----

----

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

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

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

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

| Title of Each Class                          | Name of Each Exchange On Which Registered |
|----------------------------------------------|-------------------------------------------|
| Ordinary Shares, NIS 0.5 par value per share | NASDAQ Global Market                      |

----

| x | U.S. GAAP |
|---|-----------|

| o | International Financial Reporting Standards as issued by the International Accounting Standards Board |
|---|-------------------------------------------------------------------------------------------------------|

| o | Other |
|---|-------|

----

|   |     |                                                  | Page   |
|--------|----------|-------------------------------------------------------|--------|
| PART I |     |                                                  |   |
|   |     |                                                  |   |
|   | Item 1.  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 6      |
|   |     |                                                  |   |
|   | Item 2.  | OFFER STATISTICS AND EXPECTED TIMETABLE               | 6      |
|   |     |                                                  |   |
|   | Item 3.  | KEY INFORMATION                                       | 6      |
|   |     |                                                  |   |
|   |     | A. Selected Financial Data                            | 6      |
|   |     |                                                  |   |
|   |     | B. Capitalization and Indebtedness                    | 8      |
|   |     |                                                  |   |
|   |     | C. Reasons for the Offer and Use of Proceeds          | 8      |
|   |     |                                                  |   |
|   |     | D. Risk Factors                                       | 8      |
|   |     |                                                  |   |
|   | Item 4.  | INFORMATION ON THE COMPANY                            | 18     |
|   |     |                                                  |   |
|   |     | A. History and Development of the Company             | 18     |
|   |     |                                                  |   |
|   |     | B. Business Overview                                  | 19     |
|   |     |                                                  |   |
|   |     | C. Organizational Structure                           | 27     |
|   |     |                                                  |   |
|   |     | D. Property, Plants and Equipment                     | 27     |
|   |     |                                                  |   |
|   | Item 4A. | UNRESOLVED STAFF COMMENTS                             | 28     |
|   |     |                                                  |   |
|   | Item 5.  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS          | 28     |
|   |     |                                                  |   |
|   |     | A. Operating Results                                  | 28     |
|   |     |                                                  |   |
|   |     | B. Liquidity and Capital Resources                    | 38     |
|   |     |                                                  |   |
|   |     | C. Research and Development, Patents and Licenses     | 40     |
|   |     |                                                  |   |
|   |     | D. Trend Information                                  | 40     |
|   |     |                                                  |   |
|   |     | E. Off-Balance Sheet Arrangements                     | 40     |
|   |     |                                                  |   |
|   |     | F. Tabular Disclosure of Contractual Obligations      | 40     |
|   |     |                                                  |   |
|   | Item 6.  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES            | 41     |
|   |     |                                                  |   |
|   |     | A. Directors and Senior Management                    | 41     |
|   |     |                                                  |   |
|   |     | B. Compensation                                       | 43     |
|   |     |                                                  |   |
|   |     | C. Board Practices                                    | 44     |
|   |     |                                                  |   |
|   |     | D. Employees                                          | 48     |
|   |     |                                                  |   |
|   |     | E. Share Ownership                                    | 49     |

----

|    | Item 7.  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS          | 50     |
|---------|----------|------------------------------------------------------------|--------|
|    |     |                                                       |   |
|    |     | A. Major Shareholders                                      | 50     |
|    |     |                                                       |   |
|    |     | B. Related Party Transactions                              | 52     |
|    |     |                                                       |   |
|    |     | C. Interests of Experts and Counsel                        | 53     |
|    |     |                                                       |   |
|    | Item 8.  | FINANCIAL INFORMATION                                      | 53     |
|    |     |                                                       |   |
|    |     | A. Consolidated Statements and Other Financial Information | 53     |
|    |     |                                                       |   |
|    |     | B. Significant Changes                                     | 54     |
|    |     |                                                       |   |
|    | Item 9.  | THE OFFER AND LISTING                                      | 55     |
|    |     |                                                       |   |
|    |     | A. Offer and Listing Details                               | 55     |
|    |     |                                                       |   |
|    |     | B. Plan of Distribution                                    | 55     |
|    |     |                                                       |   |
|    |     | C. Markets                                                 | 55     |
|    |     |                                                       |   |
|    |     | D. Selling Shareholders                                    | 55     |
|    |     |                                                       |   |
|    |     | E. Dilution                                                | 56     |
|    |     |                                                       |   |
|    |     | F. Expenses of the Issue                                   | 56     |
|    |     |                                                       |   |
|    | Item 10. | ADDITIONAL INFORMATION                                     | 56     |
|    |     |                                                       |   |
|    |     | A. Share Capital                                           | 56     |
|    |     |                                                       |   |
|    |     | B. Memorandum and Articles of Association                  | 56     |
|    |     |                                                       |   |
|    |     | C. Material Contracts                                      | 61     |
|    |     |                                                       |   |
|    |     | D. Exchange Controls                                       | 61     |
|    |     |                                                       |   |
|    |     | E. Taxation                                                | 61     |
|    |     |                                                       |   |
|    |     | F. Dividends and Paying Agents                             | 68     |
|    |     |                                                       |   |
|    |     | G. Statement by Experts                                    | 68     |
|    |     |                                                       |   |
|    |     | H. Documents on Display                                    | 69     |
|    |     |                                                       |   |
|    |     | I. Subsidiary Information                                  | 69     |
|    |     |                                                       |   |
|    | Item 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 69     |
|    |     |                                                       |   |
|    | Item 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES     | 69     |
|    |     |
| PART II |     |
|    |     |                                                       |   |
|    | Item 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES            | 69     |

----

|   | Item 14                     | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 70     |
|--------|-----------------------------|------------------------------------------------------------------------------|--------|
|   |                        |                                                                         |   |
|   | Item 15.                    | CONTROLS AND PROCEDURES                                                      | 70     |
|   |                        |                                                                         |   |
|   | Item 16.                    | Reserved                                                                     | 71     |
|   |                        |                                                                         |   |
|   | Item 16A.                   | AUDIT COMMITTEE FINANCIAL EXPERT                                             | 71     |
|   |                        |                                                                         |   |
|   | Item 16B.                   | CODE OF ETHICS                                                               | 71     |
|   |                        |                                                                         |   |
|   | Item 16C.                   | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       | 71     |
|   |                        |                                                                         |   |
|   | Item 16D.                   | EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES                       | 71     |
|   |                        |                                                                         |   |
|   | Item 16E.                   | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       | 72     |
|   |                        |                                                                         |   |
|   | Item 16F.                   | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT                           | 72     |
|   |                        |                                                                         |   |
|   |    Item 16G. | CORPORATE GOVERNANCE                                                         | 72     |
|   |                        |                                                                         |   |
|   | Item 17.                    | FINANCIAL STATEMENTS                                                         | 72     |
|   |                        |                                                                         |   |
|   | Item 18.                    | FINANCIAL STATEMENTS                                                         | 72     |
|   |                        |                                                                         |   |
|   | Item 19.                    | EXHIBITS                                                                     | 72     |

----

|   | · | “TTI,” “us,” “we,” and “our” refer to TTI Team Telecom International Ltd. and its subsidiaries; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | “ordinary shares” are to our Ordinary Shares, par value NIS 0.5 per share; |
|--------|--------|----------------------------------------------------------------------------------------|

|   | · | “Series A Preferred Shares” are to our Series A Convertible Preferred Shares, par value NIS 0.5 per share; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------|

|   | · | the “Companies Law” or the “Israeli Companies Law” are to the Israeli Companies Law, 5759-1999; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|

|   | · | the “SEC” are to the United States Securities and Exchange Commission; |
|--------|--------|------------------------------------------------------------------------------------|

|   | · | “NASDAQ” are to the NASDAQ Global Market (formerly, the Nasdaq National Market); |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | · | “dollars” or “$” are to United States dollars; and |
|--------|--------|----------------------------------------------------------------------------|

|   | · | “NIS” or “shekel” are to New Israeli Shekels. |
|--------|--------|-----------------------------------------------------------------------|

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

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

| Item 3. | KEY INFORMATION |
|---------|-----------------|

| A. Selected Financial Data. |
|-----------------------------|

----

|                                                                                         |   | December 31,(dollars in thousands, except for share data) |    |
|----------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|---------|
|                                                                                         |   | 2005                                                      |    |   | 2006 |   |   | 2007 |   |   | 2008 |   |   | 2009 |   |
|                                                                                         |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Statement of Income Data:                                                                    |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues:                                                                                    |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Products                                                                                     |   | $                                                         | 25,317  |   |   | $ | 27,554 |   |   | $ | 25,722 |   |   | $ | 29,101 |   |   | $ | 22,741 |   |
| Services                                                                                     |   |                                                      | 17,909  |   |   |   | 18,560 |   |   |   | 20,195 |   |   |   | 21,232 |   |   |   | 19,794 |   |
| Total  revenues                                                                    |   |                                                      | 43,226  |   |   |   | 46,114 |   |   |   | 45,917 |   |   |   | 50,333 |   |   |   | 42,535 |   |
| Cost of revenues:                                                                            |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Products                                                                                     |   |                                                      | 13,015  |   |   |   | 14,783 |   |   |   | 12,504 |   |   |   | 15,627 |   |   |   | 13,473 |   |
| Services                                                                                     |   |                                                      | 9,203   |   |   |   | 9,571 |   |   |   | 8,545 |   |   |   | 7,628 |   |   |   | 6,141 |   |
| Impairment of capitalized software                                                           |   |                                                      | 177     |   |   |   | — |   |   |   |  — |   |   |   | — |   |   |   | — |   |
| Total cost of revenues                                                                       |   |                                                      | 22,395  |   |   |   | 24,354 |   |   |   | 21,049 |   |   |   | 23,255 |   |   |   | 19,614 |   |
| Gross profit                                                                                 |   |                                                      | 20,831  |   |   |   | 21,760 |   |   |   | 24,868 |   |   |   | 27,078 |   |   |   | 22,921 |   |
| Operating expenses:                                                                          |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Research and development, net                                                                |   |                                                      | 9,136   |   |   |   | 9,578 |   |   |   | 9,433 |   |   |   | 11,407 |   |   |   | 7,478 |   |
| Selling and marketing                                                                        |   |                                                      | 11,977  |   |   |   | 10,214 |   |   |   | 7,857 |   |   |   | 9,883 |   |   |   | 7,994 |   |
| General and administrative                                                                   |   |                                                      | 6,325   |   |   |   | 6,679 |   |   |   | 6,952 |   |   |   | 5,842 |   |   |   | 4,899 |   |
| Total operating expenses                                                                     |   |                                                      | 27,438  |   |   |   | 26,471 |   |   |   | 24,242 |   |   |   | 27,132 |   |   |   | 20,371 |   |
| Operating income (loss)                                                                      |   |                                                      | (6,607  | ) |   |   | (4,711 | ) |   |   | 626 |   |   |   | (54 | ) |   |   | 2,550 |   |
| Other income                                                                                 |   |                                                      |    |   |   |   | 150 |   |   |   | 33 |   |   |   | — |   |   |   | — |   |
| Financial income (expenses), net                                                             |   |                                                      | 153     |   |   |   | 662 |   |   |   | 2,150 |   |   |   | (554 | ) |   |   | 522 |   |
| Income (loss) before income taxes                                                            |   |                                                      | (6,454  | ) |   |   | (3,899 | ) |   |   | 2,809 |   |   |   | (608 | ) |   |   | 3,072 |   |
| Income taxes (benefit)                                                                       |   |                                                      | 624     |   |   |   | (96 | ) |   |   | (87 | ) |   |   | 371 |   |   |   | 79 |   |
| Income (loss) from continuing operation                                                      |   |                                                      | — |   |   |   | — |   |   |   | — |   |   |   | (979 | ) |   |   | 2,993 |   |
| Income (loss) from discontinued operation                                                    |   |                                                      | ---     |   |   |   | --- |   |   |   | --- |   |   |   | (1,022 | ) |   |   | (314 | ) |
| Net income (loss)                                                                            |   |                                                      | (7,078  | ) |   |   | (3,803 | ) |   |   | 2,896 |   |   |   | (2,001 | ) |   |   | 2,679 |   |
| Deemed dividend associated with Beneficial Conversion Feature                                |   |                                                      | (1,981  | ) |   |   | — |   |   |   |  — |   |   |   | — |   |   |   | — |   |
| Net Income attributable to preferred shareholders from continuing and discontinued operation |   |                                                      | — |   |   |   | — |   |   |   | (449 | ) |   |   | — |   |   |   | 464 |   |
| Net income (loss) attributable to ordinary shareholders from continuing operation            |   |                                                      | (9,059  | ) |   |   | (3,803 | ) |   |   | 2,447 |   |   |   | (979 | ) |   |   | 2,529 |   |
| Net income (loss) attributable to ordinary shareholders from discontinued operation          |   |                                                      | — |   |   |   | — |   |   |   | — |   |   |   | (1,022 | ) |   |   | (314 | ) |
| Net Basic and diluted income (loss) attributable to ordinary shareholders                    |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                         |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| From continuing operation                                                                    |   |                                                      | (0.72   | ) |   |   | (0.20 | ) |   |   | 0.15 |   |   |   | (0.06 | ) |   |   | 0.16 |   |
| From discontinued operation                                                                  |   |                                                      | --      |   |   |   | -- |   |   |   | -- |   |   |   | (0.06 | ) |   |   | (0.02 | ) |
| Net income per share                                                                         |   |                                                      | (0.72   | ) |   |   | (0.20 | ) |   |   | 0.15 |   |   |   | (0.12 | ) |   |   | 0.14 |   |
|                                                                                         |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of shares used for computing (in thousands):                    |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic net earnings (loss) per share attributed to ordinary shareholders                      |   |                                                      | 12,577  |   |   |   | 15,076 |   |   |   | 16,001 |   |   |   | 16,003 |   |   |   | 16,003 |   |
|                                                                                         |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic net earnings (loss) per share attributed to ordinary shareholders                      |   |                                                      | 12,577  |   |   |   | 15,076 |   |   |   | 16,122 |   |   |   | 16,003 |   |   |   | 16,003 |   |

----

|                       |   | December 31,(dollars in thousands) |   |
|----------------------------|--------|------------------------------------|--------|
|                       |   | 2005                               |   |   | 2006 |   |   | 2007 |   |   | 2008 |   |   | 2009 |   |
|                       |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Data:        |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents  |   | $                                  | 18,034 |   |   | $ | 31,410 |   |   | $ | 33,408 |   |   | $ | 24,921 |   |   | $ | 22,980 |   |
| Short term bank deposits   |   |                               | 1,973  |   |   |   | 984 |   |   |   | 98 |   |   |   | — |   |   |   | 7,887 |   |
| Marketable securities      |   |                               | 15,713 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Working capital            |   |                               | 23,613 |   |   |   | 24,462 |   |   |   | 30,519 |   |   |   | 28,232 |   |   |   | 32,113 |   |
| Total assets               |   |                               | 55,851 |   |   |   | 53,585 |   |   |   | 58,594 |   |   |   | 52,571 |   |   |   | 53,484 |   |
| Shareholders’ equity |   |                               | 32,443 |   |   |   | 30,495 |   |   |   | 33,436 |   |   |   | 31,648 |   |   |   | 34,304 |   |

| B. Capitalization and Indebtedness |
|------------------------------------|

| C. Reasons for Offer and Use of Proceeds |
|------------------------------------------|

| D. Risk Factors |
|-----------------|

----

|   | · | The slower pace of decision making processes at customer sites is still apparent; |
|--------|--------|-----------------------------------------------------------------------------------|

|   | · | Some of our customers and vendors have cancelled and may still delay their purchase plans and new projects; |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | · | The strong pressure on the price of our products and services is still continuing; and |
|--------|--------|----------------------------------------------------------------------------------------|

|   | · | Some of our customers are still undergoing, and may undergo in the future, financial difficulties which may result in a longer period for collection of payments owed to us and, in certain cases, even seeking to avoid payments to us altogether. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | organizations’ information technology, or IT, departments, some of which may be our customers or prospective customers, that provide or may attempt to develop NMS, OSS and BSS applications for their particular internal needs; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | providers of NMS, OSS and BSS, such as IBM (which owns Micromuse and Vallent),  Hewlett-Packard, Infovista, and Telecordia Technology; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | network equipment vendors (NEPs), such as Alcatel Lucent, Huawei, Ericsson and Nokia Siemens, have continued to expand into the OSS market, as it appears they regard service layer evolution as a strategic augmentation of their core network equipment business. Consequently, NEPs may grow in time to be direct competitors of ours; |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | systems integrators who provide programming, integration, implementation and training services, such as LogicaCMG, Accenture, Cap Gemini and IBM Global Services; and |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | managed service providers, such as Ericsson, that offer their customers management services on top of their networks rather than building their own network operation center, or NOC, and purchasing an independent management system. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | emergence of new types of networks and services; |
|--------|---------|--------------------------------------------------|

|   | • | changing services and technologies; |
|--------|---------|-------------------------------------|

|   | • | evolving industry standards; |
|--------|---------|------------------------------|

|   | • | changing regulatory environments; and |
|--------|---------|---------------------------------------|

|   | • | changes in communications service providers’ requirements. |
|--------|---------|------------------------------------------------------------------|

|   | • | enhance and improve our existing products; |
|--------|---------|--------------------------------------------|

|   | • | develop and introduce, on a timely and cost-effective basis, new products and product features that keep pace with technological developments and emerging industry standards, including LTE, the 4th generation network; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | address the increasingly sophisticated needs of our customers; |
|--------|---------|----------------------------------------------------------------|

|   | • | incorporate new technologies and new infrastructures; and |
|--------|---------|-----------------------------------------------------------|

|   | • | develop new interfaces between our products and complimentary products. |
|--------|---------|-------------------------------------------------------------------------|

|   | • | difficulty in staffing and managing foreign operations generally, and time and costs spent on staffing and managing operations in markets from which we do not derive substantial revenue but still need to maintain a presence; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the impact of possible recessionary environments in certain economies; |
|--------|---------|------------------------------------------------------------------------|

|   | • | various local laws and legal standards and/or changes in regulatory requirements, including a slowdown in the rate of privatization of communications service providers; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | difficulties in enforcing our rights in various jurisdictions; |
|--------|---------|----------------------------------------------------------------|

|   | • | reduced protection for intellectual property rights in some countries; |
|--------|---------|------------------------------------------------------------------------|

|   | • | tariffs and other trade barriers; |
|--------|---------|-----------------------------------|

|   | • | adverse tax consequences; |
|--------|---------|---------------------------|

|   | • | restrictions on the conversion of currencies or the repatriation of earnings; |
|--------|---------|-------------------------------------------------------------------------------|

|   | • | exchange rates fluctuations; |
|--------|---------|------------------------------|

|   | • | the burdens of complying with a wide variety of foreign laws and regulations; and |
|--------|---------|-----------------------------------------------------------------------------------|

|   | • | economic and political instability. |
|--------|---------|-------------------------------------|

----

----

|   | • | the measures we have taken to protect our proprietary rights may not be adequate to prevent others from misappropriating our technology or from independently developing or selling technology or products with features based on or similar to ours; |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | our customers that are given access to our intellectual property rights under rare circumstances, may infringe these rights; |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------|

|   | • | our intellectual property rights may be challenged, invalidated, violated or circumvented and may not provide us with any competitive advantage; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | any future litigation to protect our proprietary rights could result in substantial cost to us, even if we ultimately prevail; and |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------|

|   | • | a determination against us in any such litigation could subject us to significant liabilities to other parties and could prevent us from manufacturing, selling or using our products. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | we expect that software product developers will be increasingly subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | we may inadvertently violate the intellectual property rights of other parties and other parties may assert infringement claims against us; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | if we violate the intellectual property rights of other parties we may be required to modify our products or intellectual property or obtain a license to permit their continued use; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | any future litigation to defend us against allegations that we have infringed the rights of others could result in substantial cost to us, even if we ultimately prevail or are entitled to indemnification from third parties in connection therewith; and |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | determination against us in any such litigation could subject us to significant liabilities to other parties and could prevent us from manufacturing, selling or using our products. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | a delay in recognition or loss of revenues; |
|--------|---------|---------------------------------------------|

|   | • | loss of market share; and |
|--------|---------|---------------------------|

|   | • | failure to achieve market acceptance. |
|--------|---------|---------------------------------------|

----

----

|   | · | the judgment is enforceable in the state in which it was given; |
|--------|--------|-----------------------------------------------------------------|

|   | · | adequate service of process has been effected and the defendant has had a reasonable opportunity to present his arguments and evidence; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the judgment and its enforcement are not contrary to the law, public policy, security or sovereignty of the State of Israel; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|

|   | · | the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted in the U.S. court. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | fluctuations in our quarterly revenues and earnings and those of our publicly held competitors; |
|--------|---------|-------------------------------------------------------------------------------------------------|

|   | • | shortfalls in our operating results from levels forecast by securities analysts; |
|--------|---------|----------------------------------------------------------------------------------|

|   | • | announcements concerning us or our competitors; |
|--------|---------|-------------------------------------------------|

|   | • | the introduction of new telecommunications services and new industry standards; |
|--------|---------|---------------------------------------------------------------------------------|

|   | • | changes in pricing policies by us or our competitors; |
|--------|---------|-------------------------------------------------------|

|   | • | general market conditions, and changes in market conditions in our industry; |
|--------|---------|------------------------------------------------------------------------------|

|   | • | the general state of the securities market (particularly the technology sector); and |
|--------|---------|--------------------------------------------------------------------------------------|

|   | • | political, economic and other developments in the State of Israel, the United States and worldwide. |
|--------|---------|-----------------------------------------------------------------------------------------------------|

----

|   | • | weighted-average anti-dilution protection in the event that we issue or are deemed to have issued (subject to certain exceptions) ordinary shares at a price per share that is lower than the conversion price in effect at the time of such issuance or deemed issuance, which could result in dilution of the holdings of ordinary shareholders; and |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | a preference in the event we are liquidated, which could result in the holders of our ordinary shares recovering a lesser amount in the event of our liquidation than they would have received had we not issued the Series A Preferred Shares. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

INFORMATION ON THE COMPANY

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

----

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

----

|   | · | First, in recent years, communication service providers have been upgrading their networks introducing new technologies such as LTE, Internet Protocol Television (IPTV), 3G (UMTS, HSPA, EVDO) and IP multimedia subsystems (IMS). These changes require adaptation of OSS systems to support new technologies and services. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The way telecom carriers operate and manage themselves is evolving. The need to compete with "Over the Top" (OTT) applications or social networks such as facebook.com, the need to secure new sources of revenue and profit, and the need to integrate changing customer expectations into their service portfolios, significantly transforms the business models that successful carriers pursue while developing their value propositions and brands. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Facing competition, the service providers, which aim to deploy cost effective services without sacrificing quality, and the incumbents, which seek to protect their markets, place a greater emphasis on customer quality of service (QoS) and on revenue models from Value Added Services (VAS) which contribute to the carrier’s revenue. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | New markets emerge in developing countries and regions, such as CIS, India and Africa, thereby introducing new challenges and market growth potential. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | First, it is becoming imperative to deliver timely services to customers over efficient networks. The focus on customer service takes place against a backdrop of increasing network complexity as voice and data transmissions converged and new services and technologies emerged. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In addition, service providers are seeking to reduce their capital and operational expenditures and streamline their business processes to operate more efficiently and gain a competitive edge. OSS and BSS solutions maximize the return on invested capital by increasing the service provider’s efficiency and staff productivity, reducing operational costs and facilitating the rapid deployment of new services. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Expand and Enhance Product Offerings and Extend Technological Leadership. We intend to continue to develop and introduce new products and product features that address the increasingly sophisticated needs of communications service providers. We are committed to keeping our products at the forefront of the industry by offering products that support new and innovative capabilities and technologies such as Long Term Evolution (LTE), Internet Protocol Television (IPTV), 3G (UMTS, HSPA, EVDO) and IP multimedia subsystems (IMS). We intend to strive to build strong brand recognition for our products. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Leverage Installed Base for Additional Sales. We intend to leverage our customer installed base, including many industry-leading Tier 1 and Tier 2 operators, for additional sales. We expect to leverage our relationships and proven track record to become their preferred choice for next-generation network solutions. In addition, positive referrals from our existing customers have historically resulted in new sales opportunities for us. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Expand and Develop Additional Strategic Alliances. Our strategic alliances with leading integrators, software vendors and hardware vendors strengthen our brand name, enable us to generate sales leads, assist in expanding our installed base, assist in entering new markets shorten our time to market by leveraging their integration power. For these reasons, we intend to strengthen our existing strategic partnerships and to create new alliances. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Expand Presence in New and Existing Markets. We plan to capitalize on our global sales and marketing presence to further penetrate markets, win new customers and broaden our installed base. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | End-to-End Integrated and Modular Product Offering. Our Netrac suite of products consists of products that may be used in any combination to suit a communications service provider’s specific business needs. Our Netrac modules integrate with one another to either provide a comprehensive solution or to address specific functions. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Innovative products. We continuously invest resources in developing innovative key differentiating solutions and products that support IP based networks and NGN technologies, including LTE, IMS, UMTS, HSDPA, EVDO, IP, and IPTV etc. Understating carriers' needs, we specifically invest development resources in innovative modules that serve the future, service oriented business models of carriers, modules that will enable the reduction of operation costs and modules that will provide carriers' customers with higher quality of services in the diversified networks that service providers are managing. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Management of Existing and Next-Generation Networks. Our Netrac suite of products is designed to manage both legacy and next-generation networks via a unified management platform. As a result, communication service providers will be able to manage heterogeneous networks consisting of both their existing legacy networks and next-generation technologies, protect investments in legacy systems and facilitate the migration to next-generation architectures. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Management of Convergence Networks. Our Netrac suite of products is designed to manage convergence (fixed and mobile) networks via one unified management platform. As a result, communication service providers will be able to manage heterogeneous networks consisting of both fixed and mobile technologies and protect investments in their systems. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Flexible Platform. Our modular Netrac system provides our customers with an easy way to add new functionality and services and adapt to new technologies, as well as a scalable system that can accommodate the addition of network elements and growth in subscribers. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Open Architecture. Netrac’s open mature Application Protocol Interfaces, or API enables communications service providers to integrate their internal and third party systems and applications with their OSS environments, allowing the exchange of information among these systems and applications. We continuously update our library of APIs, enabling interfaces with customers’ internal and third party software systems. We are active members of the Telemanagment Forum Multi-Technology Operations System Interface, or TMF MTOSI standards group and follow its API guidelines. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Rapidly Deployable Solutions. Our Netrac suite of products is network equipment vendor-independent and includes a pre-built set of modules, libraries and applications, which enable communications service providers too rapidly and cost effectively deploy new network elements and services. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Cost Effectiveness and Maximizing Return on Investment. Our Netrac suite of products streamlines operations, improves service restoration times and automates time-consuming service provisioning and assurance processes, leading to cost reductions. Netrac’s libraries and ability to communicate with various network elements and technologies result in faster deployment of network devices and services, leading to faster time-to-revenue. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Professional Services Enabling Turn-Key Solutions. We deliver end-to-end integrated turn-key solutions to communications service providers which are tailored by our professional services team to meet our customers’ specific requirements. Our professional services include customization, implementation and integration of our products within a communications service provider’s existing OSS and BSS environment, along with specific functionality development according to customer’s requirements. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Accommodation to Partners. Our Netrac products are used in recent years by world leading system integrators. We consider these alliances of strategic importance and will continue to invest resources in accommodating our products to be customized, implemented and integrated, by integrators, within a communications service provider’s existing OSS and BSS environment. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | During the functional specification period, we define the specific requirements of the customer and become familiar with its network: |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | · | During the implementation period, we perform the work necessary to bring the solution up to a point where it is ready to begin to operate using real customer data. At the time of installation, customers generally receive on-site training tailored to the user organization. We also offer supplementary training to clients on an as needed basis. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | During the stabilization period (which we refer to as a “warranty” period in many of our contracts with customers), we monitor the operation of the solution using real data, and perform the work necessary to ensure that the solution is stabilized. providing the functionality required by the particular customer. The stabilization period typically lasts approximately one year, but can be longer or shorter based on the particular solution. A project is considered completed when the stabilization period is over. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | system management; |
|--------|---------|--------------------|

|   | • | configuration changes; |
|--------|---------|------------------------|

|   | • | failure recovery; |
|--------|---------|-------------------|

|   | • | performance tuning; |
|--------|---------|---------------------|

|   | • | database administration support; |
|--------|---------|----------------------------------|

----

|   | • | communications administration support; and |
|--------|---------|--------------------------------------------|

|   | • | preventive maintenance activities. |
|--------|---------|------------------------------------|

|   | • | incumbent local exchange carriers, or ILECs; |
|--------|---------|----------------------------------------------|

|   | • | competitive local exchange carriers, or CLECs; |
|--------|---------|------------------------------------------------|

|   | • | long-distance carriers; |
|--------|---------|-------------------------|

|   | • | wireless service providers and resellers; and |
|--------|---------|-----------------------------------------------|

|   | • | managed services vendors. |
|--------|---------|---------------------------|

----

|   | • | ability to assess customers' networks and understand their NMS, BSS and OSS requirements; |
|--------|---------|-------------------------------------------------------------------------------------------|

|   | • | familiarity with a wide variety of communications protocols and interfaces; |
|--------|---------|-----------------------------------------------------------------------------|

|   | • | ability to incorporate rule-based inference engines, data warehousing technology and replication tools into our Netrac solutions; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------|

|   | • | ability to adapt our products to different kinds of existing and next-generation fixed and mobile networks; and |
|--------|---------|-----------------------------------------------------------------------------------------------------------------|

|   | • | expertise in utilizing leading programming languages, operating systems and databases to create user-friendly, distributed NMS, OSS and BSS solutions. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | organizations’ information technology, or IT, departments, some of which may be our customers or prospective customers, that provide or may attempt to develop NMS, OSS and BSS applications for their particular internal needs; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | providers of NMS, OSS and BSS, such as IBM (which owns Micromuse and Vallent),  Hewlett-Packard, Infovista, and Telecordia Technology; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | network equipment vendors (NEPs), such as Alcatel Lucent, Huawei, Ericsson and Nokia Siemens, have continued to expand into the OSS market, as it appears they regard service layer evolution as a strategic augmentation of their core network equipment business. Consequently, NEPs may grow in time to be direct competitors of ours; |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | systems integrators who provide programming, integration, implementation and training services, such as LogicaCMG, Accenture, Cap Gemini and IBM Global Services; and |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | managed service providers, such as Ericsson, that offer their customers management services on top of their networks rather than building their own network operation center, or NOC, and purchasing an independent management system. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | be time-consuming; |
|--------|---------|--------------------|

|   | • | result in costly litigation and diversion of technical and management personnel; |
|--------|---------|----------------------------------------------------------------------------------|

|   | • | cause product shipment delays; |
|--------|---------|--------------------------------|

|   | • | require us to develop non-infringing technology; or |
|--------|---------|-----------------------------------------------------|

|   | • | require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

----

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

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

| A. Operating Results. |
|-----------------------|

----

|   | · | LTE (Long Term Evolution) is the project name of a new high performance air interface for cellular mobile communication systems. Where the current generation of mobile telecommunication networks are collectively known as 3G (for "third generation"), LTE is marketed as 4G.  We are currently investing time and resources in developing and adding capabilities to our OSS products to enable us to offer an LTE solution. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We have also identified in the last few years a continuous requirement in the OSS market for a service management solution. This trend, along with customers’ requirements, has led us to integrate service and customer oriented capabilities into our product portfolio. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Additionally, in the last few years, we have seen an increasing interest from existing and potential customers of our performance solutions to proactively manage network and service level availability. This trend, which we believe is associated with the nature of next generation networks, their complexity and the increased requirement for fast time-to-market solutions, has increased the relative portion of our performance systems solutions within our current and potential business and we expect such trend to continue. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

|   | 1. | Provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated; |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Require an entity to allocate revenue in an arrangement using estimated selling prices (“ESP”) of deliverables if a vendor does not have vendor-specific objective evidence of selling price (“VSOE”) or third-party evidence of selling price (“TPE”); |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; and |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Require expanded disclosures of qualitative and quantitative information regarding application of the multiple-deliverable revenue arrangement guidance. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                              |   |   |   |   |   |   |   |   |   |
|-----------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                              |   | 2007   |   |   | 2008   |   |   | 2009   |   |
| Revenues:                                                                         |   |   |   |   |   |   |   |   |   |
| Product                                                                           |   |   | 56     | %      |   |   | 57.8   | %      |   |   | 53.5 | % |
| Service                                                                           |   |   | 44.0   |   |   |   | 42.2   |   |   |   | 46.5 |   |
|                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Total revenues                                                                    |   |   | 100.0  |   |   |   | 100.0  |   |   |   | 100.0 |   |
| Cost of revenues:                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Product                                                                           |   |   | 27.2   |   |   |   | 31.0   |   |   |   | 31.7 |   |
| Service                                                                           |   |   | 18.6   |   |   |   | 15.2   |   |   |   | 14.4 |   |
| Total cost of revenues                                                            |   |   | 45.8   |   |   |   | 46.2   |   |   |   | 46.1 |   |
|                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                                                      |   |   | 54.2   |   |   |   | 53.8   |   |   |   | 53.9 |   |
| Operating expenses:                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Research and development, net                                                     |   |   | 20.5   |   |   |   | 22.7   |   |   |   | 17.6 |   |
| Selling and marketing                                                             |   |   | 17.1   |   |   |   | 19.6   |   |   |   | 18.8 |   |
| General and administrative                                                        |   |   | 15.1   |   |   |   | 11.6   |   |   |   | 11.5 |   |
|                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Total operating expenses                                                          |   |   | 52.7   |   |   |   | 53.9   |   |   |   | 47.9 |   |
|                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss)                                                           |   |   | 1.5    |   |   |   | (0.1   | )      |   |   | 6.0 |   |
| Other Income                                                                      |   |   | 0.1    |   |   |   | -      |   |   |   | - |   |
| Financial income, net                                                             |   |   | 4.7    |   |   |   | (1.1   | )      |   |   | 1.2 |   |
|                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (Loss) before income taxes                                                 |   |   | 6.3    |   |   |   | (1.2   | )      |   |   | 7.2 |   |
| Income taxes (tax benefit)                                                        |   |   | (0.1   | )      |   |   | 0.7    |   |   |   | 0.2 |   |
|                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Income (Loss) attributable to common shareholders from continuing operation   |   |   | 6.4    |   |   |   | (1.9   | )      |   |   | 7.0 |   |
| Net Income (Loss) attributable to common shareholders from discontinued operation |   |   | -      |   |   |   | (2.0   | )      |   |   | (0.7 | ) |
| Net Income (Loss) attributable to common shareholders from                        |   |   | 6.4    | %      |   |   | (3.9   | )%     |   |   | 6.3 | % |

----

|                       |   | Years Ended December 31, |   |
|----------------------------|--------|--------------------------|--------|
|                       |   | 2007                     |   |   | 2008 |   |   | 2009 |   |
| Sales by Geographic Areas: |   |                     |   |   |   |   |   |   |   |
| Israel                     |   |                     | 7.7    | % |   |   | 9.1 | % |   |   | 10.2 | % |
| North America              |   |                     | 35.1   |   |   |   | 31.1 |   |   |   | 29.5 |   |
| Europe                     |   |                     | 35.5   |   |   |   | 41.7 |   |   |   | 42.0 |   |
| Australia                  |   |                     | 5.7    |   |   |   | 5.8 |   |   |   | 6.3 |   |
| South America              |   |                     | 4.9    |   |   |   | 2.1 |   |   |   | 3.0 |   |
| Far East                   |   |                     | 7.0    |   |   |   | 6.8 |   |   |   | 5.6 |   |
| Africa                     |   |                     | 4.1    |   |   |   | 3.4 |   |   |   | 3.4 |   |
|  Total                |   |                     | 100.0  | % |   |   | 100.0 | % |   |   | 100.0 | % |

|            |   | Year ended December31, |   |   |   |   |   |   |   |
|-----------------|--------|------------------------|--------|--------|--------|--------|--------|--------|--------|
| ($ in millions) |   | 2007                   |   |   | 2008   |   |   | 2009   |   |   | % Change2007 vs. 2008 |   |   | % Change2008 vs. 2009 |   |
| Product sales   |   | $                      | 25.7   |   |   | $      | 29.1   |   |   | $ | 22.7 |   |   |   | 13.2 | % |   |   | (22.0 | )% |
| Services        |   |                   | 20.2   |   |   |   | 21.2   |   |   |   | 19.8 |   |   |   | 5.0 | % |   |   | (6.6 | )% |
| Total revenues  |   |                   | 45.9   |   |   |   | 50.3   |   |   |   | 42.5 |   |   |   | 9.6 | % |   |   | (15.5 | )% |

----

|                   |   | Years ended December 31, |   |   |   |   |   |   |   |
|------------------------|--------|--------------------------|--------|--------|--------|--------|--------|--------|--------|
| ($ in millions)        |   | 2007                     |   |   | 2008   |   |   | 2009   |   |   | % Change2007 vs. 2008 |   |   | % Change2008 vs. 2009 |   |
| Cost of product sales  |   | $                        | 12.5   |   |   | $      | 15.6   |   |   | $ | 13.5 |   |   |   | 24.8 | % |   |   | (13.5 | )% |
| Cost of services       |   |                     | 8.5    |   |   |   | 7.7    |   |   |   | 6.1 |   |   |   | (9.4 | )% |   |   | (20.8 | )% |
| Total cost of revenues |   |                     | 21.0   |   |   |   | 23.3   |   |   |   | 19.6 |   |   |   | 11.0 | % |   |   | (15.9 | )% |

| ($ in millions)    |   | Years ended December 31, |   |   |   |   |   |   |   |
|--------------------|--------|--------------------------|--------|--------|--------|--------|--------|--------|--------|
|               |   | 2007                     |   |   | 2008   |   |   | 2009   |   |   | % Change2007 vs. 2008 |   |   | % Change2008 vs. 2009 |   |
| Product sales      |   |                     | 13.2   |   |   |   | 13.5   |   |   |   | 9.2 |   |   |   | 2.3 | % |   |   | (31.9 | )% |
| Services           |   |                     | 11.7   |   |   |   | 13.5   |   |   |   | 13.7 |   |   |   | 15.4 | % |   |   | 1.5 | % |
| Total gross profit |   | $                        | 24.9   |   |   | $      | 27.0   |   |   | $ | 22.9 |   |   |   | 8.4 | % |   |   | (15.2 | )% |

|               |   | Years ended December 31, |   |
|--------------------|--------|--------------------------|--------|
|               |   | 2007                     |   |   | 2008 |   |   | 2009 |   |
| Product sales      |   |                     | 51.4   | % |   |   | 46.4 | % |   |   | 40.5 | % |
| Services           |   |                     | 57.9   | % |   |   | 63.7 | % |   |   | 69.2 | % |
| Total gross profit |   |                     | 54.2   | % |   |   | 53.7 | % |   |   | 53.9 | % |

----

| ($ in millions)               |   | Year ended December 31, |   |   |   |   |   |   |   |
|-------------------------------|--------|-------------------------|--------|--------|--------|--------|--------|--------|--------|
|                          |   | 2007                    |   |   | 2008   |   |   | 2009   |   |   | % Change2007vs. 2008 |   |   | % Change2008 vs. 2009 |   |
| Research and development, net |   | $                       | 9.4    |   |   | $      | 11.4   |   |   | $ | 7.5 |   |   |   | 21.3 | % |   |   | (34.2 | )% |
| Selling and marketing         |   |                    | 7.9    |   |   |   | 9.9    |   |   |   | 8.0 |   |   |   | 25.3 | % |   |   | (19.2 | )% |
| General and administrative    |   |                    | 7.0    |   |   |   | 5.8    |   |   |   | 4.9 |   |   |   | (17.1 | )% |   |   | (15.5 | )% |
|                          |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total operating expenses      |   |                    | 24.3   |   |   |   | 27.1   |   |   |   | 20.4 |   |   |   | 11.5 | % |   |   | (24.7 | )% |

----

|                                          |   | Year endedDecember 31, |   |   | Year endedDecember 31, |   |
|-----------------------------------------------|--------|------------------------|--------|--------|------------------------|--------|
|                                          |   | 2008                   |   |   | 2009                   |   |
|                                          |   |                   |   |   |                   |   |
| Revenues:                                     |   |                   |   |   |                   |   |
| Products                                      |   | $                      | 1,033  |   |                   | $      | 303 |   |
| Services                                      |   |                   | 920    |   |                   |   | 396 |   |
|                                          |   |                   |   |   |                   |   |   |   |
| Total revenues                                |   |                   | 1,953  |   |                   |   | 699 |   |
|                                          |   |                   |   |   |                   |   |   |   |
| Cost of revenues:                             |   |                   |   |   |                   |   |   |   |
| Products                                      |   |                   | 754    |   |                   |   | 314 |   |
| Services                                      |   |                   | 237    |   |                   |   | 99 |   |
|                                          |   |                   |   |   |                   |   |   |   |
| Total cost of revenues                        |   |                   | 991    |   |                   |   | 413 |   |
|                                          |   |                   |   |   |                   |   |   |   |
| Gross profit                                  |   |                   | 962    |   |                   |   | 286 |   |
|                                          |   |                   |   |   |                   |   |   |   |
| Operating expenses:                           |   |                   |   |   |                   |   |   |   |
| Selling and marketing                         |   |                   | 113    |   |                   |   | 47 |   |
| General and administrative                    |   |                   | 509    |   |                   |   | 132 |   |
| Impairment of goodwill and other assets       |   |                   | 1,401  |   |                   |   | - |   |
|                                          |   |                   |   |   |                   |   |   |   |
| Total operating expenses                      |   |                   | 2,023  |   |                   |   | 179 |   |
|                                          |   |                   |   |   |                   |   |   |   |
| Operating  income (loss)            |   |                   | (1,061 | )      |                   |   | 107 |   |
| Financial income (expenses), net              |   |                   | 39     |   |                   |   | 30 |   |
|                                          |   |                   |   |   |                   |   |   |   |
| Income (loss) before income taxes             |   |                   | (1,022 | )      |                   |   | 137 |   |
| Income taxes                                  |   |                   | -      |   |                   |   | 16 |   |
| Income (loss) of discontinued operation       |   |                   | (1,022 | )      |                   |   | 121 |   |
| Loss of disposal of discontinued operation    |   |                   | -      |   |                   |   | (435 | ) |
|                                          |   |                   |   |   |                   |   |   |   |
| Net income (loss) from discontinued operation |   | $                      | (1,022 | )      |                   | $      | (314 | ) |

----

|                        |   | Year Ended December 31, |   |
|-----------------------------|--------|-------------------------|--------|
|                        |   | 2009                    |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| Inflation (Deflation)       |   |                    | 3.9    | % |   |   | 3.8 | % |   |   | 3.4 | % |   |   | (0.1 | )% |   |   | 2.4 | % |
| Devaluation (Revaluation)   |   |                    | (0.7   | )% |   |   | (1.1 | )% |   |   | (9.0 | )% |   |   | (8.2 | )% |   |   | 6.8 | % |
| Inflation (Devaluation) gap |   |                    | 4.6    | % |   |   | 4.9 | % |   |   | 12.4 | % |   |   | 8.1 | % |   |   | (4.4 | )% |

| B. Liquidity and Capital Resources |
|------------------------------------|

----

----

| C. Research and Development, Patents and Licenses |
|---------------------------------------------------|

| D. Trend Information |
|----------------------|

| E. Off-Balance Sheet Arrangements |
|-----------------------------------|

| F. Tabular Disclosure of Contractual Obligations |
|--------------------------------------------------|

----

| Contractual Obligations                               |   | Payment due by period (in thousands US$) |   |
|-------------------------------------------------------|--------|------------------------------------------|--------|
|                                                  | Total  |                                     |   | Less than1 year |   |   | 1-3 years |   |   | 3-5 years |   |   | Morethan 5years |   |
| Long-Term Debt                                        |   |                                     | 1,428  |   |   |   | 238 |   |   |   | 475 |   |   |   | 475 |   |   |   | 240 |   |
| Operating Lease Obligations (facilities and vehicles) |   |                                     | 5,191  |   |   |   | 1,379 |   |   |   | 2,072 |   |   |   | 1,740 |   |   |   | 0 |   |
| Uncertain Income Tax Positions                        |   |                                     | 102    |   |   |   | 102 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accrued Severance Pay                                 |   |                                     | 6,279  |   |   |   | 6,279 |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                 |   |                                     | 13,000 |   |   |   | 7,998 |   |   |   | 2,547 |   |   |   | 2,215 |   |   |   | 240 |   |

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

| Name                   |   |      Age |   | Position |
|------------------------|--------|------------------------------|--------|----------|
| Meir Lipshes           |   |                         | 64     |     | Chairman of the Board and Chief Executive Officer |
| Meir Dvir* (1)         |   |                         | 79     |     | Director |
| Julie Kunstler*+(1)(2) |   |                         | 54     |     | Director |
| Doron Zinger*+(1)(2)   |   |                         | 57     |     | Director |
| Ilan Toker             |   |                         | 41     |     | Director |
| Rami Zivony*(2)        |   |                         | 58     |     | Director |
| Tali Cohen - Tueg      |   |                         | 39     |     | Chief Financial Officer |
| Avner Amran            |   |                         | 52     |     | Chief Operational Officer |
| Duby Yoely             |   |                         | 49     |     | Vice President Marketing |
| Asaf Shirazi           |   |                         | 41     |     | Vice President Research and Development |
| Shuki Rozanski         |   |                         | 44     |     | Vice President Business Development and GM, RBU Europe and CIS |
| Yossi Arviv            |   |                         | 32     |     | Vice President Projects |

----

----

| B. Compensation |
|-----------------|

----

| C. Board Practices. |
|---------------------|

----

|   | • | an employment relationship; |
|--------|---------|-----------------------------|

|   | • | business or professional relationship maintained on a regular basis; |
|--------|---------|----------------------------------------------------------------------|

|   | • | control; and |
|--------|---------|--------------|

|   | • | service as an office holder. |
|--------|---------|------------------------------|

|   | • | including at least one third of the shares of non-controlling shareholders voted at the meeting in favor of election; or |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------|

|   | • | the total number of shares voted against the election of the external director does not exceed one percent of the aggregate voting rights in the company. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | the chairman of the board of directors; |
|--------|---------|-----------------------------------------|

|   | • | any director who is employed by the company or provides services to the company on a regular basis; and |
|--------|---------|---------------------------------------------------------------------------------------------------------|

|   | • | a controlling shareholder or its relative. |
|--------|---------|--------------------------------------------|

----

|   | • | information on the advisability of a given action brought for his approval or performed by him by virtue of his position; and |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------|

|   | • | all other important information pertaining to these actions. |
|--------|---------|--------------------------------------------------------------|

|   | • | refrain from any conflict of interest between the performance of his duties in the company and the performance of his other duties or his personal affairs; |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | refrain from any activity that is competitive with the company; |
|--------|---------|-----------------------------------------------------------------|

|   | • | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or others; and |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------|

|   | • | disclose to the company any information or documents relating to a company’s affairs which the office holder has received due to his position as an office holder. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the office holder’s relatives. Relatives are defined to include the office holder’s spouse, siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of any of the these people; or |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | any corporation in which the office holder or any of his relatives is a 5% or greater shareholder, director or general manager or in which the office holder has the right to appoint at least one director or the general manager. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | other than in the ordinary course of business; |
|--------|---------|------------------------------------------------|

|   | • | otherwise than on market terms; or |
|--------|---------|------------------------------------|

|   | • | that is likely to have a material impact on the company’s profitability, assets or liabilities. |
|--------|---------|-------------------------------------------------------------------------------------------------------|

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

| Approximate numbers of employees by category of activity | Research & Development | Projects* | Sales and marketing | Management, Finance andAdministration | Total |
|----------------------------------------------------------|----------------------------|-----------|---------------------|---------------------------------------|-------|
| 2009                                                     | 85                         | 188       | 36                  | 36                                    | 345   |
| 2008                                                     | 285                        | --        | 28                  | 40                                    | 472** |
| 2007                                                     | 274                        | --        | 35                  | 43                                    | 352   |

| Approximate numbers of employees by geographic location | Israel | Americas | Europe | Asia | Africa | Australia | Russia & CIS | Total |
|---------------------------------------------------------|--------|----------|--------|------|--------|-----------|------------------|-------|
| 2009                                                    | 244    | 60       | 8      | 10   | 5      | 6         | 12               | 345   |
| 2008                                                    | 256    | 66       | 13     | 9    | 5      | 4         | 119*             | 472*  |
| 2007                                                    | 241    | 77       | 11     | 12   | 7      | 4         | N/A              | 352   |

----

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

| Name and Address                                                                                               |   | Number ofSharesOwned |    |   | Percent ofSharesOutstanding |   |
|----------------------------------------------------------------------------------------------------------------|--------|----------------------|---------|--------|-----------------------------|--------|
|                                                                                                           |   |                 |    |   |                        |   |
| Meir Lipshes (1)                                                                                               |   |                 | 476,563 |   |                        |   | 2.5 | % |
|                                                                                                           |   |                 |    |   |                        |   |   |   |
| All other directors and executive officers, as a group (consisting of 11 persons, other than Meir Lipshes) (2) |   |                 | 156,333 |   |                        |   | * |   |

| * | less than 1% of our outstanding ordinary shares. |
|---|--------------------------------------------------|

| (1) | As of March 1, 2010, Malam - Team Ltd. and its wholly-owned subsidiary, Team Software Industries Ltd., beneficially owned 150,450 of our ordinary shares, representing approximately 0.8% of our outstanding share capital and voting rights. As of March 1, 2010, Meir Lipshes, the Chairman of our board of directors and our Chief Executive Officer, owned approximately 7.0% of Malam - Team Ltd.'s shares. Mr. Lipshes disclaims any beneficial interest in the ordinary shares owned by Team Software or Malam - Team Ltd. in us. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The number of shares owned consists solely of options exercisable into ordinary shares within 60 days.  The options have exercise prices ranging from $3.0 per share to $3.9 per share, and expire between January 10, 2011 and February 17, 2013. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Number of Options | exercise prices (range) | Expiration Date   |
|-------------------|-------------------------|-------------------|
|              |                    |              |
| 60,000            | $3.5                    | January 10, 2011  |
| 179,000           | $3.9                    | February 13, 2011 |
| 16,000            | $4.3                    | March 26, 2011    |
| 20,000            | $3.0                    | November 13, 2011 |
| 45,000            | $3.5                    | November 13, 2011 |
| 18,000            | $3.0                    | March 27, 2012    |
| 25,000            | $3.0                    | February 17, 2013 |

| * Out of which options to purchase 354,667 ordinary shares are currently exercisable. |
|---------------------------------------------------------------------------------------|

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

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

|     Name of shareholder  |   | Number ofordinaryshares held*** |      |   |  Percentageof ouroutstandingordinaryshares * |   |   | Number ofpreferredshares held |   |   | Percentageof ouroutstandingpreferredshares ** |   |   | Totalshares beneficially owned *** |   |   | Percentageof ouroutstandingsharecapital**** |   |
|----------------------------------------------|--------|---------------------------------|-----------|--------|---------------------------------------------------|--------|--------|-------------------------------|--------|--------|-----------------------------------------------|--------|--------|------------------------------------|--------|--------|---------------------------------------------|--------|
| Shlomo Eisenberg (1)(2)(3)                   |   |                            | 4,689,924 |   |                                              |   | 29.1   | %                             |   |   | --                                            |   |   |                               | --     |   |                                        |   | 4,689,924 |   |   |   | 24.8 | % |
| Neuberger & Berman (4)                   |   |                            | 2,307,600 |   |                                              |   | 13.5   | %                             |   |   | 1,672,725                                     |   |   |                               | 59.6   | %      |                                        |   | 3,980,325 |   |   |   | 20.0 | % |
| Rima Management, LLC and Richard Mashaal (5) |   |                            | 640,388   |   |                                              |   | 4.0    | %                             |   |   | 227,300                                       |   |   |                               | 8.1    | %      |                                        |   | 867,688 |   |   |   | 4.6 | % |
| S Squared Technology (6)                     |   |                            | 363,637   |   |                                              |   | 2.3    | %                             |   |   |  909,091                                 |   |   |                               | 32.4   | %      |                                        |   | 1,272,728 |   |   |   | 6.7 | % |

----

| (1) | Shlomo Eisenberg holds 1,069,530 ordinary shares, 67,468 ordinary shares through a wholly owned corporation, and his wife, Tirza Eisenberg, holds 175,000 ordinary shares. In addition, Mr. Eisenberg, directly and indirectly (through a wholly owned corporation), owns approximately 14.5% of Malam - Team Ltd. and is also a member of the controlling group of shareholders of Arad Investments and Industrial Development Ltd. Therefore, Mr. Eisenberg may be deemed to beneficially own the ordinary shares held by Arad, Malam - Team Ltd. and Team Software Industries Ltd. (see below). Mr. Eisenberg disclaims any such beneficial ownership. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Arad, directly and indirectly (through a wholly owned corporation), holds 3,227,476 ordinary shares. In addition, Arad owns approximately 52.5% of Malam - Team Ltd. and, therefore, may be deemed to beneficially own the ordinary shares held by Malam - Team Ltd. and Team Software. Arad disclaims any such beneficial ownership. Arad is an Israeli company whose shares are publicly traded on the Tel Aviv Stock Exchange. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Team Software holds 145,150 ordinary shares. Malam - Team Ltd. holds 5,300 ordinary shares. Since Malam - Team Ltd. holds 100% of the issued and outstanding shares of Team Software, it may be deemed to beneficially own the ordinary shares held by Team Software. Malam - Team Ltd., an Israeli company whose shares are publicly traded on the Tel Aviv Stock Exchange, is a large computer vendor in Israel. In addition, as of February 16, 2010, Meir Lipshes, the Chairman of our board of directors and CEO, owned approximately 7% of Malam - Team Ltd.'s shares. Mr. Lipshes disclaims any beneficial ownership. As of March 15, 2010, Meir Lipshes owned approximately 2.5% of our outstanding shares directly. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Based on a Schedule 13D/A filed by Neuberger & Berman with the SEC on May 25, 2006 and records of TTI.  Neuberger Berman, L.L.C., a Delaware limited liability company  ("NB LLC"), serves as the investment adviser to LibertyView Special Opportunities Fund, L.P., a Delaware limited partnership ("LV Opportunities"), LibertyView Funds, L.P., a Delaware limited partnership ("LV Funds"), and certain other investment funds and accounts (together   with LV Opportunities and LV Funds, the "Funds"). Neuberger Berman, Inc., a Delaware corporation ("NB Inc."), serves as the sole owner and managing member of NB LLC. NB LLC may be deemed to beneficially own the ordinary shares directly held by the Funds and  NB Inc. may be deemed to control NB LLC by virtue of its position as the sole owner and managing member of NB LLC. The 3,980,325 shares reported as beneficially owned by NB LLC include, to our knowledge, 1,307,602 ordinary shares, 1,672,725 Series A Preferred Shares, and warrants to purchase 999,998 ordinary shares which are exercisable within 60 days. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| (5) | As of December 31, 2009, based on a Schedule 13G filed by Rima Management, LLC and Richard Mashaal with the SEC on February 16, 2010. The Schedule 13G indicates that Rima Management, LLC and Richard Mashaal share voting and dispositive power as to the 867,688 ordinary shares (comprised of 227,300 Series A Preferred Shares and 90,920 warrants to purchase ordinary shares which are exercisable within 60 days, with an exercise price of $2.5 per share). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | As of December 31, 2009, based on a Schedule 13G/A filed by S Squared Technology, LLC with the SEC on February 10, 2010.  The Schedule 13G/A indicates that S Squared Technology LLC, or SST, holds a total of 991,283 ordinary shares (out of which 708,059 Series A Preferred Shares and warrants to purchase 283,224 ordinary shares which are exercisable within 60 days, with an exercise price of $2.50 per share ) and S Squared Technology Partners , LP , or SSTP, beneficially owns 281,445 ordinary shares (out of which 201,032 Series A Preferred Shares, and warrants to purchase 80,413 ordinary shares which are exercisable within 60 days, with an exercise price of $2.50 per share).  Seymour L. Goldblatt, the President of each of SST and SSTP, and Kenneth A. Goldblatt, who beneficially own a majority of the interests in SST disclaim beneficially ownership of the ordinary shares held by SST and SSTP. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

----

| C. Interests of Experts and Counsel |
|-------------------------------------|

| Item 8. | FINANCIAL INFORMATION |
|---------|-----------------------|

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

----

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

----

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

| A. Offer and Listing Details. |
|-------------------------------|

|                                |   | High   |   |   | Low    |   |
|-------------------------------------|--------|--------|--------|--------|--------|--------|
|                                |   |   |   |   |   |   |
| 2005:                               |   |   |   |   |   |   |
| Full Year                           |   | $      | 3.58   |   |   | $      | 1.84 |   |
| 2006:                               |   |   |   |   |   |   |   |   |
| Full Year                           |   | $      | 5.50   |   |   | $      | 2.36 |   |
| 2007:                               |   |   |   |   |   |   |   |   |
| Full Year                           |   | $      | 3.22   |   |   | $      | 2.20 |   |
|                                |   |   |   |   |   |   |   |   |
| 2008:                               |   |   |   |   |   |   |   |   |
| Full Year                           |   | $      | 2.42   |   |   | $      | 0.53 |   |
|                                |   |   |   |   |   |   |   |   |
| First Quarter                       |   |   | 2.42   |   |   |   | 1.83 |   |
| Second Quarter                      |   |   | 2.27   |   |   |   | 1.86 |   |
| Third Quarter                       |   |   | 2.09   |   |   |   | 1.36 |   |
| Fourth Quarter                      |   |   | 1.36   |   |   |   | 0.53 |   |
|                                |   |   |   |   |   |   |   |   |
| 2009:                               |   |   |   |   |   |   |   |   |
| Full Year                           |   | $      | 2.16   |   |   | $      | 0.52 |   |
|                                |   |   |   |   |   |   |   |   |
| First Quarter                       |   |   | 0.72   |   |   |   | 0.52 |   |
| Second Quarter                      |   |   | 0.84   |   |   |   | 0.56 |   |
| Third Quarter                       |   |   | 1.30   |   |   |   | 0.80 |   |
| Fourth Quarter                      |   |   | 2.16   |   |   |   | 1.13 |   |
|                                |   |   |   |   |   |   |   |   |
| Most Recent Six Months              |   |   |   |   |   |   |   |   |
| September 2009                      |   |   | 1.30   |   |   |   | 1.04 |   |
| October 2009                        |   |   | 1.30   |   |   |   | 1.14 |   |
| November 2009                       |   |   | 2.16   |   |   |   | 1.13 |   |
| December 2009                       |   |   | 1.66   |   |   |   | 1.52 |   |
| January 2010                        |   |   | 1.82   |   |   |   | 1.55 |   |
| February 2010                       |   |   | 1.82   |   |   |   | 1.60 |   |
| March 2010 (through March 16, 2010) |   |   | 1.96   |   |   |   | 1.77 |   |

| B. Plan of Distribution |
|-------------------------|

| C. Markets |
|------------|

| D. Selling Shareholders |
|-------------------------|

----

| E. Dilution |
|-------------|

| F. Expenses of the Issue |
|--------------------------|

| Item 10. | ADDITIONAL INFORMATION |
|----------|------------------------|

| A. Share Capital |
|------------------|

| B. Memorandum and Articles of Association |
|-------------------------------------------|

----

|   | • | one vote at meetings of our shareholders in respect of each ordinary share held thereby; |
|--------|---------|------------------------------------------------------------------------------------------|

|   | • | the right to share pro rata in any distributions of dividends; and |
|--------|---------|--------------------------------------------------------------------|

|   | • | subject to the liquidation preference of holders of any shares having preferred rights upon liquidation, to share pro rata in the proceeds available for distribution upon liquidation. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | weighted-average anti-dilution protection in the event that following the closing of the private placement transaction in which the Series A Preferred Shares were issued (i.e., January 3, 2005), we issue or are deemed to have issued (subject to certain exceptions) ordinary shares at a price per share that is lower than the conversion price in effect at the time of such issuance or deemed issuance, which could result in dilution of the holdings of ordinary shareholders; |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | automatic conversion into ordinary shares in the event that, at any time commencing two years from the effective date (which has not occurred as of yet) of the registration statement which we filed in connection with the aforesaid private placement, our ordinary shares trade at a closing bid price of 100% above the price per share of $2.20 in the private placement (i.e., $4.40) for a 20 consecutive trading day period, with an average daily trading volume of at least 100,000 shares per day during such period; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | one vote at meetings of our shareholders in respect of each ordinary share into which a Series A Preferred Share held of record could be converted; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the right to share pro rata in any distributions of dividends; and |
|--------|---------|--------------------------------------------------------------------|

|   | • | in the event of any voluntary or involuntary liquidation, dissolution or winding up of TTI, the holders of Series A Preferred Shares then outstanding shall be entitled to be paid out of the assets of TTI available for distribution to our shareholders, before any payment shall be made to the holders of our ordinary shares or any other class or series of stock ranking on liquidation junior to the Series A Preferred Shares by reason of their ownership thereof, an amount equal to the greater of: (i) $2.20 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares), plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had each such share been converted into ordinary shares immediately prior to such liquidation, dissolution or winding up. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | at least one-third of the shares of shareholders who have no personal interest in the transaction and are present and voting, in person, by proxy or by written ballot, at the meeting, vote in favor; or |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the shareholders who have no personal interest in the transaction who vote against the transaction do not represent more than one percent of the voting rights in the company. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | a breach of his duty of care to us or to another person; |
|--------|---------|----------------------------------------------------------|

|   | • | a breach of his duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice our interests; or |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | a financial liability imposed upon him in favor of another person. |
|--------|---------|--------------------------------------------------------------------|

|   | • | a financial liability imposed on him in favor of another person by any judgment, including a settlement or an arbitration award approved by a court; such indemnification may be approved (i) after the liability has been incurred or (ii) in advance, provided that our undertaking to indemnify is limited to events that our board of directors believes are foreseeable in light of our actual operations at the time of providing the undertaking and to a sum or criterion that our board of directors determines to be reasonable under the circumstances; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | reasonable litigation expenses, including attorney’s fees, expended by the office holder as a result of an investigation or proceeding instituted against him by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against him and either (A) concluded without the imposition of any financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent; and |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | reasonable litigation expenses, including attorney’s fees, expended by the office holder or charged to him by a court, in proceedings we institute against him or instituted on our behalf or by another person, a criminal indictment from which he was acquitted, or a criminal indictment in which he was convicted for a criminal offense that does not require proof of criminal intent. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | a breach by the office holder of his duty of loyalty, unless, with respect to insurance coverage or indemnification, the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company’s interests; |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | a breach by the office holder of his duty of care if the breach was done intentionally or recklessly; |
|--------|---------|-------------------------------------------------------------------------------------------------------|

|   | • | any act or omission done with the intent to derive an illegal personal benefit; or |
|--------|---------|------------------------------------------------------------------------------------|

|   | • | any fine levied against the office holder. |
|--------|---------|--------------------------------------------|

----

| C. Material Contracts |
|-----------------------|

| D. Exchange Controls |
|----------------------|

| E. Taxation |
|-------------|

----

----

|   | • | 75% or more of our gross income, including the pro rata share of our gross income for any company, United States or foreign, in which we are considered to own 25% or more of the shares by value, in a taxable year is passive income; or |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | at least 50% of the assets, averaged over the year and generally determined based upon value, including the pro rata share of the value of the assets of any company of which we are considered to own 25% or more of the shares by value, in a taxable year are held for the production of, or produce, passive income. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|   | • | Similar to the currently available alternative route, exemption from corporate tax on undistributed income for a period of two to ten years, depending on the geographic location of the Benefited Enterprise within Israel, and a reduced corporate tax rate of 10% to 25% for the remainder of the benefits period, depending on the level of foreign investment in each year. Benefits may be granted for a term of from seven to ten years, depending on the level of foreign investment in the Company. If the Company pays a dividend out of income derived from the Benefited Enterprise during the tax exemption period, such income will be subject to corporate tax at the applicable rate (10%-25%). The Company is required to withhold tax at the source at a rate of 15% from any dividends distributed from income derived from the Benefited Enterprise. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | A special tax route enabling companies owning facilities in certain geographical locations in Israel to pay corporate tax at the rate of 11.5% on income of the Benefited Enterprise. The benefits period is ten years. Upon payment of dividends, the Company is required to withhold tax at source at a rate of 15% for Israeli residents and at a rate of 4% for foreign residents. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | Deduction of purchases of know-how and patents over an eight-year period for tax purposes. |
|--------|-----|--------------------------------------------------------------------------------------------|

|   | (b) | Deduction over a three-year period of expenses involved with the issuance and listing of shares on a recognized stock market. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | An election under certain conditions to file a consolidated tax return with additional related Israeli Industrial Companies that satisfy conditions set forth in the law. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | Accelerated depreciation rates on equipment and buildings. |
|--------|-----|------------------------------------------------------------|

----

| F. Dividends and Paying Agents |
|--------------------------------|

| G. Statement by Experts |
|-------------------------|

----

| H. Documents on Display |
|-------------------------|

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

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

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

----

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

| Item 15. | CONTROLS AND PROCEDURES |
|----------|-------------------------|

|   | · | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Item 16. | RESERVED |
|----------|----------|

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

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

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

|              |   | Year Ended December 31, |    |
|-------------------|--------|-------------------------|---------|
|              |   | 2009                    |    |   | 2008 |   |
| Services Rendered |   | Fees                    |    |   | Percentages |   |   | Fees |   |   | Percentages |   |
|              |   |                    |    |   |   |   |   |   |   |   |   |   |
| Audit (1)         |   | $                       | 180,000 |   |   |   | 95.2 | % |   | $ | 190,000 |   |   |   | 81.4 | % |
| Audit-related (2) |   | $                       | 3,000   |   |   |   | 1.6 | % |   | $ | 38,000 |   |   |   | 16.3 | % |
| Tax (3)           |   |                    | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other (4)         |   | $                       | 6,000   |   |   |   | 3.2 | % |   | $ | 5,500 |   |   |   | 2.4 | % |
| Total             |   | $                       | 189,000 |   |   |   | 100 | % |   | $ | 233,500 |   |   |   | 100 | % |

| (1) | Audit fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements, including services that generally only the independent accountant can reasonably provide. This included audit of our annual financial statements, review of our quarterly financial results, consultations on various accounting issues and performance of local statutory audits. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Audit-related fees relate to assurance and associated services that are performed by the independent accountant, including: attest services that are not required by statute or regulation; accounting consultation; and consultation concerning financial accounting and reporting standards. In 2008, most of these fees were for audit services related to the Telesens transaction. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Tax fees relate to services performed by the tax division for tax compliance, planning and advice. |
|-----|----------------------------------------------------------------------------------------------------|

| (4) | Other fees relate to our subsidiary in Malta. |
|-----|-----------------------------------------------|

| Item 16D. | EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES |
|-----------|--------------------------------------------------------|

----

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

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

| Item 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
|-----------|----------------------------------------------------|

| Item 16G. | CORPORATE GOVERNANCE |
|-----------|----------------------|

| Item 17. | FINANCIAL STATEMENTS |
|----------|----------------------|

| Item 18. | FINANCIAL STATEMENTS |
|----------|----------------------|

|  Consolidated Financial Statements.                  |   |
|-----------------------------------------------------------|--------|
|  Index to Financial Statements                  | F-1    |
|  Report of Independent Registered Accounting Firm    | F-2    |
|  Consolidated Balance Sheets                         | F-3    |
|  Consolidated Statements of Operations               | F-5    |
|  Statements of Changes in Shareholders’ Equity | F-6    |
|  Consolidated Statements of Cash Flows               | F-7    |
|  Notes to Consolidated Financial Statements          | F-8    |

| Item 19. | EXHIBITS |
|----------|----------|

----

|   | TTI TEAM TELECOM INTERNATIONAL LTD. |                    |
|--------|-------------------------------------|-------------------------|
|   |                                |                    |   |
|   | By:                                 | /s/  Meir Lipshes  |   |
|   |                                | Meir Lipshes            |   |
|   |                                | Chief Executive Officer |   |
|   |                                |                    |   |

----

| ExhibitNo.  | Exhibit                                                                                                                                                                                                      |
|------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1              | Second Amended and Restated Articles of Association of Registrant, as amended through December 27, 2005 (1); Certificate of Amendment, dated August 10, 2006 (2); and amendment, effective June 19, 2008 (3) |
|             |                                                                                                                                                                                                         |
| 1.2              | Memorandum of Association of Registrant, as amended through December 29, 2004. (4)                                                                                                                           |
|             |                                                                                                                                                                                                         |
| 4.6              | The Registrant’s Share Option Plan, dated November 15, 1996. (5)                                                                                                                                       |
|             |                                                                                                                                                                                                         |
| 4.8              | 2004 Employee Share Option Plan, adopted December 29, 2004. (4)                                                                                                                                              |
|             |                                                                                                                                                                                                         |
| 4.9              | Agreement, dated October 9, 1996, between the Registrant and Team. (6)                                                                                                                                       |
|             |                                                                                                                                                                                                         |
| 4.10             | Registration Rights Agreement, dated October 22, 1996, between the Registrant and TSIL. (6)                                                                                                                  |
|             |                                                                                                                                                                                                         |
| 4.12             | Lease, dated February 1, 1998, between the Registrant and Team. (7)                                                                                                                                          |
|             |                                                                                                                                                                                                         |
| 4.13             | Amendment to Lease Agreement dated September 2, 2002. (8)                                                                                                                                                    |
|             |                                                                                                                                                                                                         |
| 4.14             | Second Amendment to Lease Agreement dated July 14, 2005. (9)                                                                                                                                                 |
|             |                                                                                                                                                                                                         |
| 8                | Subsidiaries                                                                                                                                                                                                 |
|             |                                                                                                                                                                                                         |
| 11               | Code of Ethics and Business Conduct. (10)                                                                                                                                                                    |
|             |                                                                                                                                                                                                         |
| 12.1             | Certification of the Principal Executive Officer pursuant to §302 of the Sarbanes-Oxley Act                                                                                                             |
|             |                                                                                                                                                                                                         |
| 12.2             | Certification of the Principal Financial Officer pursuant to §302 of the Sarbanes-Oxley Act                                                                                                             |
|             |                                                                                                                                                                                                         |
| 13.1             | Certification of the Principal Executive Officer pursuant to §906 of the Sarbanes-Oxley Act                                                                                                             |
|             |                                                                                                                                                                                                         |
| 13.2             | Certification of the Principal Financial Officer pursuant to §906 of the Sarbanes-Oxley Act                                                                                                        |
| 15.1             | Consent of Independent Auditors of the Registrant                                                                                                                                                            |
|             |                                                                                                                                                                                                         |
| (1)              | Previously filed on TTI’s Form 20-F for the year ended December 31, 2005, and incorporated herein by reference.                                                                                        |
|             |                                                                                                                                                                                                         |
| (2)              | Previously filed on TTI’s Form 20-F for the year ended December 31, 2006, and incorporated herein by reference.                                                                                        |
|             |                                                                                                                                                                                                         |
| (3)              | Previously filed as Item 2 of TTI’s Proxy Statement filed on Report of Foreign Private Issuer on Form 6-K submitted to the SEC on May 5, 2008, and incorporated herein by reference.                   |
|             |                                                                                                                                                                                                         |
| (4)              | Previously filed on TTI’s Form 20-F for the year ended December 31, 2004, and incorporated herein by reference.                                                                                        |
|             |                                                                                                                                                                                                         |
| (5)              | English summary from Hebrew original was previously filed as an exhibit to TTI’s Registration Statement on Form F-1 (Registration No. 333-5902), and incorporated herein by reference.                 |
|             |                                                                                                                                                                                                         |
| (6)              | Previously filed as an exhibit to TTI’s Registration Statement on Form F-1 (Registration No. 333-5902), and incorporated herein by reference.                                                          |
|             |                                                                                                                                                                                                         |
| (7)              | English summary from Hebrew original was previously filed as an exhibit to TTI’s annual report on Form 20-F for the fiscal year ended December 31, 1998, and incorporated herein by reference.         |
|             |                                                                                                                                                                                                         |
| (8)              | English translation from Hebrew original previously filed as an exhibit to TTI’s annual report on Form 20-F for the fiscal year ended December 31, 2002, and incorporated herein by reference.         |
|             |                                                                                                                                                                                                         |
| (9)              | Previously filed on TTI’s Form 20-F for the year ended December 31, 2005, and incorporated herein by reference.                                                                                        |
|             |                                                                                                                                                                                                         |
| (10)             | Previously filed on TTI’s Form 20-F for the year ended December 31, 2003, and incorporated herein by reference.                                                                                        |

----

|                                                       | Page       |
|------------------------------------------------------------|------------|
|                                                       |       |
| Report of Independent Registered Public Accounting Firm    | F-2        |
|                                                       |       |
| Consolidated Balance Sheets                                | F-3 - F-4  |
|                                                       |       |
| Consolidated Statements of Operations                      | F-5        |
|                                                       |       |
| Consolidated Statements of Changes in Shareholders' Equity | F-6        |
|                                                       |       |
| Consolidated Statements of Cash Flows                      | F-7 - F-8  |
|                                                       |       |
| Notes to Consolidated Financial Statements                 | F-9 - F-39 |

----

REPORT 

| Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER     |
|------------------|--------------------------------------|
| March 24, 2010   | A Member of Ernst & Young Global |

----

TTI 

----

|                                                                                             |   | December 31, |   |
|--------------------------------------------------------------------------------------------------|--------|--------------|--------|
|                                                                                             |   | 2008         |   |   | 2009 |   |
|                                                                                             |   |         |   |   |   |   |
| ASSETS                                                                                           |   |         |   |   |   |   |
|                                                                                             |   |         |   |   |   |   |
| CURRENT ASSETS:                                                                                  |   |         |   |   |   |   |
| Cash and cash equivalents                                                                        |   | $            | 24,921 |   |   | $ | 22,980 |   |
| Short-term bank deposits                                                                         |   |         | -      |   |   |   | 7,887 |   |
| Trade receivables (net of allowance for doubtful accounts - $ 105 at December 31, 2008 and 2009) |   |         | 9,790  |   |   |   | 7,904 |   |
| Unbilled receivables                                                                             |   |         | 3,093  |   |   |   | 1,630 |   |
| Related party (Note 11)                                                                          |   |         | 459    |   |   |   | 529 |   |
| Other accounts receivable and prepaid expenses (Note 3)                                          |   |         | 2,150  |   |   |   | 2,296 |   |
| Current assets of discontinued operations (Note 1b)                                              |   |         | 958    |   |   |   | - |   |
|                                                                                             |   |         |   |   |   |   |   |   |
| Total current assets                                                                             |   |         | 41,371 |   |   |   | 43,226 |   |
|                                                                                             |   |         |   |   |   |   |   |   |
| LONG-TERM INVESTMENTS AND RECEIVABLES:                                                           |   |         |   |   |   |   |   |   |
| Investment in a company                                                                          |   |         | 165    |   |   |   | 165 |   |
| Severance pay fund                                                                               |   |         | 3,836  |   |   |   | 4,229 |   |
|                                                                                             |   |         |   |   |   |   |   |   |
| Total long-term investments and receivables                                                      |   |         | 4,001  |   |   |   | 4,394 |   |
|                                                                                             |   |         |   |   |   |   |   |   |
| PROPERTY AND EQUIPMENT, NET (Note 4)                                                             |   |         | 7,199  |   |   |   | 5,864 |   |
|                                                                                             |   |         |   |   |   |   |   |   |
| Total assets                                                                                     |   | $            | 52,571 |   |   | $ | 53,484 |   |

----

----

|                                                                                                                                                                                                                                              |   | December 31, |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|
|                                                                                                                                                                                                                                              |   | 2008         |    |   | 2009 |   |
|                                                                                                                                                                                                                                              |   |         |    |   |   |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                                                                              |   |         |    |   |   |   |
|                                                                                                                                                                                                                                              |   |         |    |   |   |   |
| CURRENT LIABILITIES:                                                                                                                                                                                                                              |   |         |    |   |   |   |
| Trade payables                                                                                                                                                                                                                                    |   | $            | 2,187   |   |   | $ | 1,594 |   |
| Deferred revenues                                                                                                                                                                                                                                 |   |         | 3,648   |   |   |   | 3,368 |   |
| Related party (Note 11)                                                                                                                                                                                                                           |   |         | 420     |   |   |   | 194 |   |
| Other accounts payable and accrued expenses (Note 5)                                                                                                                                                                                              |   |         | 6,040   |   |   |   | 5,957 |   |
| Current liabilities of discontinued operations (Note 1b)                                                                                                                                                                                          |   |         | 844     |   |   |   | - |   |
|                                                                                                                                                                                                                                              |   |         |    |   |   |   |   |   |
| Total current liabilities                                                                                                                                                                                                                         |   |         | 13,139  |   |   |   | 11,113 |   |
|                                                                                                                                                                                                                                              |   |         |    |   |   |   |   |   |
| ACCRUED SEVERANCE PAY                                                                                                                                                                                                                             |   |         | 6,412   |   |   |   | 6,279 |   |
|                                                                                                                                                                                                                                              |   |         |    |   |   |   |   |   |
| LONG TERM LIABILITIES (Note 6)                                                                                                                                                                                                                    |   |         | 1,372   |   |   |   | 1,788 |   |
|                                                                                                                                                                                                                                              |   |         |    |   |   |   |   |   |
| COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)                                                                                                                                                                                                   |   |         |    |   |   |   |   |   |
|                                                                                                                                                                                                                                              |   |         |    |   |   |   |   |   |
| SHAREHOLDERS' EQUITY (Note 9):                                                                                                                                                                                                                    |   |         |    |   |   |   |   |   |
| Share capital:                                                                                                                                                                                                                                    |   |         |    |   |   |   |   |   |
| Ordinary shares of NIS 0.5 par value -Authorized: 30,000,000 shares at December 31, 2008 and 2009; Issued and outstanding: 16,003,158 shares at December 31, 2008 and 2009                                                                        |   |         | 2,261   |   |   |   | 2,261 |   |
| Preferred A shares of NIS 0.5 par value –Authorized: 6,636,391 at December 31, 2008 and 2009; Issued and outstanding: 2,936,391 shares at December 31, 2008 and 2009: Aggregate liquidation preference of $ 6,460 at December 31, 2009 |   |         | 334     |   |   |   | 334 |   |
| Additional paid-in capital                                                                                                                                                                                                                        |   |         | 75,251  |   |   |   | 75,278 |   |
| Accumulated deficit                                                                                                                                                                                                                               |   |         | (46,198 | ) |   |   | (43,569 | ) |
|                                                                                                                                                                                                                                              |   |         |    |   |   |   |   |   |
| Total shareholders' equity                                                                                                                                                                                                                        |   |         | 31,648  |   |   |   | 34,304 |   |
|                                                                                                                                                                                                                                              |   |         |    |   |   |   |   |   |
| Total liabilities and shareholders' equity                                                                                                                                                                                                        |   | $            | 52,571  |   |   | $ | 53,484 |   |

----

TTI 

----

|                                                                                                                          |   | Year ended December 31, |       |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|
|                                                                                                                          |   | 2007                    |       |   | 2008 |   |   | 2009 |   |
| Revenues (Note 12):                                                                                                           |   |                    |       |   |   |   |   |   |   |
| Products                                                                                                                      |   | $                       | 25,722     |   |   | $ | 29,101 |   |   | $ | 22,741 |   |
| Services                                                                                                                      |   |                    | 20,195     |   |   |   | 21,232 |   |   |   | 19,794 |   |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Total revenues                                                                                                                |   |                    | 45,917     |   |   |   | 50,333 |   |   |   | 42,535 |   |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Cost of revenues:                                                                                                             |   |                    |       |   |   |   |   |   |   |   |   |   |
| Products                                                                                                                      |   |                    | 12,504     |   |   |   | 15,627 |   |   |   | 13,473 |   |
| Services                                                                                                                      |   |                    | 8,545      |   |   |   | 7,628 |   |   |   | 6,141 |   |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Total cost of revenues                                                                                                        |   |                    | 21,049     |   |   |   | 23,255 |   |   |   | 19,614 |   |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Gross profit                                                                                                                  |   |                    | 24,868     |   |   |   | 27,078 |   |   |   | 22,921 |   |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Operating expenses:                                                                                                           |   |                    |       |   |   |   |   |   |   |   |   |   |
| Research and development                                                                                                      |   |                    | 9,433      |   |   |   | 11,407 |   |   |   | 7,478 |   |
| Selling and marketing                                                                                                         |   |                    | 7,857      |   |   |   | 9,883 |   |   |   | 7,994 |   |
| General and administrative                                                                                                    |   |                    | 6,952      |   |   |   | 5,842 |   |   |   | 4,899 |   |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Total operating expenses                                                                                                      |   |                    | 24,242     |   |   |   | 27,132 |   |   |   | 20,371 |   |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Operating income (loss)                                                                                                       |   |                    | 626        |   |   |   | (54 | ) |   |   | 2,550 |   |
| Other income                                                                                                                  |   |                    | 33         |   |   |   | - |   |   |   | - |   |
| Financial income (expenses), net (Note 13a)                                                                                   |   |                    | 2,150      |   |   |   | (554 | ) |   |   | 522 |   |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Income (loss) before income taxes                                                                                             |   |                    | 2,809      |   |   |   | (608 | ) |   |   | 3,072 |   |
| Tax expenses (income) (Note 8)                                                                                                |   |                    | (87        | ) |   |   | 371 |   |   |   | 79 |   |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Income (loss) from continuing operations                                                                                      |   |                    | 2,896      |   |   |   | (979 | ) |   |   | 2,993 |   |
| Loss from discontinued operations                                                                                             |   |                    | -          |   |   |   | (1,022 | ) |   |   | (314 | ) |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                             |   |                    | 2,896      |   |   |   | (2,001 | ) |   |   | 2,679 |   |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Net income attributed to preferred shares from continuing and discontinued operations                                         |   |                    | 449        |   |   |   | - |   |   |   | 464 |   |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Net income (loss) attributable to ordinary shares from continuing operation                                                   |   | $                       | 2,447      |   |   | $ | (979 | ) |   | $ | 2,529 |   |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Net loss attributable to ordinary shares from discontinued operation                                                          |   | $                       | -          |   |   | $ | (1,022 | ) |   | $ | (314 | ) |
|                                                                                                                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Earning (loss) per share (Note 10):                                                                                           |   |                    |       |   |   |   |   |   |   |   |   |   |
| Basic and diluted net earning (loss) per share attributed to Ordinary shareholders                                            |   |                    |       |   |   |   |   |   |   |   |   |   |
| From continuing operations                                                                                                    |   | $                       | 0.15       |   |   | $ | (0.06 | ) |   | $ | 0.16 |   |
| From discontinued operations                                                                                                  |   | $                       | -          |   |   | $ | (0.06 | ) |   | $ | (0.02 | ) |
| Net income per share                                                                                                          |   | $                       | 0.15       |   |   | $ | (0.12 | ) |   | $ | 0.14 |   |
| Weighted average number of shares used for computing basic net earning (loss) per share attributed to Ordinary shareholders   |   |                    | 16,001,148 |   |   |   | 16,003,158 |   |   |   | 16,003,158 |   |
| Weighted average number of shares used for computing diluted net earning (loss) per share attributed to Ordinary shareholders |   |                    | 16,121,989 |   |   |   | 16,003,158 |   |   |   | 16,003,158 |   |

----

TTI 

----

|                                                  |   | Number of               |      |   | Share capital   |   |       | Additional              |   |   |            |   |   | Total           |   |   | Total               |   |
|-------------------------------------------------------|--------|-------------------------|-----------|--------|-----------------|--------|------------|-------------------------|--------|--------|-----------------|--------|--------|-----------------|--------|--------|---------------------|--------|
|                                                  |   | Preferred A shares |      |   | Ordinary shares |   |       | Preferred A shares |   |   | Ordinary shares |   |   | paid-in capital |   |   | Accumulated deficit |   |   | comprehensive income (loss) |   |   | shareholders'equity |   |
|                                                  |   |                    |      |   |            |   |       |                    |   |   |            |   |   |            |   |   |                |   |   |   |   |   |   |   |
| Balance as of January 1, 2007                         |   |                    | 2,936,391 |   |            |   | 16,000,431 |                    |   | $      | 334             |   |   | $               | 2,260  |   |                | $      | 74,919 |   |   | $ | (47,018 | ) |   |   | - |   |   | $ | 30,495 |   |
|                                                  |   |                    |      |   |            |   |       |                    |   |   |            |   |   |            |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Exercise of warrants                                  |   |                    | -         |   |            |   | 2,727      |                    |   |   | -               |   |   |            | 1      |   |                |   | 6 |   |   |   | - |   |   |   | - |   |   |   | 7 |   |
| Share-based compensation                              |   |                    | -         |   |            |   | -          |                    |   |   | -               |   |   |            | -      |   |                |   | 113 |   |   |   | - |   |   |   | - |   |   |   | 113 |   |
| Cumulative effect of ASC No. 740 adoption             |   |                    | -         |   |            |   | -          |                    |   |   | -               |   |   |            | -      |   |                |   | - |   |   |   | (75 | ) |   |   | - |   |   |   | (75 | ) |
| Net income                                            |   |                    | -         |   |            |   | -          |                    |   |   | -               |   |   |            | -      |   |                |   | - |   |   |   | 2,896 |   |   | $ | 2,896 |   |   |   | 2,896 |   |
| Total comprehensive income                            |   |                    |      |   |            |   |       |                    |   |   |            |   |   |            |   |   |                |   |   |   |   |   |   |   |   | $ | 2,896 |   |   |   |   |   |
|                                                  |   |                    |      |   |            |   |       |                    |   |   |            |   |   |            |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2007                       |   |                    | 2,936,391 |   |            |   | 16,003,158 |                    |   |   | 334             |   |   |            | 2,261  |   |                |   | 75,038 |   |   |   | (44,197 | ) |   |   | - |   |   |   | 33,436 |   |
|                                                  |   |                    |      |   |            |   |       |                    |   |   |            |   |   |            |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Write-off of accruals for stock issuance costs        |   |                    | -         |   |            |   | -          |                    |   |   | -               |   |   |            | -      |   |                |   | 146 |   |   |   | - |   |   |   | - |   |   |   | 146 |   |
| Share-based compensation                              |   |                    | -         |   |            |   | -          |                    |   |   | -               |   |   |            | -      |   |                |   | 67 |   |   |   | - |   |   |   | - |   |   |   | 67 |   |
| Net loss                                              |   |                    | -         |   |            |   | -          |                    |   |   | -               |   |   |            | -      |   |                |   | - |   |   |   | (2,001 | ) |   | $ | (2,001 | ) |   |   | (2,001 | ) |
| Total comprehensive loss                              |   |                    |      |   |            |   |       |                    |   |   |            |   |   |            |   |   |                |   |   |   |   |   |   |   |   | $ | (2,001 | ) |   |   |   |   |
|                                                  |   |                    |      |   |            |   |       |                    |   |   |            |   |   |            |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2008                       |   |                    | 2,936,391 |   |            |   | 16,003,158 |                    |   |   | 334             |   |   |            | 2,261  |   |                |   | 75,251 |   |   |   | (46,198 | ) |   |   |   |   |   |   | 31,648 |   |
|                                                  |   |                    |      |   |            |   |       |                    |   |   |            |   |   |            |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Share-based compensation                              |   |                    | -         |   |            |   | -          |                    |   |   | -               |   |   |            | -      |   |                |   | 27 |   |   |   | - |   |   |   | - |   |   |   | 27 |   |
| Cumulative effect of ASC No. 815-40 adoption (Note 6) |   |                    | -         |   |            |   | -          |                    |   |   | -               |   |   |            | -      |   |                |   | - |   |   |   | (50 | ) |   |   | (50 | ) |   |   | (50 | ) |
| Net income                                            |   |                    | -         |   |            |   | -          |                    |   |   | -               |   |   |            | -      |   |                |   | - |   |   |   | 2,679 |   |   | $ | 2,679 |   |   |   | 2,679 |   |
| Total comprehensive income                            |   |                    |      |   |            |   |       |                    |   |   |            |   |   |            |   |   |                |   |   |   |   |   |   |   |   | $ | 2,629 |   |   |   |   |   |
|                                                  |   |                    |      |   |            |   |       |                    |   |   |            |   |   |            |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2009                       |   |                    | 2,936,391 |   |            |   | 16,003,158 |                    |   | $      | 334             |   |   | $               | 2,261  |   |                | $      | 75,278 |   |   | $ | (43,569 | ) |   |   |   |   |   | $ | 34,304 |   |

----

TTI 

----

|                                                                                                             |   | Year ended December 31, |   |
|------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                             |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
| Cash flows from operating activities:                                                                            |   |                    |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                |   | $                       | 2,896  |   |   | $ | (2,001 | ) |   | $ | 2,679 |   |
| Adjustments required to reconcile net income (loss) to net cash provided by (used in) operating activities: |   |                    |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                                                    |   |                    | 1,964  |   |   |   | 2,272 |   |   |   | 2,112 |   |
| Impairment of goodwill and other assets                                                                          |   |                    | -      |   |   |   | 1,533 |   |   |   | - |   |
| Loss from terminating agreement with Telesens (Note 1b)                                                          |   |                    | -      |   |   |   | - |   |   |   | 435 |   |
| Gain from sale of property and equipment                                                                         |   |                    | (221   | ) |   |   | (210 | ) |   |   | (96 | ) |
| Accrued severance pay, net                                                                                       |   |                    | 319    |   |   |   | 862 |   |   |   | (526 | ) |
| Share-based compensation                                                                                         |   |                    | 113    |   |   |   | 67 |   |   |   | 27 |   |
| Decrease (increase) in trade receivables, net                                                                    |   |                    | (3,521 | ) |   |   | (1,444 | ) |   |   | 2,128 |   |
| Decrease (increase)  in unbilled receivables                                                           |   |                    | (321   | ) |   |   | (116 | ) |   |   | 1,585 |   |
| Balance with related parties                                                                                     |   |                    | 3,856  |   |   |   | (3,562 | ) |   |   | (296 | ) |
| Decrease (increase) in other accounts receivable and prepaid expenses                                            |   |                    | (927   | ) |   |   | 819 |   |   |   | 9 |   |
| Decrease in long-term trade and unbilled receivables                                                             |   |                    | 3,324  |   |   |   | - |   |   |   | - |   |
| Decrease in trade payables                                                                                       |   |                    | (144   | ) |   |   | (504 | ) |   |   | (690 | ) |
| Decrease in deferred revenues                                                                                    |   |                    | (3,667 | ) |   |   | (1,018 | ) |   |   | (280 | ) |
| Decrease in other accounts payable and accrued expenses                                                          |   |                    | (3     | ) |   |   | (1,044 | ) |   |   | (1,036 | ) |
| Increase in fair value of warrants that are classified as long-term liabilities                                  |   |                    | -      |   |   |   | - |   |   |   | 597 |   |
| Accrued interest on long-term liability and short-term bank deposits                                             |   |                    | (4     | ) |   |   | 22 |   |   |   | (20 | ) |
|                                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by (used in) operating activities                                                              |   |                    | 3,664  |   |   |   | (4,324 | ) |   |   | 6,628 |   |
|                                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| Cash flows from investing activities:                                                                            |   |                    |   |   |   |   |   |   |   |   |   |   |
| Investment in short-term and long-term bank deposits                                                             |   |                    | (2,000 | ) |   |   | - |   |   |   | (7,863 | ) |
| Proceeds from short-term bank deposits                                                                           |   |                    | 2,987  |   |   |   | 99 |   |   |   | - |   |
| Purchase of property and equipment                                                                               |   |                    | (4,318 | ) |   |   | (3,533 | ) |   |   | (980 | ) |
| Proceeds from sale of property and equipment                                                                     |   |                    | 372    |   |   |   | 542 |   |   |   | 384 |   |
| Payment for acquisition of subsidiary                                                                            |   |                    | -      |   |   |   | (1,071 | ) |   |   | - |   |
|                                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| Net cash used in investing activities                                                                            |   |                    | (2,959 | ) |   |   | (3,963 | ) |   |   | (8,459 | ) |
|                                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| Cash flows from financing activities:                                                                            |   |                    |   |   |   |   |   |   |   |   |   |   |
| Proceeds from (repayment of) long-term debt from landlord                                                        |   |                    | 1,286  |   |   |   | (144 | ) |   |   | (146 | ) |
| Exercise of warrants                                                                                             |   |                    | 7      |   |   |   | - |   |   |   | - |   |
|                                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by (used in) financing activities                                                              |   |                    | 1,293  |   |   |   | (144 | ) |   |   | (146 | ) |
|                                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| Translation differences from cash balance of subsidiary                                                          |   |                    | -      |   |   |   | (20 | ) |   |   | - |   |
|                                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| Increase (decrease) in cash and cash equivalents                                                                 |   |                    | 1,998  |   |   |   | (8,451 | ) |   |   | (1,977 | ) |
| Cash and cash equivalents at the beginning of the year                                                           |   |                    | 31,410 |   |   |   | 33,408 |   |   |   | 24,957 |   |
|                                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents at the end of the year (*)                                                             |   | $                       | 33,408 |   |   | $ | 24,957 |   |   | $ | 22,980 |   |
|                                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| Supplemental disclosure of cash flows information:                                                               |   |                    |   |   |   |   |   |   |   |   |   |   |
| Cash paid during the year for:                                                                                   |   |                    |   |   |   |   |   |   |   |   |   |   |
| Taxes, net                                                                                                       |   | $                       | 187    |   |   | $ | 427 |   |   | $ | 382 |   |

----

----

|                                                                     |   | Year ended December 31, |   |
|--------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                     |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
|                                                                     |   |                    |   |   |   |   |   |   |   |
| Non-cash activities:                                                     |   |                    |   |   |   |   |   |   |   |
|                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |
| Return of issuance costs                                                 |   | $                       | -      |   |   | $ | 146 |   |   | $ | - |   |
|                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |
| Accrual for the second payment on account of the acquisition of Telesens |   | $                       | -      |   |   | $ | 630 |   |   | $ | - |   |

| (*) | Includes cash and cash equivalents of discontinued operations of $ 0 and $ 36 at December 31, 2009, 2008, respectively. |
|-----|-------------------------------------------------------------------------------------------------------------------------|

----

TTI 

----

| NOTE 1:- | GENERAL |
|----------|---------|

|   | a. | TTI Team Telecom International Ltd. ("TTI" or "the Company"), an Israeli corporation, was incorporated in 1990 and commenced its operations in September 1992. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company designs, develops, markets and supports network management and operations support system software for the communications industry. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's Netrac family of products performs and manages functions critical to the operations of telecommunications service providers, such as fault management - monitoring equipment performance to detect and analyze failures, performance management - providing traffic analysis and quality of statistics service, configuration management - managing physical and logical connectivity within the network and security management - controlling and protecting access to data and applications. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company has wholly-owned subsidiaries in the U.S., the Netherlands, the U.K., India, Malta, Costa-Rica, South Africa, Australia and Hong-Kong. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As to principal markets and customers, see Note 12. |
|--------|-----------------------------------------------------|

|   | b. | Discontinued operations: |
|--------|----|--------------------------|

|   | In January 2008, the Company acquired Telesens LLC ("Telesens"), a software house headquartered in the Ukraine with a presence in the CIS (Commonwealth of Independent States) market. Under the terms of the agreement, the aggregate purchase price is up to $ 2,700, subject to downward adjustments. Such adjustments are mainly based on Telesens results of operations during 2007, 2008 and 2009. According to the agreement the purchase price should have been paid in 3 annual payments. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Telesens results of operations have been included in the Company's consolidated financial statements since the acquisition date. |
|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | Until December 31, 2008, the Company paid on account of the acquisition $1,150. In addition, at December 31, 2008 the Company accrued additional $ 630 on account of the second payment for the seller that should have been executed in February 2009 (see also discussion below about the dispute with the seller of Telesens subsequent to the balance sheet date). Future payments are subject to potential downward adjustments and can not be determined at this point therefore they will account for as they occur. All deductions should be concluded at the end of 2009. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 1:- | GENERAL (Cont.) |
|----------|-----------------|

|   | The acquisition was accounted for under the purchase method of accounting and, accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their relative fair values as of the acquisition date, as follows: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Trade receivables         |   | $      | 365    |   |
|---------------------------|--------|--------|--------|--------|
| Other accounts receivable |   |   | 60     |   |
| Property and equipment    |   |   | 239    |   |
| Customer relations        |   |   | 244    |   |
| Contracts in progress     |   |   | 230    |   |
| Current Technology        |   |   | 51     |   |
| Trade payables            |   |   | (541   | )      |
| Deferred revenues         |   |   | (61    | )      |
| Other current liabilities |   |   | (207   | )      |
| Deferred tax liabilities  |   |   | (80    | )      |
| Goodwill (a)              |   |   | 1,401  |   |
|                      |   |   |   |   |
|                      |   | $      | 1,701  |   |

|   | (a) | As discussed above goodwill includes $ 630 on account of the second payment for the seller that should have been executed in February 2009. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | The value assigned to the tangible assets, intangible assets and liabilities has been determined as follows: |
|--------|--------------------------------------------------------------------------------------------------------------|

|   | 1. | Telesens current assets and liabilities were recorded at their carrying amounts. The carrying amounts of the current assets and liabilities were reasonable proxies for their market values due to their short term maturity. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | The value assigned to the customer-relations and current technology intangibles amounted to $295. The fair value of these intangibles is determined using the Income Approach. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Contracts in progress - The amount allocated to contracts in progress was based on the estimated fair value of these contracts at the acquisition date. The fair value assigned to these contracts is based on the remaining amounts to be billed under the contracts, reduced by the estimated cost to complete the contracts and an allowance for normal profit related to the activities that will be performed by the Company after the acquisition. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | The Company recorded a deferred tax liability of $ 80 for the difference between the assigned values and the tax bases of the customer-relations and technology intangible assets. The deferred tax liability was decreased and as of December 31, 2008 amounts to $ 37. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 1:- | GENERAL (Cont.) |
|----------|-----------------|

|   | (b) | Pro forma financial information: |
|--------|-----|----------------------------------|

|   | The following table for the year ended December 31, 2007 presents certain combined unaudited statements of income data as if the acquisition of Telesens had occurred on January 1, 2007, after giving effect to purchase accounting adjustments, including amortization of identifiable intangible assets: |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                |   | Year ended December 31, |   |
|---------------------|--------|-------------------------|--------|
|                |   | 2007                    |   |
|                |   | Unaudited               |   |
|                |   |                    |   |
| Revenues            |   | $                       | 47,922 |   |
|                |   |                    |   |   |
| Net income          |   | $                       | 1,675  |   |
|                |   |                    |   |   |
| Earnings per share: |   |                    |   |   |
| Basic               |   | $                       | 0.09   |   |
| Diluted             |   | $                       | 0.09   |   |

|   | The pro forma financial information is not necessarily indicative of the combined results that would have been attained had the acquisitions taken place at the beginning of 2007, nor is it necessarily indicative of future results. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | On January 26, 2009, the Board of Directors of the Company received a written complaint, from the former shareholder and current general manager of Telesens, alleging improper commissions were made with respect to the acquisition of Telesens. As a result of these allegations and the related investigation, the Company decided to hold the February 2009 payment on account of Telesens acquisition. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Consequently, as discussed above, the goodwill impairment in 2008 includes $ 630 that is resulting from the accrual of on account of the second payment for the seller, that should have been executed in February 2009. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In July 2009, the Company signed a settlement agreement with Telesens. Under the terms of the settlement agreement, the acquisition of Telesens was rescinded, such that the Company transferred its 100% interest in Telesens to Mr. Eduard Rubin, the previous key shareholder of Telesens and in addition, the Company agreed to pay approximately $200 to Telesens. Both parties' lawsuits against each other were dismissed. In addition, Telesens agreed to render development services to the Company for one year. The fees for the future services are at market price. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | This settlement was accounted for as discontinued operations in accordance with ASC No. 360 "Property, Plant and Equipment". |
|--------|------------------------------------------------------------------------------------------------------------------------------|

|   | Telesens is considered to be a "component of an entity" since its operations and cash flows can be clearly identified operationally and for financial reporting purposes, from the rest of the entity. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 1:- | GENERAL (Cont.) |
|----------|-----------------|

|   | Since the operations and cash flows of the Telesens were eliminated from the ongoing operations of the Company as a result of the disposal transaction and the Company will not have any significant continuing involvement in the operations of the component after the disposal transaction, subject to ASC No. 205-20, "Presentation of Financial Statements", the results of operations of Telesens are being reported in discontinued operations in the financial statements. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company recorded a loss of $314 in 2009 in discontinued operations line item. |
|--------|-----------------------------------------------------------------------------------|

|   | The assets and liabilities of the Telesens at December 31, 2008 were classified as discontinued operations as follows: |
|--------|------------------------------------------------------------------------------------------------------------------------|

|                                                         |   | December 31, |   |
|--------------------------------------------------------------|--------|--------------|--------|
|                                                         |   | 2008         |   |
|                                                         |   |         |   |
| Assets:                                                      |   |         |   |
| Cash and cash equivalents                                    |   | $            | 36     |   |
| Trade receivables                                            |   |         | 242    |   |
| Unbilled receivables                                         |   |         | 122    |   |
| Other accounts receivable and prepaid expenses               |   |         | 155    |   |
| Property and equipment, net                                  |   |         | 84     |   |
| Intangible assets                                            |   |         | 149    |   |
| Foreign currency translation adjustment                      |   |         | 170    |   |
|                                                         |   |         |   |   |
| Assets of discontinued operations                            |   |         | 958    |   |
|                                                         |   |         |   |   |
| Liabilities:                                                 |   |         |   |   |
| Trade payables                                               |   |         | 97     |   |
| Other accounts payable and accrued expenses                  |   |         | 117    |   |
| Accrual for the second payment on account of the acquisition |   |         | 630    |   |
|                                                         |   |         |   |   |
| Liabilities of discontinued operations                       |   |         | 844    |   |
|                                                         |   |         |   |   |
| Net assets of discontinued operations                        |   | $            | 114    |   |

|   | As of December 31, 2009, Telesens is no longer consolidated with the other entities in the group. |
|--------|---------------------------------------------------------------------------------------------------|

----

----

| NOTE 1:- | GENERAL (Cont.) |
|----------|-----------------|

|   | As a result of the selling of the Telesens as mentioned above, the results of operations of the Telesens were reported separately as discontinued operations in the statement of operations for the year ended December 31, 2008 and 2009 respectively, are summarized as follows: |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                        |   | Year endedDecember 31, |   |   | Year endedDecember 31, |   |
|---------------------------------------------|--------|------------------------|--------|--------|------------------------|--------|
|                                        |   | 2008                   |   |   | 2009                   |   |
|                                        |   |                   |   |   |                   |   |
| Revenues:                                   |   |                   |   |   |                   |   |
| Products                                    |   | $                      | 1,033  |   |                   | $      | 303 |   |
| Services                                    |   |                   | 920    |   |                   |   | 396 |   |
|                                        |   |                   |   |   |                   |   |   |   |
| Total revenues                              |   |                   | 1,953  |   |                   |   | 699 |   |
|                                        |   |                   |   |   |                   |   |   |   |
| Cost of revenues:                           |   |                   |   |   |                   |   |   |   |
| Products                                    |   |                   | 754    |   |                   |   | 314 |   |
| Services                                    |   |                   | 237    |   |                   |   | 99 |   |
|                                        |   |                   |   |   |                   |   |   |   |
| Total cost of revenues                      |   |                   | 991    |   |                   |   | 413 |   |
|                                        |   |                   |   |   |                   |   |   |   |
| Gross profit                                |   |                   | 962    |   |                   |   | 286 |   |
|                                        |   |                   |   |   |                   |   |   |   |
| Operating expenses:                         |   |                   |   |   |                   |   |   |   |
| Selling and marketing                       |   |                   | 113    |   |                   |   | 47 |   |
| General and administrative                  |   |                   | 509    |   |                   |   | 132 |   |
| Impairment of goodwill and other assets     |   |                   | 1,401  |   |                   |   | - |   |
|                                        |   |                   |   |   |                   |   |   |   |
| Total operating expenses                    |   |                   | 2,023  |   |                   |   | 179 |   |
|                                        |   |                   |   |   |                   |   |   |   |
| Operating  income (loss)          |   |                   | (1,061 | )      |                   |   | 107 |   |
| Financial income, net                       |   |                   | 39     |   |                   |   | 30 |   |
|                                        |   |                   |   |   |                   |   |   |   |
| Income (loss) before income taxes           |   |                   | (1,022 | )      |                   |   | 137 |   |
| Income taxes                                |   |                   | -      |   |                   |   | 16 |   |
| Income (loss) of discontinued operations    |   |                   | (1,022 | )      |                   |   | 121 |   |
| Loss of disposal of discontinued operations |   |                   | -      |   |                   |   | (435 | ) |
|                                        |   |                   |   |   |                   |   |   |   |
| Net loss from discontinued operations       |   | $                      | (1,022 | )      |                   | $      | (314 | ) |

|   | The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP"). The significant accounting policies followed in the preparation of the financial statements, applied on a consistent basis, are: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES |
|----------|---------------------------------|

|   | Use of estimates: |
|--------|-------------------|

|   | The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reported period. The most significant assumptions are employed in estimates used in determining values of tax liabilities, stock-based compensation costs, derivatives, as well as in estimates used in applying the revenue recognition policy related to contract accounting. Actual results could differ from those estimates. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Financial statements in United States dollars: |
|--------|------------------------------------------------|

|   | The financial statements have been prepared in U.S. dollars ("dollar"), since the currency of the primary economic environment in which the operations of the Company and certain subsidiaries are conducted is the dollar. Most of the revenues of the Company and most of its subsidiaries are generated in U.S. dollars. The Company's management believes that the dollar is the currency of the primary economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the dollar. Accordingly, the Company's and its subsidiaries' transactions and balances denominated in dollars are presented at their original amounts. Transactions and balances in other currencies have been remeasured into dollars in accordance with the guidance in ASC 830, "Foreign Currency Matters". Exchange gains and losses are presented in financial income net. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Principles of consolidation: |
|--------|------------------------------|

|   | The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Cash and Cash equivalents: |
|--------|----------------------------|

|   | Cash and cash equivalents include short-term, highly liquid investments that are readily convertible to cash with maturities of three months or less at acquisition. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Short-term deposits: |
|--------|----------------------|

|   | Short-term bank deposits are deposits with maturities of more than three months but less than one year. Such deposits are presented at cost including accrued interest, which approximates fair value. Interest on the deposits is recorded as financial income. The deposits are in U.S. dollars and in Euro and bear interest at an average rate of 0.61% for 2009. The short-term deposits are presented at their cost, including accrued interest. As of December 31, 2008 the Company had no short-term bank deposits. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | Property and equipment: |
|--------|-------------------------|

|   | Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, at the following annual rates: |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               | %                                                       |
|------------------------------------|---------------------------------------------------------|
|                               |                                                    |
| Computers and peripheral equipment | 33                                                      |
| Office furniture and equipment     | 6- 20                                                   |
| Motor vehicles                     | 15                                                      |
| Leasehold improvements        | Over the shorter of the term of the leaseor useful life |

|   | Impairment of long-lived assets: |
|--------|----------------------------------|

|   | The long-lived assets and finite-lived intangible assets of the Company and its subsidiaries are reviewed for impairment in accordance with ASC 360-10-35, "Property, Plant and Equipment-Subsequent Measurement", whenever events or changes in circumstances indicate that the carrying amount of an asset (or an asset group) may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds its fair values. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of December 31, 2009, no impairment loss has been identified. |
|--------|------------------------------------------------------------------|

|   | Income taxes: |
|--------|---------------|

|   | The Company accounts for income taxes and uncertain tax positions in accordance with ASC 740, "Income Taxes". ASC 740  prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. As of December 31, 2009, a full valuation allowance was provided by the Company. See also Note 8e. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On January 1, 2007, the Company adopted an amendment to ASC 740-10 (originally issued as "FIN 48"). The amendment contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income tax. The Company recognized an increase of approximately $75 in the liability for unrecognized tax benefits, which was accounted for as an increase to the January 1, 2007 balance of the accumulated deficit. See also Note 8i. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | Investment in a company: |
|--------|--------------------------|

|   | The investment in this company is stated at cost since the Company does not have the ability to exercise significant influence over operating and financial policies of the investee. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's investment in the other company is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an investment may not be recoverable, in accordance with ASC No. 320, "Investment-Debt and Equity securities". As of December 31, 2009, no impairment losses have been identified. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Research and development costs: |
|--------|---------------------------------|

|   | Research and development costs incurred in the process of developing product improvements or new products, are generally charged to expenses, as incurred. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Derivatives and hedging activities: |
|--------|-------------------------------------|

|   | ASC 815, "Derivatives and Hedging" (formerly FAS 133, "Accounting for Derivative Instruments and Hedging Activities") requires the Company to recognize all of its derivative instruments as either assets or liabilities on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income and reclassified into earnings in the line item associated with the hedged transaction in the period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized immediately in financial income/expense in the statement of operations. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company entered into derivative instrument arrangement (forward contract) to exchange rate fluctuation associated with balances incurred in EURO. We elected not to follow the designation and documentation processes required to qualify these contracts or strategies for the hedge accounting method under ASC No. 815, and any gain or loss derived from such instruments is recognized immediately as financial expenses. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of December 31, 2009, the Company has outstanding forward contract to purchase U.S. dollar in the total amount of $3 million. Income resulting from the foreign exchange activity was $ 104 for the year ended December 31, 2009. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | Concentrations of credit risk: |
|--------|--------------------------------|

|   | Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, short-term bank deposits and trade and unbilled receivables. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's and its subsidiaries' cash and cash equivalents are mainly invested in U.S. dollar deposits with major Israeli and U.S. banks. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's trade receivables are geographically diversified primarily between the United States and Europe and to a lesser extent, in Israel, India, South Africa and South America. Most customers are among the largest telecommunications companies in the world. Concentration of credit risk with respect to trade and unbilled receivables is limited by ongoing credit evaluation and account monitoring procedures. The Company evaluates accounts receivable to determine if they will ultimately be collected. In performing this evaluation, significant judgments and estimates are involved, such as past experience, credit quality of the customer, age of the receivable and current economic conditions that may affect a customer's ability to pay. An allowance for doubtful accounts is determined with respect to those specific amounts that the Company and its subsidiaries have determined to be doubtful of collection. Allowance for doubtful accounts amounted to $ 105 as of December 31, 2009. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During 2009 the Company entered into foreign exchange forward contract intended to protect against fluctuation associated with balances incurred in EURO. Except for this outstanding transaction, the Company currently does not have any off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Basic and diluted net earning (loss) per share: |
|--------|-------------------------------------------------|

|   | The Company applies the two class method as required by ASC No. 260, "Earning Per Share", which requires the earning (loss) per share for each class of shares (ordinary and preferred shares) to be calculated assuming 100% of the Company's earnings are distributed as dividends to each class of shares based on their contractual rights. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In compliance with ASC No. 260, the series of preferred shares are not participating securities in losses, and therefore are not included in the computation of net loss per share. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Basic net earning (loss) per share is computed based on the weighted average number of shares of Ordinary Shares outstanding during each year. Diluted net earning (loss) per share is computed based on the weighted-average number of shares of common stock outstanding during the period, plus dilutive potential shares considered outstanding during the period. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | For the year ended December 31, 2007, all outstanding options have been excluded from the calculation of the diluted earning per share. For the years ended December 31, 2008 and 2009 all outstanding options and warrants were excluded from the calculations of diluted net earning (loss) per share, since they would have an anti-diluted effect. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | Revenue recognition: |
|--------|----------------------|

|   | The Company and its subsidiaries market their products to telecommunications service providers both directly and through alliances with leading vendors of computer hardware, telecommunications equipment, test systems, and probes. The Company's products have been licensed to various types of telecommunications operators. The Company's software licenses require significant customization, integration, installation and development services. The Company also generates revenues from maintenance and customer support services. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Revenues are recognized based on ASC No. 605, "Construction - Type and Production - Type Contracts", using contract accounting using the percentage of completion method based on the relationship of actual labor days incurred to total labor days estimated to be incurred over the duration of the project to which the contract relates. In general, the Company divides each project into three distinct periods: (i) a functional specification period, (ii) an implementation period and (iii) a stabilization period. A project is considered completed when the stabilization period is over. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company believes that the use of the percentage of completion method is appropriate as the Company has the ability to make reasonably dependable estimates of the extent of progress towards completion, contract revenues and contract costs. In addition, contracts executed include provisions that clearly specify the enforceable rights regarding services to be provided and received by the parties to the contracts, the consideration to be exchanged and the manner and terms of settlement. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In all cases the Company expects to perform its contractual obligations and its licensees are expected to satisfy their obligations under the contract. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined in the amount of the estimated loss on the entire contract. As of December 31, 2009, estimated losses in amount of $18 were identified. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Unbilled receivables include all amounts which were recognized as revenues and had not been billed as of the balance sheet date due to contractual or other arrangements with customers. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company identifies short-term projects ("STP") and accounts for such projects, under ASC No. 605, using the completed contract method. As of December 31, 2009 the Company capitalized $ 61, in prepaid expenses, related to costs of STP in progress that are being accounted for under completion contract method. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Estimated gross profit or loss from long-term contracts may change due to changes in estimates resulting from differences between actual performance and original forecasts. Such changes in estimated gross profit are recorded in results of operations when they are reasonably determinable by management, on a cumulative catch-up basis. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Service revenues primarily consist of fees from maintenance and customer support. Revenues from maintenance and support contracts are recognized ratably over the term of the agreement, which is typically one year, or at the time when services are rendered. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Deferred revenues are recognized for payments received under maintenance and support contracts in advance of the culmination of the earning process. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | Accounting for stock-based compensation: |
|--------|------------------------------------------|

|   | The Company accounts for stock-based compensation in accordance with ASC No. 718,  "Compensation-Stock Compensation ". ASC No. 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated income statements. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The fair value for options granted in 2007 and 2008 is amortized over their vesting period and is estimated at the date of grant using a Black-Scholes options pricing model with the following weighted average assumptions: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                           |   | Year ended December 31, |   |
|--------------------------------|--------|-------------------------|--------|
| Employee stock options         |   | 2007                    |   |   | 2008 |   |
|                           |   |                    |   |   |   |   |
| Expected volatility            |   |                    | 45     | % |   |   | 45 | % |
| Risk-free interest             |   |                    | 5      | % |   |   | 4 | % |
| Dividend yield                 |   |                    | 0      | % |   |   | 0 | % |
| Expected life of up to (years) |   |                    | 3.5    |   |   |   | 3.5 |   |

|   | The Company recognizes these compensation costs net of a forfeiture rate for only those shares expected to vest on accelerated attribution basis, rather than a straight-line method over the requisite service period of the award, which is generally the option vesting term of one to three years. ASC No. 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company selected the Black-Scholes-Merton option pricing model as the most appropriate fair value method for its stock-options awards and values restricted stock based on the market value of the underlying shares at the date of grant. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The computation of expected volatility is based on historical stock price volatility of the Company. The interest rate for period within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The Company has historically not paid dividends and has no foreseeable plans to pay dividends. The expected option term represents the period that the Company's stock options are expected to be outstanding and was determined for plain vanilla options based on the "simplified method", as the midpoint between the vesting period and the contractual term of the options. The Company use the "simplified method" for its plain vanilla stock options as historical experience is not available to provide a reasonable estimate of the expected term for stock option grants. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Advertising expenses: |
|--------|-----------------------|

|   | Advertising expenses are charged to the statements of operations as incurred. Advertising expenses for the years ended December 31, 2007, 2008 and 2009 were $ 140, $ 382 and $ 162, respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | Fair value of financial instruments: |
|--------|--------------------------------------|

|   | The Company accounts for certain assets and liabilities at fair value under ASC 820, "Fair Value Measurements and Disclosures". ASC No. 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The actual value at which such financial assets could actually be sold or settled with a willing buyer or seller may differ from such estimated fair values depending on a number of factors including, but not limited to, current and future economic conditions, the quantity sold or settled, the presence of an active market and the availability of a willing buyer or seller. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value, (by maximizing the use of observable inputs and minimizing the use of unobservable inputs when measuring fair value): |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | Level 2 - Includes other inputs that are observable, either directly or indirectly in the marketplace, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets with insufficient volume or infrequent transactions, or other inputs that are observable (model-derived valuations in which significant inputs are observable), or can be derived principally from or corroborated by observable market data, and |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Level 3 - Unobservable inputs which are supported by little or no market activity, and that are significant to the fair value of the asset or liability. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company measures its foreign currency derivative instruments at fair value are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The carrying amount of cash and cash equivalents, short-term bank deposits, trade receivables, unbilled receivable and trade payables approximate their fair values due to the short-term maturities of such instruments. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Severance pay: |
|--------|----------------|

|   | The Company's liability for severance pay is calculated pursuant to Israel's Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month's salary for each year of employment or a portion thereof. The Company's liability for all of its employees is fully provided by monthly deposits with insurance policies and by an accrual. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel's Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies, and includes immaterial profits. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Severance pay expenses for the years ended December 31, 2007, 2008 and 2009 were $ 964, $ 1,820 and $ 507, respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | Impact of recently issued accounting standards: |
|--------|-------------------------------------------------|

|   | In October 2009, the FASB issued an update to ASC No. 985-605, "Software-Revenue Recognition" (originally issued as EITF 09-3). In accordance with the update to the ASC, tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality are excluded from the scope of the software revenue recognition guidance. In addition, hardware components of a tangible product containing software component are always excluded from the software revenue guidance. The mandatory adoption is on January 1, 2011. The Company may elect to adopt the update prospectively, to new or materially modified arrangements beginning on the adoption date, or retrospectively, for all periods presented. The Company does not expect the adoption of the update to have a material impact on our financial condition or results of operations. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In October 2009, the FASB issued an update to ASC No. 605-25, "Revenue recognition - Multiple -Element Arrangements", that provides amendments to the criteria for separating consideration in multiple-deliverable arrangements to: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. | Provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated; |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Require an entity to allocate revenue in an arrangement using estimated selling prices ("ESP") of deliverables if a vendor does not have vendor-specific objective evidence of selling price ("VSOE") or third-party evidence of selling price ("TPE"); and |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Require expanded disclosures of qualitative and quantitative information regarding application of the multiple-deliverable revenue arrangement guidance. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The mandatory adoption is on January 1, 2011.The Company may elect to adopt the update prospectively, to new or materially modified arrangements beginning on the adoption date, or retrospectively, for all periods presented. The Company is currently evaluating the impact on its consolidated results of operations and financial condition. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 3:- | OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES |
|----------|------------------------------------------------|

|                   |   | December 31, |   |
|------------------------|--------|--------------|--------|
|                   |   | 2008         |   |   | 2009 |   |
|                   |   |         |   |   |   |   |
| Prepaid expenses       |   | $            | 1,292  |   |   | $ | 1,417 |   |
| Employees              |   |         | 119    |   |   |   | 74 |   |
| Government authorities |   |         | 203    |   |   |   | 409 |   |
| Advances to Suppliers  |   |         | 312    |   |   |   | 135 |   |
| Others                 |   |         | 224    |   |   |   | 261 |   |
|                   |   |         |   |   |   |   |   |   |
|                   |   | $            | 2,150  |   |   | $ | 2,296 |   |

| NOTE 4:- | PROPERTY AND EQUIPMENT, NET |
|----------|-----------------------------|

|                               |   | December 31, |   |
|------------------------------------|--------|--------------|--------|
|                               |   | 2008         |   |   | 2009 |   |
| Cost:                              |   |         |   |   |   |   |
| Computers and peripheral equipment |   | $            | 16,412 |   |   | $ | 11,086 |   |
| Office furniture and equipment     |   |         | 2,129  |   |   |   | 953 |   |
| Motor vehicles                     |   |         | 4,649  |   |   |   | 3,880 |   |
| Leasehold improvements             |   |         | 2,581  |   |   |   | 2,539 |   |
|                               |   |         |   |   |   |   |   |   |
|                               |   |         | 25,771 |   |   |   | 18,458 |   |
| Accumulated depreciation:          |   |         |   |   |   |   |   |   |
| Computers and peripheral equipment |   |         | 14,864 |   |   |   | 9,927 |   |
| Office furniture and equipment     |   |         | 1,205  |   |   |   | 287 |   |
| Motor vehicles                     |   |         | 2,080  |   |   |   | 1,627 |   |
| Leasehold improvements             |   |         | 423    |   |   |   | 753 |   |
|                               |   |         |   |   |   |   |   |   |
|                               |   |         | 18,572 |   |   |   | 12,594 |   |
|                               |   |         |   |   |   |   |   |   |
| Depreciated cost                   |   | $            | 7,199  |   |   | $ | 5,864 |   |

| NOTE 5:- | OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
|----------|---------------------------------------------|

|                           |   | December 31, |   |
|--------------------------------|--------|--------------|--------|
|                           |   | 2008         |   |   | 2009 |   |
|                           |   |         |   |   |   |   |
| Employees and payroll accruals |   | $            | 4,242  |   |   | $ | 3,841 |   |
| Accrued expenses               |   |         | 969    |   |   |   | 1,186 |   |
| Government authorities         |   |         | 562    |   |   |   | 615 |   |
| Others                         |   |         | 267    |   |   |   | 315 |   |
|                           |   |         |   |   |   |   |   |   |
|                           |   | $            | 6,040  |   |   | $ | 5,957 |   |

----

----

| NOTE 6:- | LONG TERM LIABILITIES |
|----------|-----------------------|

|                                           |   | December 31, |   |
|------------------------------------------------|--------|--------------|--------|
|                                           |   | 2008         |   |   | 2009 |   |
|                                           |   |         |   |   |   |   |
| Landlord leasehold improvements ( See Note 7b) |   | $            | 1,372  |   |   | $ | 1,141 |   |
| Warrants ( See Note 9b)                        |   |         | -      |   |   |   | 647 |   |
|                                           |   |         |   |   |   |   |   |   |
|                                           |   | $            | 1,372  |   |   | $ | 1,788 |   |

| NOTE 7:- | COMMITMENTS AND CONTINGENT LIABILITIES |
|----------|----------------------------------------|

|   | a. | Aggregate minimum rental commitments under non-cancelable leases at December 31, 2009 are as follows: |
|--------|----|-------------------------------------------------------------------------------------------------------|

| Year ended December 31, |   | Facilities |   |   | Motorvehicles |   |   | Total  |   |
|-------------------------|--------|------------|--------|--------|---------------|--------|--------|--------|--------|
|                    |   |       |   |   |          |   |   |   |   |
| 2010                    |   | $          | 1,352  |   |          | $      | 27     |   |   | $ | 1,379 |   |
| 2011                    |   |       | 1,200  |   |          |   | -      |   |   |   | 1,200 |   |
| 2012                    |   |       | 871    |   |          |   | -      |   |   |   | 871 |   |
| 2013                    |   |       | 870    |   |          |   | -      |   |   |   | 870 |   |
| 2014                    |   |       | 870    |   |          |   | -      |   |   |   | 870 |   |
|                    |   |       |   |   |          |   |   |   |   |   |   |   |
|                    |   | $          | 5,163  |   |          | $      | 27     |   |   | $ | 5,190 |   |

|   | Facility lease expenses for the years ended December 31, 2007, 2008 and 2009 were $ 1,409, $ 1,074 and $ 1,138, respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | Motor vehicle lease expenses for the years ended December 31, 2007, 2008 and 2009 were approximately $ 102, $ 140 and $ 103, respectively. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | In December 2007, the Company relocated its premises in Israel. The term of the lease is 7 years and the Company has the option to extend the lease period for an additional 3 years. According to the agreement the Company made leasehold improvements that were funded partly by a loan from the landlord and partly by landlord incentives. The leasehold improvements were recorded as leasehold improvement assets and they are being amortized over the shorter of their economic lives or the lease term. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The incentives from the landlord were recorded as deferred rent and amortized as reductions to lease expense over the lease term in accordance with ASC No. 840 "Lease". |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of December 31, 2009, the Company's leasehold improvements assets were $ 1,379, of which $ 357 was funded by landlord incentives and $ 1,022 as a landlord loan. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The leasehold improvements assets consist of current maturity in the amount of $ 238 and long-term liabilities in the amount of $ 1,141. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------|

|   | The loan from the landlord was recorded at its estimated fair value using discounted cash flow method Present Value in accounting measurements. As a result, the loan bears no interest. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 7:- | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) |
|----------|------------------------------------------------|

|   | c. | Royalty commitments: |
|--------|----|----------------------|

|   | Under the Company's research and development agreements with the Office of the Chief Scientist ("OCS") and the Binational Industrial Research and Development Foundation ("BIRD-F"), and pursuant to applicable laws, the Company is required to pay royalties at the rate of 3%-5% of sales of products developed with funds provided by the OCS and BIRD-F, up to an amount equal to 100%-150% of the research and development grants (dollar-linked) received from the OCS and BIRD-F. The obligation to pay these royalties is contingent on actual sales of the products and, in the absence of such sales, no payment is required. Royalties payable with respect to grants received under programs approved by the OCS after January 1, 1999, are subject to interest on the U.S. dollar-linked value of the total grants received at the annual rate of LIBOR applicable to U.S. dollar deposits. Royalties payable with respect to grants received from BIRD-F are linked to the Consumer Price Index in the United States. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company has paid or accrued royalties relating to the repayment of such grants in the amount of $ 0.6, $ 4 and $ 5 for the years ended December 31, 2007, 2008 and 2009, respectively. The amounts were recorded in the cost of revenues. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of December 31, 2009, the Company has an outstanding contingent obligation to pay royalties in the amount of approximately $ 2,733 in respect of these grants. Management believes that none of its product sales is currently subject to OCS and BIRD-F royalties payment. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | Guarantees: |
|--------|----|-------------|

|   | The Company has obtained performance guarantees in favor of certain customers from several banks in Israel amounting to $ 841 and $ 28 for the years ended December 31, 2008 and 2009, respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company has obtained other guarantees in favor of facility and car leases from a bank in Israel amounting to $ 426 and $ 429 for the years ended December 31, 2008 and 2009, respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | Dispute with respect to balance with related party shareholder, See Note 11b. |
|--------|----|-------------------------------------------------------------------------------|

| NOTE 8:- | INCOME TAXES |
|----------|--------------|

|   | a. | Measurement of taxable income: |
|--------|----|--------------------------------|

|   | Under the Income Tax (Inflationary Adjustments) Law, 1985 ("the Israeli law"), results for tax purposes in Israel are measured in real terms, in accordance with the changes in the Israeli Consumer Price Index ("Israeli CPI"). Accordingly, until 2007, results for tax purposes were measured in terms of earnings in NIS after certain adjustments for increases in the Israeli CPI. Beginning January 1, 2008, the Inflationary Adjustments Law was repealed. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Corporate tax rates: |
|--------|----|----------------------|

|   | Under the amendment to the Israeli Income Tax ordinance on July 25, 2005, a small decrease in the corporate tax rate in Israel will be in effect as follows: 2009 - 26% and in 2010 and therefore – 25%. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 8:- | INCOME TAXES (Cont.) |
|----------|----------------------|

|   | In July 2009, the Israeli Parliament (the Knesset) passed the Economic Efficiency Law (Amended Legislation for Implementing the Economic Plan for 2009 and 2010), 2009, which prescribes, among other things, an additional gradual reduction in Israeli corporate tax rate starting from 2011 to the following tax rates: 2011 - 24%, 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and thereafter - 18%. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | On November 29, 2006, Income Tax Regulations (Determination of Market Terms), 2006, promulgated under Section 85A of the Tax Ordinance, came into force (the “TP Regs”). Section 85A of the Tax Ordinance and the TP Regs generally require that all cross-border transactions carried out between related parties will be conducted on an arm’s length principle basis and will be taxed accordingly. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | Tax benefit under the Law for the Encouragement of Industry (Taxation), 1969: |
|--------|----|-------------------------------------------------------------------------------|

|   | Management believes that the Company is currently qualified as an "industrial company" under the above law and as such, enjoys tax benefits, including: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (1) | Deduction of purchase of know-how and patents and/or right to use a patent over an eight-year period; |
|--------|-----|-------------------------------------------------------------------------------------------------------|

|   | (2) | The right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies and an industrial holding company; |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Accelerated depreciation rates on equipment and buildings; and |
|--------|-----|----------------------------------------------------------------|

|   | (4) | Expenses related to a public offering on the Tel-Aviv Stock Exchange and on recognized stock markets outside of Israel, are deductible in equal amounts over three years. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ("the law"): |
|--------|----|--------------------------------------------------------------------------------------------|

|   | According to the Law, companies are entitled to various tax benefits by virtue of the "approved enterprise" and/or "beneficiary enterprise" status granted to part of their enterprises, as implied by this Law. The principal benefits by virtue of the Law are: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | According to the provisions of the Law, the Company has chosen to enjoy the "Alternative Benefits" track. Under this track, the Company is tax exempt in the first two years of the benefit period and subject to tax at the reduced rate of 10%-25% (based on the percentage of foreign ownership in the Company's shares) on the gross amount distributed for a period of several years for the remaining benefit period. In addition, these dividends will be subject to a 15% withholding tax. The Company's Board of Directors has determined that such tax-exempted income will not be distributed as dividends. Accordingly, no deferred income taxes have been provided on income attributable to the Company's Approved Enterprise programs as the undistributed tax exempt income is essentially permanent in duration. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Another condition for receiving the benefits under the alternative track is a minimum qualifying investment. This condition requires an investment in the acquisition of productive assets such as machinery and equipment (and for hotels, buildings as well), which must be carried out within three years. The minimum qualifying investment required for setting up a plant is NIS 300 thousand (approximately $ 79). As for plant expansions, the minimum qualifying investment is the higher of NIS 300 thousand and an amount equivalent to the "qualifying percentage" of the value of the productive assets. Productive assets that are used by the plant but not owned by it will also be viewed as productive assets. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 8:- | INCOME TAXES (Cont.) |
|----------|----------------------|

|   | The qualifying percentage of the value of the productive assets is as follows: |
|--------|--------------------------------------------------------------------------------|

| The value of productiveassets before the expansion(NIS in millions) |   | The new proportion that the required investment bears to the value of productive assets |   |
|---------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|--------|
|                                                                |   |                                                                                    |   |
| Up to NIS 140 (approximately $ 37)                                  |   |                                                                                    | 12     | % |
| NIS 140 - NIS 500 (approximately $ 37- $ 132)                       |   |                                                                                    | 7      | % |
| More than NIS 500 (approximately $ 132)                             |   |                                                                                    | 5      | % |

|   | The income qualifying for tax benefits under the alternative track is the taxable income of a company that has met certain conditions as determined by the Law ("a beneficiary company"), and which is derived from an industrial enterprise. The Law specifies the types of qualifying income that is entitled to tax benefits under the alternative track with respect of an industrial enterprise, whereby income from an industrial enterprise includes, among others, revenues from the production and development of software products and revenues from industrial research and development activities performed for a foreign resident (and approved by the Head of the Administration of Industrial Research and Development). |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The period of tax benefits detailed above is subject to limits of 12 years from the year of commencement of production, or 14 years from the date of granting the approval, whichever is earlier and is limited to the years which contain the benefit period with the reduced tax rate. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The above benefits are conditional upon the fulfillment of the conditions stipulated by the Law, regulations published thereunder and the letters of approval for the investments in the approved enterprises, as above. Non-compliance with the conditions may cancel all or part of the benefits and refund of the amount of the benefits, including interest. As of December 31, 2009, the managements believe that the company is meeting the aforementioned conditions. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The investments under the Company's five approved investments programs were incurred since 1992. |
|--------|--------------------------------------------------------------------------------------------------|

|   | Most of the Company's production facilities in Israel have been granted "approved enterprise" status under five separate investment programs and, as such, are entitled to tax benefits, under the above law. As mentioned, the Company has elected the "alternative benefits track", and has waived Government grants, in return for a tax exemption. As of December 31, 2009 the benefit periods of the first, second and thitd programs were expired. The benefit periods of the forth program will expire in 2011. The benefit period of the fifth program has not yet commenced and will end in 2013. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On April 1, 2005, an amendment to the Investment Law came into effect ("the Amendment") and has significantly changed the provisions of the Investment Law. The Amendment limits the scope of enterprises which may be approved by the law by setting criteria for the approval of a facility as a beneficiary enterprise, such as provisions generally requiring that at least 25% of the beneficiary enterprise's income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits. The Period of tax benefits for a new Privileged Enterprise commences in the "Year of Commencement". This year is the later of: (1) the tear is which taxable income is first generated by the Company, or (2) a year selected by the Company for commencement, on the condition that the Company meets certain provisions provided by the Law ("Year of Election"). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 8:- | INCOME TAXES (Cont.) |
|----------|----------------------|

|   | If a Company  requested the Alternative track of benefits for an Approved Enterprise under the old law before the 2005 amendment, it is precluded from filing a Year of Election notice for a Privileged Enterprise for two years after the year in which the Approved Enterprise was activated. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | However, the Investment Law provides that terms and benefits included in any certificate of approval already granted will remain subject to the provisions of the law as they were on the date of such approval. Therefore, the Company's existing "approved enterprise" will generally not be subject to the provisions of the Amendment. As a result of the Amendment, tax-exempt income generated under the provisions of the new law, will subject the Company to taxes upon distribution or liquidation and the Company may be required to record deferred tax liability with respect to such tax-exempt income. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | Tax loss carryforwards: |
|--------|----|-------------------------|

|   | Net operating loss carryforwards as of December 31, 2009 in Israel, the U.S. and the U.K amount to $ 47,141, $ 11,497 and $ 9,211, respectively. Other jurisdiction in which the Company operates has immaterial effect. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Net operating losses in Israel, and the UK may be carried forward indefinitely. Net operating losses in the U.S. may be carried forward through periods which will expire in the years 2023-2028. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Utilization of U.S. net operating losses may be subject to substantial annual limitation due to   the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | Deferred tax assets: |
|--------|----|----------------------|

|   | Deferred tax assets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company and its subsidiaries deferred tax assets are as follows: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                 |   | December 31, |   |
|------------------------------------------------------|--------|--------------|--------|
|                                                 |   | 2008         |   |   | 2009 |   |
|                                                 |   |         |   |   |   |   |
| Reserves and allowances                              |   | $            | 3,529  |   |   | $ | 2,863 |   |
| Net operating loss carryforward - foreign            |   |         | 6,503  |   |   |   | 6,488 |   |
| Net operating loss carryforward - domestic           |   |         | 11,599 |   |   |   | 8,485 |   |
|                                                 |   |         |   |   |   |   |   |   |
| Total deferred tax assets before valuation allowance |   |         | 21,631 |   |   |   | 17,836 |   |
| Valuation allowance                                  |   |         | 21,631 |   |   |   | 17,836 |   |
|                                                 |   |         |   |   |   |   |   |   |
| Deferred tax asset                                   |   | $            | -      |   |   | $ | - |   |

|   | The Company and its subsidiaries have provided valuation allowance in respect of deferred tax assets resulting from the tax loss carry forward. Management currently believes that it is more likely than not that the deferred tax regarding these tax loss carryforward and other temporary differences will not be realized. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 8:- | INCOME TAXES (Cont.) |
|----------|----------------------|

|   | f. | Reconciliation of the theoretical tax expenses: |
|--------|----|-------------------------------------------------|

|   | A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory rate applicable in Israel to income of the Company and the actual income tax as reported in the statements of operations, is as follows: |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                 |   | Year ended December 31, |   |
|--------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                 |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
|                                                                                 |   |                    |   |   |   |   |   |   |   |
| Income (loss) before taxes, as reported in the consolidated statements of operations |   | $                       | 2,809  |   |   | $ | (608 | ) |   | $ | 3,072 |   |
|                                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |
| Statutory tax rate                                                                   |   |                    | 29     | % |   |   | 27 | % |   |   | 26 | % |
|                                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |
| Theoretical tax benefit on the above                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |
| amount at the Israeli statutory tax rate:                                            |   | $                       | 815    |   |   | $ | (164 | ) |   | $ | 799 |   |
| Tax adjustment in respect of foreign subsidiaries different tax rates                |   |                    | 69     |   |   |   | 29 |   |   |   | 2 |   |
| Deferred taxes on losses for which a valuation allowance was provided                |   |                    | 598    |   |   |   | 547 |   |   |   | - |   |
| Nondeductible impairment charges                                                     |   |                    | -      |   |   |   | 418 |   |   |   | - |   |
| Temporary Differences                                                                |   |                    | (1,573 | ) |   |   | 337 |   |   |   | (573 | ) |
| Taxes in respect of prior years                                                      |   |                    | -      |   |   |   | (15 | ) |   |   | 43 |   |
| Tax withholdings and credits                                                         |   |                    | (274   | ) |   |   | 174 |   |   |   | 59 |   |
| Other                                                                                |   |                    | 278    |   |   |   | (955 | ) |   |   | (251 | ) |
|                                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |
| Tax expenses (income), as reported in the statements of operations                   |   | $                       | (87    | ) |   | $ | 371 |   |   | $ | 79 |   |

|   | g. | Taxes on income are comprised as follows: |
|--------|----|-------------------------------------------|

|                            |   | Year ended December 31, |   |
|---------------------------------|--------|-------------------------|--------|
|                            |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
|                            |   |                    |   |   |   |   |   |   |   |
| Current taxes                   |   | $                       | (87    | ) |   | $ | 386 |   |   | $ | 36 |   |
| Taxes in respect of prior years |   |                    | -      |   |   |   | (15 | ) |   |   | 43 |   |
|                            |   |                    |   |   |   |   |   |   |   |   |   |   |
|                            |   | $                       | (87    | ) |   | $ | 371 |   |   | $ | 79 |   |
|                            |   |                    |   |   |   |   |   |   |   |   |   |   |
| Domestic                        |   | $                       | (274   | ) |   | $ | 127 |   |   | $ | 36 |   |
| Foreign                         |   |                    | 187    |   |   |   | 244 |   |   |   | 43 |   |
|                            |   |                    |   |   |   |   |   |   |   |   |   |   |
|                            |   | $                       | (87    | ) |   | $ | 371 |   |   | $ | 79 |   |

----

----

| NOTE 8:- | INCOME TAXES (Cont.) |
|----------|----------------------|

|   | h. | Income (loss) before taxes is comprised as follows: |
|--------|----|-----------------------------------------------------|

|     |   | Year ended December 31, |   |
|----------|--------|-------------------------|--------|
|     |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
|     |   |                    |   |   |   |   |   |   |   |
| Domestic |   | $                       | 4,877  |   |   | $ | (4,388 | ) |   | $ | 3,400 |   |
| Foreign  |   |                    | (2,068 | ) |   |   | 3,780 |   |   |   | (328 | ) |
|     |   |                    |   |   |   |   |   |   |   |   |   |   |
|     |   | $                       | 2,809  |   |   | $ | (608 | ) |   | $ | 3,072 |   |

|   | i. | A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------|

|                                                         |   | December 31, 2009 |   |
|--------------------------------------------------------------|--------|-------------------|--------|
|                                                         |   |              |   |
| Gross unrecognized tax benefits at January 1, 2009      |   | $                 | 85     |   |
| Increases in interest and penalties related to tax positions |   |              | 13     |   |
| Increases in tax positions for current year                  |   |              | 19     |   |
| Lapse in statute of limitations                              |   |              | (15    | ) |
|                                                         |   |              |   |   |
| Gross unrecognized tax benefits at December 31, 2009    |   | $                 | 102    |   |

----

----

| NOTE 9:- | SHAREHOLDERS' EQUITY |
|----------|----------------------|

|   | a. | The Company's Ordinary shares have been listed for trade on the NASDAQ National Market since TTI's initial public offering ("IPO") on December 4, 1996, under the symbol TTIL. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Ordinary shares confer upon their holders the right to receive notice to participate and vote in the Company's general meeting and the right to receive dividends, if declared. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | In January, 2005, the Company entered into definitive agreements ("the Agreements") to obtain $ 14,600 in equity financing, through the sale of 6,636,391 of Series A Convertible Preferred shares in a private placement to institutional investors ("the Preferred shares"). The Preferred shares are convertible into 6,636,391 Ordinary shares. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The rights of the holders of the Preferred shares include, among other things, the following rights that are subject to certain limitations as described in the TTI's articles: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. | Standard anti dilution provisions; |
|--------|----|------------------------------------|

|   | 2. | Preference in the event of liquidation of the Company; |
|--------|----|--------------------------------------------------------|

|   | 3. | Veto rights over certain material actions by the Company; |
|--------|----|-----------------------------------------------------------|

|   | 4. | The right to nominate one member of the Company's Board of Directors. |
|--------|----|-----------------------------------------------------------------------|

|   | As part of the agreement, the Company issued warrants to purchase up to 2,654,556 of its ordinary shares par value NIS 0.5 per share, of the Company. The warrants are exercisable for a period of six years, at an exercise price of $ 2.5 per share at any time until January 2 2011. Through December 31, 2009, 430,217 warrants were exercised into the same number of the Company's ordinary shares. According to the agreement the exercise of the warrants will be adjusted upon the occurrence of certain events as described in the agreement. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Effective January 1, 2009, the Company adopted the provisions of ASC No. 815-40. As a result of the adoption of the new standard, and in light of the exercise price adjustment provisions in the warrant agreement, the Company concluded that the above warrants should be accounted for as liability. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The effect on the financial statement as of January 1, 2009 was $ 50 thousand, which recorded as reduction of accumulated deficit. During 2009, the Company recorded additional $597 as finance expenses that relates to the increase in value of this liability. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | According to the Agreements, the investors have the right to receive payment for liquidated damages if a registration statement on Form F-3 is not declared effective within 90 days (or 120 days in the event the U.S. Securities and Exchange Commission conducts a review) following the closing of the private placement transaction. The Company obtained effectiveness of the registration statement on May 24, 2005. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of December 31, 2009, 3,700,000 Preferred shares were converted into the same number of the Company's Ordinary shares. None of them through 2009. Subsequent to the balance sheet date 127,273 Preferred shares were converted to the same number of Company's Ordinary shares (See note 15). |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 9:- | SHAREHOLDERS' EQUITY (Cont.) |
|----------|------------------------------|

|   | c. | Share options: |
|--------|----|----------------|

|   | Employee Share Option Plans: |
|--------|------------------------------|

|   | At the Company's annual general shareholders' meeting in December 2004, it was resolved to approve the 2004 share option plan ("the New Plan") to employees, directors, consultants and contractors of the Company, pursuant to which 1,000,000 Ordinary shares with nominal value of 0.5 NIS each were reserved for issuance. In August 2006, an additional amount of 500,000 shares were reserved for issuance under the New Plan. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Board of Directors is empowered, among other things, to designate the options, dates of grant and the exercise price of options. Unless otherwise decided by the Board, the options will vest over a period of one to three years of employment, and will be non-assignable. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Pursuant to the New Plan, as of December 31, 2009, an aggregate of 1,137,000 options of the Company are still available for future grant. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

|   | Each option granted under the Plans expires no later than five years from the date of the grant. Any options which are canceled or forfeited before expiration become available for future grants. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 9:- | SHAREHOLDERS' EQUITY (Cont.) |
|----------|------------------------------|

|   | A summary of the stock option activities in 2007, 2008 and 2009 is as follows: |
|--------|--------------------------------------------------------------------------------|

|                               |   | Year ended December 31 ,2007 |      |   | Year ended December 31, 2008   |   |   | Year ended December 31, 2009 |   |
|------------------------------------|--------|------------------------------|-----------|--------|--------------------------------|--------|--------|------------------------------|--------|
|                               |   | Amountof options             |      |   | Weighted average exerciseprice |   |   | Amountof options             |   |   | Weighted averageexerciseprice |   |   | Amountof options |   |   | Weighted averageexerciseprice |   |   | Weightedaverageremaining contractualterm |   |   | Aggregate intrinsic value |   |
|                               |   |                         |      |   |                           |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding at beginning of year   |   |                         | 1,049,000 |   |                           | $      | 3.97   |                         |   |   | 740,667 |   |   | $ | 4.03 |   |   |   | 579,665 |   |   | $ | 4.21 |   |   |   |   |   |   |   |
| Granted                            |   |                         | 18,000    |   |                           | $      | 3.00   |                         |   |   | 25,000 |   |   | $ | 3.00 |   |   |   | - |   |   | $ | - |   |   |   |   |   |   |   |
| Exercised                          |   |                         | -         |   |                           | $      | -      |                         |   |   | - |   |   | $ | - |   |   |   | - |   |   | $ | - |   |   |   |   |   |   |   |
| Forfeited                          |   |                         | (185,004  | )      |                           | $      | 3.71   |                         |   |   | (46,667 | ) |   | $ | 3.56 |   |   |   | (3,332 | ) |   | $ | (4.10 | ) |   |   |   |   |   |   |
| Expired                            |   |                         | (141,329  | )      |                           | $      | 3.63   |                         |   |   | (139,335 | ) |   | $ | 3.61 |   |   |   | (213,333 | ) |   | $ | (5.03 | ) |   |   |   |   |   |   |
|                               |   |                         |      |   |                           |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding at end of year         |   |                         | 740,667   |   |                           | $      | 4.03   |                         |   |   | 579,665 |   |   | $ | 4.21 |   |   |   | 363,000 |   |   | $ | 3.65 |   |   |   | 1.44 |   |   | $ | - |   |
|                               |   |                         |      |   |                           |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options exercisable at end of year |   |                         | 375,336   |   |                           | $      | 4.51   |                         |   |   | 410,669 |   |   | $ | 4.47 |   |   |   | 340,332 |   |   | $ | 3.69 |   |   |   | 1.34 |   |   | $ | - |   |

|   | The aggregate intrinsic value in the tables above represents the total intrinsic value (the difference between the Company's closing stock price on the last trading day of December 2009 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2009. This amount changes based on the fair market value of the Company's share. The share price as of December 31, 2009 is lower than the exercise price of all the changes during the year and therefore aggregate intrinsic value was not calculated. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 9:- | SHAREHOLDERS' EQUITY (Cont.) |
|----------|------------------------------|

|   | The weighted-average grant-date fair value of options granted during the years 2007, 2008 was $ 1.09, $ 1.18. There were no grants in 2009. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Compensation expenses related to options granted to employees and directors were recorded to cost of sales, research and development expenses, sales and marketing and general and administrative expenses, as follows: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                |   | Year endedDecember 31, |   |
|-------------------------------------|--------|------------------------|--------|
|                                |   | 2008                   |   |   | 2009 |   |
|                                |   |                   |   |   |   |   |
| Cost of sales                       |   | $                      | 30     |   |   | $ | 13 |   |
| Research and development expenses   |   |                   | 18     |   |   |   | 6 |   |
| Sales and marketing                 |   |                   | 13     |   |   |   | 5 |   |
| General and administrative expenses |   |                   | 6      |   |   |   | 3 |   |
|                                |   |                   |   |   |   |   |   |   |
|                                |   | $                      | 67     |   |   | $ | 27 |   |

|   | As of December 31, 2009, there was $ 3 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted to employees and directors under the Company's stock option plans. That cost is expected to be recognized over a weighted-average period of 0.88 years. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The options outstanding as of December 31, 2009 have been separated into exercise prices, as follows: |
|--------|-------------------------------------------------------------------------------------------------------|

| Exerciseprice |    |   | Options outstandingas ofDecember 31, 2009 |   |    | Weighted average remaining contractual life |   |   | Weighted averageexerciseprice |   |   | Options exercisableas ofDecember 31, 2009 |   |   | Weighted average exercise price of exercisable options |   |
|---------------|---------|--------|-------------------------------------------|--------|---------|---------------------------------------------|--------|--------|------------------------------------|--------|--------|-------------------------------------------|--------|--------|-------------------------------------------------------------|--------|
|          |    |   |                                      |   |    | years                                       |   |   |                               |   |   |                                      |   |   |                                                        |   |   |
|          |    |   |                                      |   |    |                                        |   |   |                               |   |   |                                      |   |   |                                                        |   |   |
| $             | 3.0     |   |                                      |   | 63,000  |                                        |   |   | 2.48                               |   |   | $                                         | 3.0    |   |                                                        |   | 40,332 |   |   |   |   |   |
| $             | 3.5     |   |                                      |   | 105,000 |                                        |   |   | 1.39                               |   |   | $                                         | 3.5    |   |                                                        |   | 105,000 |   |   |   |   |   |
| $             | 3.9     |   |                                      |   | 179,000 |                                        |   |   | 1.12                               |   |   | $                                         | 3.9    |   |                                                        |   | 179,000 |   |   |   |   |   |
| $             | 4.3     |   |                                      |   | 16,000  |                                        |   |   | 1.22                               |   |   | $                                         | 4.3    |   |                                                        |   | 16,000 |   |   |   |   |   |
| $             | 6.0-8.0 |   |                                      |   | -       |                                        |   |   | -                                  |   |   | $                                         | 7.0    |   |                                                        |   | - |   |   |   |   |   |
|          |    |   |                                      |   |    |                                        |   |   |                               |   |   |                                      |   |   |                                                        |   |   |   |   |   |   |   |
|          |    |   |                                      |   | 363,000 |                                        |   |   | 1.44                               |   |   | $                                         | 3.65   |   |                                                        |   | 340,332 |   |   | $ |          3.69 |   |

|   | d. | Dividends: |
|--------|----|------------|

|   | In the event that cash dividends are declared in the future, such dividends will be paid in NIS or in foreign currency subject to any statutory limitations. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 10:- | EARNINGS PER SHARE |
|-----------|--------------------|

|   | The following table sets forth the computation of basic and diluted earnings per share: |
|--------|-----------------------------------------------------------------------------------------|

|                                                                                                                          |   | Years ended December 31, |                  |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|-----------------------|
|                                                                                                                          |   | 2007                     |                  |   | 2008 |   |   | 2009 |   |
|                                                                                                                          |   |                     |                  |   |   |   |   |   |   |
| Net income (loss) attributable to ordinary shares from continuing operation                                                   |   | $                        | 2,447                 |   |   | $ | (979 | ) |   | $ | 2,529 |   |
| Net loss attributable to ordinary shares from discontinued operation                                                          |   | $                        | -                     |   |   | $ | (1,022 | ) |   | $ | (314 | ) |
| Weighted average number of shares used for computing basic net earning (loss) per share attributed to Ordinary shareholders   |   |                     | 16,001,148            |   |   |   | 16,003,158 |   |   |   | 16,003,158 |   |
|                                                                                                                          |   |                     |                  |   |   |   |   |   |   |   |   |   |
| Dilutive affect:                                                                                                              |   |                     |                  |   |   |   |   |   |   |   |   |   |
| Employee stock options                                                                                                        |   |                     | *)   - |   |   |   | *)   - |   |   |   | *)   - |   |
| Warrants                                                                                                                      |   |                     | 120,841               |   |   |   | *)   - |   |   |   | *)   - |   |
| Preferred shares as converted                                                                                                 |   |                     | *)   - |   |   |   | *)   - |   |   |   | *)   - |   |
| Weighted average number of shares used for computing diluted net earning (loss) per share attributed to Ordinary shareholders |   |                     | 16,121,989            |   |   |   | 16,003,158 |   |   |   | 16,003,158 |   |

|   | *) | Anti dilutive |
|--------|----|---------------|

| NOTE 11:- | RELATED PARTIES TRANSACTIONS AND BALANCES |
|-----------|-------------------------------------------|

|   | a. | Transactions and with Team: |
|--------|----|-----------------------------|

|   | On April 19, 2005, Team Software Industries Ltd., a wholly-owned subsidiary of Team Computers and System Ltd. ("Team"), a public company listed for trade on the Tel-Aviv Stock exchange holds 0.79% of the Company's outstanding share capital. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Since the commencement of the Company's operations in 1992, Team has, from time to time, paid the Company commissions in respect of sales by the Company of certain products represented and sold by Team. This relationship is reflected in an agreement between the Company and Team dated October 1996 ("the Agreement"). Team generally pays the Company a commission at the rate of 15% of the sales price of these products, up to a maximum of 50% of the amount received by Team from these sales less the cost to Team. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Since 1992, the Company has also purchased equipment, such as computer hardware, from Team and Omnitek-Eichut Ltd. ("Omnitek-Eichut"), a subsidiary of Team. The Company pays Team and Omnitek-Eichut prices for these assets that are no less favorable to the Company than those it could obtain from unrelated third parties. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In addition, Team supplies the Company with hardware, related software and support services for such hardware for the Company's projects, in accordance with the agreement referred to above. Under the agreement between the Company and Team, the Company is required to pay for such hardware, related software and support services when it receives payment from its customers. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 11:- | RELATED PARTIES TRANSACTIONS AND BALANCES (Cont.) |
|-----------|---------------------------------------------------|

|   | Composition: |
|--------|--------------|

|                                                 |   | December 31, |   |
|------------------------------------------------------|--------|--------------|--------|
|                                                 |   | 2008         |   |   | 2009 |   |
|                                                 |   |         |   |   |   |   |
| Balances between Team and the Company (see a below)  |   | $            | (420   | ) |   | $ | (194 | ) |
|                                                 |   |         |   |   |   |   |   |   |
| Balance with related party shareholder (see b below) |   | $            | 459    |   |   | $ | 529 |   |

|   | Transactions between Team and its affiliates and the Company: |
|--------|---------------------------------------------------------------|

|                                   |   | Year ended December 31, |   |
|----------------------------------------|--------|-------------------------|--------|
|                                   |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
| Revenues:                              |   |                    |   |   |   |   |   |   |   |
| Commissions on hardware                |   | $                       | 502    |   |   | $ | 364 |   |   | $ | 240 |   |
|                                   |   |                    |   |   |   |   |   |   |   |   |   |   |
| General and administrative expenses:   |   |                    |   |   |   |   |   |   |   |   |   |   |
| Rent and maintenance                   |   | $                       | 1,402  |   |   | $ | - |   |   | $ | - |   |
|                                   |   |                    |   |   |   |   |   |   |   |   |   |   |
| Administrative and management services |   | $                       | 164    |   |   | $ | - |   |   | $ | - |   |
|                                   |   |                    |   |   |   |   |   |   |   |   |   |   |
| Purchase of equipment                  |   | $                       | 437    |   |   | $ | 249 |   |   | $ | 245 |   |

|   | b. | Balance with related party shareholder: |
|--------|----|-----------------------------------------|

|   | During the years 1998 to 2000, the Company granted Mr. Shlomo Eisenberg ("Mr. Eisenberg"), the former chairman of the board of directors and a major shareholder of the Company, an aggregate of 105,000 options to purchase ordinary shares of the Company. In the years 2001 and 2002, Mr. Eisenberg exercised a portion of his options ("the Options") and the Company withheld Israeli income tax from income realized by Mr. Eisenberg upon the exercise of the Options, as required under law. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | At the end of 2005, the Company underwent a tax deductions audit by the Israeli Tax Authority ("ITA"). As a result of such audit, the ITA assessed an additional NIS 1,500 ($ 397 as of December 31, 2009) in withholding taxes with respect to income derived by Mr. Eisenberg from the exercise of the Options. Following consultation with the Company's tax advisors, the Company paid the additional withholding tax amount assessed in the audit. The Company was informed that it is required to collect such additional tax from Mr. Eisenberg otherwise such additional amount will be viewed as a benefit received by Mr. Eisenberg from the Company, resulting in additional withholding tax being charged to the Company as a result of the grant of such benefit. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company filed a NIS 1,600 lawsuit and demanded reimbursement for the additional withholding tax from Mr. Eisenberg. On August 12, 2008 the court rendered a judgment which accepted the Company's lawsuit in its entirety and determined that Mr. Eisenberg will pay the Company the amount of NIS 1,574 (approximately $ 417), which will include linkage differentials and interest and attorney fees. As of 31, December 2009 the debt amount is NIS 1,997 (approximately $ 529). The change between 2008 and 2009 is due to linkage differentials and interest. On October 26, 2008, Mr. Eisenberg appealed on such judgment to the district court. A preliminary hearing on that matter in the district court was held on September 16, 2009 and the Company is waiting for the court's judgment. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| NOTE 12:- | GEOGRAPHIC INFORMATION AND SELECTED STATEMENTS OF OPERATIONS DATA |
|-----------|-------------------------------------------------------------------|

|   | a. | Summary information about geographic areas: |
|--------|----|---------------------------------------------|

|   | The Company operates in one reportable segment (see Note 1 for a brief description of the Company's business). The following data is presented in accordance with ASC No. 280, " Segment Reporting". The total revenues are attributed to geographic areas based on the location of the end customer. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The following present total revenues and long-lived assets as of and for the years ended December 31, 2007, 2008 and 2009: |
|--------|----------------------------------------------------------------------------------------------------------------------------|

|          |   | Year ended December 31, |   |
|---------------|--------|-------------------------|--------|
|          |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
|          |   | Total revenues          |   |   | Long-lived assets |   |   | Total revenues |   |   | Long-lived assets |   |   | Totalrevenues |   |   | Long-livedassets |   |
|          |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Israel        |   | $                       | 3,516  |   |   | $ | 5,596 |   |   | $ | 4,566 |   |   | $ | 6,826 |   |   | $ | 4,380 |   |   | $ | 5,522 |   |
| North America |   |                    | 16,118 |   |   |   | 397 |   |   |   | 15,677 |   |   |   | 342 |   |   |   | 12,529 |   |   |   | 305 |   |
| Europe        |   |                    | 16,320 |   |   |   | 2 |   |   |   | 20,998 |   |   |   | 1 |   |   |   | 17,874 |   |   |   | - |   |
| Australia     |   |                    | 2,598  |   |   |   | 35 |   |   |   | 2,902 |   |   |   | 21 |   |   |   | 2,663 |   |   |   | 23 |   |
| South America |   |                    | 2,251  |   |   |   | 14 |   |   |   | 1,040 |   |   |   | - |   |   |   | 1,257 |   |   |   | 9 |   |
| Far East      |   |                    | 3,217  |   |   |   | 1 |   |   |   | 3,432 |   |   |   | 1 |   |   |   | 2,366 |   |   |   | 1 |   |
| Africa        |   |                    | 1,897  |   |   |   | - |   |   |   | 1,718 |   |   |   | 8 |   |   |   | 1,466 |   |   |   | 4 |   |
|          |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          |   | $                       | 45,917 |   |   | $ | 6,045 |   |   | $ | 50,333 |   |   | $ | 7,199 |   |   | $ | 42,535 |   |   | $ | 5,864 |   |

|   | b. | Major customers data as a percentage of total revenues: |
|--------|----|---------------------------------------------------------|

|       |   | Year ended December 31, |   |
|------------|--------|-------------------------|--------|
|       |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
|       |   |                    |   |   |   |   |   |   |   |
| Customer A |   |                    | 15     | % |   |   | 18 | % |   |   | 13 | % |
| Customer B |   |                    | 6      | % |   |   | 11 | % |   |   | 11 | % |
| Customer C |   |                    | 6      | % |   |   | 12 | % |   |   | 8 | % |

| NOTE 13:- | SELECTED STATEMENTS OF OPERATIONS DATA |
|-----------|----------------------------------------|

|   | Financial income: |
|--------|-------------------|

|                                     |   | Year ended December 31, |   |
|------------------------------------------|--------|-------------------------|--------|
|                                     |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
|                                     |   |                    |   |   |   |   |   |   |   |
| Financial income (expense), net          |   |                    |   |   |   |   |   |   |   |
| Foreign currency translation adjustments |   | $                       | 985    |   |   | $ | (823 | ) |   | $ | 818 |   |
| Warrants                                 |   |                    | -      |   |   |   | - |   |   |   | (597 | ) |
| Interest and others                      |   |                    | 1,165  |   |   |   | 269 |   |   |   | 301 |   |
|                                     |   |                    |   |   |   |   |   |   |   |   |   |   |
| Financial income, net                    |   | $                       | 2,150  |   |   | $ | (554 | ) |   | $ | 522 |   |

----

----

| NOTE 14:- | RECONCILIATION TO IFRS |
|-----------|------------------------|

|   | The consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP. Had the consolidated financial statements been prepared in accordance with IFRS, the effects on the financial statements would have been as follows: |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | a. | Effect on the statement of operations: |
|--------|----|----------------------------------------|

|                                                                  |   | Year ended   |   |
|-----------------------------------------------------------------------|--------|--------------|--------|
|                                                                  |   | December 31, |   |
|                                                                  |   | 2008         |   |   | 2009 |   |
|                                                                  |   |         |   |
| Income (loss) from continuing operations as reported, under U.S. GAAP |   | $            | (979   | ) |   | $ | 2,993 |   |
|                                                                  |   |         |   |   |   |   |   |   |
| Reconciling item for IFRS reporting:                                  |   |         |   |   |   |   |   |   |
| Accrued severance pay                                                 |   |         | 618    |   |   |   | 43 |   |
|                                                                  |   |         |   |   |   |   |   |   |
| Income (loss) from continuing operation according to IFRS             |   | $            | (361   | ) |   | $ | 3,036 |   |

|                                                           |   | Year ended   |   |
|----------------------------------------------------------------|--------|--------------|--------|
|                                                           |   | December 31, |   |
|                                                           |   | 2008         |   |   | 2009 |   |
|                                                           |   |         |   |
| Loss from discontinued operations as reported, under U.S. GAAP |   | $            | (1,022 | ) |   | $ | (314 | ) |
|                                                           |   |         |   |   |   |   |   |   |
| Reconciling item for IFRS reporting:                           |   |         |   |   |   |   |   |   |
| Accrued severance pay                                          |   |         | -      |   |   |   | - |   |
|                                                           |   |         |   |   |   |   |   |   |
| Income (loss) from discontinued operations according to IFRS   |   | $            | (1,022 | ) |   | $ | (314 | ) |

|                                                      |   | Year ended   |   |
|-----------------------------------------------------------|--------|--------------|--------|
|                                                      |   | December 31, |   |
|                                                      |   | 2008         |   |   | 2009 |   |
|                                                      |   |         |   |   |   |   |
| Net income (loss)  as reported, under U.S. GAAP |   | $            | (2,001 | ) |   | $ | 2,679 |   |
|                                                      |   |         |   |   |   |   |   |   |
| Reconciling item for IFRS reporting:                      |   |         |   |   |   |   |   |   |
| Accrued severance pay                                     |   |         | 618    |   |   |   | 43 |   |
|                                                      |   |         |   |   |   |   |   |   |
| Net income according to IFRS                              |   | $            | (1,383 | ) |   | $ | 2,722 |   |

----

----

| NOTE 14:- | RECONCILIATION TO IFRS (Cont.) |
|-----------|--------------------------------|

|                                                                                 |   | Year ended   |   |
|--------------------------------------------------------------------------------------|--------|--------------|--------|
|                                                                                 |   | December 31, |   |
|                                                                                 |   | 2008         |   |   | 2009 |   |
|                                                                                 |   |         |   |
| From continuing operations:                                                          |   |         |   |
|                                                                                 |   |         |   |   |   |   |
| Basic and diluted net income attributed to shareholders as reported, under U.S. GAAP |   | $            | (0.06  | ) |   | $ | 0.16 |   |
|                                                                                 |   |         |   |   |   |   |   |   |
| Reconciling item for IFRS reporting                                                  |   |         | 0.04   |   |   |   | - |   |
|                                                                                 |   |         |   |   |   |   |   |   |
| Basic and diluted net income attributed to shareholders according to IFRS            |   | $            | (0.02  | ) |   | $ | 0.16 |   |

|                                                                                 |   | Year ended   |   |
|--------------------------------------------------------------------------------------|--------|--------------|--------|
|                                                                                 |   | December 31, |   |
|                                                                                 |   | 2008         |   |   | 2009 |   |
|                                                                                 |   |         |   |
| From discontinued operations:                                                        |   |         |   |
|                                                                                 |   |         |   |   |   |   |
| Basic and diluted net income attributed to shareholders as reported, under U.S. GAAP |   | $            | (0.06  | ) |   | $ | (0.02 | ) |
|                                                                                 |   |         |   |   |   |   |   |   |
| Reconciling item for IFRS reporting                                                  |   |         | -      |   |   |   | - |   |
|                                                                                 |   |         |   |   |   |   |   |   |
| Basic and diluted net income attributed to shareholders according to IFRS            |   | $            | (0.06  | ) |   | $ | (0.02 | ) |

|                                                                                 |   | Year ended   |   |
|--------------------------------------------------------------------------------------|--------|--------------|--------|
|                                                                                 |   | December 31, |   |
|                                                                                 |   | 2008         |   |   | 2009 |   |
|                                                                                 |   |         |   |   |   |   |
| Net income per share:                                                                |   |         |   |   |   |   |
|                                                                                 |   |         |   |   |   |   |   |   |
| Basic and diluted net income attributed to shareholders as reported, under U.S. GAAP |   | $            | (0.12  | ) |   | $ | 0.14 |   |
|                                                                                 |   |         |   |   |   |   |   |   |
| Reconciling item for IFRS reporting                                                  |   |         | 0.04   |   |   |   | - |   |
|                                                                                 |   |         |   |   |   |   |   |   |
| Basic and diluted net income attributed to shareholders according to IFRS            |   | $            | (0.08  | ) |   | $ | 0.14 |   |

|   | According to U.S. GAAP, under ASC No. 260 "Earnings per Share", the number of incremental shares to be included in the denominator for year-to-date diluted EPS should be determined by computing a year-to-date weighted average of the number of incremental shares included in each quarterly diluted EPS computation (assuming all periods were profitable). According to IAS 33 "Earnings per Share" the incremental shares included in year-to-date diluted EPS weighted average would be computed using the average market price of shares for the year-to-date period. This item had no impact on the earning per share for the years ended December 31, 2009 and 2008. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 14:- | RECONCILIATION TO IFRS (Cont.) |
|-----------|--------------------------------|

|   | b. | Shareholders' equity differences: |
|--------|----|-----------------------------------|

|                                              |   | Year endedDecember 31 |   |
|---------------------------------------------------|--------|-----------------------|--------|
|                                              |   | 2008                  |   |   | 2009 |   |
|                                              |   |                  |   |   |   |   |
| Shareholders' equity as reported, under U.S. GAAP |   | $                     | 31,648 |   |   | $ | 34,304 |   |
|                                              |   |                  |   |   |   |   |   |   |
| Reconciling item for IFRS reporting:              |   |                  |   |   |   |   |   |   |
| Accrued severance pay                             |   |                  | 1,107  |   |   |   | 1,150 |   |
|                                              |   |                  |   |   |   |   |   |   |
| Shareholders' equity according to IFRS            |   | $                     | 32,755 |   |   | $ | 35,454 |   |

|   | c. | Material adjustments: |
|--------|----|-----------------------|

|   | The abovementioned adjustments result primarily from the differences between U.S. GAAP and IFRS, as follows: |
|--------|--------------------------------------------------------------------------------------------------------------|

|   | According to U.S. GAAP, the cash surrendered value of such insurance policies should be presented in the balance sheet as long-term investments and the full severance pay liability should be presented in the balance. According to IAS 19, "Employee Benefits", the Company's benefit plan is considered a defined benefit plan, and therefore, the severance pay liability is required to be calculated on an actuarial basis. The actuarial calculation takes into consideration future salary increases, the rates of employee turnover, and the estimated timing of payments. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| NOTE 15:- | SUBSEQUENT EVENTS |
|-----------|-------------------|

|   | On January 27, 2010, 127,273 Preferred shares were converted into the same number of Company's Ordinary shares. As of the date of the issuance of the financial statements, 2,809,116 Preferred shares are still convertible into the same number Ordinary shares |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----