---

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# UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549

# AMENDMENT NO. 2 
TO

# FORM 20-F/A

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

OR

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

For
the fiscal year ended December 31, 2005

OR

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

OR

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

Date of event requiring this shell company report __________

For the transition period from ___________ to _____________

Commission file number
001-14184

|B.O.S.
BETTER ONLINE SOLUTIONS LTD.(Exact name of Registrant as
               specified in its charter)
|--------------------------------------------------------------------------------------------------------

ISRAEL
(Jurisdiction of
incorporation or organization)

Beit Rabin, Teradyon
Industrial Park, Misgav, 20179, Israel
(Address of principal
executive offices)

Securities
registered or to be registered pursuant to Section 12(b) of the Act: Ordinary Shares, nominal
value NIS 4.00 per share

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

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



---

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Indicate the number of outstanding
shares of each of the issuers classes of capital or common stock as of the close of
the period covered by the annual report: 6,589,385 Ordinary Shares, nominal value NIS
4.00 per share, as of December 31, 2005 Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No x

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

Yes o No x

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

Yes x No o

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

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

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

Item 17 o Item 18 x

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

Yes o No x

EXPLANATORY NOTE

This Amendment No. 2 to the Annual
Report on Form 20-F for the year ended December 31, 2005, of B.O.S Better Online Solutions
Ltd. (the Registrant) includes a revised Item 4 that includes a description of
the commercial long term sales agreement between the Registrants subsidiary, Odem
Electronic Technologies 1992 Ltd. (Odem), and the Israel Aircraft Industries
Ltd. (IAI) for the supply of electronic components. A copy of this agreement has also been
filed as an exhibit to Amendment No. 2. In addition, Amendment No. 2 includes a
clarification to the Registrants response to Item 15.

This
Amendment No. 2 contains the following affected items only: 4, 15 and 19. Other
items remain unchanged. Except as described above, this Amendment No. 2 to the Form 20-F continues to speak as of June 28,
2006 (September 7, 2006 with respect to Amendment No.1 thereto) and no other changes have been made to
the Annual Report. This Amendment No. 2 does not amend or update any other information set forth in the
Annual Report and we have not updated disclosures contained therein to reflect any events that occurred
at a date subsequent to the filing of the Annual Report.



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# Item 4: Information on
the Company

|4A. | History
and Development of the Company
|--- | --------------------------------------

We were incorporated in Israel in
1990 as a private corporation under the Israeli Companies Ordinance, 1983. We design,
integrate and test our products in our facilities in two locations in Israel. Our
headquarters and manufacturing facilities are located at Teradyon Industrial Zone, Misgav
20179 Israel, telephone number 972-4-990-7555. The facilities of our subsidiary, Odem are
located in Rishon Letzion, Israel.

We currently manage our operations
through our subsidiaries:

a)  BOScom that is engaged in the provision of Connectivity Solutions; and

b)  Odem that is engaged in
the supply of Electronic Components and solutions.

Our Connectivity Solutions
segment focuses on providing emulation solutions for the popular IBM iSeries, enabling
customers to extend its capabilities and life cycle. Our server and associated modules
empower the iSeries, providing a scaleable solution for transparent expansion and growth.
Until July 2005, the Connectivity Solutions segment also included the PrintBOS, an Output
Management solution, which provides design, print, distribution and archiving management
solutions and enables customers to cut costs, enhance brand and marketing clout, and
direct output to multiple distribution channels. The PrintBOS was sold in July 2005 (see
Item 4B).

Our Electronic Components segmentprovides solutions in RFID (radio frequency identification devices), semiconductors,
electronic components, CCD (charge  coupled device), imaging, networking, telecom
and automation. Odem is a major solution provider and distributor of electronic components
and advance technologies in the Israeli market.

The Companys Communication
Solutions segment was sold in the fourth quarter of 2005.

We constantly seek growth
opportunities by developing new marketing channels for our products in North America,
Europe and emerging markets in Eastern Europe, Asia-Pacific and South America. We intend
to continue to raise funds in order to expand operations and capitalize on merger and
acquisition growth opportunities.

On November 18, 2004, we purchased
63.8% of Odems issued and outstanding shares from Odems existing shareholders,
for $2,740,000, comprised of cash in the amount of $1,971,000 and $769,000 by the issuance
of 290,532 of the Companys ordinary shares (subject to lock-up periods
of 2 to 4 years). We purchased an additional 23.9% and 12.3% from the minority
shareholders on September 29, 2005 and November 1, 2005, respectively, and thus Odem
became our wholly-owned subsidiary. In consideration for the 12.3% of Odems shares
purchased in November 2005 the Company paid $554,000 in cash and for the 23.9% of
Odems shares purchased in September 2005 the Company (i) issued 232,603 of the
Companys ordinary shares (subject to lock up periods of 2 to 4 years)
and paid $716,000 in cash.

In addition, we have an interest in
two affiliated companies:

(a)
          Surf Communications Solutions Ltd. (Surf), a developer and global
          supplier of universal access and network convergence software solutions to the
          wireline and wireless telecommunications and data communications industries. In
          November 2001, the Company invested $1,000,000 as part of a private placement in
          Surf. At the same time, the Company converted its convertible loan in the amount
          of $1,042,000 (principal and accrued interest) into Preferred shares in Surf at
          an exercise price equal to Surfs fair value as determined in the
          investment agreement. As a result of this private placement and conversion of
          the loan, the Company held 17% of Surf. Accordingly, the investment was
          accounted based on the cost accounting method.

3

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In March 2003, the Company purchased
from Catalyst Investments L.P. (Catalyst) most of the Surf shares held by
Catalyst (191,548 of Catalysts Preferred C shares in Surf, and a pro rata share of
the Surf Preferred C warrants held by Catalyst), in consideration of $1,755,000 by the
issuance of ordinary shares of the Company (representing 19.9% of its then outstanding
shares pre-issuance, as a result of which Catalyst held 16.6% of the outstanding Company
shares, after the issuance). As a result of the transaction with Catalyst, the
Companys holdings in Surf gave it the ability to exercise significant influence over
Surf and therefore the Companys investment in Surf was accounted for based on the
equity accounting method.

The Company had an option to purchase
the remaining Catalyst Preferred C shares in Surf by January 31, 2006, and until such
purchase, had voting rights in these Surf shares, in addition to being entitled to profits
resulting from the sale of these shares to a third party. The Company later assigned these
voting rights to Mr. Yair Shamir, who was a director of the Company. The Company did not
exercise its option by January 31, 2006 and it expired.

In September 2005, Surf completed a
private placement that is considered an event of change in circumstances that has a
significant adverse effect on the fair value of the investment. Therefore, the Company
evaluated its investment in Surf and determined that it amounts to $722,000 as of December
31, 2005 based on managements analysis (supported by an independent third-party
valuation). As a result, the Company recorded an impairment of $1,385,000, which has been
included in the equity in losses of an affiliated company in the statement of operations
for the year December 31, 2005.

Moreover, following the private
placement in Surf, the Companys voting rights have been diluted to 8.7% of the total
voting rights in Surf. As a result, the Company ceased to have the ability to exercise
significant influence over Surf and, accordingly, the adjusted carrying amount of the
investment of $722,000 is accounted for based on the cost accounting method.

(b)
          Qualmax Inc. (Pink Sheets: QMXI.PK), a US corporation, which is a developer and
          supplier of VoIP technology products and services (Qualmax). As of
          December 31, 2005, BOS held an approximate 16% interest in Qualmax, as part of
          the consideration received upon the sale of the Communication segment. As a
          result of the conversion into shares of the loan BOS extended to IP Gear, a
          subsidiary of Qualmax, in May 2006, BOS holdings in Qualmax increased to
          17%. On June 8, 2006, Qualmax agreed to issue to BOS an additional 250,000
          shares, on account of earn-out shares, however, these shares have not yet been
          issued (see Item 4B).

BOScom Ltd.s subsidiaries are:
Better On-Line Solutions Ltd. in the U.K; Better On-Line Solutions S.A.S. in France; and
BOSDelaware, Inc., in the US. During 2003, the operation of all BOScoms subsidiaries
was ceased (only the US subsidiary still exists) and the sales and marketing in Europe and
the United States have since been conducted through master distributors. In February 2006,
BOS filed an application with the Companies House requesting the strike off and
dissolution of Better On-Line Solutions Ltd., the U.K. subsidiary.

Discontinued operation 
computer networking:

On June 1, 1998, we acquired 100% of
the share capital of PacInfo, a U.S. corporation which resold, installed and provided
computer networking products to various business entities. In 2001, PacInfo acquired 100%
of Dean Tech Technologies Associates, L.L.C. (Dean Tech). Dean Tech was an IBM Advanced
Business Partner providing complete IT solutions utilizing IBMs industry-leading
eServer pSeries and xSeries lines of servers, as well as IBM Total Storage Solutions. 100%
of our computer networking revenues were derived from sales to US customers. In the fourth
quarter of 2002, Pacinfos operation was wound up due to a change in the
Companys strategy as a result of Pacinfos severe financial situation. Dean
Tech has also ceased all operations.

Our U.S. subsidiaries are Lynk USA,
Inc., and its subsidiary PacInfo, Inc. Both are non-operational and commencing the
beginning of year 2003 we market our products in the U.S. through one Master Distributor.

4

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|4B. | Business
Overview
|--- | -----------------

# Industry Background

The Company manages its business in
two reportable segments, which consist of Connectivity Solutions and the supply of
Electronic Components Solutions. A third segment, Communication Solutions, existed until
it was sold in the fourth quarter of 2005.

# (a) Connectivity
Solutions

In the 1960s and 1970s, the business
computing environment was typically organized with the mainframe in the data center and
minicomputers at the division or department level. The host mainframe and minicomputers
were accessed by dumb terminals at the user level. These host systems featured
high performance and throughput and often ran custom-designed, critical applications such
as organization-wide payroll, general ledger, inventory management and order processing
programs. Because of the importance of the mainframe and minicomputers as central
repositories of corporate data and critical applications, significant corporate resources
were, and continue to be, dedicated to maintaining this installed hardware and software
base. Although these host systems are capable of supporting enterprise-wide information
system networks, their applications are generally characterized by limited availability,
complex command sequences and character-based user interfaces.

With the introduction and
proliferation of the personal computers in the 1980s, a substantial amount of corporate
computing power was added to the workers desktop, a change facilitated by the
availability of increasingly powerful personal productivity applications such as
spreadsheets and word processors. Personal computers began replacing dumb terminals and,
as the business computing environment became increasingly heterogeneous, organizations
found themselves with significant investments in multiple, but often incompatible, systems
each performing different functions within an organization.

Despite the functionality of personal
computers, users still needed access to certain data and applications residing on host
systems. Terminal emulation hardware and software was developed to provide host
connectivity by allowing personal computers to emulate the dumb terminals they had
replaced. Often, however, these terminal emulation products were complicated, difficult to
use and allowed only a single connection to a single host. In addition, terminal emulation
products made little or no provision for the integration of host data and applications
with personal computers data and applications such as spreadsheets. Therefore, the full
capabilities of the personal computers were not available to the user when the personal
computer was used as a terminal.

In the mid-1980s, the desire of
personal computer users to share files and peripheral devices, and to communicate with
other users, led to the widespread implementation of Local Area Networks. Local Area
Networks significantly expanded an organizations ability to more efficiently connect
increased numbers of its personal computer users to host environments through a
gateway dedicated to LAN-to-host communication services. The personal computer
software enabling this LAN-to-host connectivity continued to use terminal emulation
technology.

5

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The emergence of the
Internet/intranets in the 1990s has encouraged the development of numerous new products
and services that enable and facilitate access and connectivity of host computers with
computer networks. New IBM midrange products have expanded capabilities of the iSeries in
the area of electronic commerce.

Continued widespread use of Twinax
cable infrastructure has created a need to develop solutions that can provide these users
with such features as e-mail, networking, Internet, and mobile-devices.

An industry trend noticed in the late
1990s was a move to a Thin Client environment. Larger enterprises use this
method as a means to reduce cost of ownership by employing Microsoft Windows NT/2000
Terminal Servers, which enable central configuration and user management. Terminals
(thin clients) are deployed to users throughout the network to provide the
requisite connectivity to host applications. We moved into this arena in early 2003 with a
progressive release program culminating in a full suite of Thin Clients and Ethernet
terminals. In the first quarter of 2005, we stopped our activities in the Thin Client
sector and assigned our rights with suppliers to our master distributor in the U.S., as
the profit margin for these products was small, its influence on our revenues marginal,
and the risk significant.

# (b) Electronic Components

Components are the basic building
blocks of all electronic products and in the twenty-first century the end use of
electronic products spans virtually all sectors of the economy. There are three major end
uses for electronics components (a) information technology (IT); (b) industry; and (c)
transportation and consumer goods.

The twentieth century global
revolution in electronics contributed to both the automation of repetitive tasks and the
more efficient performance of other tasks. This revolution began in the late 1940s,
followed by advances in integrated circuit technology in the late 1950s. Since 1960,
continuous improvements in the production of components and subsystems have allowed prices
to decline sharply, while market size increased dramatically.

There are two major groups of
components: a large family of active components and a small group of passive components.
Active electronic components are semiconductor products that supplanted the previous
generation of vacuum tube devices. Passive components can interrupt, resist, or otherwise
influence current flow, but cannot control it. Passive components are capacitors,
resistors, connectors, filters and inductors. In general, the passives are
used to enhance or supplement the performance of ICs. The demand for electronic components
is a derived demand. The vast majority of both active and passive components are installed
in original equipment manufacturer (OEM) products: consumer electronics, motor
vehicles, telecom equipment, factory automation systems, military hardware, and other
goods.

Since electronic components are so
widely installed, their market is affected by all major macroeconomic variables, such as
capital spending, disposable income and government budgets.

# (c) Communication
Solutions (Sold in 2005)

In 1995 the first Client VoIP
solution was introduced to the market by VocalTec, an Israeli company that demonstrated
telephone calls over the internet. Since then, in an accelerated mode, the VoIP (Voice
over Internet Protocol) and IP Telephony (Internet Protocol Telephony) have become a
market with a turnover of billions of dollars.

Large companies like Cisco, as well
as telephony players such as Lucent, Nortel, Siemens, Alcatel, Avaya and others are
selling VoIP solutions and embedding such technologies into their product lines.

6

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As broadband connectivity grows in
popularity for all organizations, major savings on calls are a potential reason for
migrating traditional calls to VoIP. Service availability and quality of service (QOS) are
two key issues that enterprises need to address in the Internet architecture to
availability and quality. The incremental cost savings for Internet telephony will depend
on the mix between on-net and off-net calls. Global enterprises with extensive private
voice networks will realize greater savings on global destinations by avoiding
international tariffs.

As the accelerated growth and
penetration of the cellular communication, there is an increase demand to extend the PBX
functionality and connecting branch offices with the mobile community via cellular
gateways in order to reduce communication costs among different operators.

In September 2004, the Company
purchased most of the assets (and liabilities) of Quasar Communication Systems Ltd., an
Israeli company engaged in the business of developing, manufacturing and selling cellular
communication gateways for an aggregate consideration of $539,000 by the issuance of
285,000 of the Companys ordinary shares. The assets and some of the liabilities of
Quasar were transferred into Quasar Telecom (2004) Ltd. (Quasar Telecom), a
wholly owned subsidiary of the Company (previously named Boslynk Ltd.). The acquisition
enabled the Company to continue developing the Communication segment, while offering to
the Companys clients an extended product line enabling savings in telecommunication
expenses for enterprise.

On October 26, 2005, the Company
entered into a definitive agreement for the sale of its Communication assets, and the
transaction closed on December 31, 2005. The Company sold its Communications related
property and equipment, goodwill, technology, trade name, existing distribution channels
and related contingent liability to the Office of the Chief Scientist to IP Gear Ltd.
(IP Gear), a wholly owned Israeli subsidiary of Qualmax Inc. (Pink Sheets:
QMXI.PK), an IT solutions provider focused on deployment of best-of breed VoIP, virtual
private networks, turnkey network design, wireless connectivity and web. The consideration
paid to the Company in the transaction was approximately 3.2 million Qualmax shares of
common stock constituting approximately 16% of Qualmaxs total issued and outstanding
Common Stock as of December 31, 2005, and $800,000 in royalties to be paid at a rate of 4%
from future revenues IP Gear will generate from the disposed segment
(Royalties) with the entire $800,000 due no later than 90 days from the third
anniversary of the closing of the transaction. Additional shares may be issued to the
Company at the end of four consecutive fiscal quarters following the closing of the
transaction, contingent upon IP Gear generating by then a certain level of revenues from
the disposed segment (Earn Out Shares). The maximum number of Earn Out Shares
that may further be issued to the Company is approximately 1 million, constituting
approximately 5% of Qualmaxs outstanding shares as of June 15, 2006. On June 8,
2006, Qualmax agreed to issue to BOS, on account of the abovementioned commitment, 250,000
Earn Out Shares.

The Company received certain
piggy-back registration rights with respect to the Qualmax shares. The Company does not
have a representative on the Board of Directors of Qualmax.

In addition, the Company and IP Gear
entered into an Outsourcing Agreement, pursuant to which the Company will provide IP Gear
with certain operating services relating to the sold Communications Segment. In accordance
with the Agreement, the first three months of services were provided for no charge and IP
Gear is to pay for these services starting from April 2006. IP Gear can elect to pay for
the services rendered in April thru June 2006 by issuance to the Company of Qualmax shares
valued at a predetermined price of $1.43 per share. The Company undertook to provide these
services at least until December 31, 2006 (12 months from closing).

The Company also granted a bridge
loan to IP Gear in the amount of $1,000,000. The term of the loan is three years and it
bears interest equal to the Prime rate plus 2.5%, up to a maximum of 12%. In the first 18
months, IP Gear shall pay only the interest accrued on the loan and monthly principal and
interest payments shall commence thereafter. The loan granted to IP Gear is secured by a
first priority floating charge, which may be subordinated to a charge in favor of Bank of
America, NA in the event such charge is recorded. In addition repayment is guaranteed by
Qualmax Inc.

7

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The loan agreement provides that if
the disposed segment would incur in the first quarter of 2006, losses that exceed
$250,000, the principal amount to be repaid under the loan shall be reduced by the excess
losses. In such event, Qualmax shall issue to the Company additional shares of Common
Stock against such reduction, valued at a predetermined price of $1.43 per share. Pursuant
to this provision, in May 2006, Qualmax issued to the Company 244,755 shares, and the
principal amount of the loan was reduced to $650,000.

In addition, the loan shall be
immediately repaid in the event Qualmax raises by way of equity financing (or a series of
equity financings) an aggregate amount equal to at least $4,500,000.

The Companys holdings as of
June 15, 2006, equal approximately 17% of Qualmaxs issued and outstanding Common
Stock (excluding the abovementioned Earn Out Shares which have not yet been issued).

Qualmax also issued to the Company a
five-year warrant for the purchase of up to 107,143 shares, constituting less than 1% of
its outstanding shares in Qualmax, at the exercise price of $2.80 per share
(Warrants). The Company received certain piggy-back registration rights with
respect to the shares underlying the warrant.

# Description of
Business Product Lines

# (a) Connectivity
Solutions

The Connectivity Solution product line
focuses on Connectivity solutions for the popular IBM iSeries server, enabling customers
to vastly extend its capabilities and life cycle. Its BOSâNOVA products family
empower the iSeries, providing a scaleable solution for transparent expansion and growth.

Connectivity products are based on
TCP/IP to Twinax controllers, as well as iSeries full and rich TCP/IP emulation, that help
extend the life cycle of the organizations iSeries. All products are unmatched in
their emulation capabilities, compatibility and transparency

Realizing the changing role of this
IBM midrange environment in todays workplace, our mission is to provide our users
with technologically advanced and cost-effective solutions for connectivity between them
and personal computers, mobile devices and local area networks, whether local or remote.
We sell and support our products worldwide through distributors, and value-added
resellers.

Our proprietary products are sold to
users of IBM iSeries, which are predominantly medium to large sized corporations that use
large data banks in their businesses and require the ability to integrate and manipulate
the data into graphics and popular personal computer programs. The target market for our
products is composed of the owners of iSeries servers and the growing number of users who
connect to these computers through the Internet, intranets, mobile devices and various
other connectivity products.

Our main product line is comprised
primarily of TCP/IP to Twinax controllers that allows Legacy Twinax equipment to work
locally or remotely via TCP/IP line to the iSeries server. In addition we have a line of
emulation software, to simulate a personal computer environment having the same
functionality to which the users are accustomed (i.e. Windows or similar graphical
interfaces), while using a midrange computer. The emulation solutions are offered at two
levels  at the user interface level and at the computer connectivity level. At the
user interface level, our emulation technology allows customers to utilize popular Windows
functions and graphics. At the connectivity level, our connectivity technology provides
personal computers with the ability to act as terminals for IBM midrange computers either
through gateway, Internet or direct connection.

8

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We are using our expertise in the
midrange computer environment to develop Internet/intranet solution products that will
enable and enhance connectivity between IBM iSeries computers, personal computers and
mobile devices via the Internet and intranets.

In 2005, 14% of our sales were
attributable to sales of Connectivity solutions and services.

Below is a description by category of
our development activity in the Connectivity product line:

# (a1) Software based
solutions

In December 1997, we announced our
BOSaNOVA transmission control protocol / internet protocol product, a connectivity tool
for organizations with either local or remote TCP/IP networks (intranet or extranet) of
personal computers using Windows 9x/Me or NT/2000/XP operating systems connected to the
iSeries. Development resources in 1999 were directed toward making TCP/IP connectivity
available for Twinax users. The e-Twinax technology has now been implemented in products
such as the BOSaNOVA Plus, BOSaNOVA TCP/IP, and e-Twin@x Controller, which made its debut
in the middle of 1999, and has been rapidly established as the remote computer controller
of choice.

Our products under this category
include:

| |  | BOSaNOVA
TCP/IP
| | - | ---------------

| | A
robust client application that provides Windows9x/Me/NT/2000/XP users on a TCP/IP network
with essential iSeries connectivity. The product includes BOSs rich 5250 emulation,
LPD printing capabilities, file transfer and a remote command facility.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | BOSaNOVA
Secure
| | - | ---------------

| | A
BOSaNOVA Secure is an all-in-one solution for totally secure iSeries emulation delivering
security from the workstation through the TCP/IP net to the organization level. Secured
TN5250 emulation is a solution for the Desktop on the TCP/IP net, which implements SSL
and SSO (Single Sign ON) with Kerberos. This security emulation provides a comprehensive
net security solution, including data on the net. While current customers can implement
the SSL protocol and SSO (Single Sign ON) by adding BOSaNOVA Secure to BOSaNOVA TCP/IP,
new customers are offered BOSaNOVA Secure.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | BOSaNOVA
Web
| | - | ------------

| | In
December 1997, we introduced BOSaNOVA Web, a Java-based application that provides iSeries
web-emulation, allowing organizations to upgrade their iSeries to enable full web
benefits. BOSaNOVA Web slashes communication costs, ensures a friendly, transparent work
environment, installs rapidly and easily without a client install and delivers a fast ROI.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loaded
on a central server and managed by a network supervisor, BOSaNOVA Web allows normal user
changes to occur hassle-free. Whether moving users to new workstations, upgrading
software, pushing out new applications, or enhancing security, users simply log on to
receive the correct workstation parameters for their jobs.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
server and users are managed easily and economically via the browser. The Network
Supervisor can change or modify parameters from any enterprise computer whether internal
or external. There is no need to use the servers computer for changes or upgrades.
It is all done seamlessly via the web and from a remote workstation.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

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| | Application
upgrades and parameter changes are automatically delivered to end-users as soon as they
log on via the browser to the web server integrated into BOSaNOVA Web.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | BOSaNOVA
Web eliminates the need for both additional push software and expensive
technical support at the desktop. Additionally, the client/server architecture means
current cache capabilities can be used, thus enabling upgrades in real-time.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
client/server architecture allows all internal and external iSeries users to benefit from
the network. Users access the iSeries through the BOSaNOVA web server which incorporates
a web server. The server encodes all transmitted information, complying with SSL
standards, amplified by user verification via a client certificate.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | BOSs
Printer Client technology is embedded in BOSaNOVA Web to enable to print via the web.
| | -------------------------------------------------------------------------------------------

| |  | BOSaNOVA
Mobile
| | - | ---------------

| | In
March 2006, we announced the new BOSaNOVA Mobile product, which combines the convenience
of mobile and PDA instruments with the ability, stability and power of a BOSaNOVA
platform. The system converts mobile instruments such as mobile terminals and cellular
telephones to mobile work stations while using the familiar emulation of the fixed work
stations.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | BOSaNOVA
Mobile is based on a server architecture, enabling central management of work stations,
without the need to make local definitions for every mobile instrument in the network. It
enables dynamic and remote identifications of users, configurations of mobile work
stations, automatic installation and updating of software in the cellular instrument and
the mobile terminal. In addition, the system provides a solution to the problem of
instability in the network, enables maintaining and retrieving information up to the
point when the mobile instrument was cut off.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | BOSaNOVA
Mobile enables end users to perform their work from any place, while using the familiar
emulation of work stations in mobile terminals and cellular instruments. The mobile
instruments maintain a work environment recognized from end stations. In addition, the
Screen Designer module, which is part of the BOSaNOVA Mobile enterprise server, enables
end users to redesign their working screens so they will fit to the size of the mobile
screen without changing the application itself.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
creation of the BOSaNOVA Mobile is part of the process to expand the basket of solutions
of the BOSaNOVA products family to additional fields, while maintaining the capability of
central management and control tools, also when using advanced instruments. BOSaNOVA
Mobile also enables all organizations to shorten the work process, to make the work of
agents in the field much more efficient and to keep them all up-to-date in real-time.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | BOSaNOVA
Spooler
| | - | ----------------

| | In
April 2006, we released the new BOSaNOVA Spooler product.
| | ------------------------------------------------------------

| | BOSâNOVA
Spooler is built as a client-server system, and is designed for users that connect to the
organization via the Internet in a complete Web environment. A print job routing
mechanism is built into this system, based upon dynamic parameters which identify the
user and his workstation. The BOSaNOVA Spooler has a mechanism that converts the
workstations exiting system definitions to the new Web-enabled system parameters.
Names of the telnet printer devices in the new system, and their local definitions, are
built by an automatic conversion process that is initiated when the workstation activates
the client station for the first time. With the help of this system, the connection
process becomes easy and fast.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

---

---

| | The
printer client software included in BOSaNOVA Spooler is based on the leading printing
software of BOSâNOVA family of products. It includes complete support for iSeries
print output, and a complete and easy configuration, including configuration of the
smallest details of the local printer.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
centralized configuration of the BOSâNOVA Spooler server contributed to the fast
implementation process at the workstations. The BOSâNOVA Spooler is fully adapted
to meet most of the organizations security needs and support the following features:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Encryption
| | - | ----------

| |  | VPN
| | - | ---

| |  | Protocols
conversion between external and internal networks
| | - | -----------------------------------------------------------

| |  | Client
certificates
| | - | -------------------

| |  | Load
balancing
| | - | --------------

# (a2) Hardware and
software based solution

The e-Twin@x Controller, which made
its debut in 1999, supplies a secure, encrypted TN5250e connection to the iSeries over the
Internet or WAN, and provides local or remote Twinax networks with access to LAN
resources. The e-Twin@x Controller allows enterprises to leverage their Twinax investments
(in equipment and cabling) while providing the benefits of a TCP/IP connection. Dramatic
improvements in performance, uptime and cost-efficiency are the result. A new model, the
e-TwinStar, was released in 2002. It features native support for CAT5 cabling, in the form
of built-in RJ45 sockets, saving customers with this environment the cost of an active
star hub.

Our products under this category
include:

| |  | e-Twin@x
Controller
| | - | -------------------

| | This
product provides IP over Twinax connection to local and remote Series, adding the
benefits of a Local Area Network to existing Twinax infrastructure. This product
eliminates the difficulty of maintaining System Network Architecture and Anynet
protocols, replacing them with fast, state-of-the-art Transmission Control Protocol /
Internet Protocol (TCP/IP).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Native
Plus
| | - | -----------

| | An
IBM-compatible Twinax card with 5250 Stealth Technology. This product does not
require a memory segment of the personal computer or its valuable resources in order to
facilitate interaction with the hardware.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | BOSaNOVA
Plus
| | - | -------------

| | An
enhanced version of the Native Plus that includes a Twinax adapter card with feature-rich
5250 display/printer emulation software for either DOS, 16- or 32-bit Windows and
32-session APPC display/printer emulation software.  This product is based on
an IBM compatible Twinax card with 5250 Stealth Technology.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

---

---

(a3)
Software Utilities

Until July 2005 the Connectivity
Solutions segment had an additional product line  the PrintBOS Output Management
product, which was introduced in late 1998 as an innovative Enterprise Output Management
solution answering a growing demand for central printing and output management solutions
in medium and large IT organizations. PrintBOS is implemented as the central solution for
layout design, printing, faxing, e-mailing, archiving, barcode printing, cheque printing
and secured printing in banks, insurance companies and medium and large corporations.
PrintBOS is also a recognized complementary solution for SAP layout design and printing
and integrates SAP output with other enterprise software outputs. PrintBOS was designed
for a wide range of operating systems, including mainframe and UNIX. PrintBOS customers
use it for a variety of documents  from forms, reports, barcodes and labels to faxes
and cheques. PrintBOS transparently intercepts these print jobs and applies the correct
graphic formatting to create the customers preferred output. Time and labor-saving,
PrintBOS allows employees to focus on more added-value tasks than output jobs.

On July 18, 2005, BOScom signed an
asset purchase agreement with Consist Technologies Ltd. and Consist International Inc.
(collectively, Consist), for the sale of its PrintBOS product line in
consideration of $500,000 and a contingent payment in each of the next three years equal
to 6-10% of future revenues exceeding $1,000,000 per year, generated by Consist from the
PrintBOS product line. The Company has accounted for a gain of $273,000 in 2005. As of
December 31, 2005, the Company has received $375,000 and the remaining $125,000 has been
placed in escrow, pending repayment of royalties to the Office of the Chief Scientist
(OCS) on sales of PrintBOS products.

# (b) Electronic Components

Our subsidiary, Odem, is engaged in
providing electronic components, data systems, image processing products, and Radio
Frequency Identification Devices (RFID) and solutions.

Electronic Components

Odem imports electronic components
and distributes them to the local defense and civilian electronic industries. It
represents suppliers of components in four categories:

1)
          Active Components  semiconductors, transistors, detectors, diodes,
          integrated circuits, hybrid modems, cellular components, communication ICs,
          memories, displays, and LEDS;

2)
          Passive Components  capacitors, thermistors, varistos, oscillators,
          crystals, resistors, C-DC converters, and power supplies;

3)
          Electro-mechanical Components  relays, connectors, circuit breakers,
          filters, transformers, plugs, thermostats, switches, etc.

4)
          Discontinued Semiconductors- made by Intel, Fairchild, Harris, Microchip,
          National, Quality SMC, Texas Instruments, Vantis, Motorola, and more.

In  September
2004, Odem entered into a long term sales agreement with the Israel Aircraft  Industries
Ltd. (IAI) for the supply of certain  electronic  components through December 2008. The agreement provides
for a fixed  sales  price of  components  during  its term and also  requires  Odem to hold  inventory  of
products  necessary for three months of IAIs production  relating to such components.  The agreement does
not include a requirement for any minimum purchase quantities by the IAI.

Sales to IAI accounted  for
14% of our revenues in the year 2005,  however the vast majority of Odems
sales to the IAI was made pursuant to  individual  purchase  orders  rather than under the  abovementioned
agreement.  An interruption in our business  relationship with the IAI would materially  adversely impact
our financial results.

Data systems

Odem provides full access solutions
for IT and telecommunications (LAN/WAN) applications, selling communication servers,
multi-protocol print servers, server adapters, USB products, switches, fiber optics
equipment, ADSL and XDSL routers, modems, VoIP equipment, ATM devices, and more.

12

---

---

Image Processing Products

Odem markets image processing
products, charge-coupled-device (CCD) and CMOS imaging technologies. The products and
technologies Odem markets in this field, such as CCD & CMOS sensors, line and area
scan and camera interface items, are used in applications of management and quality
control in production lines for products such as semiconductors, PCBs, and textiles.

Radio Frequency
Identification Devices (RFID) solutions

RFID is the use of radio frequencies
to read information from a small device known as a tag that can be sensed at a distance by
radio frequencies. The tag can be any small device such as pendants, beads, nails, labels,
microwires and fibers. According to IDTechEX research (a knowledge based company
specializing in RFID smart labels, that provides independent marketing, technical and
business advice and services on this subject), in 2006, it is expected that the volume of
RFID tags that will be sold will be almost three times more than the volume sold during
the past 60 years since their invention, with the increase primarily driven by the use of
RFID for tagging vehicles and cases. Additionally, it is forecasted by IDTechEX research
that the future years shall bring another new development  the tagging of high
volume items  notably consumer goods, drugs, and postal package  at the
request of retailers, military forces and postal authorities.

In
2004,  Odem  started to  provide  products  and  solutions  in the field of RFID and  successfully
implemented  an RFID  solution  in the  Maccabia  sports  event  and in a dairy  farm  (identification  of
cattle),  both in Israel.  Recently,  Odem entered into an agreement for the supply of RFID tags for waste
disposal  systems,  in  Europe,  and is  expected  to begin  supplying  the tags in  early  2007.  Odem is
investing in developing  new RFID  solutions and  constantly  searching for new  marketable  solutions and
applications, as well as actively searching for acquisition opportunities, in this growing field.

In 2005, 75% of our sales were
attributable to sales of the Electronic Components Solutions segment.

# (c) Communication
Solutions (Sold in 2005)

Our Communication products included
multi-path, intelligent routing VoIP gateways, GSM gateways and other cellular gateways.
Designed for the corporate market, these devices enable major reduction of inter-office,
long-distance and cellular-to-line communication costs using VPN, cellular-to-cellular
networks or the public Internet to carry telephone calls.

Additionally, they extend PBX
functionality to enterprise branch offices. Supporting standard protocols, the gateways
are built on robust platforms to allow modular incorporation of value-added applications.

Designed for the enterprise market
and OEMs, our Claro VoIP solutions were the preferred choice for sites requiring just a
few connections through mid-market sites with hundreds of connections. Our VoIP products
were distinguished by their seamless integration. For end users, this means absolutely no
change in their familiar work environment, eliminating a learning curve. For enterprises,
it translates into a more affordable, attractive investment, as VoIP products fit in with
existing equipment, and demand no changes or additions, delivering significant, measurable
economies of cost.

The Cellular Gateways Solutions of
Quasar Telecom became an integral part of the Communication segment with their acquisition
in 2004 (see Item 4A). Quasar Telecoms proven cellular technology created gateways
between the corporate PBX and cellular network to enable cost savings of communication
cost.

13

---

---

In
2005, 11% of our sales were attributable to sales of Communication products and services.
As aforementioned, the assets of the Communication Solutions segment were sold to
Qualmaxs subsidiary, IPGear Ltd. in the fourth quarter of 2005 (see item 4B(c)).

# Marketing,
Distribution and Sales

We market our products primarily to
medium and large sized corporations through a combination of direct sales, indirect
distribution and original equipment manufacturers.

In the United States, we market our
Connectivity products through one master distributor located in Phoenix, Arizona, which
coordinates the midrange connectivity-related marketing efforts of dozens of distributors
and resellers, and also offers technical support and after-sales service. Odem (Electronic
Components solutions) markets its products and services in the United States through a
wholly owned company, Ruby-Tech, Inc., located in Sherbourn, Massachusetts.

In Europe, we market our Connectivity
products through local distributors that provide pre and post sales support. Products sold
in the rest of the world are serviced from our headquarters in Israel.

We further rely on peripheral product
distributors who offer our products along with other products for the IBM midrange market.
We also rely on value added resellers who offer system sales and installation, which
include a variety of our products. In addition, we heavily depend upon our own marketing
resources operating from Israel.

Our
Connectivity products largest customer is our master distributor located in
Phoenix, Arizona, and Odems largest customer (IAI) is located in Israel.

We generally do not have any
significant backlog because orders are usually shipped when received.

Our Companys sales do not
fluctuate seasonally, with the exception that third quarter sales are affected (set back)
by vacations in Europe and the holidays in Israel, and December and January sales are
affected (set back) by the Christmas season.

The following table sets forth our
revenues (in thousands of US$) from the continuing operations, by major geographic area,
for the periods indicated below:

|                  | 2005 | % | 2004 | %      | 2003 | %
|----------------- | ---- | - | ---- | ------ | ---- | -
|
|
|
|
|United States     |      |   |      | 3,615  |      |  
|
|Europe            |      |   |      | 2,887  |      |  
|
|Far East          |      |   |      | 6,083  |      |  
|
|Israel and others |      |   |      | 14,468 |      |  
|                  |      |   |      |        |      |  
|Total Revenues    |      |   |      | 27,053 |      |  
|                  |      |   |      |        |      |  

See Note 19b to the Consolidated
Financial Statements.

14

---

---

# Manufacturing

The products of our subsidiary
BOScom, are designed, integrated and tested at our facilities in Israel. The manufacturing
is done by Israeli subcontractors using components and subassemblies supplied by vendors
to our specifications. Certain components and subassemblies used by us in our existing
products are purchased from a single supplier or a limited number of suppliers. Most of
the imported components are purchased in Israel from local representatives of the
manufacturers. Some of them have exclusive representative rights in Israel. In the event
that these suppliers are unable to meet our requirements in a timely manner, we may
experience an interruption in production until an alternative source of supply can be
obtained. We generally maintain an inventory of components and subassemblies which we
believe is sufficient to limit the potential for such an interruption. Our current
manufacturing facilities have sufficient capacity to exceed current demand. The prices of
raw materials used in our industry are volatile and availability of electronic components
may vary due to changing demand in the market.

Odem distributes products that are
manufactured by third party suppliers.

# Intellectual Property

We currently rely on a combination of
trade secrets, copyright and trademark law, together with non-disclosure agreements and
technical measures, to establish and protect proprietary rights in our products.

We believe that the improvement of
existing products, reliance upon trade secrets and proprietary know-how and the
development of new products are generally as important as patent protection in
establishing and maintaining a competitive advantage. We believe that the value of our
products is dependent upon our proprietary software and hardware remaining trade
secrets or subject to copyright protection.

Generally, we enter into
non-disclosure and invention assignment agreements with our employees and subcontractors.
However, there can be no assurance that our proprietary technology will remain a trade
secret, or that others will not develop a similar technology or use such technology in
products competitive with those offered by us.

While our competitive position may be
affected by our inability to protect our proprietary information, we believe that because
of the rapid pace of technological change in the industry, factors such as the technical
expertise and the knowledge and innovative skill of our management and technical
personnel, name recognition, the timeliness and quality of support services provided by us
and our ability to rapidly develop, produce, enhance and market software products may be
more significant in maintaining our competitive position.

As the number of software products in
the industry increases and the functionality of these products further overlaps, we
believe that software programs will increasingly become subject to infringement claims.
The cost of responding to any such assertion may be material, whether or not the assertion
is valid.

On May 10, 2006 the Company received
a written demand from IDEAL Software GmbH, a German corporation, in which it claims that
the Company owes it for unpaid license fees (see Item 8).

# Competition

Connectivity Solutions:

The connectivity market is subject to
rapidly changing technology and evolving standards incorporated into personal computers,
networks and host computers. BOScoms products compete with products that have
already been on the market for a number of years and are manufactured by competitors, most
of which have substantially greater financial, marketing and technological resources and
name recognition than ours.

15

---

---

Our competitors include IBM, Perle,
Advanced Business Link, IGEL, CLI PowerTerm, NLynx, NetManage, Attachmate, and Seagull,
Adobe, Optio and Formscape.

Electronic Components
Solutions:

The common practice in the industry
is that suppliers and manufacturers usually grant a non-exclusive representation right in
a specific territory. As long as sales reach a reasonable level and the relationship
between the parties is good, the supplier will usually not grant another representation in
the agreed territory.

Although most of Odems
representation agreements are not on an exclusive basis, in most cases it does not have a
local competitor who distributes components from the same source. However, there may be
competition in case of similar components made by other manufacturers. In October 2005,
Odems major supplier to the Far East market opened headquarters in China, that
increased the competition in the Far East territory.

The number of instances in which
territorial-based distributing agreements are challenged by large foreign distributors,
who receive a special discount on large volume purchases from the suppliers and compete
with the local distributor by selling directly to its customers, is increasing. Still,
despite inferiority in pricing, local distributors have some advantages over such
competition by providing close and continuous technical support, large inventory, a wide
spectrum of products and short reaction time.

Odem currently represents about 35
overseas suppliers, of which approximately 20 are electronic components suppliers, 8 are
suppliers of IT equipment, 2 are suppliers of market image-processing products and 5 are
suppliers of RFID tags.

The electronic market is
characterized by multiple agents and distributors. Five local electronic component
competitors  Telsys Ltd., Nisco Projects Ltd., STG Ltd., Semicom Ltd. and Rapac
Electronics Ltd., are publicly traded on the Tel Aviv stock exchange. Other large and
influential competitors which are active in the electronic components market are
Eastronics Ltd.,STG International Ltd., Chayon Computers Ltd., RDT Ltd. and Abnet
Communications Ltd. There is an increase in the number of distributors that are owned by
international companies.

# Strategy

The
Companys  strategy  is to  enable  organizations  to  increase  operational  efficiencies  while
leveraging  their  existing  infrastructure.  We will  continue to focus and enhance our existing  product
lines and  continue to search for  additional  growth  through  mergers and  acquisitions,  while our main
focus in the near future shall be both  expanding  applications  and actively  searching  for  acquisition
opportunities, in the growing RFID field.

The key elements of our strategy are
as follows:

| |  | Increase
 Representations.  We continue to search for additional  companies to represent  through
our          Electronic Components segment.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------

| |  | Expand
Marketing Network. We intend to increase our marketing presence in the United States,
Europe and the Far East, and to expand our distribution channels in these markets through
the use of acquisitions, additional independent distributors and original equipment
manufacturers as well as our own sales representatives.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Acquisition
of companies or businesses that will increase our sales and profit, or acquisition of
complementary technologies or products that we can sell through our existing distribution
network.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

---

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| |  | Maximize
efficiency for IBM midrange market. Through our Connectivity Solutions segment, we intend
to expand and support our emulation product line for IBM midrange computers. This
includes continuous upgrading and improvement of our connectivity emulation products for
direct, gateway and Internet connection, and Windows emulation and graphics capabilities.
We continually upgrade our client software to ensure its compatibility with each new
Windows platform. We intend to streamline our manufacturing and distribution to better
serve our present client base and access a greater share of the IBM midrange market. We
have already begun to incorporate common components into our products in an effort to
streamline manufacturing and intend to take steps to improve our destination networks.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Web site:We maintain a web
site where potential customers, investors and others can obtain the most updated
information about our activities, products, press releases and financial information. Our
Web site may be found at www.boscorporate.com. The contents of our web site are not
incorporated by reference into this Form 20-F.

# Exchange Controls

See Item 10D.

For other government regulations
affecting the Companys business, see Item 5, under Grants and
Participation.

|4C. | Organizational
Structure
|--- | ------------------------

The Companys wholly owned
subsidiaries include:

In Israel  (1) BOScom
Ltd. (formerly Lynk, a Division of B.O.S. Ltd.). (2) Quasar Telecom (2004) Ltd.
(Quasar Telecom), which obtained the assets BOS acquired in September 2004
from Quasar Communication Systems Ltd. (see item 4A). The assets of Quasar Telecom were
sold to IP Gear Ltd., a subsidiary of Qualmax Inc. as part of the sale of the
Communications Segment in the fourth quarter of 2005. (3) Odem Electronic Technologies
1992 Ltd. (Odem), which we purchased on November 18, 2004 from Odems
existing shareholders, and in which by November 2005 our holdings increased to 100%. Odem,
an Israeli company, is a major solution provider and distributor of electronics components
and advance technologies in the Israeli market (see item 4A).

In Europe  BOScom had a
UK subsidiary, Better On-Line Solutions Ltd., and its subsidiary, Better On-Line Solutions
S.A.S in France, which, until mid-2003, distributed and serviced BOScoms products
abroad. In mid-2003 we decided, due to cost-efficiency considerations, to cease operations
in Europe through the subsidiaries and to market through distributors and resellers, and
the subsidiaries are no longer operational and have been closed.

In the U.S.  (1)
Ruby-Tech Inc., a wholly owned subsidiary of Odem, (2) Lynk USA Inc., a subsidiary of BOS,
and its subsidiary PacInfo (both Delaware corporations) and PacInfos subsidiary,
Dean Tech Technologies Associates, LLC. (Dean Tech), a Texan corporation, and
(3) BOS Delaware Inc. a Delaware corporation. Only Ruby-Tech is still operational.

The voting power we (or our
subsidiaries) have in all subsidiaries, equates to our shareholdings.

The Company also has an interest in
Surf Communication Solutions Ltd. (Surf) in which it has been investing since
1997, and in Qualmax Inc. in which it has been invested since December 2005 (See Item 4A).

17

---

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|4D. | Property,
Plants and Equipment
|--- | ------------------------------

Our executive offices and
engineering, development, testing, shipping and service operations are located in two
Israeli facilities (in Teradyon and in Rishon Lezion), and occupy a total of approximately
4,092 square meters. BOS and BOScom occupy 3,300 square meters in Teradyon, pursuant to a
lease which expired in December 2005 and currently is under negotiations for its renewal.
Odem occupies 792 square meters in Rishon Lezion, of which 302 square meters are owned by
Odem and the remaining space is rented pursuant to lease agreements for various periods,
with terms that expire within one to four years. In 2005, Quasar Telecom occupied 374
square meters in Rehovot, pursuant to a lease that was assigned to IP Gear commencing
January 1, 2006. The monthly rental fees of the Company and its subsidiaries amounted to
$16,000 in 2005, and currently amount to $12,000.

The facility in Teradyon is located
in a part of Israel which has been designated by the government as a Development
A area. This designation relates to the benefits available to us as an
Approved Enterprise under Israeli law, that entitles us and our shareholders
to reduced income tax rates on our income and on dividend distributions.

We believe that our facilities are
sufficient to accommodate our anticipated needs in the foreseeable future.

# Item 15: Controls and
Procedures

|(a) | Disclosure
controls and procedures.
|--- | -----------------------------------

The Companys principal
executive officer and its principal financial office evaluated the effectiveness of the
Companys disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period
covered by this report. Based on that evaluation, such principal executive officer and
principal financial officer concluded that the Companys disclosure controls and
procedures were effective as of the end of the period covered by this report.

|(b) | Change
in Internal Control over Financial Reporting.
|--- | ----------------------------------------------------

There were no changes in the
Companys internal controls over financial reporting that occurred during the fiscal
year ended December 31, 2005, that have materially affected or are reasonably likely to
materially affect these controls.

|(c) | Other.
|--- | ------

The Company believes that a control
system, no matter how well designed and operated, can not provide absolute assurance that
the objectives of the control system are met, and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, with the
Company have been determined.

# Item 19: Exhibits

The following exhibits are filed as
part of this Annual Report:

|1.1* |  | Memorandum
of Association, as amended.
|---- |  | --------------------------------------

|1.2* |  | Articles
of Association, as amended.
|---- |  | ------------------------------------

|4.1* |  | Form
of Indemnification Agreement between the Company and its officers and directors, as
amended.
|---- |  | -------------------------------------------------------------------------------------------------

|4.2 |  | Share
Purchase Agreement, dated as of February 23, 2003, and Option Agreement and Registration
Rights Agreement, dated as of March 30, 2003, by and between Catalyst Investments L.P.
and the Registrant (incorporated by reference to the Companys Annual Report on Form
20-F filed on June 17, 2004).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18

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|4.3 |  | Services
Agreement, dated as of April 15, 2003, between Cukierman & Co. Investment House Ltd.,
BOScom Ltd. and the Registrant (incorporated by reference to the Companys Annual
Report on Form 20-F filed on June 17, 2004).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 |  | M&A
Addendum to the Service Agreement, as of August 22, 2004, between Cukierman &Co.
Investment House Ltd., BOScom Ltd. and the Registrant (incorporated by reference to the
Companys Annual Report on Form 20-F filed on June 27, 2005).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.5 |  | Management
Agreement between Signum Ltd., Adiv Baruch and the Registrant, dated as of January 1,
2004 (incorporated by reference to the Companys Annual Report on Form 20-F filed on
June 17, 2004).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.6 |  | Securities
Purchase Agreement and Master Security Agreement and Registration Rights Agreement, dated
as of June 10, 2004, by and between Laurus Master Fund Ltd. and the Registrant
(incorporated by reference to the Companys Annual Report on Form 20-F filed on June
17, 2004), and Amendment no. 1 to the Securities Purchase Agreement dated as of November
16, 2004 (incorporated by reference to the Companys Registration Statement on Form
F-3 no. 333-117529).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.7* |  | Securities
Purchase Agreement and Master Security Agreement, dated as of September 29, 2005, by and
between Laurus Master Fund Ltd. and the Registrant (the Secured Convertible Term Note,
Ordinary Shares Purchase Warrant and Registration Rights Agreement are incorporated by
reference to the Companys Registration Statement on Form F-3 no. 333-130048).
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.8 |  | Distribution
 Agreement,  dated as of January 15, 2003,  by and between  BOScom Ltd. and BOSaNOVA
         Inc.  (incorporated  by reference to the Company's  Annual Report on Form 20-F/A
filed on January          6, 2005).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.9 |  | Asset
Purchase  Agreement,  dated as of September 29, 2004, by and between  Quasar
 Communication          Systems  Ltd.  and the  Registrant  (incorporated  by  reference
 to the  Company's  Registration          Statement on Form F-3 no. 333-117529).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.10 |  | Share
 Purchase  Agreement,  dated as of November 2, 2004,  by and between Jacob and Sara
Neuhof,          Odem  Electronic  Technologies  1992 Ltd. and the  Registrant
 (incorporated  by reference to the          Company's Registration Statement on Form F-3
no. 333-117529).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.11* |  | Agreement,
dated as of September 29, 2005, by and between Jacob and Sara Neuhof and the Registrant,
for the purchase of the shares of Odem Electronic Technologies 1992 Ltd. held by the
Jacob and Sara Neuhof.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.12 |  | Share
 Purchase  Agreement,  dated as of  November  2, 2004,  by and between  Telsys  Ltd.,
 Odem          Electronic  Technologies  1992  Ltd.  and  the  Registrant  (incorporated
 by  reference  to  the          Company's Registration Statement on Form F-3 no.
333-117529).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.13* |  | Share
Purchase Agreement, dated as of October 31, 2005, by and between Telsys Ltd. and the
Registrant.
|----- |  | ------------------------------------------------------------------------------------------------------

|4.14 |  | Share
Purchase Agreement, dated as of May 24, 2005, by and between certain investors and the
Registrant (incorporated by reference to the Companys Annual Report on Form 20-F
filed on June 27, 2005).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.15* |  | Asset
Purchase Agreement and Amendments no. 1 and 2 to Agreement, dated as of July 18, 2005,
August 31, 2005 and September 25, 2005, respectively, by and between BOSCom, Consist
Technologies Ltd. and Consist International Inc., and Escrow Agreement and Amendment no.
1 to Escrow Agreement between the parties, dated as of July 18, 2005 and August 31, 2005,
respectively.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19

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|4.16* |  | Asset
 Purchase  Agreement,  Amendment  no.  1 to  the  Agreement  and  Amendment  no.  2 to
 the          Agreement,  dated as of October 26, 2005, November 2, 2005, and December
31, 2005,  respectively,          by and between  Qualmax,  Inc.,  BOScom  Ltd.  and the
 Registrant;  Loan  Agreement  dated as of          December  31,  2005,  by and  between
 Qualmax  Ltd.  and  the  Registrant;  Registration  Rights          Agreement,  dated as
of December 31, 2005, by and between  Qualmax Inc. and the  Registrant;  and
         Form of warrant dated as of December 31, 2005, issued by Qualmax Inc. to the
Registrant.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.17 |  | The
 Registrant's  Israeli 2003 Share  Option Plan  (incorporated  by reference to the
 Company's          Registration Statement on Form S-8 No. 333-11650).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.18** |  | Sales
Agreement between the Registrants  subsidiary,  Odem Electronic  Technologies
         1992 Ltd.  (Odem),  and the  Israel  Aircraft  Industries  Ltd.
 (IAI)  for the  supply of          electronic components, dated as of September 19, 2004.
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8.1 |  | List
of subsidiaries (incorporated by reference to Item 4C of this Annual Report on Form 20-F).
|--- |  | -----------------------------------------------------------------------------------------------

|10.1* |  | Consent
of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global.
|----- |  | --------------------------------------------------------------------------

|10.2* |  | Consent
of Kesselman & Kesselman, a member of PriceWaterhouseCoopers International Limited.
|----- |  | -------------------------------------------------------------------------------------------

|12.1** |  | Certification
by Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934.
|------ |  | -----------------------------------------------------------------------------------------------------------------------------

|12.2** |  | Certification
by Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934.
|------ |  | -----------------------------------------------------------------------------------------------------------------------------

|13.1** |  | Certification
by Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) or Rule
15d-14(b) of the Securities Exchange Act of 1934.
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

* previously filed

** filed herewith

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# Signatures

The  Registrant  hereby  certifies that it meets all of the  requirements  for filing on Form 20-F and
that it has duly caused and authorized  the  undersigned to sign this Amendment no. 2 to its annual report
on its behalf.

|B.O.S. Better Online Solutions Ltd.                                                |                                                                             
|---------------------------------------------------------------------------------- | ----------------------------------------------------------------------------
|By: /s/ Adiv Baruch
Adiv BaruchPresident and Chief Executive Officer | By: /s/ Nehemia Kaufman
Nehemia KaufmanChief Financial Officer

Date: October 30, 2006

21

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