---

---

**SECURITIES
  AND EXCHANGE COMMISSION****WASHINGTON, D.C. 20549**

---

**FORM 20-F/AAMENDMENT NO. 2**

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

**OR**

**xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
  OF 1934**For the fiscal year ended December 31, 2002

**OR**

**oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
  ACT OF 1934**For the transition period from ...... to ......

Commission
  file No.0-29742

**RETALIX
  LTD.**
  (Exact name of registrant as specified in its charter)

**ISRAEL**
  (Jurisdiction of incorporation or organization)

**10 ZARHIN STREET, RAANANA 43000, ISRAEL**
  (Address of principal executive offices)

---

Securities
  registered or to be registered pursuant to section 12(b) of the act:

**Not
  Applicable**

Securities
  registered or to be registered pursuant to section 12(g) of the act:

**Ordinary
  Shares, nominal value NIS 1.0 par value per share**

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

**Not
  Applicable**

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:

**11,993,404
  Ordinary Shares, nominal value NIS 1.0 par value per share**

Indicate
  by checkmark 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 twelve (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 ninety (90) days:

**YES****x****NO****o**

Indicate
  by checkmark which financial statements the registrant has elected to follow:

**ITEM
  17****o****ITEM
  18****x**

i

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**EXPLANATORY NOTE**

We are filing this Amendment No. 2 to replace in its entirety Item 19 of our Annual Report on Form 20-F/A filed
with the Securities and Exchange Commission on March 26, 2004 to add the signature of Kesselman & Kesselman that
was missing in their report dated February 12, 2003, expect for Note 1a, as to which the date is March 18, 2004,
on page II in the financial reports section of such Form 20-F/A.

ii

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|TABLE OF CONTENTS | 
|----------------- | 

|PART
      III                         | 
|-------------------------------------- | 
|Item
      19.                EXHIBITS | 

iii

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# PART III

# ITEM 19 -
  EXHIBITS

| | (a) | Financial
      Statements
| | --- | --------------------------

| | 1. | Report
      of Independent Auditors                                 
| | -- | ---------------------------------------------------------------------
|
| | 2. | Consolidated Balance
      Sheets                                    
| |    |                                                                      
| | 3. | Consolidated Statements
      of Income                              
| |    |                                                                      
| | 4. | Statements of Changes
      in Shareholders Equity                  
| |    |                                                                      
| | 5. | Consolidated Statements
      of Cash Flows                          
| |    |                                                                      
| | 6. | Notes to Consolidated
      Financial Statements                     
| |    |                                                                      
| | 7. | Reports of Independent
      Auditors of Certain Associated Companies

| | (b) | Exhibits          
| | --- | ------------------
| |     |                   
| |     | Exhibit
      No. 
| |     |                   
| |     | *1.1              
| |     | *1.2              
| |     | **4.1             
| |     | **4.2             
| |     | 8.1               
| |     | 10.1              
| |     | 10.2              
| |     | 10.3              
| |     | 10.4              
| |     | 12.1              
| |     | 12.2              
| |     | 13.1              
| |     | 13.2              
| |     | __________________

| | *  | Previously
      filed as an exhibit to Retalixs annual report on Form 20-F for the
      fiscal year ended December 31, 2001, and incorporated herein by reference.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                      
| | ** | Previously
      filed as an exhibit to Retalixs annual report on Form 20-F for the
      fiscal year ended December 31, 1999, and incorporated herein by reference.

72

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**Reports
  of Independent Auditors of Certain Associated Companies**

INDEPENDENT
  AUDITORS REPORT

To the Board of
  Directors **Retalix USA, Inc.**

We have audited the accompanying
  balance sheet of Retalix USA, Inc. (a California corporation) as of December
  31, 2000, and the related statement of income and accumulated deficit, and cash
  flows for the year then ended. These financial statements are the responsibility
  of the Companys management. Our responsibility is to express an opinion
  on these financial statements based on our audit.

We conducted our audit in
  accordance with generally accepted auditing standards. Those standards require
  that we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. An audit includes
  examining, on a test basis, evidence supporting the amounts and disclosures
  in the financial statements. An audit also includes assessing the accounting
  principles used and significant estimates made by management, as well as evaluating
  the overall financial statement presentation. We believe that our audit provides
  a reasonable basis for our opinion.

In our opinion, the financial
  statements referred to above present fairly, in all material respects, the financial
  position of Retalix USA, Inc. as of December 31, 2000, and the results of its
  operations and its cash flows for the year then ended in conformity with generally
  accepted accounting principles.

By: /S/ Nation
  Smith Hermes Diamond

San Diego, CaliforniaJanuary 24, 2001

---

---

INDEPENDENT
  AUDITORS REPORT

To the Board of
  Directors**Retalix USA,
  Inc. and Subsidiary**Warrendale, Pennsylvania

We have audited the accompanying
  consolidated balance sheet of Retalix USA, Inc. and Subsidiary (a Texas
  corporation) as of December 31, 2001, and the related consolidated statements
  of income and retained earnings, and cash flows for the year then ended. These
  consolidated financial statements are the responsibility of the Companys
  management. Our responsibility is to express an opinion on these consolidated
  financial statements based on our audit. We did not audit the financial statements
  of BASS, Inc., a wholly-owned subsidiary, which statements reflect total assets
  of approximately $ 3,519,000 as of December 31, 2001, and total revenues of
  approximately $ 3,454,000 for the four-month period then ended. Those statements
  were audited by other-auditors whose report has been furnished to us, and our
  opinion, insofar as it relates to the amounts included for BASS, Inc., is based
  solely on the report of the other auditors.

We conducted our audit in
  accordance with auditing standards generally accepted in the United States of
  America. Those standards require that we plan and perform the audit to obtain
  reasonable assurance about whether the consolidated financial statements are
  free of material misstatement. An audit includes examining, on a test basis,
  evidence supporting the amounts and disclosures in the consolidated financial
  statements. An audit also includes assessing the accounting principles used
  and significant estimates made by management, as well as evaluating the overall
  consolidated financial statement presentation. We believe that our audit and
  the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on
  our audit and the report of other auditors, the consolidated financial statements
  referred to above present fairly, in all material respects, the financial position
  of Retalix USA, Inc., and Subsidiaryas of December 31, 2001, and the
  results of its operations and its cash flows for the year then ended in conformity
  with accounting principles generally accepted in the United States of America.

By: /S/ Nation
  Smith Hermes Diamond

San Diego, CaliforniaFebruary 5, 2002

---

---

INDEPENDENT
  AUDITORS REPORT

To the Stockholder**Retalix Holdings,
  Inc. and Subsidiaries**Plano, Texas

We have audited the accompanying
  consolidated balance sheets of Retalix Holdings, Inc. and Subsidiaries
  (the Company) (see Note 1 to the consolidated financial statements) as
  of December 31, 2002, and the related consolidated statements of income and
  retained earnings, and cash flows for the year then ended. These consolidated
  financial statements are the responsibility of the Companys management.
  Our responsibility is to express an opinion on these consolidated financial
  statements based on our audits. We did not audit the financial statements of
  StoreNext Retail Solutions, LLC, a majority-owned subsidiary, which statements
  reflect total assets of approximately $ 5,468,000 as of December 31, 2002, and
  total revenues of approximately $ 10,144,000 for the six-month period then ended.
  Those statements were audited by other auditors whose report has been furnished
  to us, and our opinion, insofar as it relates to the amounts included for StoreNext
  Retail Solutions, LLC, is based solely on the report of the other auditors.

We conducted our audit in
  accordance with auditing standards generally accepted in the United States of
  America. Those standards require that we plan and perform the audit to obtain
  reasonable assurance about whether the consolidated financial statements are
  free of material misstatement. An audit includes examining, on a test basis,
  evidence supporting the amounts and disclosures in the consolidated financial
  statements. An audit also includes assessing the accounting principles used
  and significant estimates made by management, as well as evaluating the overall
  consolidated financial statement presentation. We believe that our audit provides
  a reasonable basis for our opinion.

In our opinion, based on
  our audit and the report of the auditors, the consolidated financial statements
  referred to above present fairly, in all material respects, the consolidated
  financial position of Retalix Holdings, Inc. and Subsidiariesas of December
  31, 2002, and the consolidated results of their operations and their cash flows
  for the year then ended in conformity with accounting principles generally accepted
  in the United States of America.

By: /S/ Nation
  Smith Hermes Diamond

February 1, 2003San Diego, California

---

---

INDEPENDENT
  AUDITORS REPORT

Board of DirectorsBASS, Inc.

We have audited the accompanying
  balance sheet of BASS, Inc. as of December 31, 2001, and the related statements
  of operations, retained deficit and cash flows for the year then ended. These
  financial statements are the responsibility of the Companys management.
  Our responsibility is to express an opinion on these financial statements based
  on our audit.

We conducted our audit in
  accordance with auditing standards generally accepted in the United States of
  America. Those standards require that we plan and perform the audit to obtain
  reasonable assurance about whether the financial statements are free of material
  misstatement. An audit includes examining, on a test basis, evidence supporting
  the amounts and disclosures in the financial statements. An audit also includes
  assessing the accounting principles used and significant estimates made by management,
  as well as evaluating the overall financial statement presentation. We believe
  that our audit provides a reasonable basis for our opinion.

In our opinion, the financial
  statements referred to above present fairly, in all material respects, the financial
  position of BASS, Inc. as of December 31, 2001, and the results of its operations
  and its cash flows for the year then ended in conformity with accounting principles
  generally accepted in the United States of America.

By: /S/ Flagel,
  Huber, Flagel & Co.

Certified Public
  Accountants

Dayton, OhioJanuary 18, 2002

---

---

INDEPENDENT
  AUDITORS REPORT

To the Board of
  Directors and Stockholders ofRetail Control Systems,
  Inc. (dba Retalix East)

We have audited the accompanying
  balance sheets of Retail Control Systems, Inc. (dba Retalix East) as of December
  31, 2001 and 2000, and the related statements of operations and retained earnings
  and cash flows for the year ended December 31, 2001 and for the three months
  ended December 31, 2000. These financial statements are the responsibility of
  the Companys management. Our responsibility is to express an opinion on
  these financial statements based on our audit.

We conducted our audits in
  accordance with auditing standards generally accepted in the United States of
  America. Those standards require that we plan and perform the audits to obtain
  reasonable assurance about whether the financial statements are free of material
  misstatement. An audit includes examining, on a test basis, evidence supporting
  the amounts and disclosures in the financial statements. An audit also includes
  assessing the accounting principles used and significant estimates made by management,
  as well as evaluating the overall financial statement presentation. We believe
  that our audits provide a reasonable basis for our opinion.

In our opinion, the financial
  statements referred to above present fairly, in all material respects, the financial
  position of Retail Control Systems, Inc. (dba Retalix East) as of December 31,
  2001 and 2000 and the results of its operations and its cash flows for the year
  ended December 31, 2001 and for the three months ended December 31, 2000 in
  conformity with accounting principles generally accepted in the United States
  of America.

By: /S/ Grossman
  Yanak & Ford LLP

Certified Public
  Accountants

Pittsburgh, PennsylvaniaJanuary 16, 2002

---

---



RETALIX LTD.

2002 ANNUAL
  REPORT







---

---

RETALIX LTD.(An Israeli Corporation)2002 ANNUAL REPORT

TABLE OF CONTENTS

|                                                    |  |  | **Page** |  | 
|--------------------------------------------------- |  |  | -------- |  | 
|**REPORT
      OF INDEPENDENT AUDITORS**            |  |  | II       |  | 
|**CONSOLIDATED
      FINANCIAL STATEMENTS:**        |  | 
|Balance
      sheets                                |  |  | III-IV   |  | 
|Statements
      of income (loss)                   |  |  | V        |  | 
|Statements
      of changes in shareholders equity |  |  | VI       |  | 
|Statements
      of cash flows                      |  |  | VII-IX   |  | 
|Notes
      to financial statements                 |  |  | X-XLII   |  | 
|**EXHIBIT
      - DETAILS OF SUBSIDIARIES**         |  |  | XLIII    |  | 

The amounts
  are stated in U.S. dollars ($) in thousands.

|
|
|
|

---

---

REPORT OF INDEPENDENT AUDITORS

To the shareholders ofRETALIX LTD.

We have audited the consolidated balance sheets of Retalix Ltd. (the Company) and
its subsidiaries as of December 31, 2002 and 2001 and the related consolidated statements of
income (loss), changes in shareholders equity and cash flows for each of the three years in
the period ended December 31, 2002. These financial statements are the responsibility of the
Companys Board of Directors and management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We did not audit the financial statements of certain consolidated subsidiaries whose assets constitute
approximately 26.2% and 18.2% of total consolidated assets as of December 31, 2002 and 2001, respectively,
and whose revenues constitute approximately 35.2%, 36.2% and 19.2% of total consolidated revenues
for the year ended December 31, 2002, 2001 and 2000, respectively. The financial statements of the
above subsidiaries were audited by other independent auditors, whose reports have been furnished
to us and our opinion, insofar as it relates to amounts included for those subsidiaries, is based
solely on the reports of the other  independent auditors.

We conducted our audits in accordance with auditing standards generally accepted in Israel and in the
United States of America, including those prescribed by the Israeli Auditors (Mode of Performance)
Regulations, 1973. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
the Companys Board of Directors and management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of the other independent auditors
provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other independent auditors, the financial
statements referred to above present fairly, in all material respects, the consolidated financial
position of the Company and its subsidiaries as of December 31, 2002 and 2001 and the consolidated
results of their operations, changes in shareholders equity and their cash flows for each of
the three years in the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.

As described in note 1h to the consolidated financial statements, effective January 1, 2002 the Company
and its subsidiaries adopted FASB Statement of Financial Accounting Standards No. 142 Goodwill
and other intangible Assets, in its entirety and changed method of accounting for goodwill.

As discussed in
  Note 1a the Company has restated its consolidated financial statements at December
  31, 2002 and 2001 and for the years ended December 31, 2002 and 2001 to correct
  the value assigned to shares issued by a subsidiary.

|/S/ Kesselman
      & KesselmanTel-Aviv, Israel
|-----------------------------------------------
|February
      12, 2003 except for Note 1a,    
|as
      to which the date is March 18, 2004   

II

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---

RETALIX LTD.CONSOLIDATED BALANCE
  SHEETS(Restated, Note 1a)

|                                                        | December 31
|------------------------------------------------------- | -----------
|
|
|**A
      s s e t s**                                   |            
|**CURRENT
      ASSETS** (note 11):                     |            
|Cash
      and cash equivalents                         |            
|Short-term
      bank deposits                          |            
|Marketable
      securities                             |            
|Accounts
      receivable (note 12a):                   |            
|Trade                                                   |            
|Other                                                   |            
|Deferred
      income taxes (note 10g)                  |            
|Inventories
      (note 12b)                            |            
|                                                        |            
|T
      o t a l  current assets                         |            
|                                                        |            
|**NON-CURRENT
      ASSETS** (note 11):                 |            
|Marketable
      securities - bonds (note 12c)          |            
|Deferred
      income taxes (note 10g)                  |            
|Long-term
      bank deposit                            |            
|Long-term
      loans to employees (note 12e)           |            
|Amounts
      funded in respect of employee rights upon |            
|retirement
      (note 7)                               |            
|Other                                                   |            
|                                                        |            
|                                                        |            
|                                                        |            
|**PROPERTY,
      PLANT AND EQUIPMENT**, net (note 3)   |            
|                                                        |            
|**GOODWILL**                                            |            
|                                                        |            
|                                                        |            
|**OTHER
      INTANGIBLE ASSETS,** net of accumulated   |            
|amortization
      (note 4)                             |            
|                                                        |            
|                                                        |            
|                                                        |            

|___________________________                                                                        | ___________________________                      
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------
|**Barry Shaked
      Chairman of the Board
      of Directors and 
      Chief Executive Officer** | **Danny Moshaioff
      Chief Financial Officer**

III

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|                                                               | December 31
|-------------------------------------------------------------- | -----------
|
|
|**Liabilities
      and shareholders equity**                 |            
|**CURRENT
      LIABILITIES** (note 11):                       |            
|Short-term
      bank credit                                   |            
|Current
      maturities of long-term bank loans (note 5)      |            
|Accounts
      payable and accruals:                           |            
|Trade                                                          |            
|Employees
      and employee institutions                      |            
|Current
      maturities of other liabilities (note 6)         |            
|Other                                                          |            
|Deferred
      revenues                                        |            
|                                                               |            
|T
      o t a l  current liabilities                           |            
|                                                               |            
|**LONG-TERM
      LIABILITIES:**                               |            
|Long-term
      bank loans, net of current maturities (note 5) |            
|Employee
      rights upon retirement (note 7)                 |            
|Other
      liabilities, net of current maturities (note 6)    |            
|                                                               |            
|T
      o t a l  long-term liabilities                         |            
|                                                               |            
|**COMMITMENTS
      AND CONTINGENT**                           |            
|**LIABILITIES**
      (note 8)                                 |            
|                                                               |            
|T
      o t a l  liabilities                                   |            
|                                                               |            
|**MINORITY
      INTERESTS**                                   |            
|                                                               |            
|**SHAREHOLDERS
      EQUITY** (note 9):                       |            
|Share
      capital - ordinary shares of NIS 1.00              |            
|par
      value (authorized: 25,000,000                        |            
|shares;
      issued and outstanding:                          |            
|December
      31, 2002 - 11,993,404 shares;                   |            
|December
      31, 2001 - 11,721,229 shares)                   |            
|Additional
      paid in capital                               |            
|Retained
      earnings                                        |            
|                                                               |            
|T
      o t a l  shareholders equity                          |            
|                                                               |            
|                                                               |            
|                                                               |            

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

IV

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RETALIX LTD.CONSOLIDATED STATEMENTS
  OF INCOME (LOSS)

|                                                       | Year ended
      December 31
|------------------------------------------------------ | ----------------------------
|
|
|**REVENUES**
      (note 14a):                         |                             
|Product
      sales                                    |                             
|Services
      and projects                            |                             
|                                                       |                             
|T
      o t a l  revenues                              |                             
|                                                       |                             
|**COST
      OF REVENUES:**                            |                             
|Cost
      of product sold                             |                             
|Cost
      of services and projects                    |                             
|                                                       |                             
|T
      o t a l  cost of revenues                      |                             
|                                                       |                             
|**GROSS
      PROFIT**                                 |                             
|                                                       |                             
|**OPERATING
      INCOME (EXPENSES):**                 |                             
|Research
      and development expenses - net          |                             
|Selling
      and marketing expenses - net             |                             
|General
      and administrative expenses (note 15a)   |                             
|Other
      general income - net (note 15c)            |                             
|                                                       |                             
|T
      o t a l  operating expenses                    |                             
|                                                       |                             
|**INCOME
      (LOSS) FROM OPERATIONS**                |                             
|F**INANCIAL
      INCOME (EXPENSES) -** net (note 15b) |                             
|**GAIN
      ARISING FROM ISSUANCE OF SHARES BY**      |                             
|**A
      SUBSIDIARY** **(note 2b)**                   |                             
|**OTHER
      EXPENSES**                               |                             
|                                                       |                             
|**INCOME
      (LOSS) BEFORE TAXES ON INCOME**         |                             
|**TAXES
      ON INCOME** (note 10)                    |                             
|                                                       |                             
|**INCOME
      (LOSS) BEFORE MINORITY INTERESTS**      |                             
|**MINORITY
      INTERESTS IN LOSSES OF**              |                             
|**SUBSIDIARIES**                                       |                             
|                                                       |                             
|**NET
      INCOME (LOSS)**                            |                             
|                                                       |                             
|**EARNINGS
      (LOSS) PER SHARE** (note 15d):        |                             
|Basic                                                  |                             
|                                                       |                             
|Diluted                                                |                             
|                                                       |                             
|**WEIGHTED
      AVERAGE NUMBER OF SHARES USED**       |                             
|**IN
      COMPUTATION OF EARNINGS (LOSS) PER**        |                             
|**SHARE
      - IN THOUSANDS** (note 15d):             |                             
|Basic                                                  |                             
|                                                       |                             
|Diluted                                                |                             
|                                                       |                             

* Restated, Note 1a

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

V

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RETALIX LTD.(An Israeli Corporation)STATEMENTS OF CHANGES
  IN SHAREHOLDERS EQUITY

|                                                                          |  | **Share
      capital**
      **Ordinary
      shares** |  |                                                            |                                             |  |  | **Loans****granted
      to****Employees****to
      finance****acquisition of
      Company
      shares** |  |  |     |   |  |                                             |   |  |                             |  
|------------------------------------------------------------------------- |  | ------------------------------------------------------- |  | ---------------------------------------------------------- | ------------------------------------------- |  |  | ----------------------------------------------------------------------------------------------------------- |  |  | --- | - |  | ------------------------------------------- | - |  | --------------------------- | -
|                                                                          |  |                                                         |  |                                                            | **Additional
      paid -in
      capital** |  |  |                                                                                                             |  |  |     |   |  |                                             |   |  |                            
|                                                                          |  | **Number
      of
      shares in
      Thousands**     |  |                                                            |                                             |  |  |                                                                                                             |  |  |     |   |  | **Deferred
      stock
      compensation** |   |  | **Retained
      earnings** |  
|                                                                          |  |                                                         |  | **Amount**                                                 |                                             |  |  |                                                                                                             |  |  |     |   |  |                                             |   |  | **Total**                   |  
|                                                                          |  |                                                         |  |                                                            |                                             |  |  |                                                                                                             |  |  |     |   |  |                                             |   |  |                             |  
|                                                                          |  |                                                         |  | **U  . S  .    $  
      i  n    t  h o  u s  a  n  d  s** |                                            
|                                                                          |  |                                                         |  |                                                            |                                             |  |  |                                                                                                             |  |  |     |   |  |                                             |   |  |                             |  
|**BALANCE
      AT JANUARY 1, 2000**                                      |  | 10,805                                                  |  |                                                            | 3,206                                       |  |  | 16,073                                                                                                      |  |  | (67 | ) |  | (6                                          | ) |  | 14,125                      |  
|**CHANGES
      DURING 2000:**                                           
|Net
      loss                                                            |  |                                                         |  |                                                            |                                             |  |  |                                                                                                             |  |  |     |   |  |                                             |   |  | (1,801                      | )
|Issuance
      of share capital in respect of acquisition of subsidiaries |  | 447                                                     |  |                                                            | 109                                         |  |  | *9,848                                                                                                      |  |  |     |   |  |                                             |   |  |                             |  
|Issuance
      of share capital to employees resulting from              
|exercise
      of options                                                 |  | 61                                                      |  |                                                            | 16                                          |  |  | *253                                                                                                        |  |  |     |   |  |                                             |   |  |                             |  
|Collection
      of loans granted to employees                            |  |                                                         |  |                                                            |                                             |  |  |                                                                                                             |  |  | 67  |   |  |                                             |   |  |                             |  
|Amortization
      of deferred compensation related to employee          
|stock
      option grants                                                 |  |                                                         |  |                                                            |                                             |  |  |                                                                                                             |  |  |     |   |  | 6                                           |   |  |                             |  
|                                                                          |  |                                                         |  |                                                            |                                             |  |  |                                                                                                             |  |  |     |   |  |                                            
|**BALANCE
      AT DECEMBER 31, 2000**                                    |  | 11,313                                                  |  |                                                            | 3,331                                       |  |  | 26,174                                                                                                      |  |  | -,- |   |  | -,-                                         |   |  | 12,324                      |  
|                                                                          |  |                                                         |  |                                                            |                                             |  |  |                                                                                                             |  |  |     |   |  |                                             |   |  |                             |  
|**CHANGES
      DURING 2001:**                                           
|Net
      income **                                                       |  |                                                         |  |                                                            |                                             |  |  |                                                                                                             |  |  |     |   |  |                                             |   |  | 3,764                       |  
|Issuance
      of share capital in respect of acquisition of subsidiaries |  | 153                                                     |  |                                                            | 36                                          |  |  | *1,907                                                                                                      |  |  |     |   |  |                                             |   |  |                             |  
|Issuance
      of share capital to employees resulting from              
|exercise
      of options                                                 |  | 255                                                     |  |                                                            | 60                                          |  |  | *1,145                                                                                                      |  |  |     |   |  |                                             |   |  |                             |  
|Surplus
      arising from issuance of options                            |  |                                                         |  |                                                            |                                             |  |  | 9                                                                                                           |  |  |     |   |  |                                             |   |  |                             |  
|Deferred
      compensation related to employee stock option plan         |  |                                                         |  |                                                            |                                             |  |  | 29                                                                                                          |  |  |     |   |  |                                             |   |  |                             |  
|                                                                          |  |                                                         |  |                                                            |                                             |  |  |                                                                                                             |  |  |     |   |  |                                             |   | 
|**BALANCE
      AT DECEMBER 31, 2001 ****                                 |  | 11,721                                                  |  |                                                            | 3,427                                       |  |  | 29,264                                                                                                      |  |  |     |   |  |                                             |   |  | 16,088                      |  
|**CHANGES
      DURING 2002:**                                           
|Net
      income *                                                        |  |                                                         |  |                                                            |                                             |  |  |                                                                                                             |  |  |     |   |  |                                             |   |  | 5,705                       |  
|Issuance
      of share capital in respect of acquisition of minority    
|interest
      of subsidiary                                              |  | 5                                                       |  |                                                            | 1                                           |  |  | 65                                                                                                          |  |  |     |   |  |                                             |   |  |                             |  
|Issuance
      of share capital to employees resulting from exercise     
|of
      options                                                          |  | 267                                                     |  |                                                            | 55                                          |  |  | *1,923                                                                                                      |  |  |     |   |  |                                             |   |  |                             |  
|                                                                          |  |                                                         |  |                                                            |                                             |  |  |                                                                                                             |  |  |     |   |  |                                             |   | 
|**BALANCE
      AT DECEMBER 31, 2002 ****                                 |  | 11,993                                                  |  |                                                            | 3,483                                       |  |  | 31,252                                                                                                      |  |  |     |   |  |                                             |   |  | 21,793                      |  
|                                                                          |  |                                                         |  |                                                            |                                             |  |  |                                                                                                             |  |  |     |   |  |                                             |   | 

* Net of share issuance expenses** Restated, Note 1a

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

VI

---

---

(Continued) - 1

RETALIX LTD.CONSOLIDATED STATEMENTS
  OF CASH FLOWS

|                                                                    | Year ended
      December 31
|------------------------------------------------------------------- | ----------------------------
|
|
|**CASH
      FLOWS FROM OPERATING ACTIVITIES:**                     |                             
|Net
      income (loss)                                             |                             
|Adjustments
      required to reconcile net income or loss to      
|net
      cash provided by or used in operating activities:        
|Minority
      interests in losses of subsidiaries                 
|                                                                    |                             
|Change
      in minority interests                                  |                             
|Depreciation
      and amortization, net                            |                             
|Gain
      arising from issuance of shares by a subsidiary         
|                                                                    |                             
|Capital
      gain from sale of dealership activity                 |                             
|Write-off
      of a loan to associated company                     |                             
|Compensation
      expenses resulting from shares and              
|options
      granted to employees                                  |                             
|Changes
      in accrued liability for employee                    
|rights
      upon retirement                                        |                             
|Losses
      (gains) on amounts funded in respect of employee      
|rights
      upon retirement                                        |                             
|Deferred
      income taxes - net                                   |                             
|Net
      decrease (increase) in trading securities                 |                             
|Amortization
      of premium on securities                         |                             
|Other                                                               |                             
|Changes
      in operating assets and liability items:             
|Decrease
      (increase) in accounts receivable:                  
|Trade                                                               |                             
|Other                                                               |                             
|Increase
      (decrease) in accounts                              
|payable
      and accruals:                                        
|Trade                                                               |                             
|Employees,
      employee institutions and other                    |                             
|Decrease
      (increase) in inventories                            |                             
|Increase
      (decrease) in deferred revenues                      |                             
|                                                                    |                             
|Net
      cash provided by (used in) operating activities - forward |                             
|                                                                    |                             

VII

---

---

(Continued) - 2

RETALIX LTD.CONSOLIDATED STATEMENTS
  OF CASH FLOWS

|                                                                | Year ended
      December 31
|--------------------------------------------------------------- | ----------------------------
|
|
|Net
      cash provided by (used in) operating activities -     |                             
|brought
      forward                                           |                             
|                                                                |                             
|**CASH
      FLOWS FROM INVESTING ACTIVITIES:**                
|Investment
      in long-term deposit                           |                             
|Proceeds
      from disposal of an investment in               
|long-term
      bank deposit                                    |                             
|Short-term
      bank deposits  net                            |                             
|Investment
      in marketable securities                       |                             
|Acquisition
      of subsidiaries consolidated for             
|the
      first time (a)                                        |                             
|Loan
      to an associated company                             |                             
|Purchase
      of property, equipment and other assets          |                             
|Proceeds
      from sale of dealership activity and from       
|disposal
      of property and equipment                        |                             
|Amounts
      withdrawal (funded) in respect of employee rights
|upon
      retirement, net                                      |                             
|Long-term
      loans granted to employees                      |                             
|Collection
      of long-term loans from employees              |                             
|                                                                |                             
|Net
      cash provided by (used in) investing activities       |                             
|                                                                |                             
|**CASH
      FLOWS FROM FINANCING ACTIVITIES:**                
|Long-term
      bank loan received                              |                             
|Proceeds
      from issuance of shares of subsidiary to a       |                             
|third
      party                                               |                             
|Repayment
      of long-term bank loan                          |                             
|Issuance
      of share capital to employees                    |                             
|Short-term
      bank credit  net                              |                             
|Issuance
      of share capital to minority shareholders in    
|consolidated
      subsidiary                                   |                             
|Minority
      investment in shares of subsidiary               |                             
|Collection
      of loans granted to employees                 
|to
      finance acquisition of Company shares                  |                             
|                                                                |                             
|Net
      cash provided by (used in) financing activities       |                             
|                                                                |                             
|**INCREASE
      (DECREASE) IN CASH AND**                      
|**CASH
      EQUIVALENTS**                                      |                             
|**BALANCE
      OF CASH AND CASH EQUIVALENTS**                 
|**AT
      BEGINNING OF YEAR**                                  |                             
|                                                                |                             
|**BALANCE
      OF CASH AND CASH EQUIVALENTS**                 
|**AT
      END OF YEAR**                                        |                             
|                                                                |                             

VIII

---

---

(Concluded) - 3

RETALIX LTD.CONSOLIDATED STATEMENTS
  OF CASH FLOWS

SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:

|                                                                           | Year ended
      December 31
|-------------------------------------------------------------------------- | ----------------------------
|
|
|**(a)
      Acquisition of subsidiaries consolidated for the first time:** |                             
|Assets
      and liabilities of the subsidiaries at the date of            |                             
|acquisition:                                                               |                             
|Working
      capital (excluding cash and cash equivalents)                |                             
|Long-term
      debt                                                       |                             
|Fixed
      assets - net                                                   |                             
|Other
      assets                                                         |                             
|Amounts
      funded in respect of employee rights upon                    |                             
|retirement                                                                 |                             
|Accrued
      liability for employee rights upon retirement                |                             
|Long-term
      loan                                                       |                             
|Minority
      interests in subsidiaries                                   |                             
|Goodwill
      and other intangible assets arising on acquisition          |                             
|Issuance
      of the Companys share capital                              |                             
|                                                                           |                             
|                                                                           |                             
|                                                                           |                             
|                                                                           |                             
|**(b)
      Supplementary disclosure of cash flow information -**          |                             
|cash
      paid during the year for:                                       |                             
|Interest                                                                   |                             
|                                                                           |                             
|Income
      tax                                                           |                             
|                                                                           |                             

* Restated, Note 1a

(c) Supplementary information on investing activities not involving cash flows:

| | (1) | In 2002 the Company
      acquired shares from minority shareholders of a subsidiary in consideration
      of issuance of share capital of the Company at a total value of approximately
      $ 66,000.          
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                    
| | (2) | In 2001, the Company
      acquired shares of a subsidiary and a loan from its shareholders in consideration
      of issuance of share capital of the Company at a total value of approximately
      $ 1,373,000.
| |     |                                                                                                                                                                                                                    
| | (3) | In 2000, the Company
      acquired shares of several subsidiaries in consideration of issuance of
      share capital of the Company in a total value of approximately $10,000,000.                               

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

IX

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING
  POLICIES

|**a.** | **Restatement
      of financial statements**
|------ | ---------------------------------------------
|       |                                              

| | Retalix Ltd. (the Company)
      has restated its consolidated financial statements for the years ended December
      31, 2002 and 2001, to correct the value assigned to shares issued by its
      subsidiary, Store Alliance.Com Ltd. (Store Alliance in April
      2001 in an exchange for shares in TradaNet Electronic Commerce Services
      Ltd(Tradanet).  That transaction was accounted for
      as a business combination.In the Companys previously issued financial
      statements the aggregate value assigned to the shares issued was approximately
      $ 1,901,000, or $5.56 per share.  These financial statements have been
      restated to reflect an aggregate value of approximately $ 1,331,000, or
      $3.89 per share. The price of $3.89 was determined based on a separate cash
      transaction involving issuance of Store Alliance shares, which closely preceded
      the Tradanet transaction.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The effect of the restatement
      on the Companys
      net income for the years ended, and
      retained earnings at, December 31, 2002 and 2001, is shown below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| | Year ended
      December 31, 
| | ------------------------------
|
|
| | Net income
      - as reported
| | Effect of
      restatement   
| |                               
| | Net income
      - as restated
| |                               
| | Earnings
      per share:     
| | Basic
      - as reported     
| | Effect
      of restatement   
| |                               
| | Basic
      - restated        
| |                               
| | Diluted
      - as reported   
| | Effect
      of restatement   
| |                               
| | Diluted
      - restated      
| |                               

| | December 31,                                      
| | --------------------------------------------------
|
|
| |                                                   
| | Shareholders
      equity - retained earnings - as
| | reported                                          
| | Effect of
      restatement                       
| |                                                   
| | Shareholders
      equity - retained earnings -   
| | restated                                          
| |                                                   

X

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING
  POLICIES (continued):

| | The significant
      accounting policies, applied on a consistent basis, except for the change
      in the accounting policy for goodwill as described in h. below, are as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                      

|b. | General:
|-- | --------
|   |         

| | 1) | Nature
      of operations:
| | -- | ---------------------------
| |    |                            

| | (a) | The Company,
      an Israeli corporation whose shares are listed on the Nasdaq National Market
      (symbol RTLX) and on the Tel-Aviv Stock Exchange (TASE),
      alone and together with its subsidiaries (the Group), develops,
      manufactures and markets complete, enterprise-wide, open software solutions
      for food retailers in the supermarket, convenience stores and restaurant
      markets.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                           

| | (b) | As to the
      Groups geographical segments and principal customers, see note 14.
| | --- | -----------------------------------------------------------------------------------
| |     |                                                                                    
| | (c) | Subsidiary
      - a company controlled to the extent of over 50%  - see Exhibit.  
| |     |                                                                                    

| | 2) | Accounting
      principles and use of estimates in the preparation of financial statements
| | -- | -------------------------------------------------------------------------------------------
| |    |                                                                                            

| | The
      financial statements have been prepared in accordance with accounting principles
      generally accepted (GAAP) in the United States (U.S. GAAP).                                                                                                                                                                                                                                                                                      
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The preparation
      of financial statements in conformity with GAAP requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities, and the disclosure of contingent assets and liabilities at
      the dates of the financial statements and the reported amounts of revenues
      and expenses during the reporting years. Actual results could differ from
      those estimates.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | 3) | Functional
      currency
| | -- | -------------------------
| |    |                          

| | The
      currency of the primary economic environment in which the operations of
      the Group and each member of the Group are conducted is the U.S. dollar
      (dollar; $). Most of the Groups revenues are
      recorded in dollars or in Israeli currency linked to the dollar (see note
      14a). The Groups financing is mostly in dollars. Thus, the functional
      currency of the Group is the dollar.                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Transactions
      and balances originally denominated in dollars are presented at their original
      amounts. Balances in non-dollar currencies are translated into dollars using
      historical and current exchange rates for non-monetary and monetary balances,
      respectively. For non-dollar transactions and other items (stated below)
      reflected in the statements of income (loss), the following exchange rates
      are used: (i) for transactions - exchange rates at transaction dates or
      average rates; and (ii) for other items (derived from non-monetary balance
      sheet items such as depreciation and amortization, changes in inventories,
      etc.) - historical exchange rates. Currency transaction gains or losses
      are carried to financial income or expenses, as appropriate.

XI

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING
  POLICIES (continued):

|c. | Principles
      of consolidation:
|-- | ----------------------------------
|   |                                   

| | 1) | The consolidated
      financial statements include the accounts of the Company and its subsidiaries.
      The companies included in consolidation are listed in the Exhibit.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                               

| | 2) | Intercompany
      balances and transactions have been eliminated in consolidation.
| | -- | -----------------------------------------------------------------------------------
| |    |                                                                                    

| | 3) | As for
      goodwill and other intangible assets arising on business combinations see
      h. below.
| | -- | ------------------------------------------------------------------------------------------------------
| |    |                                                                                                       

|d. | Cash
      equivalents
|-- | ----------------------
|   |                       

| | The Group
      considers all highly liquid investments, which include short-term bank deposits
      (up to three months from date of deposit) that are not restricted as to
      withdrawal or use, to be cash equivalents.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                               

|e. | Marketable
      securities
|-- | ---------------------------
|   |                            

| | Investment
      in marketable bonds  which the Group intends to hold to maturity,
      are stated at amortized cost.                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                   
| | Investment
      in other marketable securities that are classified as trading securities -
      are stated at market value. The changes in market value of these securities
      are carried to financial income or expenses.
| |                                                                                                                                                                                                                                   

|f. | Inventories
|-- | -----------
|   |            

| | Inventories
      are valued at the lower of cost or market. Cost is determined as follows:
| | -------------------------------------------------------------------------------------------
| |                                                                                            

| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Raw materials
      and supplies - on first-in, first-out basis.                                                                                           
| |                                                                                                                                                              
| | Products
      in process and finished products - on basis of production costs - raw materials
      and supplies component - on first-in, first-out basis.
| |                                                                                                                                                              

XII

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING
  POLICIES (continued):

|g. | Property,
      plant and equipment:
|-- | ------------------------------------
|   |                                     

| | 1) | These assets
      are stated at cost; assets of subsidiaries are included at their fair value
      at date of acquisition of these subsidiaries.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                   
| | 2) | The assets
      are depreciated by the straight-line method, on the basis of their estimated
      useful life.                                  
| |    |                                                                                                                                                   

| | Annual
      rates of depreciation are as follows:
| | --------------------------------------------------

|                                         |  |  |  | **%** | 
|---------------------------------------- |  |  |  | ----- | 
|                                         |  |  |  |       | 
|Computers
      and peripheral equipment |  |  |  | 33    | 
|Vehicles                                 |  |  |  | 15    | 
|Office furniture
      and equipment     |  |  |  | 6-10  | 
|Building                                 |  |  |  | 4     | 

| | Leasehold
      improvements are amortized by the straight line method over the term of
      the lease, which is shorter than the estimated useful life of the improvements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                              

|h. | Goodwill and other intangible assets
|-- | ------------------------------------
|   |                                     

| | Software
      rights and website development costs are stated at cost and amortized in
      three to five equal annual installments. Other intangible assets are amortized
      over a period of five to seven years. As for software development costs
      see l. below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Goodwill
      is the excess of the purchase price over the fair value of identifiable
      net assets acquired in business combinations accounted for as purchases.
      The Company adopted Statement of Financial Accounting Standards (FAS)
      No. 142 of the Financial Accounting Standards Board of the United States
      (FASB), Goodwill and other Intangible Assets and
      FAS No. 141 business combinations in its entirety as of January
      1, 2002 except for acquisition the Group entered into as of September 2001
      for which the Group applied the provisions of FAS 141 and FAS 142 as of
      the acquisition date. Goodwill which was previously amortized on a straight-line
      basis over periods of four to seven years benefited, is no longer being
      amortized to earnings, but instead is subject periodic testing for impairment.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

XIII

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING
  POLICIES (continued):

|i. | Impairment
      of assets:
|-- | ---------------------------
|   |                            

| | 1)     
      As to impairment of goodwill, see note 4.
| | -------------------------------------------------------
| |                                                        

| | 2) | The Company
      has adopted FAS 144, Accounting for the Impairment or Disposal of
      Long-Lived Assets effective January 1, 2002. FAS 144 requires that
      long-lived assets, to be held and used by an entity be reviewed for impairment
      whenever events or changes in circumstances indicate that the carrying amount
      of the assets may not be recoverable. Under FAS 144, if the sum of
      the expected future cash flows (undiscounted and without interest charges)
      of the long-lived assets is less than the carrying amount of such assets,
      an impairment loss would be recognized, and the assets would be written
      down to their estimated fair values.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | The adoption
      of FAS 144 did not have any material impact on the consolidated financial
      position and consolidated results of operations of the Company.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                   

|j. | Income
      taxes:
|-- | -------------------
|   |                    

| | 1) | Deferred
      income taxes are computed in respect of differences between the assets and
      liabilities as measured in the financial statements and for tax purposes,
      at the tax rates expected to be in effect at time of release to income from
      the deferred tax accounts. Valuation allowances are provided for deferred
      tax assets when it is more likely than not that all or a portion of the
      deferred tax assets will not be realized. As to the main factors in respect
      of which deferred taxes have been included - see note 9g.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| | 2) | Upon the
      distribution of dividends from the tax-exempt income of approved enterprises
      (see also note 9a), the amount distributed will be subject to tax at
      the rate that would have been applicable had the Company and some of its
      Israeli subsidiaries (the companies) not been exempted from
      payment thereof. The companies intend to permanently reinvest the amounts
      of tax exempt income and they do not intend to cause distribution of such
      dividends. Therefore, no deferred income taxes have been provided in respect
      of such tax-exempt income.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| | 3) | The Group
      may incur an additional tax liability in the event of an intercompany dividend
      distribution from foreign subsidiaries; no additional deferred income taxes
      have been provided, since it is the Groups policy not to distribute,
      in the foreseeable future, dividends which would result an additional tax
      liability.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                              
| | 4) | Taxes which
      would apply in the event of disposal of investments in foreign subsidiaries
      have not been taken into account in computing the deferred income taxes,
      as it is the Companys policy to hold these investments, not to realize
      them.                                                                                       

XIV

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING
  POLICIES (continued):

|k. | Revenue
      recognition
|-- | -------------------------
|   |                          

| | The Group
      derives its revenues from the following primary sources: products which
      include software licenses and software licenses with hardware, maintenance,
      other services which include customer software change requests, communication
      services, data analysis and supply chain information and projects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Sales of
      products (i.e.: (1) software licenses and, (2) software licenses and hardware)
      are recognized when delivery has occurred, persuasive evidence that an arrangement
      exists, the sales price is fixed or determinable, collectibility is probable
      and the Group has no material obligations remaining under the selling agreements.
      Revenues from transactions involving resellers are recognized when the products
      are delivered to end-users. Sales of products under long-term arrangements
      for the sale of a limited number of software licenses over a limited term
      are recognized over the arrangement term.                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Services
      are primarily comprised of revenue from maintenance, communication services,
      data analysis and supply chain information.
      Maintenance arrangements provide for technical support for the Groups
      software products. Data analysis and supply chain information involve data
      the Group provides its customers for which the Group receives fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Revenue
      from rendering services (such as maintenance services, communication services,
      data analysis and supply chain information) are recognized as the services
      are preformed or over the service period depending on the terms of the arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Short-term
      projects relates mainly to specific customer software change requests, that
      are subsequent to the delivery of the software license. The consideration
      for the work performed is predetermined as a fixed fee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Revenue
      from projects (customer software change requests) are recognized upon completion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The Group
      recognizes revenue related to the delivered products and services only if:
      (1) the revenue recognition criteria are met, as above; (2) any undelivered
      products or services are not essential to the functionality of the delivered
      products or services; (3) payment for the delivered products or services
      is not contingent upon delivery of the remaining products or services; (4)
      the group has an enforceable claim to receive the amount due in the event
      it does not deliver the undelivered products or services; and (5) as discussed
      above, there is evidence of the fair value for each of the undelivered products
      or services.                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | With respect
      to multiple element arrangements, the Group generally uses the residual
      method to recognize revenues when evidence of the fair value of all
      undelivered elements exists. Under the residual method, the fair value of
      the undelivered elements (the service elements, such as customer software
      change requests and maintenance) based on vendor-specific objective evidence
      (VSOE) is deferred and the remaining portion of the arrangement fee is allocated
      to the delivered elements (i.e., software license).
      The Group determines VSOE of the fair value of the service elements revenues
      based upon its recent pricing for those services when sold separately. VSOE
      of the fair value of maintenance services may also be determined based on
      a substantive maintenance renewal clause, if any, within a customer contract.

XV

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING
  POLICIES (continued):

| | Whenever
      the Groups payment terms in a certain transaction exceeds the Groups
      normal and customary payment terms, revenue is recognized when payments
      come due.                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                    
| | The Group
      does not offer specified or unspecified upgrade rights to its customers
      in connection with software sales or the sale of extended warranty and support
      arrangements.                                   
| |                                                                                                                                                                                                                                    
| | The Group
      does not grant a right of return on products sold to customers and resellers.                                                                                                                                      
| |                                                                                                                                                                                                                                    
| | Deferred
      revenue primarily relates to software maintenance agreements billed to customers
      for which the services have not yet been provided and advances from customers
      for services that have not been provided.
| |                                                                                                                                                                                                                                    

|l. | Research
      and development:
|-- | -------------------------------
|   |                                

| | 1) | Research
      and development expenses are charged to income as incurred. Participations
      received from the Government of Israel for development of approved projects
      are recognized as a reduction of expenses when the related cost is incurred.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                               

| | 2) | Upon the
      establishment of technological feasibility of the relevant product, software
      development costs are capitalized in accordance with the provisions of FAS
      No. 86. Accounting for the Costs of Computer Software to be Sold,
      Leased or Otherwise Marketed. Amortization of capitalized software
      development costs begins when the product is available for sale to customers.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                    

| | Annual
      amortization is computed by the straight-line method, over the remaining
      useful life of the product or based on the ratio of current gross revenues
      to current and anticipated future gross revenues, whichever is higher. Currently,
      amortization is computed over a period of three years.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                            

|m. | Issuance
      of shares by investee companies
|-- | ----------------------------------------------
|   |                                               

| | Capital
      gains or losses arising from the issuance of shares by subsidiaries and
      associated companies to third parties are carried to income currently.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                   

|n. | Allowance
      for doubtful accounts
|-- | -------------------------------------
|   |                                      

| | The allowance
      for doubtful accounts is determined for specific debts doubtful of collection.
      In determining the allowance for doubtful accounts, the Group consider,
      among other things, its past experience with such customers, the economic
      environment, the industry in which such customers operates, financial information
      available on such customers.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

XVI

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING
  POLICIES (continued):

|o. | Earnings
      per share (EPS)
|-- | --------------------------------
|   |                                 

| | Basic EPS
      is computed by dividing net income (loss) by the weighted average number
      of shares outstanding during the year. Diluted EPS reflects the increase
      in the weighted average number of shares outstanding that would result from
      the assumed exercise of options, calculated using the treasury-stock method
      (in 2000, such effect was not included since it would have been anti-dilutive).
      The options of a subsidiary have no effect of the Companys diluted
      EPS since their effect on the subsidiaries EPS is anti-dilutive. As to the
      data used in the per share computation, see note 15d.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|p. | Comprehensive
      income
|-- | --------------------------
|   |                           

| | The Company
      has no comprehensive income components other than net income or loss.
| | ---------------------------------------------------------------------------------------
| |                                                                                        

|q. | Stock based compensation
|-- | ------------------------
|   |                         

| | The Group
      accounts for employee stock based compensation in accordance with Accounting
      Principles Board Opinion (APB)  No. 25, Accounting
      for Stock Issued to Employees and related interpretations. Under APB
      25 compensation costs for employee stock option plans is measured using
      the intrinsic value based method of accounting.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                         
| | In accordance
      with FAS 123 - Accounting for Stock-Based Compensation (FAS
      123), the Group discloses pro-forma assuming the Group had accounted
      for employee stock option grants using the fair value-based method defined
      in FAS 123.                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                         
| | The following
      table illustrates the effect on net income (loss) and earning (loss) per
      share assuming the Group had applied the fair value recognition provisions
      of FAS 123 Accounting for Stock-Based Compensation  to
      its stock-based employee compensation:                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                         

|                                                 | Year ended
      December 31
|------------------------------------------------ | ----------------------------
|
|
|Net
      income (loss), as reported             |                             
|Add - stock
      based employee compensation    |                             
|expense,
      included in reported net income   |                             
|Deduct -
      stock based employee compensation |                             
|expense
      determined under fair value        |                             
|method
      for all awards                      |                             
|                                                 |                             
|Pro forma
      net income (loss)                |                             
|                                                 |                             
|Earnings
      per share:                        |                             
|Basic
      - as reported                        |                             
|                                                 |                             
|Basic
      - pro forma                          |                             
|                                                 |                             
|Diluted
      - as reported                      |                             
|                                                 |                             
|Diluted
      - pro forma                        |                             
|                                                 |                             



*Restated,
  Note 1a

XVII

---

---

RETALIX
  LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING
  POLICIES (continued):

|r. | Advertising
      expenses
|-- | --------------------------
|   |                           

| | These costs
      are charged to selling and marketing expenses as incurred. Advertising expenses
      totaled $ 456,000, $ 430,000 and $ 187,000 in the years ended December 31,
      2002, 2001 and 2000, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                            

|s. | Derivatives
      financial instruments
|-- | ---------------------------------------
|   |                                        

| | The Company
      adopted FAS 133, Accounting for Derivative Instruments and Hedging Activities,
      as of January 1, 2001. All derivatives are recognized on the balance sheet
      at their fair value. The Company has only limited involvement with foreign
      exchange derivative financial instruments (forward exchange contracts).
      These contracts do not qualify for hedge accounting under FAS 133. Being
      so, changes in the fair value of derivative are carried to the statements
      of income and included in financial income (expenses) - net.                                                                                                                                                                                                      
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Prior to
      the adoption of FAS 133, foreign currency derivatives were treated as hedges
      in the accounts when: (i) the item the Company had intended to hedge exposed
      it to risk; (ii) the derivative instrument reduced the exposure to risk
      and was inversely correlated to the item it was designated to hedge; and
      (iii) it was designated as a hedge from the outset.                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Gains and
      losses on derivatives that hedged existing assets or liabilities in currencies
      other than the functional currency were recognized in income commensurate
      with the results from those assets or liabilities. The net premium paid
      or received in respect of currency options were carried to the statements
      of income under financial expenses - net over the options terms. Foreign
      currency derivatives entered into to reduce the Groups foreign currency
      exposure with respect to anticipated transactions which did not meet the
      requirements for applying hedge accounting, were marked to market at each
      reporting period, with gains and losses recognized currently as financial
      income (expenses) - net.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The adoption
      of FAS 133 did not have any material impact on the financial position and
      results of operations of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|t. | Recently
      issued accounting pronouncements in the United States:
|-- | ---------------------------------------------------------------------
|   |                                                                      

| | 1) | FAS 143
| | -- | -------
| |    |        

| | In July
      2001, the FASB issued SFAS 143, Accounting for Asset Retirement Obligations.(FAS
      143) . FAS 143 prescribes the accounting for retirement obligations
      associated with tangible long-lived assets, including the timing of liability
      recognition and initial measurement of the liability. FAS 143 requires that
      an asset retirement cost should be capitalized as part of the cost of the
      related long-lived asset and subsequently allocated to expense using a systematic
      and rational method. FAS 143 is effective for fiscal years beginning after
      June 15, 2002 (January 1, 2003 for the Company). The Company does not
      expect the adoption of FAS 143 to have material effect on its consolidated
      financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

XVIII

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING
  POLICIES (continued):

| | 2) | FAS 145
| | -- | -------
| |    |        

| | In April  2002,
      the FASB issued FAS No. 145, Revision of FASB Statements No. 4, 44
      and 64, Amendment of FASB Statement No. 13, and Technical Connections.
      Among other amendments and rescissions, FAS 145 eliminates the requirement
      that gains and losses from the extinguishment of debt be aggregated and,
      if material, classified as an extraordinary item, net of the related income
      tax effect, unless such gains and losses meet the criteria in paragraph
      20 of Accounting Principles Board Opinion No. 30, Reporting the Results
      of Operation - Reporting the Effects of Disposal of a Segment of a Business,
      and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
      FAS 145 is partially effective for transactions occurring after May 15,
      2002 and partially effective for fiscal years beginning after May 15,
      2002. The Company does not expect the adoption of this standard to have
      a material effect on its consolidated financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| | 3) | FAS 146
| | -- | -------
| |    |        

| | In June 2002,
      the FASB issued FAS No. 146, Accounting for Costs Associated with
      Exit or Disposal activities. FAS 146 addresses financial accounting
      and reporting for costs associated with exit or disposal activities and
      nullifies Emergency Issue Task Force (EITF) No. 94-3 Liability
      Recognition for Certain Employee Termination Benefits and other Costs to
      Exit an Activity (including Certain Costs Incurred in a restructuring).
      FAS 146 requires that a liability for a cost associated with an exit or
      disposal activity to be recognized when the liability is incurred. Under
      EITF 94-3, a liability for an exit cost as generally defined in EITF 94-3
      was recognized at the date of the commitment to an exit plan. FAS 146 states
      that a commitment to a plan, by itself, does not create an obligation that
      meets the definition of a liability. Therefore, FAS 146 eliminates the definition
      and requirements for recognition of exit costs in EITF 94-3. It also establishes
      that fair value is the objective for initial measurement of the liability.
      FAS 146 is to be applied prospectively to exit or disposal activities
      initiated after December 31. 2002.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | The Company
      does not expect the adoption of this standard to have a material effect
      on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| | 4) | FIN 45
| | -- | ------
| |    |       

| | In November
      2002, the FASB issued FASB Interpretation FIN No. 45, Guarantors
      Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Guarantees of Indebtedness of Others. FIN 45 requires the guarantor
      to recognize, at the inception of a guarantee, a liability for the fair
      value of the obligation undertaken in issuing the guarantee. It also elaborates
      on the disclosures to be made by a guarantor in its financial statements
      about its obligations under certain guarantees that it has issued and to
      be made in regard of product warranties. As to the Group, no additional
      disclosures was made in these financial statements as a result of the FIN
      45 disclosure requirements that are effective as from 2002.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

XIX

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING
  POLICIES (continued):

| | Initial
      recognition and initial measurement provisions of this FIN are applicable
      on a prospective basis to guarantees issued or modified after December 31,
      2002.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                     
| | At this
      stage, the Company is examining the effect of FIN 45 on its consolidated
      financial statements.                                                                  
| |                                                                                                                                                                                     

| | 5) | FIN 46
| | -- | ------
| |    |       

| | In January
      2003, the FASB issued FASB Interpretation No. 46  Consolidation
      of Variable Interest Entities (FIN 46). Under this FIN entities are
      separated into two populations: (1) those for which voting interests are
      used to determine consolidation (this is the most common situation) and
      (2) those for which variable interests are used to determine consolidation.
      The FIN explains how to identify Variable Interest Entities  (VIE)
      and how to determine when a business enterprise should include the assets,
      liabilities, non-controlling interests, and results of activities of a VIE
      in its consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The FIN
      is effective as follows: for variable interests in variable interest entities
      created after January 31, 2003 the FIN shall apply immediately, for variable
      interests in variable interest entities created before that date, the FIN
      shall apply - for public entities - as of the beginning of the first interim
      or annual reporting period beginning after June 15, 2003.                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The Company
      does not expect the adoption of FIN 46 to have a material effect on its
      consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|u. | Reclassification
|-- | ----------------
|   |                 

| | Certain
      current year and comparative figures have been reclassified to conform with
      the new presentation.
| | ---------------------------------------------------------------------------------------------------------------------

NOTE 2 - ACQUISITIONS:

|a. |  | In January
      2000, the Company acquired an additional 14.16% of the shares of Net Point
      Ltd. (Net Point) for an aggregate consideration of $ 112,500
      in cash. In June 2000, the Company acquired an additional 4.69% of the shares
      of Net Point for a consideration of  $ 350,000. As a result, the
      Company held 75.85% of Net Point. The acquisitions were accounted for under
      the purchase method. The excess cost of investment, an amount of  $ 311,000,
      was attributed to goodwill.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| | According
      to a settlement agreement signed in 2001 between the Company and a minority
      shareholder of Net Point, the Company received additional shares of Net
      Point which were held by the shareholder in consideration of options of
      the Company valued at $ 9,000. As a result, the Company holds 95% of Net
      Point shares.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

XX

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE 2 - ACQUISITIONS
   (continued):

|b. |  | In February
      2000, the Company signed a loan option agreement with Store
      Alliance. Under this agreement, the Company granted Store Alliance a  $
      500,000 loan, which is linked to the dollar and bears annual interest of
      LIBOR. The loan is convertible into shares of Store Alliance. Following
      the implementation of the loan option agreement, the Company
      was granted the right to appoint over 50% of the members of the board of
      directors of Store Alliance. Accordingly, the financial statements of Store
      Alliance have been consolidated with the financial statements of the Company
      as from January 1, 2000.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| | According
      to an agreement signed on August 14, 2000 between the Company and the minority
      shareholders of Store Alliance (minority shareholders), the
      Company issued the minority shareholders 60,000 ordinary shares of the Company
      (20,417 shares issued in 2001) equal, at the date of the agreement, to approximately
      $ 1,014,000 in respect of the shares of Store Alliance. As a result, the
      Company held 100 % of the shares of Store Alliance. The acquisition was
      accounted for under the purchase method. The excess cost of investment in
      an amount of $ 1,013,000 was attributed to goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | On December
      31, 2000, the Company signed an investment agreement with the Central Bottling
      Company Ltd. (Coca-Cola Israel) (Central Company). Under this
      agreement, Central Company invested $ 3,500,000 in Store Alliance in
      consideration of 900,000 (33.3%) of the shares of Store Alliance ($3.89
      per share). As a result of this investment the Company share in Store Alliance
      decreased from 100% to 66.7%.In April 2001,
      the Company signed an investment agreement with Discount Investment Corporation
      Ltd., which establishes the principles of the purchase of 100% of the shares
      of TradaNet Electronic Commerce Services Ltd. (Tradanet),a supplier
      of electronic commerce services in Israel by Store Alliance, in consideration
      of the issuance of 342,254 (11.25%) of the shares of Store Alliance to Discount
      Investment Corporation Ltd. The value of the shares issued was approximately
      $ 1,331,000 ($3.89 per share). As a result of this investment the Company
      share in Store Alliance decreased from 66.7% to 59.17% (see note 1a).
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The excess
      of cost of investment, in the amount of approximately $ 635,000 was attributed
      to property and equipment and identified intangible assets to be amortized
      over its useful life (seven years).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | As a result
      of the investments the Group ownership in that subsidiary decreased to 59.17%
      of the shares of Store Alliance and recorded a gain in the statement of
      income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | As to employee
      stock option plan of Store Alliance, see note 9b(2).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|c. |  | On August
      9, 2001, the Company entered into an agreement to establish C-StoreMatrix.Com
      Inc.(C- Store) together with i2 Technologies Inc. and The National
      Association of Convenience Stores. The Company received 25% of the shares
      of C-Store. The Company granted C-Store a non-exclusive, non-transferable
      right to use the Companys technology to provide ASP services and the
      use of the names, trademarks and service marks of the Company and its subsidiaries.
      C-Store ceased operation in 2002. At the time of its formation the Company
      granted C-Store a $ 500,000 loan, which in accordance with the terms
      was to bear annual interest of PRIME. In  2001 the loan was written-off
      and was charged as other expense.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

XXI

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE 2 - ACQUISITIONS
   (continued):

|d. |  | According
      to an investment agreement signed on September 3, 2000 between the Company
      and the minority shareholders of Palm Point Ltd. (Palm Point),
      which defines additional investments by the shareholders in Palm Point,
      the Company converted an inter-company account of $ 900,000 into share
      capital for additional 32.12% of the shares of Palm Point. As a result,
      the Company held 82.14% of the shares of Palm Point. The acquisition was
      accounted for under the purchase method. The excess cost of investment in
      the amount of $ 221,000 was attributed to goodwill.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | In
      April 2001, the Company converted an additional inter-company account of  $
      450,000 into share capital for additional 4.34% of the shares of Palm Point.
      The excess cost was attributed to goodwill.                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                 
| | In September
      2001, the Company converted an additional amount of $ 350,000 of an inter-company
      account for additional 2.16% of the shares of Palm Point. As a result, the
      Company held 88.64% of the shares of Palm Point. The acquisition was accounted
      for under the purchase method. 
| |                                                                                                                                                                                                                                                                                                                 
| | According
      to an additional agreement signed on October 1, 2001 between the Company
      and a minority shareholder of Palm Point, the Company received additional
      shares of Palm Point which were held by the shareholder. As a result, the
      Company holds 93.18% of the shares of Palm Point.
| |                                                                                                                                                                                                                                                                                                                 
| | In 2002,
      the Company acquired shares from minority shareholders in Palm-Point in
      consideration of issuance of share capital of the Company at a total value
      of approximately $ 66,000. As a result, the Company holds 96.18% of the
      shares of Palm-Point.                               
| |                                                                                                                                                                                                                                                                                                                 

|e. |  | Under an
      investment agreement dated September 28, 2000 between the Company and the
      shareholders of Kochav Orion Ltd.(Kochav), the Company issued
      the shareholders of Kochav 16,401 ordinary shares of the Company, equal,
      at the date of the agreement, to approximately $ 410,000, in consideration
      of 100% of the shares of Kochav. The acquisition was accounted for under
      the purchase method. The excess cost of investment, in the amount of $ 397,000
      was attributed to goodwill and identified intangible assets to be amortized
      over their estimated useful life (six years).
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|f. |  | Under an
      investment agreement dated September 28, 2000 between the Company and the
      shareholders of Orlan Orion Systems Ltd. (Orlan), the Company
      issued the shareholders of Orlan 2,159 ordinary shares of the Company equal,
      at the date of the agreement, to approximately $ 54,000, in consideration
      of 100% of the shares of Orlan. The acquisition was accounted for under
      the purchase method. The excess cost of investment, in the amount of $ 57,000
      was attributed to goodwill.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

XXII

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE 2 - ACQUISITIONS
   (continued):

|g. |  | On September
      8, 2000, the Company signed an agreement with the shareholders of Retail
      Control Systems Inc. (R.C.S), under which the Company issued
      the shareholders of R.C.S. 178,660 ordinary shares of the Company equal,
      at the date of the agreement, to approximately $ 4,561,000 and paid
      additional $ 4,140,000 in cash, in consideration of 100% of the shares of
      R.C.S. The excess cost of investment, in the amount of $ 7,716,000,
      was attributed to goodwill, identified intangible assets to be amortized
      over their estimated useful life (four to eight years) and executory unfavorable
      contracts to be amortized over the contracts terms.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|h. |  | On November
      3, 2000, the Company signed an agreement with Fujitsu - ICL Systems, Inc.
      (ICL), a distributor of the Companys products in North
      America, Canada and South America to acquire the direct distribution activity
      of the Companys products. Under this agreement, the Company issued
      ICL 209,836 ordinary shares of the Company equal, at the date of the agreement,
      to approximately $ 3,915,000 and paid an additional $ 1,600,000 in
      cash. The acquisition was accounted for under the purchase method. The excess
      cost of investment, in the amount of $ 5,514,000 was attributed to
      goodwill,identified intangible assets to be amortized over their estimated
      useful life (four to eight years) and executory unfavorable contracts to
      be amortized over the contracts terms.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|i. |  | In September
      2001, the subsidiary Retalix U.S.A  Inc. (Retalix U.S.A)
      acquired 100% of the shares of Bass Inc.(Bass) in consideration
      of share capital of the Company at a total value of $ 1,393,000. As part
      of the acquisition, the Company assumed a Bass shareholders loan (to
      Bass) in the amount of $ 550,000 by issuing additional shares in the
      same amount. The excess of cost of investment in the amount of approximately
      $ 5,484,000 was attributed to goodwill, identified intangible assets to
      be amortized over estimated useful life (three to five years) and executory
      unfavorable contracts to be amortized over the contracts terms.                                                                                                                                              
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

NOTE
  3 - PROPERTY, PLANT AND EQUIPMENT:

|a. |  | Composition
      of property, plant and equipment, grouped by major classification are as
      follows:
|-- |  | ---------------------------------------------------------------------------------------------------------
|   |  |                                                                                                          

|                                                   | December 31
|-------------------------------------------------- | -----------
|
|
|Computers
      and peripheral equipment           |            
|Vehicles                                           |            
|Office
      furniture and equipment               |            
|Leasehold
      improvements                       |            
|Land
      and building                            |            
|                                                   |            
|                                                   |            
|Less - accumulated
      depreciation and          |            
|amortization                                       |            
|                                                   |            
|                                                   |            
|                                                   |            
|                                                   |            
|*  Restated,
      Note 1a                         |            
|                                                   |            
|As for geographical
      locations, see note 14b. |            

XXIII

---

---

RETALIX
  LTD. NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS (continued)

NOTE
  3 - PROPERTY, PLANT AND EQUIPMENT(continued):

|c. |  | Depreciation and amortization
      expenses totaled $ 2,244,000, $ 2,056,000, and $ 1,198,000, in
      the years  ended December 31, 2002, 2001 and 2000, respectively.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                          
|d. |  | As to pledges on property,
      plant and equipment, see note 8c.                                                                                                       
|   |  |                                                                                                                                                                          

NOTE
  4 - GOODWILL AND OTHER INTANGIBLE ASSETS:

|a. |  | In connection with the
      Companys adoption of FAS 142 on January 1, 2002, the Company reviewed
      the classification of its goodwill and other intangible asset, reassessed
      the useful lives previously assigned to other intangible assets a discontinued
      amortization of goodwill. The Company also tested goodwill for impairment
      by comparing the fair values of the Companys reporting units (see
      below) to their carrying values as of January 1, 2002 and determined that
      there was no goodwill impairment at that time. Based on this review, as
      of December 31, 2001, the Company classified $ 23.3 million as goodwill
      and $ 6.2 million as intangible assets. The Company did not identify any
      intangible assets having indefinite lives.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| | The Company identified
      its various reporting units, which consist of geographical areas, and for
      which separately identifiable cash flow information is available. The Company
      expects future discounted cash flows to determine the fair value of the
      reporting units and whether any impairment of goodwill existed as of the
      date of adoption.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                
| | The Company conducted
      the required annual impairment review during the fourth quarter of fiscal
      2002.As to executory unfavorable
      contracts assumed in the purchase of certain subsidiaries, see note 6.                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                

|b. |  | Goodwill
|-- |  | --------
|   |  |         

| | The changes in the carrying
      amount of goodwill for the year ended December 31, 2002, are as follows:
| | ----------------------------------------------------------------------------------------------------------
| |                                                                                                           

|                                           | U.S.A. | *Israel | Total
|------------------------------------------ | ------ | ------- | -----
|
|
|Balance as
      of January 1, 2002        |        | 15,661  |      
|Goodwill
      attributed to business unit
|sold
      during the year                 |        | (35     | )    
|                                           |        |         |      
|Balance as
      of December 31, 2002      |        | 15,626  |      
|                                           |        |         |      
|                                           |        |         |      
|* Restated, Note 1a                        |        |         |      

XXIV

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  4 - GOODWILL AND OTHER INTANGIBLE ASSETS(continued):

|c. |  | Intangible assets:
|-- |  | ------------------
|   |  |                   

| | 1) | The following table
      presents the components of the Companys acquired intangible assets
      with definite lives, which are included in other assets in the consolidated
      balance sheets:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                      

|                                         | Weightedaverageamortization | Original
      amount | Amortized
      balance
|---------------------------------------- | --------------------------- | --------------------- | -----------------------
|
|
|
|
|                                         |                             |                      
|Software
      development costs         |                             | 3.0                   |                        
|Software
      rights and web site      
|development
      costs                  |                             | 3.0                   |                        
|Customer
      base                      |                             | 5.6                   |                        
|Maintenance
      agreements             |                             | 6.0                   |                        
|Acquired
      technology                |                             | 4.5                   |                        
|Distribution
      rights                |                             | 7.0                   |                        
|Other identified
      intangible assets |                             | 3.0                   |                        
|                                         |                             |                       |                        
|Total                                    |                             | 4.9                   |                        
|                                         |                             |                       |                        
|                                         |                             |                       |                        
|*
       Restated, Note 1a               |                             |                       |                        

| | 
| | 
| | 

| | 2) | Intangible assets amortization
      expenses totaled $ 1,972,000, $ 1,565,000 and $ 1,702,000 in 2002,
      2001 and 2000, respectively. Projected annual amortization expenses are
      approximately $ 1,862,000, $ 1,745,000, $ 1,362,000, $ 928,000 and $ 291,000
      in 2003, 2004, 2005, 2006 and 2007 respectively.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                
| | 3) | The following table
      summarizes the Companys reported results along with adjusted amounts
      as if the Company had adopted FAS 142 and discontinued goodwill amortization,
      as of January 1, 2000.                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                

|                                                                                                                                   | 2002 | 2001  | 2000
|---------------------------------------------------------------------------------------------------------------------------------- | ---- | ----- | ----
|
|
|Reported
      income*                                                                                                             |      | 5,705 |     
|Add back
      - goodwill amortization                                                                                             |      |       |     
|                                                                                                                                   |      |       |     
|Adjusted
      net income (loss)                                                                                                   |      | 5,705 |     
|                                                                                                                                   |      |       |     
|Earnings
      per share:                                                                                                         
|Basic:                                                                                                                            
|Reported
      income (loss)                                                                                                       |      | 0.48  |     
|                                                                                                                                   |      |       |     
|Adjusted
      net income (loss)                                                                                                   |      | 0.48  |     
|                                                                                                                                   |      |       |     
|Diluted:                                                                                                                          
|Reported
      income (loss)                                                                                                       |      | 0.46  |     
|                                                                                                                                   |      |       |     
|Adjusted
      net income (loss)                                                                                                   |      | 0.46  |     
|                                                                                                                                   |      |       |     
|                                                                                                                                   |      |       |     
|*  the
      reported income for 2001 includes gain arising from issuance of shares by
      a subsidiary amounted to $ 2,877,000.

XXV

---

---

RETALIX
  LTD. NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)



NOTE 5 - LONG-TERM BANK 
  LOANS:

|a. |  | Composed as follows:
|-- |  | --------------------
|   |  |                     

|                                             | Interest
      rate as of December 
      31, 2002 | December
      31
|-------------------------------------------- | -------------------------------------------------- | -----------------
|
|
|U.S Dollar                                   | LIBOR*
      + 0.45 to 0.675                       |                  
|Pound Sterling                               | LIBOR** +
      0.7                                |                  
|Israeli currency                             | Prime***-
      0.3 to - 0.7                       |                  
|                                             | or
      annual of 6.9                             |                  
|Other                                        | Up to 11.0                                         |                  
|Loan from
      shareholders of a subsidiary
|linked
      to the Israeli Consumer Price  
|Index
      (the Israeli CPI)              | 4.0                                                |                  
|                                             |                                                    |                  
|                                             |                                                    |                  
|Less - current
      maturities              |                                                    |                  
|                                             |                                                    |                  
|                                             |                                                    |                  
|                                             |                                                    |                  

|*   | The LIBOR $  rate
      as of  December 31, 2002 - 1.38%.             
|--- | ----------------------------------------------------------------------
|**  | The LIBOR Pound Sterling 
      rate as of  December 31, 2002 - 4.02%.
|*** | The PRIME rate as of
      December 31, 2002- 10.4%                   
|    |                                                                       

|b. |  | The loans (net of current
      maturities) mature in the following years after the balance sheet dates:
|-- |  | --------------------------------------------------------------------------------------------------------
|   |  |                                                                                                         

|                                | December
      31
|------------------------------- | -----------------
|
|
|Second
      year               |                  
|Third year                      |                  
|Fourth year                     |                  
|Fifth year
      and thereafter |                  
|                                |                  
|                                |                  
|                                |                  

|c. |  | As to pledges on assets
      to secure a $ 2.5 million loan, see note 8c.
|-- |  | --------------------------------------------------------------------------
|   |  |                                                                           

XXVI

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  6 - OTHER LIABILITIES

| | These liabilities are
      associated with executory unfavorable contracts assumed in the purchase
      of three of the Companys subsidiaries.
      These liabilities are to be amortized in the following years, based on the
      contracts terms, as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                      

|                                      | **December
      31,**2002
|------------------------------------- | --------------------------
|
|
|First year
      - current maturities |                           
|Second year                           |                           
|Third year                            |                           
|Fourth year                           |                           
|                                      |                           
|                                      |                           
|                                      |                           

NOTE
  7 - EMPLOYEE RIGHTS UPON RETIREMENT:

| | a. | Israeli labor law generally
      requires payment of severance pay upon dismissal of an employee or upon
      termination of employment in certain other circumstances. The severance
      pay liability of the Israeli companies in the Group to their employees,
      which reflects the undiscounted amount of the liability is based upon the
      number of years of service and the latest monthly salary, and is partly
      covered by insurance policies and by regular deposits with recognized severance
      pay funds. The amounts funded are presented among other non-current assets.
      The Israeli companies in the Group may only make withdrawals from the amounts
      funded for the purpose of paying severance pay.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | b. | Most of the Companys
      non-Israeli subsidiaries provide defined contribution plans for the benefit
      of their employees. Under these plans, contributions are based on special
      percentage of pay.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                 
| | c. | The severance pay expenses
      were $ 958,000, $ 758,000 and $ 933,000 in 2002, 2001 and 2000, respectively.                                                                                                  
| |    |                                                                                                                                                                                                                 
| | d. | The earnings (losses)
      on the amounts funded were $ (121,000), $ 127,000 and $ 72,000 in 2002,
      2001 and 2000, respectively.                                                                          
| |    |                                                                                                                                                                                                                 

NOTE
  8 - COMMITMENTS, PLEDGES AND  CONTINGENT LIABILITIES:

| | a. | Commitments
| | -- | -----------
| |    |            

| | 1) | Lease agreements
| | -- | ----------------
| |    |                 

| | The Group has entered
      into operating lease agreements for the premises it uses; the last lease
      will expire in November 2006. The Group has options to renew some of the
      leases for additional periods, the last of which ends in 2009. The rental
      fees are linked mainly to the exchange rate of the dollar.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                     

XXVII

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  8 - COMMITMENTS, PLEDGES AND A CONTINGENT LIABILITY(continued):

| | The projected rental
      payments under the above leases, at rates in effect as of December 31,
      2002, are as follows:
| | -----------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                              

|                               | U.S. $
      in
      thousands
|------------------------------ | -------------------------------
|Year ending
      December 31: |                                
|2003                           |                                
|2004                           |                                
|2005                           |                                
|2006                           |                                
|2007                           |                                
|                               |                                
|                               |                                
|                               |                                

| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Rental expenses totaled
      $ 1,237,000, $ 1,059,000 and $ 902,000 in 2002, 2001 and 2000,
      respectively.
| |                                                                                                                 

| | 2) | Through March 1998,
      the Chief Executive Officer (the CEO) and the previous Vice
      President in charge of planning and control (the VPP) - both
      related parties and shareholders- were entitled to receive an annual bonus
      equal to 5% of the pre-bonus profits of the Company. In May 1998, the Board
      of Directors determined to change the terms of this bonus plan. Effective
      April 1, 1998, the bonus will be based on the Companys attaining certain
      performance milestones. For the first $ 1,000,000 of the Companys
      net income, the CEO and the previous VPP are each entitled to receive a
      bonus of $ 65,000. The bonus receivable for every subsequent $ 1,000,000
      of net income shall be $ 5,000 lower, but no less than $ 35,000
      for $ 7,000,000 of net income and for every $ 1,000,000 of net income thereafter.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | As of June 30, 2001,
      the VPP ceased to be employed by the Company and accordingly will not be
      entitled to the benefits above.                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                 
| | In addition, the Company
      will grant annually to the CEO, a number of options equal to 1% of the issued
      share capital. The exercise price of the options will be equal to the market
      price of the shares on the day of grant. The options will have a lock up
      periods of 1,2 and 3 years.
| |                                                                                                                                                                                                                                                                                                                 

| | 3) | Royalty commitments:
| | -- | --------------------
| |    |                     

| | The Company and some
      of its subsidiaries are committed to pay royalties to the Government of
      Israel on proceeds from sales of products the research and development of
      which is partly financed by royalty-bearing participations from the Government.
      At the time the participations were received, successful development of
      the related projects was not assured. Under the terms of the Governments
      funding, royalties of 2%-5% are payable on sales of products developed from
      a project funded by such participations, up to 100%-150% of the amount of
      the participations received by the companies (dollar linked and commencing
      January 1, 1999 bearing annual interest at the LIBOR rate). In the case
      of failure of a project that was partly financed by royalty-bearing Government
      participations, the Group is not obligated to pay any such royalties to
      the Government.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |  | As of December 31,
      2002, the maximum royalty amount payable by the Group is $ 2,367,000.
| |  | ----------------------------------------------------------------------------------------------
| |  |                                                                                               

XXVIII

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

|NOTE
      8 - COMMITMENTS, PLEDGES AND A CONTINGENT LIABILITY(continued):
|--------------------------------------------------------------------------

| | b.Contingent
      liabilities
| | ------------------------------
| |                               

| | Law
      suits against the Company and its subsidiaries:
| | ---------------------------------------------------------
| |                                                          

| | 1) | On August, 2000 the
      Company, together with its subsidiary, P.O.S (Restaurant Solutions) Ltd.
      (P.R.S.) filed a claim in the Tel-Aviv District Court asking
      for injunctions, accounts and damages (evaluated, for the purpose of court
      fees, at 3,000,000 NIS) against two shareholders of P.R.S. who own the minority
      interest in P.R.S. and who were also directors and employees of P.R.S. The
      Company and its subsidiary claim that the defendants caused them severe
      damages in the way they acted as employees and directors of P.R.S., during
      their employment, and by infringing their rights by developing Infringing
      Software. The Defendants filed a Statement of Defense. On January 2003,
      the District Court transferred the file to the Labor Court. The Company
      and its subsidiary are working on an appeal to this decision, which they
      intend to submit to High Court of Israel within a short time.
      On 2002 these minority shareholders of P.R.S. filled an opposite claim for
      an amount of $4,000,000. the company and its subsidiary are working on a
      Statement  of Defense as well as a counter claim, which they intend
      to submit within a short time. 
      The management of the Company is of the opinion that it has meritorious
      defenses against this claim and believes that the claim will not have a
      material effect on its financial statements. No provision has been made
      in respect of these claims.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| | 2) | On 1998, prior to the  acquisition
      of R.C.S. by the Company, a legal claim was filed against R.C.S by  a
      customer, for an amount of approximately $1,300,000, including consequential
      damages and loss of revenue. The suit claims that R.C.S breached its contract
      with the claimer and fraudulently misrepresented facts about the product
      sold to the claimer.
      An additional claim filed against R.C.S , prior to its acquisition by the
      Company, by a dealer who sold one of R.C.S  products early in
      1994, states that promised features and enhancements were never delivered.
      The damages claimed in this suit are in excess of $200,000. 
      These claims are handled by R.C.S Errors and Omissions Insurers. The
      limit of liability of the Companys relevant Errors and Omissions insurance
      was $1,000,000 per claim and in aggregate. The management of R.C.S  is
      of the opinion that it has meritorious defenses against these claims and
      believes that they will not have a material effect on its financial statements.
      No provision has been made in respect of these claims.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| | 3) | On December 2002, a
      legal claim for an amount of approximately $240,000, was lodged against
      the Companys subsidiary Palm Point, by a local customer. The claim
      allege for damages caused by services not duly provided by Palm Point. On
      February 2003, Palm Point filed a Statement of Defense that rejects the
      claim entirely.
      The management of Palm Point is of the opinion that Palm Point has meritorious
      defenses against the suits.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | c.Pledges
| | ---------
| |          

| | Part of the Companys
      premises are pledged to secure a $ 2.5 million loan.
| | --------------------------------------------------------------------------------

XXIX

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  9 - SHAREHOLDERS EQUITY:

| | a. | Share capital
| | -- | -------------
| |    |              

| | As
      to shares issued in consideration for acquisitions of subsidiaries, see
      note 2.
| | ----------------------------------------------------------------------------------------------
| |                                                                                               

| | b. | Option plans:
| | -- | -------------
| |    |              

| | 1) | Companys Option
      plan
| | -- | ---------------------------
| |    |                            

| | On March 5, 1998, the
      Companys Board of Directors approved the second 1998 share option
      plan (the Second 1998 Plan). Under the second 1998 plan (as
      amended in 2000 and 2001) up to 4,200,000 options were to be granted to
      employees, directors and consultants of the Company, to purchase ordinary
      shares of the Company. Each option could be exercised to purchase one ordinary
      share of the Company. The exercise price of the options will be at least
      equal to the fair value of the ordinary shares on the date of grant. Unless
      terminated earlier, the options will expire automatically in 2005. Through
      December 31, 2000, 1,641,700 options were granted to certain employees,
      the vesting period of the options is up to three years and the exercise
      price of each option range from $ 7.13 to $ 27.63.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | During 2002 and 2001,
      147,112 and 2,138,130 additional options were granted to employees, respectively
      (including 117,112 options and 113,130 Options, respectively granted to
      the CEO and to the previous VPP, mentioned in note 7a, and including 30,000
      options granted to directors in each of these years). The vesting periods
      of the options range from six months to three years and the exercise price
      of the options range from $ 8.25 to $ 16.43 per option.                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Compensation in respect
      of the CEO entitlement to options as from July 1, 2002, are - due to the
      CEOs change in employment status - determined based on the fair value
      of the options. Total expense in 2002 in respect of these options is $ 65,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Through December 31,
      2002, certain grantees exercised 605,401 options at exercise prices between
      $ 4.21 to $ 11.01.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

XXX

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  9 - SHAREHOLDERS EQUITY(continued):

| | Following is a summary
      of the status of the option plans:
| | ---------------------------------------------------------------
| |                                                                

|                                         | 2002 | 2001      | 2000
|---------------------------------------- | ---- | --------- | ----
|
|
|Options outstanding
      at beginning   |      |           |     
|of
      year                            |      | 3,963,655 |     
|Changes during
      the year:          
|Granted
      - at market value          |      | 147,112   |     
|Exercised                                |      | (273,438  | )   
|                                         |      |           |     
|Options outstanding
      at end of year |      | 3,837,329 |     
|                                         |      |           |     
|Options exercisable
      at year-end    |      | 2,293,663 |     
|                                         |      |           |     
|Weighted
      average fair value of    
|options
      granted during the year    |      |           |     
|                                         |      |           |     

|*The
      fair value of each option granted is estimated on the date of grant using
      the Black-Scholes option-pricing model with the following weighted average
      assumptions:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                        

|                                  | Year
      ended December 31
|--------------------------------- | ----------------------------
|                                  | 2002                        
|Dividend yield                    | 0%                          
|Expected volatility               | 37.88%-54.71%               
|Risk free interest
      rate     | 2%                          
|Expected holding
      period (in |                             
|years)                            | 1-3                         

XXXI

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  9 - SHAREHOLDERS EQUITY (continued):

| | The following table
      summarizes information about options under the Companys plans outstanding
      at December 31, 2002:
| | --------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                 

| | Options outstanding   | 
| | --------------------- | 
| | Exercise
      price$ | 
| | 8.25                  | 
| | 8.38                  | 
| | 10.00                 | 
| | 11.01                 | 
| | 11.53                 | 
| | 12.00                 | 
| | 14.88                 | 
| | 16.43                 | 
| | 17.11                 | 
| | 19.13                 | 
| | 25.06                 | 
| | 27.63                 | 
| |                       | 
| |                       | 
| |                       | 

| |    |                                        
| | -- | ---------------------------------------
| | 2) | Stock option plan of
      a subsidiary
| |    |                                        

| | On December 4, 2000,
      a subsidiarys board of directors approved an employee stock option
      plan (the Subsidiary Plan). Pursuant to the Subsidiary Plan,
      270,000 ordinary shares NIS 0.01 par value of the subsidiary are reserved
      for issuance upon the exercise of 270,000 options granted to some of the
      Companys and of the subsidiarys employees. The options vest
      as follows: 33.33% after the first year, another 33.33% after the second
      year and another 33.33% after the third year, provided the employee is still
      the subsidiarys or the Companys employee. In addition, the options
      are not exercisable prior to: (1) the consummation of an IPO of the subsidiarys
      securities, (2) a merger of the subsidiary and (3) seven years from the
      date of grant.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | The rights of ordinary
      shares obtained upon exercise of the options will be identical to those
      of the other ordinary shares of the subsidiary. Any option not exercised
      within 10 years of grant date will expire.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Some of the options
      under the Subsidiary Plan are subject to the terms stipulated by Section 102
      of the Israeli Income Tax Ordinance. Among other things, the Ordinance provides
      that the subsidiary will be allowed to claim as an expense for tax purposes
      the amounts credited to the employees as a benefit, when the related tax
      is payable by the employee.                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | During 2001, the subsidiary
      granted 270,000 options to employees under the Subsidiarys Plan, at
      an exercise price per share of $ 0.01, and to one employee an exercise price
      of $5.55. During 2002, 13,934 of these options were forfeited.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

XXXII

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  9 - SHAREHOLDERS EQUITY(continued):

| | 3) | The compensation expenses
      - in accordance with the provisions of APB 25 - that have been charged against
      income in the years ended December 31, 2002, 2001 and 2000 were $ 53,000,
      $ 38,000 and $ 6,000, respectively.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                         

| | c.Dividends:
| | ------------
| |             

| | 1) | In the event cash dividends
      are declared by the Company, such dividends will be paid in Israeli currency.
      Under current Israeli regulations, any cash dividend in Israeli currency
      paid in respect of ordinary shares purchased by non-residents of Israel
      with non-Israeli currency may be freely repatriated in such non-Israeli
      currency, at the rate of exchange prevailing at the time of conversion.                         
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 2) | The distribution of
      $ 10.1 million from the retained earnings as of December 31, 2002 as
      cash dividends would subject the Company to a 25% tax on the amount
      distributed. The retained earnings are otherwise exempt from the 25% tax,
      due to the Companys approved enterprise status. Consequently, the
      amount of profits available for distribution will be reduced by the amount
      of the tax levied, see also note 10g(5).
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

NOTE
  10 - TAXES ON INCOME:

| | a.Tax
      benefits under the Law for the Encouragement of Capital Investments, 
      1959
| | --------------------------------------------------------------------------------------------
| |                                                                                             

| | Some production facilities
      of the Company and part of  its Israeli subsidiaries (the Companies)
      have been granted approved enterprise status under the above law.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                
| | The main tax benefits
      available to the companies are:                                                                                                                    
| |                                                                                                                                                                                

| | 1) | Reduced tax rates
| | -- | -----------------
| |    |                  

| | In respect of income
      derived from their approved enterprises, the Companies are entitled to reduced
      tax rates during a period of seven years from the year in which such enterprises
      first earn taxable income (limited to twelve years from commencement of
      production or fourteen years from the date of approval, whichever is
      earlier).           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                     
| | The Company has seven
      approved enterprises and each of  the Israeli subsidiaries has
      one approved enterprise.                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                     
| | Income derived from
      the approved enterprises is tax exempt during the first two years of the
      seven year tax benefit period as above (except for one approved enterprise
      of one of  the Israeli subsidiaries  which is tax exempt
      during a period of ten years), and is subject to a reduced tax rate of 25%
      during the remaining years of benefits.   
| |                                                                                                                                                                                                                                                                                                                                                                                     
| | The periods of benefits
      relating to four of the approved enterprises of the Company have already
      expired, the periods of benefits relating to its other approved enterprises
      will expire in 2003 and 2005. The period of benefits related to one of the
      approved enterprises of the Company has not yet commenced (it is restricted
      to the year 2016).
| |                                                                                                                                                                                                                                                                                                                                                                                     

XXXIII

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  10  - TAXES ON INCOME (continued):

| | In the event of distribution
      of cash dividends from income which was tax exempt as above, the companies
      would have to pay the 25% tax in respect of the amount distributed (the
      amount distributed for this purpose includes the amount of the tax that
      applies as a result of the distribution (see g(5) below and note 9c(2)).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                         

| | 2) | Accelerated depreciation
| | -- | ------------------------
| |    |                         

| | The companies are entitled
      to claim accelerated depreciation in respect of equipment used by approved
      enterprises during the first five tax years of the operation of these assets.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                

| | The entitlement to the
      above benefits is conditional upon the Companies fulfillment of the
      conditions stipulated by the above law, the regulations published there
      under and the certificates of approval for the specific investments in approved
      enterprises. In the event that the companies fail to comply with these conditions,
      the benefits may be cancelled and the companies may be required to refund
      the amount of the benefits, in whole or in part, with the addition of linkage
      differences to the Israeli CPI and interest.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | b. | Measurement
      of results for tax purposes under the Income Tax (Inflationary Adjustments)
      Law, 1985 (the Inflationary Adjustments Law)
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                   

| | Under this law, results
      for tax purposes are measured in real terms, having regard to the changes
      in the Israeli CPI. The Israeli companies in the Group are taxed under this
      law. These financial statements are presented in dollars. The difference
      between the changes in the Israeli CPI and the exchange rate of the dollar,
      both on an annual and a cumulative basis, causes a difference between taxable
      income and income reflected in these financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| | c.Tax
      benefits under the Law for the Encouragement of Industry (Taxes), 1969
| | ----------------------------------------------------------------------------------
| |                                                                                   

| | Part of the Israeli
      companies in the Group are industrial companies as defined by
      this law and as such are entitled to certain tax benefits, consisting mainly
      of accelerated depreciation as prescribed by regulations published under
      the Inflationary Adjustments Law, the right to claim public issuance expenses
      as a deduction for tax purposes and amortization of patents and certain
      other intangible property rights.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | d.Tax
      rates applicable to income from other sources
| | ---------------------------------------------------------
| |                                                          

| | Income of the Company
      and its Israeli subsidiaries, not eligible for approved enterprise benefits
      is taxed at the regular rate of 36%.
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                   

XXXIV

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  10  - TAXES ON INCOME (continued):

| | e.Carryforward
      tax losses
| | -------------------------------
| |                                

| | Carryforward tax losses
      of certain subsidiaries as of December 31, 2002 and 2001 aggregate approximately
      $ 3,248,000 and $ 4,646,000 respectively. A full valuation allowance was
      created against the deferred tax assets relating to these losses.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                      
| | Under the Inflationary
      Adjustments Law, carryforward tax losses are linked to the Israeli CPI.                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                      
| | Carryforward tax losses
      in Israel are utilizable indefinitely.                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                      

| | f. | Reform of the Israeli
      tax system
| | -- | --------------------------------------
| |    |                                       

| | In 2002, amendment to
      the Israeli Income Tax Ordinance (No. 132), 2002 (hereafter - the tax reform
      law) was published. The tax reform law comprehensively reforms certain parts
      of the Israeli tax system. The tax reform law comes into effect on January 1,
      2003, although certain provisions therein will only be applied from later
      dates. The Company expects that as a result of the implementation of the
      tax reform law it will slightly increase its tax liability.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| | g. | Deferred income taxes:
| | -- | ----------------------
| |    |                       

|                                     | December
      31,                         
|------------------------------------ | -------------------------------------------
|
|
|1)                                   | Provided
      in respect of the following:
|Provisions
      for employee rights |                                            
|Carryforward
      tax losses        |                                            
|Doubtful
      accounts              |                                            
|Other                                |                                            
|                                     |                                            
|                                     |                                            
|L
      e s s- valuation allowance   |                                            
|                                     |                                            
|                                     |                                            
|                                     |                                            

|   |                                                                         
|-- | ------------------------------------------------------------------------
|2) | The
      deferred taxes are presented in the balance sheets as follows:

|                                              | December
      31,
|--------------------------------------------- | ------------------
|
|
|As
      a current asset                      |                   
|As a non-current asset                        |                   
|As
      current liability presented in other |                   
|accounts
      payable and accruals           |                   
|                                              |                   
|                                              |                   
|                                              |                   

XXXV

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  10 - TAXES ON INCOME(continued):

| | 3) | Realization of the deferred
      tax assets is conditional upon earning a sufficient amount of taxable income
      in the coming years. The value of the deferred tax assets, however, could
      decrease in future years if estimates of future taxable income are reduced.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                 

| | 4) | The deferred taxes are
      computed mainly at the tax rates of 41%, 30% and 25%.                                                                                                                                                                                                                                                                                                                                                                                                   
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 5) | As stated in a. above,
      part of the Companys and a certain Israeli subsidiaries income
      is tax exempt due to the approved enterprise status granted to most of their
      production facilities. The Company has decided to permanently reinvest the
      amount of such tax exempt income, and not to distribute it as dividends
      (see note 9c). Accordingly, no deferred taxes have been provided in respect
      of such income in these financial statements.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | The amount of tax that
      would be payable had such tax exempt income, earned through December 31,
      2002 and 2001, been distributed as dividends is approximately $ 2,530,000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                       

| | h. | Income (loss) before
      taxes on income and income taxes included in the income statements:
| | -- | ----------------------------------------------------------------------------------------------
| |    |                                                                                               

|                                | *2002                                       | *2001 | 2000
|------------------------------- | ------------------------------------------- | ----- | ----
|
|1)                              | Income (loss) before
      taxes on income: |       |     
|Israeli                         |                                             | (598  | )   
|Non-Israeli                     |                                             | 7,882 |     
|                                |                                             |       |     
|                                |                                             | 7,284 |     
|                                |                                             |       |     
|                                |                                             |       |     
|*Restated,
      Note 1a        |                                             |       |     
|                                |                                             |       |     
|2)                              | Income taxes included                       |       |     
|in
      the income statements: |                                             |       |     
|Current:                        |                                             |       |     
|Israeli                         | 2,328                                       |       | 531 
|Non-Israeli                     | 530                                         |       | 91  
|                                |                                             |       |     
|                                | 2,858                                       |       | 622 
|                                |                                             |       |     
|                                |                                             |       |     
|Deferred:                       |                                             |       |     
|Israeli                         | (310                                        | )     | 78  
|Non-Israeli                     | (445                                        | )     | 6   
|                                |                                             |       |     
|                                | (755                                        | )     | 84  
|                                |                                             |       |     
|                                | 2,103                                       |       | 706 
|                                |                                             |       |     

XXXVI

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  10  - TAXES ON INCOME (continued):

| | 3) | Following is a reconciliation
      of the theoretical tax expense, assuming all income is taxed at the regular
      tax rate applicable to companies in Israel (36%) and the actual tax expense:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                   

|                                                                | *2002 | *2001 | 2000
|--------------------------------------------------------------- | ----- | ----- | ----
|
|Income before
      taxes on income, as reported                |       |       |     
|in
      the income statements                                  |       | 7,284 |     
|                                                                |       |       |     
|Theoretical
      tax expense (income)                          |       | 2,622 |     
|L e s s -
      tax benefits arising from                      
|approved
      enterprise status                                |       | 911   |     
|                                                                |       |       |     
|                                                                |       | 1,711 |     
|Increase
      (decrease) in taxes resulting from permanent    
|differences:                                                   
|Disallowable
      deductions                                   |       | 1,268 |     
|Tax
      exempt income                                         |       | (738  | )   
|Increase
      (decrease) in taxes resulting from different tax
|rates
      for non - Israeli subsidiaries                      |       | 98    |     
|Increase
      in taxes in respect of tax losses               
|incurred
      in the reported years for which                 
|a
      full valuation allowance has been recorded              |       | 264   |     
|Decrease
      in taxes resulting from utilization, in the     
|reported
      years, of deferred tax assets relating to       
|carryforward
      tax losses and expenses for which           
|deferred
      taxes were not created in previous years         |       | (911  | )   
|Increase
      (decrease) in taxes in respect of differences in
|measurement
      of income from marketable securities          |       |       |     
|Other, mainly
      differences between the basis of           
|measurement
      of income reported for tax purposes and      
|the
      basis of measurement of income for financial         
|reporting
      purposes - net, see b. above                    |       | 411   |     
|                                                                |       |       |     
|Income taxes
      for the reported years                       |       | 2,103 |     
|                                                                |       |       |     
|                                                                |       |       |     
|*Restated, Note 1a                                              |       |       |     

| |                                      
| | -------------------------------------
| | i.   
      Non- Israeli subsidiaries
| |                                      

| | Non Israeli subsidiaries
      are taxed under the laws of their countries of residence.
| | ----------------------------------------------------------------------------------------
| |                                                                                         

| | j.Tax
      assessments
| | -----------------------
| |                        

| | The Company has received
      final assessments through the year ended December 31, 1998.                                                                                                                                                                                                                                                 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Tamar Industries M.R
      Electronics 1985 Ltd. received final assessment through the year ended December
      31, 1997. Kochav, Orlan and P.O.S. (Restaurant Solutions) Ltd. (PRS)
      received final assessments through the year ended December 31, 1999. The
      other subsidiaries have not been assessed since incorporation.
| |                                                                                                                                                                                                                                                                                                                                            

XXXVII

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE 11 - MONETARY BALANCES
  IN NON-DOLLAR CURRENCIES:

|            | December 31,
      2002
|----------- | -----------------------
|
|
|
|Assets      |                        
|            |                        
|Liabilities |                        
|            |                        

NOTE
  12  - SUPPLEMENTARY BALANCE SHEET INFORMATION:

|                                     | December 31
|------------------------------------ | -----------
|
|
|**a.
       Accounts receivable:**   |            
|1) 
      Trade:                     |            
|Open
      accounts                  |            
|Less
      - allowance for doubtful  |            
|accounts                             |            
|                                     |            
|                                     |            
|                                     |            
|2)  Other:                           |            
|Israeli
      Government departments |            
|and
      agencies                   |            
|Employees                            |            
|Prepaid
      expenses               |            
|Sundry                               |            
|                                     |            
|                                     |            
|                                     |            
|**b.
       Inventories:**           |            
|Raw
      materials and supplies     |            
|Products
      in process            |            
|Finished
      products              |            
|                                     |            
|                                     |            
|                                     |            

XXXVIII

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  12  - SUPPLEMENTARY BALANCE SHEET INFORMATION (continued):

| | c.Marketable
      securities:
| | ------------------------------
| |                               

| | 1) | At December 31, 2002
      the amortized cost basis, aggregate fair value and the gross unrealized
      holding gains and losses by major security type were as follows:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                          

|Amortized
      cost | Unrealized
      gains | Unrealized
      losses | Aggregate
      fair value
|-------------------- | ---------------------- | ----------------------- | --------------------------
|
|                     | 5,164                  |                         |                           
|                     |                        |                         |                           

|The
      bonds mature as follows:  |  |  |  |       | 
|----------------------------------- |  |  |  | ----- | 
|                                    |  |  |  |       | 
|2003                                |  |  |  | 2,596 | 
|2004                                |  |  |  | 243   | 
|2005                                |  |  |  | 98    | 
|2006
      and thereafter (through) |  |  |  | 2,227 | 
|                                    |  | 
|                                    |  |  |  | 5,164 | 
|                                    |  | 

| | 2) | The marketable securities
      are presented in the balance sheets as follows:
| | -- | -------------------------------------------------------------------------------
| |    |                                                                                

|                            | December 31
|--------------------------- | -----------
|
|
|Among current
      assets: |            
|Tradings                    |            
|Held
      to maturity      |            
|                            |            
|                            |            
|                            |            
|As non current
      assets |            
|                            |            
|                            |            
|                            |            

| | d.Lines
      of credit
| | -----------------------
| |                        

| | The Company, through
      its U.S. subsidiaries, has several lines of credit totaled to $ 7,500,000.
      The interest is payable monthly at the prime rate. Certain credit lines
      amounted to $ 3,000,000 are collateralized by accounts receivable, inventories
      and equipment of certain subsidiaries. The utilized line of credit as of
      December 31, 2002, amounted to $100,000.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                       

XXXIX

---

---

RETALIX LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE
  12  - SUPPLEMENTARY BALANCE SHEET INFORMATION (continued):

| | e.Long-term
      loans to employees
| | ------------------------------------
| |                                     

| | Loans
      granted by the Company are linked to the Israeli CPI and bear interest at
      an annual rate of 2% to 4%. Repayment dates are up to four years from the
      date of grant.Loans
      granted by a U.S. subsidiary are demanded in dollars, bears an annual interest
      of 4% and are payable up to five years from the date of grant.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                          

NOTE
  13 - DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS:

| | a.Concentrations
      of credit risks - allowance for doubtful accounts
| | ------------------------------------------------------------------------
| |                                                                         

| | All
      of the Groups cash and cash equivalents deposits and marketable securities
      as of December 31, 2002 and 2001 were deposited with Israeli, U.K. and U.S  banks
      and with a company manages investment profile. Such securities represent
      mainly highly rated corporations. The Group is of the opinion that the credit
      risk in respect of these balances is remote.     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                         
| | Most
      of the Groups revenue has historically been from a large number of
      customers. Consequently, the exposure to credit risks relating to trade
      receivables is limited. The Group performs ongoing credit evaluations of
      its customers and generally does not require collateral. An appropriate
      allowance for doubtful accounts is included in the accounts receivables.
| |                                                                                                                                                                                                                                                                                                                                                                                                         
| | The
      allowance for doubtful debts is determined for specific debts doubtful of
      collection.                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                         

| | b.Fair value
      of financial instruments
| | -------------------------------------------
| |                                            

| | The
      fair value of the financial instruments included in working capital of the
      Group is usually identical or close to their carrying value. The fair value
      of long-term receivables and long-term loans and other long-term liabilities
      also approximates the carrying value, since they bear interest at rates
      close to the prevailing market rates.
      The fair value and the carrying value of derivatives at December 31,
      2002 is approximately adjusted $ 89,700 and generally reflects the estimated
      amounts that the Group would receive or pay to terminate the contracts at
      the reporting dates.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| | As
      to fair value of derivatives, see c. below. As to fair value of marketable
      securities, see note 12c.
| | -------------------------------------------------------------------------------------------------------------------

XL

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  13 - DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (continued):

| | c.**Derivative
      financial instruments**
| | --------------------------------------------
| |                                             

| | The Company has only
      limited involvement with derivative financial instruments. The Company carries
      out transactions involving foreign exchange derivative financial instruments
      (forward exchange contracts). These transactions do not qualify for hedge
      accounting order FAS 133.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                             
| | During 2002, the Company
      entered into one foreign currency forward contract for conversion of pounds
      sterling into a notional amount of dollars is approximately $ 2,318,000.                                                                                                                   
| |                                                                                                                                                                                                                                                                                                             
| | The fair value of that
      contract as of December 31, 2002 reflects a liability in amount of $ 89,700,
      which was charged to financial expenses.                                                                                                                                                    

NOTE
  14 - SEGMENT INFORMATION:

| | a. | The Company conducts
      business globally and is managed geographically. The Company and its subsidiaries
      reportable segments are strategic business units which are distinguished
      by the geographical areas in which they generate revenues, based on location
      of customers.
      The Company evaluates performance based on revenue which is presented for
      each geographical segment. Segment assets information is not given, since
      the Company does not evaluate performance based on such assets. Based on
      the criteria above, the Company has reportable segments: Israel, U.S.A.
      and International.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | The accounting policies
      of the segments are the same as those described in the significant accounting
      policies.
| |                                                                                                                            

| |  | Geographic segments                                                                                
| |  | ---------------------------------------------------------------------------------------------------
| |  |                                                                                                    
| |  | Summarized financial
      information by geographic segment for 2002, 2001 and 2000 is as follows:

|                                  | Year ended
      December 31
|--------------------------------- | ----------------------------
|
|
|Revenues:                         |                             
|U.S.A                             |                             
|Israel                            |                             
|International*                    |                             
|                                  |                             
|Total
      revenue               |                             
|                                  |                             
|* The international
      segment |                             
|includes
      revenues from      |                             
|customers
      in Europe         |                             
|                                  |                             

XLI

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  14 - SEGMENT INFORMATION (continued):

| | b.**Enterprise-Wide
      Disclosure**
| | --------------------------------------
| |                                       

| | The composition of the
      Groups property, plant and equipment based on the physical location
      of the assets is as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------

|                                                    | Depreciated
      balance at
      December 31
|--------------------------------------------------- | ----------------------------------------------
|
|Israel                                              |                                               
|U.S.                                                |                                               
|U.K                                                 |                                               
|                                                    |                                               
|                                                    |                                               
|                                                    |                                               
|                                                    |                                               
|* Restated,
      Note 1a                           |                                               
|                                                    |                                               
|As for goodwill
      and other assets, see note 4. |                                               

| | c.**Revenues
      from customers exceeding 10% of revenues:******
| | ------------------------------------------------------------------
| |                                                                   

|                 | 2001 | 2000
|---------------- | ---- | ----
|
|
|Customer
      A |      |     
|                 |      |     
|Customer
      B |      |     
|                 |      |     
|Customer
      C |      |     
|                 |      |     

NOTE
  15 - SELECTED INCOME STATEMENT DATA:

| | a.General
      and administrative expenses - allowance for doubtful accounts:
| | ------------------------------------------------------------------------------

|                                            | Year ended
      December 31,
|------------------------------------------- | -----------------------------
|
|
|The
      changes in allowance for doubtful |                              
|accounts
      are composed as follows:     |                              
|Balance
      at beginning of year          |                              
|Increase
      during the year              |                              
|Bad
      debt written off                  |                              
|                                            |                              
|Balance
      at end of year                |                              
|                                            |                              

XLII

---

---

RETALIX LTD.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (continued)

NOTE
  15 - SELECTED INCOME STATEMENT DATA (continued):

|                                                    | Year ended
      December 31,
|--------------------------------------------------- | -----------------------------
|
|
|**b.   Financial
      income (expenses) - net:**   |                              
|                                                    |                              
|Realized
      gain (loss) on marketable            |                              
|securities
      - net                              |                              
|Non-dollar
      currency gains (losses) - net      |                              
|Interest
      and bank commissions - net           |                              
|                                                    |                              
|                                                    |                              
|                                                    |                              
|**c.   Other
      general income - net:**          |                              
|Gain
      (loss) on sale of property and equipment |                              
|Gain
      on sale of dealership activity           |                              
|                                                    |                              
|                                                    |                              
|                                                    |                              

| | d.Earnings
      (loss) per share (EPS):
| | ------------------------------------------

| | Following are data relating
      to the nominal value of shares - basic and diluted used for the purpose
      of computing EPS:
| | ---------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                  

|                                             | 2002 | 2001 | 2000
|-------------------------------------------- | ---- | ---- | ----
|                                             |      |      |     
|Weighted
      average number of shares      |      |      |     
|issued
      and outstanding- used in        |      |     
|computation
      of basic earning per share |      |      |     
|Add incremental
      shares from assumed    |      |     
|exercise
      of options                    |      |      |     
|                                             |      |      |     
|Weighted
      average number of             |      |     
|shares
      used in computation             |      |     
|of
      diluted earnings per share          |      |      |     
|                                             |      |      |     

| | Diluted EPS for the
      year ended December 31, 2000 does not include 700,354 options, because of
      their anti-dilutive effect, since the Company had net loss.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

XLIII

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Exhibit A


Retalix
  Ltd.

Details
  of subsidiaries

As of
  December 31, 2002

| | Retalix Holdings Inc.
      - a U.S. Corporation, wholly controlled and owned. Established in 2002.                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                   
| | Retalix U.S.A, Inc.
      formerly Store Point Inc. - a U.S. Corporation, wholly controlled and owned
      (from 1996 through December 4, 1997 - 80% and from December 4, 1997 through
      July 20, 1998 - 90%), established in 1996.                                                                                          
| |                                                                                                                                                                                                                                                                                                                                   
| | Retail Control Systems
      Inc. (R.C.S.) - a U.S. Corporation, wholly controlled and owned 
      (purchased in September 2000).                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                   
| | BASS Inc.- a U.S. Corporation,
      wholly-controlled and owned by Retalix U.S.A (purchased in September 2001).                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                   
| | StoreNext Retail Technology
      LLC - 50.01% controlled and owned. Established in 2002.                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                   
| | Net Point Ltd.- 95%
      controlled and owned (from 1996 through January 2000 - 57%, from January
      2000 through June 2000 - 71.16%, and from June 2000 through October 2001
      - 75.85%).                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                   
| | P.O.S. (Restaurant Solutions)
      Ltd. (PRS) - 69% controlled and owned (established in 1996).                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                   
| | Palm Point Ltd - 96.18%
      controlled and owned (from January 1999 through September 2000 - 50.02%,
      from September 2000 through March 2001 - 82.14%, from March 2001 through
      September 2001 - 86.48%, from September 2001 through November 2001 - 88.64%
      and from November 2001 through April 2002 - 93.18%).
| |                                                                                                                                                                                                                                                                                                                                   
| | Tamar Industries M.R
      Electronics 1985 Ltd. - 100% controlled and owned (purchased in 1999).                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                   
| | Store Alliance.Com Ltd.
      - 59.17% controlled and owned (in 1999, associated - 52% and consolidated
      from January 1, 2000 through September 3, 2000 - 52%, from September 4,
      2000 through December 31, 2000 - 100% and from January 1, 2001
      through April 2001 - 66.7%).                                     
| |                                                                                                                                                                                                                                                                                                                                   
| | Kochav Orion Ltd. -
      wholly controlled and owned (purchased in September 2000).                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                   
| | Orlan Orion Systems
      Ltd. - wholly controlled and owned (purchased in September 2000).                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                   
| | Store Next Ltd. - wholly
      controlled and owned by Store Alliance Israel (established in July 2002).                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                   
| | TradaNet Electronic
      Commerce Services Ltd. (Tradanet Ltd.) - wholly-controlled and
      owned by Store Alliance Israel (purchased in April 2001).                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                   
| | IREX Israel Retail Exchange
      Ltd.  wholly controlled and owned by Store Alliance Israel. Established
      in September 2001. Has not yet commenced operations.                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                   
| | Retalix (UK) Limited
      - a U.K. Corporation, wholly controlled and owned. Established in May 2000
      and commenced operations in September 2000.                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                   
| | Retalix SA PTY Ltd.
      - a South Africa Corporation, wholly controlled and owned. Established in
      March 2001 and commenced operations in April 2001.                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                   
| | Retalix Australia PTY
      Ltd- an Australian corporation, wholly controlled and owned. Established
      in July 2001, has not commenced operations yet.                                                                                                                                                                        

XLIV

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# SIGNATURES

Pursuant to the requirements
  of the Securities Exchange Act of 1934, the registrant hereby certifies that
  it has reasonable grounds to believe that it meets all of the requirements for
  filing on Form 20-F and has duly caused and authorized the undersigned to sign
  this annual report on its behalf.

|                            |  | RETALIX
      LTD.
|--------------------------- |  | ------------------
|                            |  |                   
|                            |  |                   
|                            |  |                   
|Date:
      March 29 , 2004 |  |                   
|                            |  |                   
|                            |  |                   
|                            |  |                   
|Date: March 29 , 2004       |  |                   

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