 2010.                                                                                                                                                                       |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
|   | (2)    |                                                                                                                                                                                                                                                                                                               | Restricted share units granted to employees and directors |   |   |   |   |
|   |   |                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
|   |   | 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.                                                                                                                                                                                                                                                |   |   |   |   |
|   |   |                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
|   |   | Restricted Share Units are granted in the form of units to acquire one share. Until the shares are issued subject to the vesting of such unit, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the units to acquire Shares.                                 |
|   |   |                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
|   |   | The total number of ordinary shares that will be available for grant under the plan is 441,000 ordinary 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 a total of 105,840 restricted share units which vest over four years from the grant date. The grant date fair value of the restricted share units was $12.50 per share.                                                                                               |

----

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

| Note 11 - Share Capital (cont'd) |   |   |                                                                        |   |   |   |   |   |   |
|----------------------------------|--------|--------|-----------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                             |   |   |                                                                        |   |   |   |   |   |   |   |   |   |   |
|                             | B.     |   | Employees' stock options (cont'd)                                           |   |   |   |   |   |   |   |
|                             |   |   |                                                                        |   |   |   |   |   |   |   |   |   |   |
|                             | (2)    |   | Restricted shares units granted to employees and directors (cont'd)         |   |   |   |   |
|                             |   |   |                                                                        |   |   |   |   |   |   |   |   |   |   |
|                             |   |   | Restricted share units activity during the periods indicated is as follows: |   |   |

|                         |   | Number of    |    |
|------------------------------|--------|--------------|---------|
|                         |   | restricted   |    |
|                         |   | shares units |    |
| Balance at January 1, 2009   |   |         | 39,865  |   |
| Vested                       |   |         | (19,933 | ) |
| Forfeited                    |   |         | (87     | ) |
| Balance at December 31, 2009 |   |         | 19,845  |   |
| Vested                       |   |         | (19,845 | ) |
| Forfeited                    |   |         | -       |   |
| Balance at December 31, 2010 |   |         | -       |   |

|   | As of December 31, 2010, there are no unrecognized costs related to non- vested restricted share units. The vesting period of the restricted share units plan ended as of December 31, 2010.                                                                                                                  |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
|   | (3)                                                                                                                                                                                                                                                                                                           |   | Options granted to outside directors |   |   |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
|   | On January 25, 2010, the Company  granted  to its outside directors 14,880 options to purchase Company shares at  an exercise price of $12.50 per share. The options shall vest in three equal installments at the end of each year during the three years from the grant date. |
|   |                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
|   | The fair value of each option granted was estimated on the date of grant under Black-Scholes model, assuming dividend yield of 3.4% , as a result of a dividend adjustment mechanism and on the basis of the following assumptions:                                                                           |
|   |                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
|   | (1)  A risk-free, annual interest rate of 0.86% for the first year of vesting, and 1.4% for each of the second and third year of vesting, which represents the risk free interest rate of US zero-coupon Government Bonds.                                                                          |
|   |                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
|   | (2)  A weighted average expected life of 3.38 years, over which the options granted are expected to be outstanding.                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
|   | (3)  An expected average volatility of 51.28%, representing a weighted average standard deviation rate for the stock price of the Company, which is traded on the NASDAQ National Market since October 2006.                                                                                        |
|   |                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
|   | As at December 31, 2010, there was approximately $27 of unrecognized compensation cost related to non-vested options for recognition over a period of 2 years by the straight-line method.                                                                                                                    |

----

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

| Note 11 - Share Capital (cont'd) |                                                                                                                                                                                       |   |                                          |   |   |   |   |   |   |
|----------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|--------|--------|--------|--------|--------|
|                             |                                                                                                                                                                                       |   |                                          |   |   |   |   |   |   |   |   |   |   |
|                             | B.                                                                                                                                                                                         |   | Employees' stock options (cont'd)             |   |   |   |   |   |   |   |
|                             |                                                                                                                                                                                       |   |                                          |   |   |   |   |   |   |   |   |   |   |
|                             | (3)                                                                                                                                                                                        |   | Options granted to outside directors (cont'd) |   |   |   |   |   |   |
|                             |                                                                                                                                                                                       |   |                                          |   |   |   |   |   |   |   |   |   |   |
|                             | The following summarizes the allocation of stock-based compensation charge for the 2006 options, the restricted share units granted and for the 2010 options granted to outside directors: |

|                              |   | Year ended December 31 |   |
|-----------------------------------|--------|------------------------|--------|
|                              |   | 2008                   |   |   | 2009 |   |   | 2010 |   |
| Cost of revenues                  |   |                   | 81     |   |   |   | 81 |   |   |   | 67 |   |
| Sales and marketing               |   |                   | 101    |   |   |   | 101 |   |   |   | 85 |   |
| General and administrative        |   |                   | 233    |   |   |   | 233 |   |   |   | 220 |   |
|                              |   |                   |   |   |   |   |   |   |   |   |   |   |
|                              |   |                   | 415    |   |   |   | 415 |   |   |   | 372 |   |
|                              |   |                   |   |   |   |   |   |   |   |   |   |   |
|                              |   | Year ended December 31 |   |
|                              |   |                   | 2008   |   |   |   | 2009 |   |   |   | 2010 |   |
| Tax benefit recognized in respect |   |                   |   |   |   |   |   |   |   |   |   |   |
| of stock- based compensation      |   |                   |   |   |   |   |   |   |   |   |   |   |
| expenses                          |   |                   | 66     |   |   |   | 58 |   |   |   | 142 |   |

----

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

| Note 12 - Segments Results |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |
|----------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
|                       | ASC 280-10 (formerly known as FSP FASB statement No. 131), “Disclosures about Segments of an Enterprise and Related Information", establishes standards for reporting information about operating segments. The following information is provided in accordance with the requirements of ASC 280-10 and is consistent with how business results are reported to the chief operating decision maker.                                                                                                                                                                                                                                                                                                               |
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
|                       | The Companys' segments are strategic business units that offer different communication services and are managed accordingly. As a result of the acquisitions of the 711 business unit (See Note 15B) in November 2008, the Company presents for the first time two operating segments. The Company analyzes its operating segments based on the segment's gross profit. The Company has two reportable segments: (1) Mobile satellite communications services (hereinafter- Mobile satellite communication services), and (2) Content management and distribution services to television and radio broadcasting  industries  (hereinafter- Content management and distribution services). |
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
|                       | Management evaluates each segment’s performance based upon revenues and gross profit. Management believes such measures are the most informative representation of how it evaluates performance. Business segment revenues and gross profit are presented below.                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
|                       | The Company’s CODM does not review segment assets information in order to assess each segment performance. Furthermore, asset information is monitored at the corporate level and reported to the CODM on a total company basis versus a segment basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
|                       | The following tables show components of results of operations by segment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
|                       | Year ended December 31, 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |

|                             |   | Mobile Satellite Communication Services |   |   | Content management and distribution services |   |   | Total  |   |
|----------------------------------|--------|-----------------------------------------|--------|--------|---------------------------------------------------|--------|--------|--------|--------|
|                             |   |                                    |   |   |                                              |   |   |   |   |
| Total revenue                    |   | $                                       | 6,996  |   |                                              | $      | 95,031 |   |   | $ | 102,027 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Gross profit                     |   | $                                       | 390    |   |                                              | $      | 25,675 |   |   | $ | 26,065 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Sales and marketing              |   |                                    |   |   |                                              |   |   |   |   |   | 6,380 |   |
| General and administrative       |   |                                    |   |   |                                              |   |   |   |   |   | 9,194 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Operating income                 |   |                                    |   |   |                                              |   |   |   |   | $ | 10,491 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Financial income, net            |   |                                    |   |   |                                              |   |   |   |   |   | 667 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Income before taxes on in income |   |                                    |   |   |                                              |   |   |   |   | $ | 11,158 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Depreciation and amortization    |   | $                                       | 444    |   |                                              | $      | 6,010  |   |   | $ | 6,454 |   |

----

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

| Note 12 - Segments Results (cont'd) |                         |   |   |   |   |   |   |   |
|-------------------------------------|------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                |                         |   |   |   |   |   |   |   |   |   |   |   |   |
|                                | Year ended December 31, 2009 |   |   |   |   |   |   |   |   |

|                             |   | Mobile Satellite Communication Services |   |   | Content management and distribution services |   |   | Total  |   |
|----------------------------------|--------|-----------------------------------------|--------|--------|---------------------------------------------------|--------|--------|--------|--------|
|                             |   |                                    |   |   |                                              |   |   |   |   |
| Total revenue                    |   | $                                       | 4,488  |   |                                              | $      | 89,199 |   |   | $ | 93,687 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Gross profit                     |   | $                                       | 74     |   |                                              | $      | 29,065 |   |   | $ | 29,139 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Sales and marketing              |   |                                    |   |   |                                              |   |   |   |   |   | 5,554 |   |
| General and administrative       |   |                                    |   |   |                                              |   |   |   |   |   | 8,391 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Operating income                 |   |                                    |   |   |                                              |   |   |   |   | $ | 15,194 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Financial expense, net           |   |                                    |   |   |                                              |   |   |   |   |   | (388 | ) |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Other income, net                |   |                                    |   |   |                                              |   |   |   |   |   | 26 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Income before taxes on in income |   |                                    |   |   |                                              |   |   |   |   | $ | 14,832 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Depreciation and amortization    |   | $                                       | 320    |   |                                              | $      | 5,264  |   |   | $ | 5,584 |   |

|   | Year ended December 31, 2008 |   |   |   |   |   |   |   |   |
|--------|------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|

|                             |   | Mobile Satellite Communication Services |   |   | Content management and distribution services |   |   | Total  |   |
|----------------------------------|--------|-----------------------------------------|--------|--------|---------------------------------------------------|--------|--------|--------|--------|
|                             |   |                                    |   |   |                                              |   |   |   |   |
| Total revenue                    |   | $                                       | 737    |   |                                              | $      | 78,256 |   |   | $ | 78,993 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Gross profit                     |   | $                                       | 77     |   |                                              | $      | 25,439 |   |   | $ | 25,516 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Sales and marketing              |   |                                    |   |   |                                              |   |   |   |   |   | 3,914 |   |
| General and administrative       |   |                                    |   |   |                                              |   |   |   |   |   | 6,582 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Operating income                 |   |                                    |   |   |                                              |   |   |   |   | $ | 15,020 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Financial income, net            |   |                                    |   |   |                                              |   |   |   |   |   | 2,630 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Other income, net                |   |                                    |   |   |                                              |   |   |   |   |   | 10 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Income before taxes on in income |   |                                    |   |   |                                              |   |   |   |   | $ | 17,660 |   |
|                             |   |                                    |   |   |                                              |   |   |   |   |   |   |   |
| Depreciation and amortization    |   | $                                       | 42     |   |                                              | $      | 3,929  |   |   | $ | 3,971 |   |

----

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

| Note 12 - Segments Results (cont'd) |                                                |   |   |   |   |   |   |   |
|-------------------------------------|-----------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                |                                                |   |   |   |   |   |   |   |   |   |   |   |   |
|                                | Revenues and long lived assets by geographic areas: |   |   |   |   |   |   |

|                            |   | Year ended December 31 |   |
|---------------------------------|--------|------------------------|--------|
| Revenues:                       |   | 2008                   |   |   | 2009 |   |   | 2010 |   |
|                            |   |                   |   |   |   |   |   |   |   |
| North America                   |   | $                      | 19,399 |   |   | $ | 20,996 |   |   | $ | 24,464 |   |
| Europe                          |   |                   | 32,222 |   |   |   | 39,551 |   |   |   | 45,476 |   |
| Asia                            |   |                   | 8,773  |   |   |   | 10,528 |   |   |   | 9,278 |   |
| Israel                          |   |                   | 5,425  |   |   |   | 6,440 |   |   |   | 7,329 |   |
| Middle East (other than Israel) |   |                   | 9,250  |   |   |   | 12,196 |   |   |   | 13,930 |   |
| Rest of the world               |   |                   | 3,924  |   |   |   | 3,976 |   |   |   | 1,550 |   |
|                            |   |                   |   |   |   |   |   |   |   |   |   |   |
|                            |   | $                      | 78,993 |   |   | $ | 93,687 |   |   | $ | 102,027 |   |
|                            |   |                   |   |   |   |   |   |   |   |   |   |   |
| Long lived assets:              |   |                   |   |   |   |   |   |   |   |   |   |   |

|          |   | December 31 |   |   | December 31 |   |
|---------------|--------|-------------|--------|--------|-------------|--------|
|          |   | 2009        |   |   | 2010        |   |
|          |   |        |   |   |        |   |
| Israel        |   | $           | 23,858 |   |        | $      | 34,895 |   |
| North America |   |        | 5,261  |   |        |   | 5,884 |   |
| Total         |   | $           | 29,119 |   |        | $      | 40,779 |   |

| Note 13 - Interest and marketable securities income |   |   |   |   |   |   |
|-----------------------------------------------------|--------|--------|--------|--------|--------|--------|

|                                          |   | Year ended December 31 |   |
|-----------------------------------------------|--------|------------------------|--------|
|                                          |   | 2008                   |   |   | 2009 |   |   | 2010 |   |
|                                          |   |                   |   |   |   |   |   |   |   |
| Interest on deposits, net                     |   | $                      | 693    |   |   | $ | 157 |   |   | $ | 44 |   |
| Interest on debt securities                   |   |                   | 88     |   |   |   | 45 |   |   |   | 36 |   |
| Discount accretion and premium amortization   |   |                   |   |   |   |   |   |   |   |
|  of held- to- maturity securities, net   |   |                   | 635    |   |   |   | (299 | ) |   |   | 15 |   |
| Discount accretion and premium amortization   |   |                   |   |   |   |   |   |   |   |
|  of available- for- sale securities, net |   |                   | 246    |   |   |   | 396 |   |   |   | 422 |   |
| Profits (loss) from trading securities, net   |   |                   | (551   | ) |   |   | 340 |   |   |   | 164 |   |
|                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
|                                          |   | $                      | 1,111  |   |   | $ | 639 |   |   | $ | 681 |   |

----

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

| Note 14 - Taxes on Income |   |   |                                                       |   |   |   |   |   |   |   |
|---------------------------|--------|--------|------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                      |   |   |                                                       |   |   |   |   |   |   |   |   |   |   |
|                      | A.     |   | Income tax expense included in the statement of operations |   |   |   |   |

|                               |   |   |   |   | Year ended December 31 |   |
|------------------------------------|--------|--------|--------|--------|------------------------|--------|
|                               |   | 2008   |   |   | 2009                   |   |   | 2010 |   |
|                               |   |   |   |   |                   |   |   |   |   |
| Current taxes                      |   | $      | 3,922  |   |                   | $      | 4,600 |   |   | $ | 2,197 |   |
| Taxes in respect to previous years |   |   | (18    | )      |                   |   | - |   |   |   | 145 |   |
| Deferred taxes                     |   |   | 324    |   |                   |   | (1,346 | ) |   |   | 106 |   |
| Income tax expense *               |   | $      | 4,228  |   |                   | $      | 3,254 |   |   | $ | 2,448 |   |

|   | *  Most of the Company's taxes are calculated based on Israeli tax law except for taxes of the US subsidiary that are calculated based on US tax law. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
|   | B.                                                                                                                                                              |   | Adjustments for inflation |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                            |   | Income tax is computed on the basis of the Company’s results in nominal NIS determined for statutory purposes. Until December 31, 2007 the Company was 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 is no longer calculated. Additionally, depreciation on fixed assets and tax loss carryforwards are no longer 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 - the |
|   |                                                                                                                                                            |   |  Investment Law) |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                            |   | The Company received from the Israeli 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 has complied with those conditions. In 2008 and 2009, the realized tax reductions resulting from the "approved enterprise" status in an aggregate amount of $160 thousand and $114 thousand, respectively.  In 2010 the corporate tax rate was reduced to 25%, and therefore there was no tax benefit resulting from the approved enterprise program. |
|   |                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                            |   | Dividend distribution originating from income of an Aprroved Enterprise will be subject to a withholding tax at a rate of 15% provided that dividend is distributed during the period stipulated under the Israeli law. |

----

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

| Note 14 - Taxes on Income (cont'd) |   |   |                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |
|------------------------------------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
|                               |   |   |                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                               | D.     |   | Taxation of the subsidiary                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |
|                               |   |   |                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                               |   |   | At December 31, 2010, the Company’s subsidiary had approximately US$ 929 net operating loss carryforwards for US federal income tax reporting purposes, which will expire through 2029. In addition, at December 31, 2010, the subsidiary had approximately US$ 703 net operating loss carryforwards for state income tax reporting purposes, which will expire through 2029. |
|                               |   |   |                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                               | E.     |   | Income before income taxes and income taxes expense (benefit) included in the consolidated statements of operations                                                                                                                                                                                                                                                                 |   |   |

|                                                |   |  Year ended December 31 |   |
|-----------------------------------------------------|--------|------------------------------|--------|
|                                                |   | 2008                         |   |   | 2009 |   |   | 2010 |   |
|                                                |   |                         |   |   |   |   |   |   |   |
| Income (loss) before income taxes:                  |   |                         |   |   |   |   |   |   |   |
| Israel                                              |   | $                            | 17,932 |   |   | $ | 15,760 |   |   | $ | 11,475 |   |
| Foreign Jurisdiction                                |   |                         | (272   | ) |   |   | (928 | ) |   |   | (317 | ) |
|                                                |   | $                            | 17,660 |   |   | $ | 14,832 |   |   | $ | 11,158 |   |
|                                                |   |                         |   |   |   |   |   |   |   |   |   |   |
| Income tax expense (benefit):                       |   |                         |   |   |   |   |   |   |   |   |   |   |
| Current taxes:                                      |   |                         |   |   |   |   |   |   |   |   |   |   |
| Israel                                              |   | $                            | 3,922  |   |   | $ | 4,600 |   |   | $ | 2,197 |   |
| Foreign Jurisdiction                                |   |                         | -      |   |   |   | - |   |   |   | - |   |
|                                                |   | $                            | 3,922  |   |   | $ | 4,600 |   |   | $ | 2,197 |   |
|                                                |   |                         |   |   |   |   |   |   |   |   |   |   |
| Tax expense (benefit) in respect to previous years: |   |                         |   |   |   |   |   |   |   |
| Israel                                              |   | $                            | (18    | ) |   | $ | - |   |   | $ | 145 |   |
| Foreign Jurisdiction                                |   |                         | -      |   |   |   | - |   |   |   | - |   |
|                                                |   | $                            | (18    | ) |   | $ | - |   |   | $ | 145 |   |
|                                                |   |                         |   |   |   |   |   |   |   |   |   |   |
| Deferred taxes:                                     |   |                         |   |   |   |   |   |   |   |   |   |   |
| Israel                                              |   | $                            | 324    |   |   | $ | (825 | ) |   | $ | 131 |   |
| Foreign Jurisdiction                                |   |                         | -      |   |   |   | (521 | ) |   |   | (25 | ) |
|                                                |   | $                            | 324    |   |   | $ | (1,346 | ) |   | $ | 106 |   |
|                                                |   |                         |   |   |   |   |   |   |   |   |   |   |
| Total                                               |   | $                            | 4,228  |   |   | $ | 3,254 |   |   | $ | 2,448 |   |

----

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

| Note 14 - Taxes on Income (cont'd) |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |
|------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
|                               |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
|                               | F.     |   | On July 14, 2009, the Knesset passed the Law for Economic Efficiency (ammendments for legislation for implementation of the economic program for 2009-2010 ), which  provides for a gradual reduction in the company tax rate to 18% as from 2016. According to the amendmends the Company tax rate will be reduced in the following manner: in 2009 - 26%, in 2010 - 25%, in 2011 -24%, in 2012- 23%, in 2013- 22%, in 2014- 21%, in 2015- 20%,  and from 2016 onward the  tax rate will be 18%. The implication of the change in the tax rates as aforesaid is effective starting from the financial statements for 2009, in a manner of a reduction of the deferred tax liabilities and recognizing  tax benefit of $95. |
|                               |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
|                               | G.     |   | Reconciliation between the tax on the pre-tax adjusted earnings and the tax expense included in the statement of operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

|                                              |   | Year ended December 31 |   |
|---------------------------------------------------|--------|------------------------|--------|
|                                              |   | 2008                   |   |   | 2009 |   |   | 2010 |   |
|                                              |   |                   |   |   |   |   |   |   |   |
| Statutory tax rate                                |   |                   | 27     | % |   |   | 26 | % |   |   | 25 | % |
|                                              |   |                   |   |   |   |   |   |   |   |   |   |   |
| Income before taxes on income as                  |   |                   |   |   |   |   |   |   |   |   |   |   |
|  reported in the statement of operations     |   | $                      | 17,660 |   |   | $ | 14,832 |   |   | $ | 11,158 |   |
|                                              |   |                   |   |   |   |   |   |   |   |   |   |   |
| Computed “expected” tax expense       |   |                   | 4,768  |   |   |   | 3,856 |   |   |   | 2,790 |   |
|                                              |   |                   |   |   |   |   |   |   |   |   |   |   |
| Non-deductible expenses                           |   |                   | 149    |   |   |   | 35 |   |   |   | 40 |   |
| Effect of Approved Enterprise tax rate            |   |                   | (160   | ) |   |   | (114 | ) |   |   | - |   |
| Foreign tax differential                          |   |                   | -      |   |   |   | (75 | ) |   |   | 64 |   |
| Deferred taxes for losses from previous years     |   |                   | -      |   |   |   | (203 | ) |   |   | - |   |
| Taxes in respect to previous years                |   |                   | (18    | ) |   |   | - |   |   |   | 145 |   |
| Change in valuation allowance                     |   |                   | 86     |   |   |   | 94 |   |   |   | 210 |   |
| Differences between the definition of             |   |                   |   |   |   |   |   |   |   |   |   |   |
|  capital and assets for Israeli tax purposes |   |                   | (876   | ) |   |   | (254 | ) |   |   | (975 | ) |
| Increase related to current year tax positions    |   |                   | 287    |   |   |   | 78 |   |   |   | 227 |   |
| Other differences                                 |   |                   | (8     | ) |   |   | (163 | ) |   |   | (53 | ) |
|                                              |   |                   |   |   |   |   |   |   |   |   |   |   |
|                                              |   | $                      | 4,228  |   |   | $ | 3,254 |   |   | $ | 2,448 |   |

----

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

| Note 14 - Taxes on Income (cont'd) |                                                                                                                                                                                                   |   |           |   |   |   |   |   |
|------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|--------|--------|--------|--------|
|                               |                                                                                                                                                                                                   |   |           |   |   |   |   |   |   |   |   |   |   |
|                               | H.                                                                                                                                                                                                     |   | Deferred taxes |   |   |   |   |   |   |   |   |   |
|                               |                                                                                                                                                                                                   |   |           |   |   |   |   |   |   |   |   |   |   |
|                               | As of December 31, 2009 and 2010, the tax effects of temporary differences that give rise to significant portions  of deferred tax assets and liabilities are attributable to the following: |

|                                 |   | December 31 |   |   | December 31 |   |
|--------------------------------------|--------|-------------|--------|--------|-------------|--------|
|                                 |   | 2009        |   |   | 2010        |   |
|                                 |   |        |   |   |        |   |
| Deferred tax assets:                 |   |        |   |   |        |   |
|                                 |   |        |   |   |        |   |
| Provision for doubtful debts         |   | $           | 1,122  |   |        | $      | 1,360 |   |
| Vacation pay accruals                |   |        | 102    |   |        |   | 133 |   |
| Stock-based compensation             |   |        | 183    |   |        |   | 325 |   |
| Foreign currency embedded            |   |        |   |   |        |   |   |   |
|  derivatives                    |   |        | 74     |   |        |   | - |   |
| Marketable securities                |   |        | 520    |   |        |   | 744 |   |
| Net operating loss carryforwards     |   |        | 521    |   |        |   | 546 |   |
| Severance pay fund                   |   |        | 6      |   |        |   | 8 |   |
|                                 |   |        |   |   |        |   |   |   |
| Total gross deferred tax assets      |   | $           | 2,528  |   |        | $      | 3,116 |   |
|                                 |   |        |   |   |        |   |   |   |
| Less valuation allowance             |   |        | (510   | )      |        |   | (720 | ) |
|                                 |   |        |   |   |        |   |   |   |
| Net deferred tax assets              |   | $           | 2,018  |   |        | $      | 2,396 |   |
|                                 |   |        |   |   |        |   |   |   |
| Deferred tax liabilities:            |   |        |   |   |        |   |   |   |
|                                 |   |        |   |   |        |   |   |   |
| Fixed assets                         |   | $           | (801   | )      |        | $      | (957 | ) |
| Foreign currency embedded            |   |        |   |   |        |   |   |   |
|  derivatives                    |   |        | -      |   |        |   | (230 | ) |
| Goodwill                             |   |        | (93    | )      |        |   | (176 | ) |
|                                 |   |        |   |   |        |   |   |   |
| Total gross deferred tax liabilities |   | $           | (894   | )      |        | $      | (1,363 | ) |
|                                 |   |        |   |   |        |   |   |   |
| Net deferred tax asset               |   | $           | 1,124  |   |        | $      | 1,033 |   |

|   | The net change in valuation allowance for the years ended December 31, 2008, 2009 and 2010 was an increase of $86, $94 and $210, respectively.                                                                                                                                                                                                                                           |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
|   | 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. |

----

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

| Note 14 - Taxes on Income (cont'd) |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                       |   |   |   |   |   |
|------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|--------|--------|--------|--------|
|                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                       |   |   |   |   |   |   |   |   |   |   |
|                               | H.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 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, net of the existing valuation allowance at December 31, 2010. 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. |
|                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                       |   |   |   |   |   |   |   |   |   |   |
|                               | I.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | Accounting for uncertainty in income taxes |   |   |   |   |   |   |
|                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                       |   |   |   |   |   |   |   |   |   |   |
|                               | A reconciliation of the beginning and ending amount of  unrecognized tax benefits is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |

|                                           |   | 2009   |   |   | 2010   |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Balance at January 1                           |   | $      | 599    |   |   | $      | 890 |   |
| Increase related to prior year tax positions   |   |   | 213    |   |   |   | 55 |   |
| Increase related to current year tax positions |   |   | 78     |   |   |   | 227 |   |
| Balance at December 31                         |   | $      | 890    |   |   | $      | 1,172 |   |

|   | The unrecognized tax benefits at December 31, 2008, 2009 and 2010 were $599, $890 and $1,172 respectively, if recognized, would affect the effective tax rate of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   | No interest or penalties have been recorded at the date of adoption and for the years ended December 31, 2008, 2009 and 2010. The Company and its subsidiaries files income tax returns in Israel, Cyprus and USA. As of December 31, 2010, the Israeli tax returns of the Company are open to examination by the Israeli income tax authorities for the tax years of 2005 through 2010 and the tax returns of the foreign subsidiaries are open to examination by the tax authorities for the tax years 2007 through 2010. In addition, The Company is unable to provide an estimate of the range of the total amount of unrecognized tax benefits that is reasonably possible to change significantly within the next twelve months. |

----

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

| Note 15 - Acquisitions |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| A.                     | In May 2008, the Company acquired from SkyNet Satellite Corporation ("SkyNet") the real property, communication equipment and licenses of the Hawley Teleport located in Pike County, Pennsylvania. The parcel of land contains approximately 200 acres, and buildings with approximately 40,000 square feet. The aggregate purchase price was $4,876 million and was paid mostly in cash, and the remainder ($250) in future services to be provided to SkyNet . The fair value of the assets purchased was $6,400, and since the Company has accounted for this acquisition as an asset purchase and not as business combination, the difference of $1,500 was allocated proportionately between the assets. As a result of the acquisition, the Company leverages its global network to generate additional revenues. |
|                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
|                   | The following table summarizes the estimated value of the assets acquired :                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |

| Land                     |   | $      | 379    |   |
|--------------------------|--------|--------|--------|--------|
| Building                 |   |   | 2,694  |   |
| Communications equipment |   |   | 1,656  |   |
| Licenses                 |   |   | 147    |   |
|                     |   |   |   |   |
| Total assets acquired    |   | $      | 4,876  |   |

| B.     | In November 2008, the Company acquired from Bezeq The Israeli Telecommunication Corporation Ltd. ("Bezeq") its satellite business including the Bezeqsat and "711" business units (services to television and radio and mobile satellite communication services) and real property and assets of the Emeq Haela teleport located in Israel. As a result of the acquisition, the Company enhanced its infrustructure and service offering. The aggregate purchase price was $15,573 and was paid in cash. The Company has accounted for this acquisition as business combination. Results of the operations of the acquired business are included in the statement of operations since November 4, 2008. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
|   | The following table summarizes the estimated fair value of the assets acquired :                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |

| Building                                  |   | $      | 2,222  |   |
|-------------------------------------------|--------|--------|--------|--------|
| Equipment                                 |   |   | 1,526  |   |
| Other assets ( prepayment on leased land) |   | 6,840  |   |
| Intangible assets*                        |   |   | 1,251  |   |
| Goodwill **                               |   |   | 3,734  |   |
|                                      |   |   |   |   |
| Total assets acquired                     |   | $      | 15,573 |   |

|   |   | *      | Intangible assets consist of a franchise agreement, brand name and customer relationship. |
|--------|--------|--------|-------------------------------------------------------------------------------------------|
|   |   |   |                                                                                      |   |   |   |   |   |   |   |   |   |   |
|   |   | **     | The goodwill is expected to be fully deductible for tax purposes.                         |   |   |   |   |

----

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

| Note 16 - Goodwill and Other Intangible Assets |   |                       |   |   |   |   |   |
|------------------------------------------------|--------|----------------------------|--------|--------|--------|--------|--------|
|                                           |   |                       |   |   |   |   |   |   |   |   |   |   |   |
|                                           | A.     | Acquired Intangible Assets |   |   |   |   |   |   |   |   |

|                          |   | December 31, 2010 |   |
|-------------------------------|--------|------------------------|--------|
|                          |   |                   |   | Weighted |   |   |   |
|                          |   |                   |   | Remaining |   |   |   |
|                          |   | Gross                  |   | average |   |   |   |
|                          |   | carrying               |   | amortization |   | Accumulated |   |
|                          |   | amount                 |   | period |   | amortization |   |
| Amortizing intangible assets: |   |                   |   |   |   |   |   |
| Franchise agreement           |   | $                      | 857    |   | 3.3 yrs |   | $ | (358 | ) |
| Brand name                    |   |                   | 274    |   | 3.3 yrs |   |   | (108 | ) |
| Customer relationship         |   |                   | 281    |   | 2 yrs |   |   | (162 | ) |
| Licenses                      |   |                   | 147    |   | 7.6 yrs |   |   | (34 | ) |
| Total                         |   | $                      | 1,559  |   |   |   | $ | (662 | ) |

|                          |   | December 31, 2009 |   |
|-------------------------------|--------|------------------------|--------|
|                          |   |                   |   | Weighted |   |   |   |
|                          |   |                   |   | Remaining |   |   |   |
|                          |   | Gross                  |   | average |   |   |   |
|                          |   | carrying               |   | amortization |   | Accumulated |   |
|                          |   | amount                 |   | period |   | amortization |   |
| Amortizing intangible assets: |   |                   |   |   |   |   |   |
| Franchise agreement           |   | $                      | 857    |   | 4.3 yrs |   | $ | (179 | ) |
| Brand name                    |   |                   | 274    |   | 4.3 yrs |   |   | (58 | ) |
| Customer relationship         |   |                   | 281    |   | 3 yrs |   |   | (87 | ) |
| Licenses                      |   |                   | 147    |   | 8.6 yrs |   |   | (20 | ) |
| Total                         |   | $                      | 1,559  |   |   |   | $ | (344 | ) |

|   | The expected intangible assets amortization expense for each of the next five years and thereafter is as follows: |
|--------|-------------------------------------------------------------------------------------------------------------------|

| 2011                |   | $      | 311 |
|---------------------|--------|--------|-----|
| 2012                |   |   | 241 |
| 2013                |   |   | 214 |
| 2014                |   |   | 81  |
| 2015 and thereafter |   |   | 50  |
|                |   | $      | 897 |

|   | Aggregate amortization expense for amortizing intangible assets was $45, $299 and $319 for the years ended December 31, 2008, 2009 and 2010, respectively.                                                                      |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
|   | B.                                                                                                                                                                                                                              | Goodwill |   |   |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
|   | The goodwill recorded in the acquisition from Bezeq represents future synergy in the company’s content management and distribution services resulting from the use of the Emeq Haela facility for expanding its business. |

----

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

| Note 17 - Transactions and Balances with Related Parties |   |   |                              |   |   |   |
|----------------------------------------------------------|--------|--------|-----------------------------------|--------|--------|--------|
|                                                     |   |   |                              |   |   |   |   |   |   |   |   |   |   |
|                                                     | A.     |   | Transactions with related parties |   |   |   |   |   |   |   |

|                                        |   | Year ended December 31 |   |
|---------------------------------------------|--------|------------------------|--------|
|                                        |   | 2008                   |   |   | 2009 |   |   | 2010 |   |
|                                        |   |                   |   |   |   |   |   |   |   |
| Revenues from sales and services (C)        |   | $                      | 1,474  |   |   | $ | 1,145 |   |   | $ | 1,148 |   |
|                                        |   |                   |   |   |   |   |   |   |   |   |   |   |
| General and administrative                  |   | $                      | 25     |   |   | $ | 41 |   |   | $ | 59 |   |
|                                        |   |                   |   |   |   |   |   |   |   |   |   |   |
| Management’s fees to shareholders (D) |   | $                      | 398    |   |   | $ | 398 |   |   | $ | 398 |   |
|                                        |   |                   |   |   |   |   |   |   |   |   |   |   |
| Purchase of fixed asset                     |   | $                      | 300    |   |   | $ | - |   |   | $ | 40 |   |

|   | B. |   | Balances with related parties |   |   |   |   |   |   |   |   |
|--------|----|--------|-------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|

|              |   | December 31 |   |   | December 31 |   |
|-------------------|--------|-------------|--------|--------|-------------|--------|
|              |   | 2009        |   |   | 2010        |   |
|              |   |        |   |   |        |   |
| Trade receivables |   | $           | 237    |   |        | $      | 175 |   |
|              |   |        |   |   |        |   |   |   |
| Other payables    |   | $           | 4      |   |        | $      | 55 |   |

|   | C.                                                                                           |   | Revenues from related parties |   |   |   |   |   |   |   |   |
|--------|----------------------------------------------------------------------------------------------|--------|-------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
|   |                                                                                         |   |                          |   |   |   |   |   |   |   |   |   |   |
|   | The Company is engaged with customers, which are related parties of one of its shareholders. |   |

----

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

| Note 17 - Transactions and Balances with Related Parties (cont'd) |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                    |                                    |   |   |
|-------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------|--------|--------|
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                    |                                    |   |   |   |   |   |   |   |   |   |   |
|                                                              | D.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                    | Management’s fees to shareholders |   |   |   |   |   |   |
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                    |                                    |   |   |   |   |   |   |   |   |   |   |
|                                                              | In October 2006, the Company entered into an agreement with Del-Ta Engineering Ltd. (shareholder, hereinafter- "Del- Ta") and Kardan Communications Ltd. (shareholder, hereinafter- "Kardan") that sets forth the management and consulting services that Del-Ta and Kardan are obligated to provide and the annual management fee payable thereunder as follows: (i) $235 to Del-Ta and (ii) $163 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 Company'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 in each of 2008, 2009 and 2010. |
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                    |                                    |   |   |   |   |   |   |   |   |   |   |
| Note 18 - Fair Value Measurements                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                    |                                    |   |   |   |   |   |
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                    |                                    |   |   |   |   |   |   |   |   |   |   |
|                                                              | On January 1, 2008, the Company adopted ASC Topic 820 for fair value measurements of financial assets and financial liabilities and on January 1, 2009, adopted ASC Topic 820 to fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:                                         |
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                    |                                    |   |   |   |   |   |   |   |   |   |   |
|                                                              | *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                    |                                    |   |   |   |
|                                                              | *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.               |
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                    |                                    |   |   |   |   |   |   |
|                                                              | *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Level 3 inputs are unobservable inputs for the asset or liability.                                                                                                      |                                    |   |   |   |
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                    |                                    |   |   |   |   |   |   |   |   |   |   |
|                                                              | The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                    |                                    |   |   |

----

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

| Note 18 - Fair Value Measurements (cont'd) |                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
|--------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                       |                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       | In accordance with ASC Topic 820 the Company’s available-for-sale and trading securities are classified within Level 1 because they are valued using quoted market prices in active markets. The Company’s embedded currency conversion derivatives are classified within Level 2 because they are valued using quoted inputs from an active market for its assumptions. |
|                                       |                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       | As of December 31, 2010, the Company held approximately $3,632 of U.S government or government agency marketable securities ($2,835 are calssified as available for sale, and $797 as trading) and approximately $18,490 of marketable corporate debt securities ($18,088 are calssified as available for sale, and $402 as trading).                                                |
|                                       |                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       | Assets and liabilities measured at fair value at December 31, 2009 and 2010, are summarized below:                                                                                                                                                                                                                                                                                   |

|                           |   |         |   |   | Fair Value Measurements at Reporting Date Using      |   |
|--------------------------------|--------|--------------|--------|--------|------------------------------------------------------|--------|
|                           |   | December 31, |   |   | Quoted Prices in Active Markets for Identical Assets |   |   | Significant Other Observable Inputs |   |   | Significant Unobservable Inputs |   |
|                           |   | 2010         |   |   | (Level 1)                                            |   |   | (Level 2) |   |   | (Level 3) |   |
| Assets:                        |   |         |   |   |                                                 |   |   |   |   |   |   |   |
| Trading securities             |   | $            | 1,593  |   |                                                 | $      | 1,593 |   |   | $ | - |   |   | $ | - |   |
| Available-for-sale securities: |   |         |   |   |                                                 |   |   |   |   |   |   |   |   |
| Corporate debentures           |   |         | 18,088 |   |                                                 |   | 18,088 |   |   |   | - |   |   |   | - |   |
| US government or government    |   |         |   |   |                                                 |   |   |   |   |   |   |   |   |
| agency debentures              |   |         | 2,835  |   |                                                 |   | 2,835 |   |   |   | - |   |   |   | - |   |
| Fair value of embedded         |   |         |   |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| currency conversion            |   |         |   |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| derivatives                    |   |         | 2,078  |   |                                                 |   | - |   |   |   | 2,078 |   |   |   | - |   |
| Total                          |   | $            | 24,594 |   |                                                 | $      | 22,516 |   |   | $ | 2,078 |   |   | $ | - |   |
| Liabilities:                   |   |         |   |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Fair value of embedded         |   |         |   |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| currency conversion            |   |         |   |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| derivatives                    |   | $            | 1,121  |   |                                                 | $      | - |   |   | $ | 1,121 |   |   | $ | - |   |

----

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

| Note 18 - Fair Value Measurements (cont'd) |   |   |   |   |   |   |   |   |
|--------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|

|                           |   | December 31, |   |   | Quoted Prices in Active Markets for Identical Assets |   |   | Significant Other Observable Inputs |   |   | Significant Unobservable Inputs |   |
|--------------------------------|--------|--------------|--------|--------|------------------------------------------------------|--------|--------|-------------------------------------|--------|--------|---------------------------------|--------|
|                           |   | 2009         |   |   | (Level 1)                                            |   |   | (Level 2)                           |   |   | (Level 3)                       |   |
| Assets:                        |   |         |   |   |                                                 |   |   |                                |   |   |                            |   |
| Trading securities             |   | $            | 1,395  |   |                                                 |   | 1,395  |                                |   | $      | -                               |   |   | $ | - |   |
| Available-for-sale securities: |   |         |   |   |                                                 |   |   |                                |   |   |                            |   |   |
| Corporate debentures           |   |         | 15,478 |   |                                                 |   | 15,478 |                                |   |   | -                               |   |   |   | - |   |
| US government or government    |   |         |   |   |                                                 |   |   |                                |   |   |                            |   |   |
| agency debentures              |   |         | 5,070  |   |                                                 |   | 5,070  |                                |   |   | -                               |   |   |   | - |   |
| Fair value of embedded         |   |         |   |   |                                                 |   |   |                                |   |   |                            |   |   |   |   |   |
| currency conversion            |   |         |   |   |                                                 |   |   |                                |   |   |                            |   |   |   |   |   |
| derivatives                    |   |         | 1,703  |   |                                                 |   | -      |                                |   |   | 1,703                           |   |   |   | - |   |
| Total                          |   | $            | 23,646 |   |                                                 | $      | 21,943 |                                |   | $      | 1,703                           |   |   | $ | - |   |
| Liabilities:                   |   |         |   |   |                                                 |   |   |                                |   |   |                            |   |   |   |   |   |
| Fair value of embedded         |   |         |   |   |                                                 |   |   |                                |   |   |                            |   |   |   |   |   |
| currency conversion            |   |         |   |   |                                                 |   |   |                                |   |   |                            |   |   |   |   |   |
| derivatives                    |   | $            | 2,000  |   |                                                 | $      | -      |                                |   | $      | 2,000                           |   |   | $ | - |   |

|                        | In addition, the Companys' financial assets and liabilities consist of cash and cash equivalents, short- term investments, trade and other receivables and trade and other payables. The carrying amount of these financial instruments approximate fair value because of the short maturity of these investments. Assets held for severance benefits are recorded at their current cash redemption value. |
|-----------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                        |                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Note 19 - Subsequent Events |                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |
|                        |                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|                        | On February 6, 2011, the Company's Board of Directors declared a cash dividend in the amount of $0.15 per ordinary share, and in the aggregate amount of approximately $2.6 million. The dividend was paid on March 10, 2011 to all of the Company's shareholders of record at the end of the trading day on the NASDAQ on February 23, 2011.                                                              |

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|   | RRSAT GLOBAL COMMUNICATIONS NETWORK LTD.  |                              |
|--------|------------------------------------------------|-----------------------------------|
|   | By:                                            | /s/ David Rivel                   |   |
|   |                                           | David Rivel                       |   |
|   |                                           | Chief Executive Officer           |   |
|   |                                           |                              |   |
|   | By:                                            | /s/ David Aber                    |   |
|   |                                           | David AberChief Financial Officer |   |

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