**FORM 20-F**

|[   ] |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | 
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|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | 
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|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | 
|----- |  | ---------------------------------------------------------------------------------------- | 

For the transition period from ________ to ________
Commission file number 000-31215MIND C.T.I. LTD.

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

|Title of each class                                     | Name of each exchange on which registered
|------------------------------------------------------- | -----------------------------------------
|Ordinary Shares,
      nominal value NIS 0.01 per share | Nasdaq Global Market                     

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Unless the context requires otherwise, "MIND", "us",
"we" and "our" refer to MIND C.T.I. Ltd. and its
subsidiaries.

# FORWARD LOOKING STATEMENTS

Statements in this annual report concerning our business outlook or future
economic performance; anticipated revenues, expenses or other financial items;
introductions and advancements in development of products, and plans and
objectives related thereto; and statements concerning assumptions made or
expectations as to any future events, conditions, performance or other matters,
are "forward-looking statements" as that term is defined under the United
States Federal Securities Laws. Forward-looking statements are subject to risks,
uncertainties and other factors, which could cause actual results to differ
materially from those stated in such statements. Factors that could cause or
contribute to such differences include, but are not limited to, those set forth
under "Risk Factors" in this annual report as well as those discussed
elsewhere in this annual report and in our other filings with the Securities and
Exchange Commission.

# PART I

**Item 1. Identity of Directors, Senior Management and Advisers**

Not applicable.

**Item 2. Offer Statistics and Expected Timetable**

Not applicable.

**Item 3. Key Information**

**A. Selected Financial Data**

Except as otherwise indicated, all financial statements and other financial
information included in this annual report are presented solely under U.S. GAAP
The following table presents selected consolidated financial data as of and for
each of the five years in the period ended December 31, 2006. The selected
consolidated financial data presented below are derived from our audited
consolidated financial statements for these periods, and should be read in
conjunction with these financial statements and the related notes thereto. Our
audited consolidated financial statements as of December 31, 2005 and 2006 and
for each of the three years in the period ended December 31, 2006 and the
related notes thereto are included elsewhere in this annual report. You should
read the selected financial data in conjunction with Item 5 "Operating and
Financial Review and Prospects."

|                                                                                                                          | Years ended December 31,                                  
|------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------
|                                                                                                                          |                                                           
|                                                                                                                          | 2002                                                      
|                                                                                                                          |                                                           
|                                                                                                                          | (In US $ thousands, except
      share and per share data)
|                                                                                                                          |                                                           
|Consolidated Statement of Operations Data:                                                                                |                                                           
|Revenues:                                                                                                                 |                                                           
|Sales of licenses                                                                                                         | $ 6,535                                                   
|Services                                                                                                                  | 3,473                                                     
|                                                                                                                          |                                                           
|Total revenues                                                                                                            | 10,008                                                    
|Cost of revenues                                                                                                          | 2,479                                                     
|                                                                                                                          |                                                           
|Gross profit                                                                                                              | 7,529                                                     
|Research and development expenses                                                                                         | 3,723                                                     
|Selling, general and administrative expenses:                                                                             |                                                           
|Selling and marketing expenses                                                                                            | 4,154                                                     
|General and administrative
      expenses                                                                                 | 1,279                                                     
|                                                                                                                          |                                                           
|Operating income (loss)                                                                                                   | (1,627)                                                   
|Financial income (expenses) - net                                                                                         | 2,078                                                     
|                                                                                                                          |                                                           
|Income before taxes on income                                                                                             | 451                                                       
|Taxes on income                                                                                                           | 117                                                       
|                                                                                                                          |                                                           
|Net income                                                                                                                | $ 334                                                     
|                                                                                                                          |                                                           
|Earnings per ordinary share                                                                                               |                                                           
|Basic                                                                                                                     | $ 0.02                                                    
|                                                                                                                          |                                                           
|Diluted                                                                                                                   | $ 0.02                                                    
|                                                                                                                          |                                                           
|Weighted average number of
      ordinary shares used in computation of earnings per ordinary share - in
      thousands: |                                                           
|Basic                                                                                                                     | 20,677                                                    
|                                                                                                                          |                                                           
|Diluted                                                                                                                   | 20,761                                                    
|                                                                                                                          |                                                           
|                                                                                                                          |                                                           
|                                                                                                                          | As of December 31,                                        
|                                                                                                                          |                                                           
|                                                                                                                          | 2002                                                      
|                                                                                                                          |                                                           
|                                                                                                                          | (In US $ thousands)                                       
|                                                                                                                          |                                                           
|Consolidated Balance Sheet Data:                                                                                          |                                                           
|Cash and cash equivalents                                                                                                 | $ 11,312                                                  
|Working capital                                                                                                           | 11,334                                                    
|Total assets                                                                                                              | 47,967                                                    
|Share capital and additional paid-in capital                                                                              | 61,142                                                    
|Total shareholders' equity                                                                                                | 44,482                                                    

**B. Capitalization and Indebtedness**

Not applicable.

**C. Reasons for the Offer and Use of Proceeds**

Not applicable.

**D. Risk Factors**

We believe that the occurrence of any one or some combination of the
following factors would have a material adverse effect on our business,
financial condition and results of operations.

Risks Relating to Our Business

We seek to expand our business through acquisitions that could result in
diversion of resources and extra expenses, and which may involve other risks
that could disrupt our business and harm our financial condition.

We pursue acquisitions of business, products and technologies, or the
establishment of joint venture arrangements, that could expand our business. The
negotiation of potential acquisitions or joint ventures as well as the
integration of an acquired or jointly developed business, technology or product
could cause diversion of management's attention from the day-to-day operation of
our business. This could impair our relationships with our employees, customers,
distributors, resellers and marketing allies. Future acquisitions could result
in:

- potentially dilutive issuances of equity securities;

- the incurrence of debt and contingent liabilities;

- amortization of intangible assets;

- changes in our business model and margins;

- research and development write-offs; and

- other acquisition-related expenses.

Future acquisitions involve known and unknown risks that could adversely
affect our future revenues and operating results. For example:

- we may fail to identify acquisitions that enable us to execute our
    business strategy;

- we compete with others to acquire companies. We believe that this
    competition has intensified and may result in decreased availability of, or
    increased prices for, suitable acquisition candidates;

- we may not be able to obtain the necessary regulatory approvals, including
    the approval of anti-competition regulatory bodies, in countries where we
    are seeking to consummate acquisitions;

- we may ultimately fail to consummate an acquisition even if we announce
    that we plan to acquire a company;

- we may fail to successfully integrate acquisitions in accordance with our
    business strategy;

- we may not be able to retain the skilled employees and experienced
    management that may be necessary to operate the businesses we acquire and,
    if we cannot retain such personnel, we may not be able to attract new
    skilled employees and experienced management to replace them; and

- we may purchase a company that has contingent liabilities that include,
    among others, known or unknown patent or product.

In addition, we have limited experience with respect to negotiating an
acquisition and operating an acquired business. If future acquisitions disrupt
our operations, our business may suffer.

**If we fail to attract and retain qualified personnel we will not be
able to implement our business strategy or operate our business effectively.**

Our products require sophisticated research and development, sales and
marketing, software programming and technical customer support. Our success
depends on our ability to attract, train, motivate and retain highly skilled
personnel within each of these areas of expertise. Qualified personnel in these
areas are in great demand and are likely to remain a limited resource for the
foreseeable future. We cannot assure you that we will be able to retain the
skilled employees we require. In addition, the resources required to retain such
personnel may adversely affect our operating margins. The failure to retain
qualified personnel may harm our business. In particular, we maintain a large
technical and support center in Jassy, Romania and have encountered many
attempts from other technology companies to recruit our employees after we have
trained them. If this phenomenon continues and increases, we may be forced to
raise the salaries of our Romanian employees and our results of operations will
be harmed.

**Because a substantial majority of our revenues are generated outside
of Israel, our results of operations could suffer if we are unable to manage
international operations effectively.**

In 2005 and 2006, approximately 93% and 94% of our revenues, respectively,
were generated outside of Israel. Our sales outside of Israel are made in more
than 40 countries. We currently have sales and support offices located in Silver
Spring, Maryland. In addition, we have a technical and support team in Jassy,
Romania. We plan to establish additional facilities in other parts of the world,
either through acquisitions or internal expansion based on market needs. The
expansion of our existing international operations and entry into additional
international markets will require significant management attention and
financial resources. Our ability to penetrate some international markets may be
limited due to different technical standards, protocols and requirements for our
products in different markets. We cannot be certain that our investments in
establishing facilities in other countries will produce desired levels of
revenue. In addition, conducting our business internationally subjects us to a
number of risks, including:

- staffing and managing foreign operations;

- increased risk of collection;

- potentially adverse tax consequences;

- the burden of compliance with a wide variety of foreign laws and
    regulations;

- burdens that may be imposed by tariffs and other trade barriers; and

- political and economic instability.

**Because some of our customers require a lengthy approval process
before they order our products, our sales process is often subject to delays
that may decrease our revenues and seriously harm our business**.

In 2006, we derived 86% of our revenues from the sale of software and related
services to telecommunications service providers. Before we can sell our
software to some of these customers, they conduct a lengthy and complex approval
and purchasing process. The following factors, among others, affect the length
of the approval process:

- the time required for our customers to determine and announce their
    specifications;

- the time required for the customer to receive the internal approvals
    necessary in order for it to commit significant resources towards
    acquisition of the billing solution;

- the build-up of the customer's network infrastructure; and

- the timely release of new versions of products comprising enhanced
    functionality, specifically requested by the customer.

Additional delays in product approval may decrease our revenues and could
seriously harm our business and results of operations.

**A slow down in expenditures by telecommunications service providers
could have a material adverse effect on our results of operations.**

There is a global uncertainty with respect to the direction of the economy
and the telecommunications market. Many new and small service providers have
failed and existing service providers have been reducing or delaying
expenditures on new equipment and applications. A continuation of such delays or
a decline in capital expenditures by telecommunications service providers may
reduce our sales and could result in additional pressure on the price of our
products, both of which would have a material adverse effect on our operating
results.

**If we are unable to compete effectively in the marketplace, we may
suffer a decrease in market share, revenues and profitability.**

Competition in our industry is intense and we expect competition to increase.
We compete both with established global billing companies such as Comverse
(after the acquisition by Comverse of the Global Software Services division of
CSG Systems International) and Convergys Corporation (after the acquisition of
Geneva Technology by Convergys) as well as with local billing companies. Some of
our competitors have greater financial, technical, sales, marketing and other
resources, and greater name recognition than we do. Current and potential
competitors have established, and may establish in the future, cooperative
relationships among themselves or with third parties to increase their ability
to address the needs of prospective customers. Accordingly, new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. As a result, our competitors may be able to adapt more quickly than us to
new or emerging technologies and changes in customer requirements, and may be
able to devote greater resources to the promotion and sale of their products. We
cannot guarantee that we will be able to compete effectively against current or
future competitors or that competitive pressure will not harm our financial
results.

**Our revenues and operating results may vary significantly from
quarter to quarter.**

Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, including the following:

- the timing of orders for our software may be delayed as customers
    typically order our billing and customer care software only after other
    vendors have provided the network infrastructure, a process that is subject
    to delay. It is therefore difficult for us to predict the timing of orders
    for our products by customers;

- the ability of our customers to expand their operations and increase their
    subscriber base, including their ability to obtain financing;

- changes in our pricing policies or competitive pricing by our competitors;
    and

- the timing of product introductions by competitors.

In future quarters, our operating results may be below the expectations of
public market analysts and investors, and as a result, the price of our ordinary
shares may fall.

**The customer base for our traditional wireline and wireless billing
and customer care products is characterized by small to medium size telephony
carriers. If this market segment fails to grow, the demand for our billing and
customer care software would diminish substantially.**

Our traditional wireline and wireless billing and customer care products
target small to medium size telephony carriers. Our growth in this field depends
on continued growth of these traditional telephony carriers. We cannot be
certain that small to medium size telephony carriers will be able to
successfully compete with large telephony carriers in existing markets or will
successfully develop in new and emerging markets. If this market segment fails
to grow, the demand for our billing and customer care software would diminish
substantially and our business would suffer. In addition, there may never be
significant demand for new billing and customer care software by providers of
traditional services.

**From time to time, our software and the systems into which it is
installed contain undetected errors. This may cause us to experience a
significant decrease in market acceptance and use of our software products and
we may be subject to warranty and other liability.**

From time to time, our software, as well as the systems into which it is
integrated, contain undetected errors. Because of this integration, it can be
difficult to determine the source of the errors. Also, from time to time,
hardware systems we resell contain certain defects or errors. As a result, and
regardless of the source of the errors, we could experience one or more of the
following adverse results:

- diversion of our resources and the attention of our personnel from our
    research and development efforts to address these errors;

- negative publicity and injury to our reputation that may result in loss of
    existing or future customers; and

- loss of or delay in revenue and loss of market share.

In addition, we may be subject to claims based on errors in our software or
mistakes in performing our services. Our licenses and agreements generally
contain provisions such as disclaimers of warranties and limitations on
liability for special, consequential and incidental damages, designed to limit
our exposure to potential claims. However, not all of our contracts contain
these provisions and we cannot assure you that the provisions that exist will be
enforceable. In addition, while we maintain product liability and professional
indemnity insurance, we cannot assure you that this insurance will provide
sufficient, or any, coverage for these claims. A product liability or
professional indemnity claim, whether or not successful, could adversely affect
our business by damaging our reputation, increasing our costs, and diverting the
attention of our management team.

**Our business may be negatively affected by exchange rate
fluctuations.**

Although most of our revenues are denominated in U.S. dollars, approximately
40% of our expenses are incurred in New Israeli Shekels, or NIS. As a result, we
may be negatively affected by fluctuations in the exchange rate between the Euro
or the NIS and the U.S. dollar. For example, in 2006, the value of the U.S.
dollar decreased in relation to the NIS by 8.2%, while inflation decreased by
only 0.1%. As a result, our salary expenses, which are primarily linked to the
NIS, increased in U.S. dollar terms. We cannot predict any future trends in the
rate of inflation in Israel or the rate of devaluation or appreciation of the
NIS against the U.S. dollar. If the U.S. dollar cost of our operations in Israel
increases, our U.S. dollar-measured results of operations will be adversely
affected. In addition, devaluation in the Euro or local currencies of our
customers relative to the U.S. dollar could cause customers to decrease or
cancel orders or default on payment. We may choose to limit these exposures by
entering into hedging transactions. However, hedging transactions may not enable
us to avoid exchange-related losses, and our business may be harmed by exchange
rate fluctuations. The imposition of price or exchange controls or other
restrictions on the conversion of foreign currencies could affect our ability to
collect payments, which in turn, could have a material adverse effect on our
results of operations and financial condition.

**If our products fail to achieve widespread market acceptance, our
results of operations will be harmed.**

Our future growth depends on the continued commercial acceptance and success
of our products. We first introduced our billing and customer care software for
Voice over IP in 1997 and since then we have developed new versions that offer
mediation, rating, billing and customer care for multiple services. Accordingly,
we cannot be sure that our products will achieve widespread market acceptance.
Our future performance will depend on the successful development, introduction
and consumer acceptance of new and enhanced versions of our products. We are not
certain that we will be able to develop new and enhanced products to meet
changing market needs. If our new and enhanced products are not well received in
the marketplace, our business and results of operations will be harmed. We
cannot assure you that we will be successful in developing and marketing new
products.

**We depend on our marketing alliances and reseller arrangements with
manufacturers of telecommunications equipment to market our products. If we are
unable to maintain our existing marketing alliances, or enter into new
alliances, our revenues and income will decline.**

We have derived, and anticipate that we will continue to derive, a
significant portion of our market opportunities and revenues from our marketing
alliances and reseller arrangements with major manufacturers of
telecommunications equipment, including Alcatel, Cisco, Lucent and Siemens,
which market or recommend our products to their customers. Our marketing
alliances and reseller arrangements with these parties are nonexclusive and do
not contain minimum sales or marketing performance requirements. In some
instances, there is no formal contractual arrangement. As a result, these
entities may terminate these arrangements without notice, cause or penalty.
There is also no guarantee that any of these parties will continue to market our
products. Our arrangements with our resellers and marketing allies do not
prevent them from selling products of other companies, including products that
compete with ours. Moreover, our marketing allies and resellers may develop
their own internal mediation, rating, billing and customer care software
products that compete with ours and sell them as part of their equipment. If we
are unable to maintain our current marketing alliances and reseller
relationships, or if these marketing allies and resellers develop their own
competing mediation, rating, billing and customer care software products, our
revenues and income will decline.

**If our software does not continue to integrate and operate
successfully with the telecommunications equipment of the leading manufacturers,
we may be unable to maintain our existing customer base and/or generate new
sales.**

The success of our software depends upon the continued successful integration
and operation of our software with the telecommunications equipment of the
leading manufacturers. We currently target a customer base that uses a wide
variety of network infrastructure equipment and software platforms, which are
constantly changing. In order to succeed, we must continually modify our
software as new telecommunications equipment is introduced. If our product line
fails to satisfy these demanding and rapidly changing technological challenges,
our existing customers will be dissatisfied. As a result, we may be unable to
generate future sales and our business will be materially adversely affected.

**We depend on a limited number of key personnel who would be difficult
to replace. If we lose the services of these individuals, our business will be
harmed.**

Because our market is new and evolving, the success of our business depends
in large part upon the continuing contributions of our senior management.
Specifically, continued growth and success largely depend on the managerial and
technical skills of Monica Eisinger, our President and Chief Executive Officer
and one of our founders, and other members of senior management. Because the
demand for highly qualified senior personnel exceeds the supply of this type of
personnel, it will be difficult to replace members of our senior management if
one or more of them were to leave us. If either Ms. Eisinger or other members of
the senior management team are unable or unwilling to continue their employment
with our company, our business will be harmed.

**Our success depends on our ability to continually develop and market
new and more technologically advanced products and enhancements.**

The market for our products and the services they are used to support is
characterized by:

- rapid technological advances like the development of new standards for
    communications protocols;

- frequent new service offerings and enhancements by our customers, such as
    value-added IP-based services and new rating plans; and

- changing customer needs.

We believe that our future success will largely depend upon our ability to
continue to enhance our existing products and successfully develop and market
new products on a cost-effective and timely basis. We cannot assure you that we
will be successful in developing and marketing new products that respond
adequately to technological change. Our failure to do so would have a material
adverse effect on our ability to market our own products.

**If our billing and customer care software for IP services fails to
achieve market acceptance among traditional telecommunications service
providers, we may suffer a decrease in market share, revenues and profitability.**

We believe that as the demand for IP services grows, traditional
telecommunications service providers will increasingly offer IP services to
remain competitive and these providers will constitute a growing portion of the
IP services market. These companies already have relationships with traditional
billing and customer care software providers for their telephony services, and
may wish to work with their current providers of billing and customer care
software to enhance and modify that software for IP services. If our billing and
customer care software for IP services fails to achieve market acceptance among
traditional telecommunications service providers, we may suffer a decrease in
market share, revenues and profitability.

**If we are unable to adequately protect our intellectual property or
become subject to a claim of infringement, our business may be materially
adversely affected.**

Our success and ability to compete depend substantially upon our internally
developed or acquired technology. Any misappropriation of our technology could
seriously harm our business. In order to protect our technology and products, we
rely on a combination of trade secret, copyright and trademark law. Despite our
efforts to protect our intellectual property rights, unauthorized parties may
attempt to copy or otherwise obtain and use our software or technology or to
develop software with the same functionality. Policing unauthorized use of our
products is difficult and we cannot be certain that the steps we have taken will
prevent misappropriation, particularly in foreign countries where the laws may
not protect our intellectual property rights as fully as in the United States.

If anyone asserts a claim against us relating to proprietary technology or
information, we might seek to license his intellectual property or to develop
non-infringing technology. We might not be able to obtain a license on
commercially reasonable terms or on any terms. Alternatively, our efforts to
develop non-infringing technology could be unsuccessful. Our failure to obtain
the necessary licenses or other right or to develop non-infringing technology
could prevent us from selling our software and could therefore seriously harm
our business.

**Breaches in the security of the data collected by our systems could
adversely affect our reputation and hurt our business.**

Customers rely on third-party security features to protect privacy and
integrity of customer data. Our products may be vulnerable to breaches in
security due to failures in the security mechanisms, the operating system, the
hardware platform or the networks linked to the platform. All our solutions
provide web access to information, presenting additional security issues for our
customers. Security vulnerabilities could jeopardize the security of information
stored in and transmitted through the computer systems of our customers. A party
that is able to circumvent our security mechanisms could misappropriate
proprietary information or cause interruptions in the operations of our
customers. Security breaches could damage our reputation and product acceptance
would be significantly harmed, which would cause our business to suffer.

**We have not yet completed our evaluation of our internal control over
financial reporting under Section 404 of the Sarbanes-Oxley Act.**

We are considered a "non-accelerated filer" under applicable SEC rules.
As such, we are required to comply with internal control evaluation and
certification requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in
the following manner: (1) reporting by management under Section 404(a) of the
Sarbanes-Oxley Act will be required for the fiscal year ending on December 31,
2007, and (2) attestation by our independent auditors under Section 404(b) of
the Sarbanes-Oxley Act will be required for the fiscal year ending December 31,
2008. Accordingly, we have begun to evaluate whether our existing internal
control over financial reporting system is compliant with Section 404. As a
result of this evaluation, we may be required to implement new internal control
procedures over financial reporting. We may also experience higher than
anticipated operating expenses and fees in this context, additional commitment
of management's time and may need to hire additional qualified personnel in
order to achieve compliance with Section 404. If we are unable to implement
these changes effectively or efficiently, or if our internal controls are found
to be ineffective in future periods, it could harm our operations, financial
reporting or financial results and could result in our being unable to obtain an
unqualified report in internal controls from our independent auditor.

Risks Relating to the Market of our Ordinary Shares

**Our share price has fluctuated and could continue to fluctuate
significantly.**

The market for our ordinary shares, as well as the prices of shares of other
technology companies, has been volatile. The price of our ordinary shares has
fluctuated significantly since our initial public offering in August 2000. A
number of factors, many of which are beyond our control, may cause the market
price of our ordinary shares to fluctuate significantly, such as:

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

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

- public announcements concerning us or our competitors;

- changes in pricing policies by us or our competitors;

- market conditions in our industry; and

- the general state of the securities market (particularly the technology
    sector).

We do not control these matters and any of them may adversely affect our
business internationally. In addition, trading in shares of companies listed on
the Nasdaq Global Market in general and trading in shares of technology
companies in particular has been subjected to extreme price and volume
fluctuations that have been unrelated or disproportionate to operating
performance. These broad market and industry factors may depress our share
price, regardless of our actual operating results.

**Substantial sales of our ordinary shares could adversely affect our
share price**

Sales of a substantial number of our ordinary shares could adversely affect
the market price of our ordinary shares. Given the likely volatility that exists
for our ordinary shares, such sales could cause the market price of our ordinary
shares to decline.

As of June 1, 2007, we had 21,592,510 outstanding ordinary shares, of which
approximately 17 million ordinary shares were freely tradable without
restriction or further registration under the federal securities laws unless
purchased by our "affiliates", as that term is defined in Rule 144 under the
Securities Act. As of June 1, 2007, there were outstanding options to purchase a
total of 1,114,010 ordinary shares, of which 447,010 were vested. We were also
authorized to grant options to purchase 2,215,700 additional ordinary shares. We
have filed a registration statement on Form S-8 covering all of the ordinary
shares issuable upon the exercise of options under our stock option plans, at
which time these shares will be immediately available for sale in the public
market, subject to the terms of the related options.

**Our ordinary shares are listed for trading in more than one market
and this may result in price variations.**

Our ordinary shares are listed for trading on the Nasdaq Global Market, or
Nasdaq, and on the Tel Aviv Stock Exchange, or TASE. Trading in our ordinary
shares on these markets is made in different currencies (U.S. dollars on Nasdaq
and New Israeli Shekels on TASE), and at different times (resulting from
different time zones, different trading days and different public holidays in
the United States and Israel). The trading prices of our ordinary shares on
these two markets often differ, resulting from the factors described above, as
well as differences in exchange rates. Any decrease in the trading price of our
ordinary shares on one of these markets could cause a decrease in the trading
price of our ordinary shares on the other market.

Risks Relating to Our Location in Israel

**Potential political, economic and military instability in Israel may
harm our operating results.**

We are organized under the laws of the State of Israel and a substantial
portion of our assets and our principal operations, are located in Israel.
Accordingly, our operations, financial position and operating results are
directly influenced by economic, political and military conditions in and
relating to Israel. Since the establishment of the State of Israel in 1948, a
condition of hostility, varying in degree and intensity, has led to security and
economic problems for Israel. Since October 2000, there has been a high level of
violence between Israel and the Palestinians which has strained Israel's
relationship with its Arab citizens, Arab countries and, to some extent, with
other countries around the world. The establishment in early 2006 of a
government in the Palestinian Authority by representatives of the Hamas militant
group has created additional unrest and uncertainty in the region. Further, in
the summer of 2006, Israel fought a war against Hezbollah, a Lebanon-based
Islamist Shiite militia group, which involved thousands of missile strikes and
disrupted most day-to-day civilian activity in northern Israel. Any armed
conflicts or political instability in the region could negatively affect
business conditions and harm our results of operations. We cannot predict the
effect on the region of the increase in the degree of violence between Israel
and the Palestinians. Furthermore, several countries restrict business with
Israel and Israeli companies, and additional countries may restrict doing
business with Israel and Israeli companies as a result of the recent increase in
hostilities. These restrictive laws and policies may seriously harm our
operating results, financial condition or the expansion of our business. In
addition, the current situation in Israel could adversely affect our operations
if our customers and/or strategic allies believe that instability in the region
could affect our ability to fulfill our commitments.

**We currently participate in or receive tax benefits from government
programs. These programs require us to meet certain conditions and these
programs and benefits may be terminated or reduced in the future.**

We receive tax benefits under Israeli law for capital investments, the Law
for Encouragement of Capital Investments, 1959, as amended, or the Investments
Law, that are designated as "Approved Enterprises". To maintain our
eligibility for these tax benefits, we must continue to meet several conditions
including making required investments in fixed assets. If we fail to comply with
these conditions in the future, the tax benefits received could be cancelled.
The termination or reduction of the tax benefits under the Investments Law could
seriously harm our business, financial condition and operating results. For more
information about Approved Enterprises, see Item 10.E "Taxation - Law for
the Encouragement of Capital Investments, 1959" and Note 9 to our financial
statements contained in Item 18.

**Because we have received grants from the Office of the Chief
Scientist, we are subject to on-going restrictions that limit the
transferability of our funded technology and of our right to manufacture outside
of Israel any products developed with such technology, and certain of our large
shareholders are required to undertake to observe such restrictions.**

We have received grants in the past from the Office of the Chief Scientist of
the Israeli Ministry of Industry, Trade and Labor. According to Israeli law,
generally, any products developed with grants from the Office of the Chief
Scientist are required to be manufactured in Israel, unless we obtain prior
approval of a governmental committee. In addition, we are prohibited from
transferring out of Israel the know-how developed with these grants, without the
prior approval of a governmental committee. Approval is not required for the
sale or export of any products resulting from the funded know-how. Any
shareholder who becomes a controlling shareholder of our company or any
non-Israeli who becomes a direct holder of 5% or more of our outstanding
ordinary shares will be required to notify the Office of the Chief Scientist and
to undertake to observe the law governing the grant programs of the Office of
the Chief Scientist, the principal restrictions of which are described above in
this paragraph.

**Our operating results may be negatively affected by the obligation of
some of our key personnel to perform military service.**

Some of our executive officers and employees in Israel are obligated to
perform military reserve duty, which could accumulate annually from several days
to up to two months in special cases and circumstances. The length of such
reserve duty depends, among other factors, on an individual's age and prior
position in the army. In addition, if a military conflict or war occurs, these
persons could be required to serve in the military for extended periods of time.
Our operations could be disrupted by the absence for a significant period of one
or more of our executive officers or key employees due to military service. Any
disruption in our operations would harm our business.

**It may be difficult to enforce a U.S. judgment against us, our
officers and directors or to assert U.S. securities laws claims in Israel.**

We are incorporated in the State of Israel. Substantially most of our
executive officers and directors are nonresidents of the United States, and a
substantial portion of our assets and the assets of these persons are located
outside the United States. We have been informed by our legal counsel in Israel
that it may be difficult to bring original actions in Israel to enforce civil
liabilities under the Securities Act and the Exchange Act. Israeli courts may
refuse to hear a claim based on a violation of U.S. securities laws because
Israel is not the most appropriate forum to bring such a claim. In addition,
even if an Israeli court agrees to hear a claim, it may determine that Israeli
law and not U.S. law is applicable to the claim. If U.S. law is found to be
applicable, the content of applicable U.S. law must be proved as a fact, which
can be a time-consuming and costly process. Certain matters of procedure will
also be governed by Israeli law. There is little binding case law in Israel
addressing these matters.

Subject to specified time limitations and legal procedures, under the rules
of private international law currently prevailing in Israel, Israeli courts may
enforce a United States final judgment in a civil matter, including judgments
based upon the civil liability provisions of the U.S. securities laws and
including a monetary or compensatory judgment in a non-civil matter, provided
that:

- 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 the enforcement thereof 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 United States
    court.

Therefore, it may be difficult for a shareholder, or any other person or
entity, to collect a judgment obtained in the United States against us or any of
these persons, or to effect service of process upon these persons in the United
States.

**Provisions of Israeli law and our articles of association may delay,
prevent or make difficult a change of control and therefore may depress the
price of our stock.**

Some of the provisions of our articles of association and Israeli law could,
together or separately:

- discourage potential acquisition proposals;

- delay or prevent a change in control; and

- limit the price that investors might be willing to pay in the future for
    our ordinary shares.

In particular, our articles of association provide that our board of
directors will be divided into three classes that serve staggered three-year
terms and authorize our board of directors to adopt protective measures to
prevent or delay a coercive takeover, including without limitation the adoption
of a "Shareholder Rights Plan". In addition, Israeli corporate law regulates
mergers and acquisitions of shares through tender offers, requires approvals for
transactions involving significant shareholders and regulates other matters that
may be relevant to these types of transactions. See Item 10.B "Memorandum and
Articles of Associations - Mergers and Acquisitions under Israeli Law."
Furthermore, Israeli tax law treats stock-for-stock acquisitions between an
Israeli company and a foreign company less favorably than does U.S. tax law. For
example, Israeli tax law may subject a shareholder who exchanges his ordinary
shares for shares in another corporation to taxation prior to the sale of the
shares received in such stock-for stock swap.

**Item 4. Information on the Company**

A. History and Development of the Company.

General

Our name is MIND C.T.I. Ltd. for both legal as well as commercial purposes.
We were incorporated under the laws of the State of Israel on April 6, 1995 as a
company with limited liability, and we are subject to the Israeli Companies Law,
1999 and the regulations promulgated thereunder. Our principal executive offices
are located at Industrial Park, Building 7, Yoqneam 20692, Israel. Our telephone
number is +972 4 993 6666. Our agent in the United States is Sentori, Inc. and
its principal offices are located at 12211 Plum Orchard Drive, Suite 320, Silver
Spring, MD 20904, USA.

Important Events in the Development of the Company

In 1997 we started the development and marketing of a real-time mediation and
billing solution, mainly to the Internet protocol, or IP, prepaid markets, known
as MIND-iPhonEX.

During 2005, we completed the acquisition of the Sentori Inc., a U.S. leading
provider of customer care and billing solutions to wireless carriers and mobile
virtual network operators, or MVNOs, mainly in the United States and the
Caribbean. We are in the process of incorporating the Sentori functionality into
the MIND-iPhonEX product line, and we intend to brand the combined products
under the MINDBill name. We plan to continue to support the Sentori product with
new maintenance releases, as well as customization requests. In addition, we
will offer our existing customers a migration path to MINDBill.

During 2005 and 2006 we invested heavily in the development of MINDBill and
started the implementation of MINDBill at a large East European operator with
over one million subscribers. We believe that this valued reference customer
will serve us to gain more large sized deals in mobile markets.

Principal Capital Expenditures

During 2004, 2005 and 2006, the aggregate cash amounts of our capital
expenditures were $1.2 million, $0.6 million and $0.4 million, respectively.
These expenditures were principally for the purchase of property and other
equipment. Although we have no material commitments for capital expenditures, we
anticipate an increase in capital expenditures if we decide to construct a
building for our office in Romania or if we purchase or merge with companies or
purchase assets in order to obtain complementary technology and to expand our
product offerings, customer base and geographical presence.

B. Business Overview

Overview

We
develop, manufacture and market real-time and off-line billing and customer care
software for various types of communication providers, including traditional
wireline and wireless, voice over IP, or VoIP, and broadband IP network
operators, cable operators, 3G operators and mobile virtual network operators,
or MVNOs.

Our
convergent billing and customer care solution supports multiple services,
including voice, data and content services as well as both prepaid and post-paid
payment models in a single platform. Prepaid subscribers can enjoy the full
range of services offered by the provider, with their special bundles, rating
plans and limits. The prepaid solution authorizes each service and controls each
session in real time, taking care that the balance is not exceeded. Post-paid
subscribers, including credit-limited and non-limited, either retail or business
customers, represent the loyal and the higher average revenue per user, or ARPU,
market. All services used by a post-paid subscriber appear in a single bill,
which includes all charges, including one-time, recurring and usage-related
charges. Our billing solution is unique as it includes our own integrated
real-time mediation product that provides interfaces with IP and traditional
telecommunication equipment.

The
latest version of our billing and customer care solution includes a powerful
workflow engine to support the creation and execution of business processes such
as order management, trouble ticket and debt collection. It also includes an
integral point of sale solution that covers all dealer, store and cashier
management and sales processes. The MIND solution introduces multi-layered
architecture supporting real-time distributed processing, achieving performance,
scalability and high availability. It uses an open architecture, including
Service Oriented Architecture (SOA) and Document Oriented Architecture (DOA),
thus enabling fast and seamless integration with other systems and third party
applications. The MIND solution is built using standardized best-of-breed
object-oriented technologies such as Java and XML, and it is J2EE compatible as
it is powered by a commercial application server.

We
also provide professional services, primarily to our billing and customer care
customers, consisting of installation, turnkey project implementation services,
customer support, training and maintenance services, customization and project
management. Our professional services also include enhanced support options,
known as managed services, that are offered to customers in the United States
and Europe and are performed from our offices. These managed services include
performing day to day billing operational tasks.

In
addition to our billing and customer care solutions, we offer three call
management systems used by organizations for call accounting, traffic analysis
and fraud detection. Our traditional enterprise software, which we call PhonEX,
has been installed in over 15,000 locations throughout the world. Our other
enterprise software, which we call MEIPS, is a product directed towards the same
market segment where IP switches are implemented. MEIPS has been installed in
over 1,000 locations around the world. Our latest product, PhonEXONE, delivers
one unified solution for all voice communication expenses including traditional,
IP and mobile telephony. The flexible and scalable architecture of PhonEXONE
meets the needs of large enterprises, supporting an unlimited number of
extensions and sites, it introduces full functionality through a web browser,
based on Microsoft SQL database and enhanced by the advanced ASP.NET
technology.

Our Market Opportunity

Billing and Customer Care
Industry

Billing and customer care are critical to
telecommunications service providers as they enable them to track and bill for
usage, manage revenues and customer relations, and launch, deploy and charge new
services, marketing programs and rate plans. The need for comprehensive billing
solutions is driven by the market trend that requires service providers to
introduce new services more rapidly, to be innovative in creating new product
offerings and to optimize business processes for maximum efficiency. We provide
tier 2 and tier 3 service providers with flexible, easy to deploy, convergent
and scalable billing solutions.

Recently, many telecommunications service providers have
initiated searches for billing solutions to replace existing ones, mainly in the
developed telecom markets, where competition, consolidation and customer loyalty
are key issues. Service providers explore the option to replace existing
solutions in order to offer additional services, reduce costs and improve
service.

An
additional market opportunity is the trend towards all-IP networks, offering
multiple next generation services, particularly in the developing world. New
investment is taking place in many of these regions, driven by social and
economic factors, with new licenses and new initiatives, such as VoIP and
downloaded content. New billing solutions are required to enable the new
services, and we are well positioned to support this need. As a pioneer in VoIP
billing since 1997, we have the experience and the solution portfolio that is
proven to be capable of delivering these technically demanding projects for
all-IP networks.

Mobile Market

The
Sentori acquisition, with its existing mobile customer base, provided the
required presence to build upon and enhance our position in the mobile market.
With our combined product - MINDBill - we will be able to offer convergent
services billing to the already existing customer base and to new GSM and CDMA
operators.

A
niche market in the mobile market in which we see opportunities in is the MVNO
market. Market saturation is pushing mobile carriers that own the network, to
use MVNOs as an alternative means for subscriber growth, without incurring the
associated costs of acquiring and servicing a subscriber as the additional
subscribers are acquired and serviced by the MVNO. Along with cutting
operational costs, it enables the operators to increase their network
utilization and revenues through wholesale agreements with the MVNOs. Typically,
to create competitive differentiation, MVNOs require a billing and customer care
solution that can ensure short time-to-market and product bundling. MVNOs
specifically target consumers in well defined niches such as ethnic communities,
young people and those with poor credit. Niche markets previously considered
undesirable by wireless carriers due to exotic usage profiles - are now
attracting attention. We have a number of MVNO's as customers and we are focused
on delivering solutions that address this particular market.

Voice over IP Industry

Many service providers are moving towards networks in
which IP-based equipment will carry a large proportion, if not all, of their
traffic. These next generation networks, or NGNs, offer cost savings over
traditional switched networks, as well as the potential to offer new services
like VoIP. We have a strong reputation in areas such as mediation and VoIP
billing, and our products are designed to work with NGNs.

For
service providers, Voice over IP presents an opportunity to generate revenue by
offering additional services over the new broadband networks deployed. Voice
over IP networks enable the deployment of most of the services customer receive
over traditional networks at a much lower capital cost of infrastructure and
reduced management cost of the network. As Voice over IP is distance
independent, it allows service providers to offer competitive pricing, as only a
small portion of the traffic, if any, terminates on traditional networks.

As
service providers deploy convergent IP networks that can offer voice, data,
video and content services, the demand for more sophisticated billing software
is expected to grow. We believe that as providers of convergent networks
continue to expand their service offerings, they will increasingly need products
that allow them to monitor and bill their subscribers based on the type and
content of services provided. As a result, we believe that this trend will
increase the demand for sophisticated billing and customer care products for
what is known as convergent billing, such as the solutions we offer.

Providers of multiple IP-based services typically
require billing and customer care products that can handle authentication,
authorization and accounting needs in real-time in order to determine the types
of services to which the subscriber is entitled, as well as any applicable
limits to the availability of the services. This real-time functionality is
particularly important for prepaid billing plans. Finally, billing and customer
care software products need to be easily adaptable to changes in the size and
configuration of an IP provider's system, to new products and services and to
enable rapid growth in subscriber base. Our proven solutions cover all these
needs, as described below.

Our Billing and Customer Care
Solution

We
develop, market and support real-time and off-line, scalable billing and
customer care software, including mediation and rating, for providers of voice,
data and content services that are designed to meet their complex,
mission-critical provisioning, authentication, authorization, accounting and
reporting needs. Our billing and customer care software provides our customers
with the following benefits:

- Real-Time Solution. Service
  providers require a system that enables authentication, authorization and
  accounting and, if needed, cut-off, all in real-time. We believe that the MIND
  solution is one of the few billing and customer care products that offers
  real-time functionality for both prepaid and postpaid billing plans, and that
  has a real-time rating engine able to support rating of voice, data and
  content services simultaneously;

- Mediation and Service
  Fulfillment. IP and traditional networks that can offer voice, data, video
  and content services are based on various network elements each of which
  generates billable information. We believe that the MIND solution is one of
  the few billing and customer care products that provide real-time collection
  and correlation of various events from multiple sources that relate to the
  same session and convert them into billable records. In addition, the MIND
  solution enables end-to-end automated flow for service creation and
  activation, meaning that from the order for service handled by the customer
  care representative until the service activation, the activities that need to
  be completed are automatically fulfilled by MIND;

- Scalability. Our billing
  solutions are designed to be easily adapted to changes in the size and
  configuration of a service provider's network. They enable the network of a
  service provider to grow from accommodating a small number of subscribers to a
  large number of subscribers, primarily through the addition of hardware. This
  feature allows a service provider to expand its infrastructure and its
  subscriber base without the need to redesign or replace its billing and
  customer care software. The scalability of our software is important since
  many service providers begin with a relatively small subscriber base and
  experience rapid growth. For example, we designed and provided a billing and
  customer care solution for China Unicom, which started offering Voice over IP
  services in 1999. When China Unicom first deployed our software in May 1999,
  it was capable of supporting one million users. Our software was upgraded to
  support five million users in November 1999, 20 million users in June 2000 and
  30 million users in June 2001. Increases in the potential number of users have
  been, and future increases will be, accomplished without the need to modify or
  replace our installed software;

- Interoperability.
  Currently, there are many standards for the interface between
  telecommunications equipment and billing products, such as Radius, SIP, and
  Diameter. Our billing platform is fully compliant with those interfaces and is
  interoperable with the telecommunications equipment of most of the leading
  manufacturers, including Alcatel, Cisco, Ericsson, Lucent, Nokia, Nortel and
  Siemens. This interoperability provides us with a competitive advantage, as it
  enables our customers to use networks composed of equipment manufactured by
  multiple vendors. It also allows providers to upgrade an existing network with
  new and different equipment without changing their billing and customer care
  products; and

- Improved Time to Market.Our billing solutions are modular, extensible software products based on
  software architecture designed for easy adaptability and implementation. These
  features allow each of our customers to tailor our products to meet their
  individual needs in terms of the number of subscribers serviced and the
  variety of services provided. In addition our products can be customized
  relatively quickly, enabling our customers to improve their time to market as
  they initially implement their networks and, later, as they add and modify the
  services they provide.

Our Strategy

Our
objective is to be a leader in the market for convergent billing and customer
care software for tier 2 and tier 3 service providers and to maintain and
increase profitability.

We
believe that the strategic acquisition of Sentori in August 2005 strengthened
our presence in the United States and in the mobile market. We have since
successfully completed the integration process.

In
2006 we went through a transition phase. We invested heavily in the enhancement
of our solutions, while focusing on building our business for the long-term,
with larger deals and long-term contracts. These require longer sales-cycles and
longer revenue spreads. The long-term relationships with our customers enable us
to build future revenue streams and significant recurrent revenue from our
customer base, from upgrades of licenses and services.

As
we increase our focus on end-to-end billing solutions for tier 2 and tier 3
service providers, projects are now generally more complex in nature, with
revenue recognized over longer periods. These factors typically extend the
recognition period of both license and service revenue streams and have some
balance sheet impacts. We consider this a normal and expected development for
our business as it grows and matures. In the last three years we significantly
increased our professional services team to support the growth in services
offered to customers. Our long-term business model contemplates that licenses,
maintenance and services will each represent 30-40% of revenues and gross
margins will be approximately 70%.

The
key elements of our strategy to become a leader in the market for convergent
billing and customer care software for tier 2 and tier 3 service providers
include:

- Expand offering through
  acquisitions.We evaluate acquisition opportunities pro-actively, based on
  our long-term policy of growing the scale of our business and enhancing our
  offering, through acquisitions, which will enhance shareholder value. Our
  active pursuit is for business lines that provide the majority of the
  following criteria: existing customer base, channels and partners, presence in
  complementary geographic areas or markets and proven complementary technology.
  We will pursue such an opportunity if we estimate that it will provide an
  additional step towards tier 2 market leadership and that the acquisition will
  be accretive to our income within two or three quarters;

- Leverage our brand name
  recognition and technical expertise.We were one of the first to provide
  billing and customer care software for IP telephony, introducing MIND-iPhonEX
  in 1997. We believe that our early position in the market and our reputation
  for offering high quality, reliable billing and customer care software has
  provided us with significant brand name recognition among Voice over IP
  providers. The acquired Sentori customer base, team and technology has
  provided us with significant brand name recognition in the mobile market. We
  intend to leverage our reputation, brand name and recognition in the wireline
  and wireless markets;

- Enhance alliances with industry
  leaders.We have established cooperative relationships with leading
  manufacturers of telecommunications and hardware equipment and system
  integrators. We team with these industry leaders in marketing activities, as
  well as in the research and development and implementation stages of product
  development and enhancement. Our alliances allow us to broaden our marketing
  capabilities significantly, support new features offered by equipment vendors
  as these features are introduced to the market, and maintain our technology
  leadership over our competitors. We intend to continue to leverage these
  alliances in order to solidify and expand our market presence.

- Maintain and expand our
  technological expertise. We believe that our reputation in the market is
  due in large part to our technological expertise. We make significant
  investments in our research and development to continually enhance our
  products to meet the changing needs in the telecom industry. We intend to
  continue our commitment to technology, both to enhance our existing products
  and to develop new products for growing markets; and

- Expand professional services
  opportunities.As our projects are of larger scale and as convergent
  service offerings become more complex, our customers increasingly require
  consulting services, especially for customization, as well as for project
  management, installation and training, technical support and maintenance. This
  provides us with the opportunity to increase our revenue base from existing
  customers. We have begun to capitalize on this opportunity and, as a result,
  fees from providing professional services have increased.

Our Products and Services

Billing and Customer Care
Solutions

Our
billing solutions include real-time and off-line mediation, provisioning,
rating, billing and customer care products for voice, data, video and content
services that meet the mission-critical needs of convergent IP, Wireline and
Wireless service providers and is interoperable with the telecommunications
equipment of major manufacturers

Our
highly functional and adaptable product enables our customers to quickly deploy
new services and to rapidly grow and add new services. Our solutions support
both prepaid billing plans, in which customers pre-pay for the services, or
postpaid billing plans, in which customers pay for the services after using
them, on the basis of either limited or unlimited credit lines. The key
functionalities of our solutions are as follows:

- Mediation. Our mediation
  platform provides real-time and batch event collection interfacing with the
  content, data, service delivery and routing network elements. It incorporates
  an intelligent processing engine to correlate, aggregate, merge and filter raw
  events into a single valuable usage event;

- Provisioning. Provisioning
  involves setting up the ability of a subscriber to use services. The customer
  database includes information regarding customers' personal data,
  identification parameters and the services provided. This information can be
  provided in real time or on demand to any external system, such as network
  elements and legacy billing solutions. The data provided includes service
  parameters such as enabled features and quantitative limits;

- Authentication. Our
  real-time mediation module authenticates subscribers who dial into the network
  to use the service. Authentication is based on a number of methods, including
  user codes, passwords and caller line identification. The identification
  information is passed to the system, where the subscriber is authenticated and
  then permitted to use the service;

- Authorization. Our systems
  authorize a particular usage, among other ways, by reviewing the type of
  service to determine whether the service is permitted or by reviewing the
  existing balance, pre-rating the service, using the rating engine described
  below and calculating the resulting cut-off time, if any, of the call or data
  session;

- Accounting.When each
  session is completed, the rating engine described below is used to determine
  the amount to be charged to the subscriber and update the balance of the
  account in real-time. In addition, the usage detail records are stored for
  invoicing and reporting;

- Interconnect Billing.The
  networks operated by our customers are typically interconnected with the
  networks of other telecommunications service providers. Interconnecting
  providers need to charge other providers for carrying each other's services
  over their networks. Our billing solutions generate reports that enable
  providers to bill for traffic and services that are being transported across
  their networks by other providers;

- Roaming.Our solutions
  support the ability to provide services to visiting subscribers, on the one
  hand, and to roam subscribers in other networks, on the other hand. Our
  billing system provides the ability to define and manage the required roaming
  contract terms and the applicable tariff plan (IOT) for each roaming partner;

- Virtual Providers.MIND
  offers a solution that enables a carrier to have resellers of traffic under
  different brand names, while it is still managed from the same billing
  platform, as a separated entity known as Virtual Provider. This model enables
  the carriers that own the networks, to lease its network equipment and its
  billing system to other providers.

- Call Shops. In order to
  place a long-distance/international call, a person may come to a special
  calling center, also known as a call shop. The call shop policy may require
  that the person make a deposit before calling, the remaining amount being
  returned after the invoice is generated. MIND's billing solution supports the
  special business model for call shops, including fast and reliable Web access
  and customized reports for profit and loss;

- Multiple Services and Products
  Support. Our billing solutions allow service providers to take advantage
  of their convergent networks by providing their customers with advanced voice,
  data, content and video services. The MIND Product Catalog allows service
  providers to bundle groups of services into tailor-made packages for which
  they can offer special rates, discounts and promotions. There are different
  classes of customers with respect to the availability, bandwidth, and quality
  of service requirements for these services. Our billing solutions offer an
  easy way to define these services, combine them into products, and rate each
  service and product differently;

- Rating.Our billing
  solutions include a real-time and flexible rating engine that allows service
  providers to offer subscribers a wide variety of billing plans. This
  flexibility also allows service providers to set different tariff parameters.
  For example, our billing and customer care software can support different
  rates for various content and video streaming services and for different
  customer groups, rates based on the day of the week and time of the day and
  rates based on the origin and destination of the call. International service
  providers may define rates in different currencies using the product's
  multi-currency functionality;

- Invoicing. Our billing
  solutions include a high-capacity invoice server that handles all stages of
  invoice generation. It supports multiple billing cycles and bill production on
  demand. The invoice includes the customer details and information, such as
  usage details, monthly recurring charges, discounts and taxes, which are
  gathered throughout the billing period. This module creates the original bills
  to be printed locally or exported to bill printing service bureaus, using a
  customizable invoice layout.

- Subscriber Web Interface.
  Our billing solutions include a user-friendly subscriber web interface that
  allows subscribers to resolve billing inquiries themselves. Individual
  customers can obtain real time information about their account, including
  details of calls made that have not yet been invoiced, like the time,
  destination, length and cost of each call. The subscriber can also browse
  invoices, call details and payment history records. This feature is convenient
  for subscribers and efficient for service providers as it reduces service
  costs;

- Customer Support Representative
  Web Interface.Our billing solutions include a user-friendly customer
  support representative web interface that allows operators of the system to
  perform customer care from any location. This feature is of particular
  significance to service providers who have remote operations centers and are
  required to provide support of their system in more than one location;

- Cashier Module. Our Cashier
  module offers the ability to perform cash registration, posting of payments
  and refunds and direct sales of services and equipment. The module provides
  cash register management, credit card processing and analysis reporting
  capabilities;

- Resource Management Module.
  Our Resource Management module automates the management and tracking of the
  equipment sold to subscribers. The solution keeps track and manages the
  equipment by serial number, status, and location, providing solutions for the
  flow management from the reception of the items up to the allocation of the
  items to the customers;

- Business Processes. MIND is
  offering in its deployments tailored, fully automated, order management
  processes, trouble tickets, and debt collection processes, all unique to its
  market segment. The flexible and robust account creation order management
  process handles the orders from the customer's contact, through registration,
  package selection, provisioning and activation. The order management process
  involves different users from various departments (such as supervisor approval
  of the contract, technician test, etc.), integration with external legacy
  systems (such as inventory), interaction with third party services (such as
  address validation) and more. MIND's billing solution uses its robust inherent
  workflow capabilities to tailor an order management process that meets the
  operator's business model;

- Call Management and Traffic
  Analysis Reports (CMS module). The CMS module allows service providers to
  generate reports and graphic analyses of usage activity. These reports contain
  information regarding peak hours, usage loads to different destinations, the
  number of sessions per minute for a specific gateway or group of gateways, the
  duration of sessions and other parameters. These features enable service
  providers to analyze subscriber behavior and use the information to improve
  their marketing and business development strategies. In addition, the traffic
  analyses reports assist service providers in planning the growth and
  development of their networks;

- Fraud Detection. Our
  billing solutions include a fraud detection tool that enables detection of
  "stolen" calls and telephone misuse. It detects, locates and warns of any
  suspicious activity by activating alarms. It is easily customized to suit the
  needs of each service provider and allows a provider to build fraud inquiries
  based on a defined set of parameters. When these specific parameters are
  violated, alarms at four different alarm levels may be activated. Different
  actions may be implemented at each level. For instance, the operator may be
  alerted to possible fraud via e-mail, fax, pager, audio or visual alarms;

- Business Processes Environment.Customer care and billing processes are one of the most significant
  practices to drive business performance. These processes are fundamental for
  bringing innovative and competitive ways of delivering products and services
  to market.MIND's automated
  business processes engine allows operators to excel with today's top
  challenges. The business processes workflow implemented by the engine provides
  business intelligence behind day-to-day operations. The engine also automates
  the interaction with network elements and third party software. This is done
  in accordance with a uniquely defined set of business rules determined by the
  customer.

Enterprise Software

Our
enterprise products, known as PhonEX, MEIPS and PhonEXONE, are used by
corporations for call accounting, traffic analysis and fraud detection. PhonEX
is a call management system that collects, records and stores all call
information in a customized database. The system:

- allows customers to generate near real-time reports on
  the enterprise's telephone use;

- produces sophisticated reports and graphics for easy
  and effective analysis of call activity; and

- allows customers to allocate telephone expenses to
  specific departments, individual clients or projects.

These functions allow organizations to more effectively
manage their telecommunications resources. PhonEX is easy to install and
configure, user-friendly and compatible with any switchboard system. PhonEX also
performs call management and traffic analysis as well as fraud management in the
same manner as our billing solutions. In addition, PhonEX is a multi-lingual and
multi-currency system, which means that reports can be generated in any currency
defined in the system, or in two currencies simultaneously.

Manufacturers of IP telecommunications equipment have
begun to develop and market Voice over IP systems for enterprises. Our
enterprise solution for IP switches, known as MEIPS, is used to provide call
accounting, traffic analysis and fraud detection for enterprises that use IP
telephony. MEIPS provides substantially the same functionality as PhonEX.

Our
high end product, PhonEXONE, delivers one unified solution for all voice
communication expenses, including traditional, IP and mobile telephony. The
flexible and scalable architecture of PhonEXONE meets the needs of large
enterprises, supporting an unlimited number of extensions and sites. Some of its
major advantages are:

- web-based solution, providing full functionality
  through a web browser;

- scalable system architecture, supporting an unlimited
  number of sites and extensions;

- multilingual and multicurrency: the perfect solution
  for multinational organizations;

- supports IP, traditional and hybrid telephony
  networks; and

- Supports the Microsoft SQL database and is enhanced by
  the advanced ASP.NET technology.

We
intend to further develop and market these products as the emerging market for
Voice over IP systems for enterprises grows.

Professional Services

We
provide professional services to our customers, consisting primarily of project
management, customization, installations, customer support, training and
maintenance services. As our projects become more complex, more customers
require customization services to add specialized features to their systems. We
typically incorporate additional or specialized features developed for a
particular customer into future versions of our products. We also offer enhanced
support options, called managed services, that are offered to customers in the
United States and Europe and are performed from our offices. The managed
services include performing day to day billing operational tasks. The managed
services contracts are usually for a term of three to five years and are paid on
a monthly basis.

Technology

Our
software products are based on an open architecture, which was developed using
industry standard application server programming interfaces that enables it to
readily integrate with other software applications. These application program
interfaces create an object-oriented, multi-layered architecture that supports a
distributed environment. Our object-oriented technology enables the design and
implementation of software utilizing reusable business objects rather than
complex procedural code. Our layered architecture organizes these business
objects to optimize the interface between the user and the application. We
implement our software in a distributed configuration. This allows various
modules to be installed on different servers to support the system's scalability
and security. We believe that our technology allows us to offer products with
the following benefits:

- fast integration and interoperability with
  telecommunications equipment of major manufacturers, legacy systems and
  external software;

- modular architecture that allows our products to be
  easily scalable and enables us to customize our software relatively quickly;

- reliable products that support high availability of
  the service for mission-critical applications. Our automatic fail-over
  mechanism ensures minimal loss of service in case of a component failure; and

- security at all levels of the architecture. Each user
  of the system may be assigned to different security groups. Service providers
  are therefore able to determine and audit access to the system. In addition,
  firewalls can be installed to prevent unauthorized access to the system.

Our software products are based on multiple-tier
architecture, consisting of the following tiers:

- Client Application Tier: This is the top tier graphic
  user interface between the user and the application. It includes client
  applications for customer registration, customer care and billing
  administration. In addition, it includes Web services interfaces that enable
  external applications to interact with the business tier;

- Business Object Tier: This tier includes the business
  logic and rules of the system. This tier manages accounts, services, events
  and tariffs. It includes an object request broker that facilitates the
  transfer of information requested by the client application tier from the
  database tier;

- Database Tier: This tier includes the Oracle database
  server and management software where the actual billing and customer care
  information is stored.

Sales and Marketing

Sales

Billing and Customer Care
Solutions

We
conduct our sales and marketing activities primarily directly and also through
our marketing alliances with leading network equipment vendors and systems
integrators. These marketing allies and resellers provide us with a global
extension of our direct sales force and are a significant source of leads and
referrals. We also engage in joint marketing activities with our allies,
including joint responses to requests for proposals, sharing booths in trade
shows, distributing each others' marketing information and cross links and
references to web sites. We believe that these relationships also help validate
our technology and facilitate broad market acceptance of our software.

Our
contracts with our marketing allies, distributors and resellers are
non-exclusive, do not contain minimum sales or marketing performance
requirements and may be terminated at any time with notice.

Enterprise Software

In
Europe, the United States and Israel our enterprise software is sold by our
appointed distributors, resellers and directly through our sales force.

Marketing

Our
marketing programs are focused on creating awareness, interest and preference
for our products and services. We engage in a variety of marketing activities,
including:

- participating in industry trade shows and special
  events;

- conducting ongoing public and press relations
  programs; and

- conducting training seminars for vendors and system
  integrators.

Principal Markets

The
following table shows our revenues for each of the past three years classified
by activity and geographic market.

|                                      | Years ended December 31,(in
      thousands of US $)
|------------------------------------- | ----------------------------------------------------
|                                      |                                                     
|                                      | 2004                                                
|                                      |                                                     
|The
      Americas (total)            | 1,977                                               
|Sale of Licenses                      | 1,020                                               
|Services                              | 957                                                 
|Asia
      Pacific and Africa (total) | 2,859                                               
|Sale of Licenses                      | 1,957                                               
|Services                              | 902                                                 
|Europe
      (total)                  | 12,017                                              
|Sale of Licenses                      | 8,361                                               
|Services                              | 3,656                                               
|Israel
      (total)                  | 953                                                 
|Sale of Licenses                      | 361                                                 
|Services                              | 592                                                 
|Total                                 | 17,806                                              
|Sale of Licenses                      | 11,699                                              
|Services                              | 6,107                                               

Customers

Billing and Customer Care
Solutions

We
currently provide traditional telecommunications service providers, Internet
telephony service providers and Internet service providers with our billing and
customer care software. MIND-iPhonEX, VeraBill and the Sentori product line have
been installed for a large base of customers worldwide, including:

- traditional telecommunications service providers that
  also offer IP services including VoIP or/and data, such as China United
  Telecommunications Corp. (China Unicom), Romtelecom S.A., Singapore
  Telecommunications Limited (SingTel), Sri Lanka Telecom, Telecom Colombia, and
  VTI;

- traditional wireline telephony providers, such as
  Teledome and Telefonia Bonairiano;

- wireless telephony providers, such as Bahamas Telecom,
  CelTel Tanzania and mTel Nigeria;

- 3rd generation (3G) mobile operators that provide
  broadband mobile IP services, such as H3G Italy; and

- MVNOs, such as Viaero.

Enterprise Software

Our
enterprise software has been installed at over 15,000 locations throughout the
world, for customers that include international banking firms, government
agencies and other small to very large organizations.

Competition

Billing and Customer Care
Solutions

Competition in the market for billing and customer care
software is intense and we expect competition to continue to be strong. We
compete with many local companies and worldwide companies such as Comverse
(after the acquisition by Comverse of the Global Software Services division of
CSG Systems International) and Convergys Corporation (after the acquisition of
Geneva Technology by Convergys).

We believe that our competitive advantage is based
on:

- our ability to rapidly deploy a complete turn-key
  product based solution;

- our solutions' functionality, which includes billing,
  customer care, mediation, provisioning, rating for multiple services and
  prepaid IP functionality;

- our proven platform that is eight years operational
  and our 10 years of wireless and IP experience to satisfy customer
  requirements;

- our flexibility to meet customer requirements in a
  short time frame; and

- our financial strength.

However, we depend on our marketing alliances with
manufacturers of telecommunications equipment and reseller arrangements to
market our billing and customer care software. Some of our marketing allies and
resellers also work with some of our competitors. Our marketing alliances and
reseller arrangements are for the most part non-exclusive and do not contain
minimum sales or marketing performance requirements. We may not be able to
compete effectively with our competitors under these circumstances. Many of our
competitors have greater financial, personnel and other resources, have longer
and more established relationships with service providers and may be able to
offer more aggressive pricing or devote greater resources to the promotion of
their products. In addition, one or more of our competitors could develop
superior products and these products could achieve greater market acceptance
than our product.

Enterprise Software

Our
main competitors in the market for enterprise software products include Avotus
Corporation and Veramark Technologies, Inc. To compete effectively, companies
must be able to offer adequate technical support and ongoing product development
and customization services. In addition, multinational companies prefer call
accounting systems that can be installed at their various offices throughout the
world, and therefore require call accounting products that are multilingual and
support the local telecommunication requirements. The principal factors upon
which we compete are customer support, ease of use, compatibility with major
switchboard systems and IP switches and the multi-lingual and multi-currency
nature of our system.

Israeli Office of the Chief
Scientist

Under the Israeli Law for the Encouragement of
Industrial Research and Development, 1984, or the Research and Development Law,
research and development programs which meet specified criteria and are approved
by the Office of the Chief Scientist are eligible for grants of up to 50% of
certain approved expenditures, in exchange for the payment of royalties from the
sale of products (and any ancillary services) incorporating or based upon
know-how developed in accordance with such programs, until the repayment in full
of the dollar linked amount of the grants received. We have received grants in
the past from the Office of the Chief Scientist and have repaid them.

Even after repayment in full of royalty obligations, the
Research and Development Law and prohibits the transfer of the funded know-how
outside of Israel without the prior approval of the Office of the Chief
Scientist. Further, the Research and Development Law requires that the
manufacture of products incorporating or basing upon funded know-how be
performed in Israel.

The
Research and Development Law contains reporting requirements with respect to
certain changes in the ownership of a grant recipient. The Research and
Development Law requires the grant recipient and its controlling shareholders
and interested parties to notify the Office of the Chief Scientist of any change
in control of the recipient or a change in the holdings of the means of control
of the recipient that results in a non-Israeli becoming an interested party
directly in the recipient and requires the new interested party to undertake to
the Office of the Chief Scientist to comply with the provisions of the Research
and Development Law. For this purpose, "control" is defined as the ability to
direct the activities of a company other than any ability arising solely from
serving as an officer or director of the company. A person is presumed to have
control if such person holds 50% or more of the means of control of a company.
"Means of control" refers to voting rights and the right to appoint directors or
the chief executive officer. An "interested party" of a company includes a
holder of 5% or more of its outstanding share capital or voting rights, its
chief executive officer and directors, someone who has the right to appoint its
chief executive officer or at least one director, and a company with respect to
which any of the foregoing interested parties owns 25% or more of the
outstanding share capital or voting rights or has the right to appoint 25% or
more of the directors. Accordingly, any non-Israeli who acquires directly 5% or
more of our ordinary shares will be required to notify the Office of the Chief
Scientist that it has become an interested party and to sign an undertaking to
comply with the Research and Development Law.

C. Organizational
Structure

Set
forth below is a list of our significant subsidiaries:

- Sentori Inc., a wholly owned subsidiary, incorporated
  in the State of Delaware;

- MIND C.T.I. Inc., a wholly owned subsidiary,
  incorporated in the State of New Jersey;

- MIND Software SRL, a wholly owned subsidiary,
  incorporated in Romania; and.

- DIROT COMP SRL, a wholly owned subsidiary,
  incorporated in Romania.

D. Property, Plant and
Equipment

Our
headquarters are located in Yoqneam, Israel, approximately 50 miles north of Tel
Aviv. We lease approximately 16,000 square feet at our Yoqneam headquarters. We
also lease 10,593 square feet of office space in Silver Spring, Maryland and
21,500 square feet in Jassy, Romania. The office in Maryland is used primarily
for supporting our customers in the United States, while the office in Jassy is
used primarily for software development and for customer support. The office in
Maryland is the group's headquarters in the Americas. We are currently
considering purchasing or constructing a building for our office in Romania.

**Item 4A. Unresolved Staff
Comments**

Not
applicable.

**Item 5. Operating and
Financial Review and Prospects**

The
following discussion and analysis is based on and should be read in conjunction
with our consolidated financial statements, including the related notes,
contained in Item 18.

Overview

We
were incorporated in Israel in 1995 and started providing our enterprise
software products in that year. In 1997, we introduced our billing and customer
care software for Voice over IP. We have enhanced our billing solutions since
then to support multiple IP services, wireless and wireline carriers and
multiple play (voice, data and content) service providers. In 2006, 85.6% of our
revenues were derived from providing our billing and customer care software and
14.4% were derived from providing our enterprise software. In 2006, license fees
represented 42.2% of our revenues and professional services represented 57.8%.
In 2005 and 2006, no customer accounted for 10% or more of our total revenues.
However, we expect to continue to derive sizeable revenues from a small number
of changing customers.

In
2001, we acquired the VeraBill product line for billing and customer care for
traditional tier 3 wireline and wireless service providers. In August 2005, we
acquired Sentori Inc., a leading provider of billing and customer care solutions
to tier 3 and tier 2 wireless carriers and mobile virtual network operators, or
MVNOs, mainly in the United States and the Caribbean. We evaluate acquisition
opportunities pro-actively, based on our long-term policy of growing the scale
of our business and enhancing our offering through acquisitions that are
expected to enhance shareholder value.

In
2003 and 2004, we experienced quarterly sequential revenue growth and improved
profitability and net income. Our revenue growth in 2004 was driven primarily by
our winning larger projects than in the past, especially in Europe. In the first
quarter of 2005, our revenue fell sharply to $3.08 million from $4.88 million in
the previous quarter, due to loss of revenues caused by the cancellation of two
large orders that we received in 2004 for reasons unrelated to us and in
addition, the customer that represented 36% of our revenues in 2004, entered
into a reorganization process and, as a result, the planned enhancements of our
platform did not materialize. These three customers were expected to represent
over 30% of our annual revenue. Consequently, our total 2005 revenue was lower
than our 2004 revenue. In spite of the unexpected loss of revenue in first
quarter of 2005, we succeeded in maintaining profitability and in showing
sequential revenue growth for the four quarters thereafter. In 2006 we
experienced significant growth in revenue driven primarily by our acquisition of
Sentori in the third quarter of 2005, which strengthened our presence in the
United States and in the mobile market generally.

As
we increase our focus on end-to-end billing solutions for tier 2 and tier 3
service providers and our average deal size increases, our long-term business
model changes as the professional services part of our business is increasing.
An additional consequence is that projects are often now of a more complex
nature, with revenue recognized over longer periods. These factors typically
extend the recognition period of both license and service revenue streams and
have some balance sheet impacts. We consider this a normal and expected
development for our business as it grows and matures. In the last three years we
significantly increased our professional services team to support the growth in
services offered to customers.

Since March 2002, we have deposited most of our cash in
structured, callable time deposits. Under the arrangements with the banks,
whether or not the deposits bear interest depends upon the prevailing U.S.
dollar LIBOR rate. Interest is payable in respect of days during which the rate
is within a certain range and no interest is payable in respect of days during
which it exceeds the range. Until May 2005, we achieved relatively high interest
rates of over 7% per annum. Since May 2005, due to the increase of the six-month
LIBOR rate, the deposits did not bear interest, causing our financial income to
decrease substantially starting in the third quarter of 2005. In the second
quarter of 2006, we withdrew two of our three structured deposits in the
aggregate amount of $20 million. The financial expenses arising from the early
redemption of these two deposits were $1.33 million. In the fourth quarter of
2006 the third and last structured deposit in the amount of $10 million was
released with no penalty. Since December 2006, all our funds are invested in
risk-free bank deposits and investment grade, interest-bearing bonds or
debentures. See below under Item 5.B - "Liquidity and Capital Resources" for
more information.

In
July 2003, we adopted a dividend policy, according to which we declare, subject
to specific board approval and applicable law, a dividend distribution once per
year, in the amount of our net income from the previous year. Additionally the
board approved dividend distributions in 2003 and 2007 that were subject to
approvals from an Israeli Court in accordance with Section 303 of the Israeli
Companies Law due to the fact that we did not have sufficient retained earnings.
Since 2003 the Company distributed cash dividends of approximately $0.85 per
share to its shareholders: $0.14 per share in 2003, $0.13 per share in 2004,
$0.24 per share in 2005, $0.14 per share in 2006 and $0.20 per share in 2007.
The board decision to approve the annual distribution is based, among other
factors, on our cash position at that time, potential acquisitions and future
cash needs. The board may decide to discontinue the dividend distribution in
whole or in part at any time.

Revenues.We are paid license fees by our customers for
the right to use our products, based on (1) traffic volume, which is measured by
factors such as minutes per month, number of lines used, number of data sources
and number of subscribers, and (2) the functionality of the system based on
application modules that are added to the software. In relation to our
professional services, other than maintenance services, we mainly quote a fixed
price based on the type of service offered, estimated direct labor costs and the
expenses that we will incur to provide these services. Fees for maintenance
services are based on a fixed percentage of the license fee and are paid
annually, quarterly or monthly.

We
primarily use two business models when we sell our solutions, the license model
and the managed services model. In the license model, the customer pays a
one-time implementation fee, a one-time license fee for a perpetual license
limited by the traffic metrics chosen by the customer, and additional fees to
expand the scale of the network supported by our software. In addition, we are
paid maintenance fees to renew periodically the maintenance agreement at the
customer discretion. In the managed services model, the customer pays a one-time
implementation fee, a monthly fee that includes a periodic license limited by
the traffic metrics chosen by the customer, maintenance and services fees, and
additional fees to expand the scale of the network supported by our
software.

We
provide a revenue breakdown for our billing and customer care software and our
enterprise call management software. We believe that this information provides a
better understanding of our performance and allows investors to make a more
informed judgment about our business.

Cost of
Revenues.The cost of revenues consists primarily of direct labor costs and
overhead expenses related to software installation and maintenance. Cost of
revenues also includes, among other things, software license fees to Oracle,
hardware, amortization of intangible assets, packaging and shipping costs. Our
cost of professional services revenues consists primarily of direct labor costs
and travel expenses. Our revenues from the sale of our licenses have a higher
gross margin than that from providing our professional services. We incur
variable direct labor costs when we provide professional services. There is no
comparable variable direct labor cost incurred when we license our software.

Research and Development Expenses. Our research and
development expenses consist primarily of compensation, overhead and related
costs for research and development personnel and depreciation of testing and
other equipment. Research and development costs related to software products are
expensed as incurred until the "technological feasibility" of the product has
been established. Because of the relatively short time period between
"technological feasibility" and product release, no software development costs
have been capitalized. We expect to continue to make substantial investments in
research and development.

Selling
and Marketing Expenses. Our selling expenses consist primarily of
compensation, overhead and related costs for sales and marketing personnel, the
operation of international sales offices, sales commissions, marketing programs,
public relations, promotional materials, travel expenses, trade shows and
exhibition expenses.

General
and Administrative Expenses.Our general and administrative expenses consist
primarily of compensation, overhead and related costs for executives and
administrative personnel, accounting, professional fees, insurance, provisions
for doubtful accounts and other general corporate expenses.

Financial Income (Expenses), net. Our financial income
(expenses), net consists primarily of interest earned on bank deposits, gains
and losses from the conversion of monetary balance sheet items denominated in
non-dollar currencies into U.S. dollars, net of financing costs, loss from
withdrawal of long-term bank deposits and bank charges in real terms as well as
the devaluation of monetary assets and monetary liabilities.

Taxes
on Income. Israeli companies are generally subject to income tax at the
corporate tax rate of 34% for the 2005 tax year, 31% for the 2006 tax year and
29% for the 2007 tax year. Following an amendment to the Israeli Income Tax
Ordinance that came into effect on January 1, 2006, the corporate tax rate is
expected to decrease as follows: 27% for the 2008 tax year, 26% for the 2009 tax
year and 25% for the 2010 tax year and thereafter. However, Israeli Companies
are generally subject to capital gains tax at a rate of 25% for capital gains,
other than gains deriving from the sale of listed securities, derived after
January 1, 2003. Substantially all of our facilities, however, have been granted
"approved enterprise" status under the Law for the Encouragement of Capital
Investments, 1959. Income derived from the approved enterprise is tax exempt for
a period of ten years commencing in the first year in which we earn taxable
income from the approved enterprise, since we have elected the "alternative
benefits route" (involving a waiver of investment grants) and our approved
enterprises are located in a preferred geographic location. In the event of
distribution of cash dividends from income that was tax exempt, we would have to
pay up to 25% tax in respect of the amount distributed. In February 2007, we
finalized tax assessments for the tax years 2003 to 2005, which resulted in
additional tax expenses in 2006 of approximately $1.5 million.

A. Operating Results

The
following discussion of our results of operations for 2004, 2005 and 2006,
including the percentage data in the following table, is based upon our
statements of operations contained in our financial statements for those
periods, and the related notes, included in this annual report:

|                                                    | Years ended December 31,
|--------------------------------------------------- | ------------------------
|                                                    |                         
|                                                    | 2004                    
|                                                    |                         
|Revenues:                                           | 100.0%                  
|Cost of
      revenues                              | 24.7                    
|                                                    |                         
|Gross
      profit                                  | 75.3                    
|Research and
      development expenses             | 21.5                    
|Selling, general
      and administrative expenses: |                         
|Selling and marketing expenses                      | 25.4                    
|General and administrative expenses                 | 10.4                    
|                                                    |                         
|Operating
      Income                              | 18.0                    
|Financial income
      (expenses) - net             | 21.5                    
|                                                    |                         
|Income before
      taxes on income                 | 39.5                    
|Taxes on
      income                               | 0.9                     
|                                                    |                         
|Net
    income                                      | 38.6                    
|                                                    |                         

Comparison of 2004, 2005 and
2006

Revenues

|                            | Years ended December
      31, | % Change | % Change
|--------------------------- | ------------------------------ | -------- | --------
|                            | ($ in millions)                |         
|                            |                                |          |         
|                            | 2004                           | 2005     | 2006    
|                            |                                |          |         
|License
      sales         | 11.7                           | 7.4      | 8.5     
|Professional
      services | 6.1                            | 8.2      | 11.6    
|                            |                                |          |         
|Total
      revenues        | 17.8                           | 15.6     | 20.1    

Revenues in 2005 decreased in comparison to 2004 due to
the unexpected cancellation of large orders from two customers and due to the
cancellation of the planned orders from our largest customer (that represented
36% of our revenues in 2004) in the first quarter of 2005. Our revenues in 2006
in comparison to 2005 increased by 28.6% mainly because of the acquisition of
Sentori, which strengthened our presence in the United States and in the mobile
market generally. Revenues from our billing and customer care product solutions
for service providers decreased from $15.2 million in 2004 to $12.7 million in
2005 and increased to $17.2 million in 2006. Revenues from our enterprise
products increased from $2.6 million in 2004 to $2.9 million in 2005 and
remained almost unchanged from 2005 to 2006. The increase from 2004 to 2005 was
driven primarily by our winning larger projects.

Revenues from professional services as a percentage of
total revenues increased from 34% in 2004 to 52% in 2005 due to the lower 2005
revenue and further increased to 58% in 2006 as a result of the growth in our
customer base that provides more maintenance revenues and as a result of our
focus on larger deals, which are often of a more complex nature and require more
professional services.

The
following table presents the geographic distribution of our revenues:

|                              | Years ended December 31,
|----------------------------- | ------------------------
|                              |                         
|                              | 2004                    
|                              |                         
|The
      Americas            | 11.1%                   
|Asia Pacific and
      Africa | 16.1                    
|Europe                        | 67.5                    
|Israel                        | 5.3                     
|                              |                         
|Total                         | 100.0%                  

Our
sales in the Americas steadily increased between 2004 and 2006 as the result of
our acquisition of Sentori in the third quarter of 2005 which strengthened our
presence in the United States and in the mobile market generally. Our sales in
Europe decreased in 2005 due to the fact that a customer which represented 36%
of our revenues in 2004 entered into a reorganization process and, as a result,
the planned enhancement of our platform did not materialize.

|                             | Years ended December
      31, | % Change | % Change
|---------------------------- | ------------------------------ | -------- | --------
|                             | ($ in millions)                |         
|                             |                                |          |         
|                             | 2004                           | 2005     | 2006    
|                             |                                |          |         
|Total cost of
      revenues | 4.4                            | 4.0      | 5.7     

The
decrease in 2005 in our cost of revenues was mainly due to the decrease in
revenues, which in turn caused a decrease in the cost of revenue related to
third parties, offset by an increase in the cost of employment. The increase in
our cost of revenues in 2006 was primarily due to the increase in our revenues
from professional services (as explained above) and due to the continued
increase in employee payroll costs, driven by an increase in the cost of
employment per employee as well as an increase in the total number of employees
engaged in support and maintenance.

Gross profit as a percentage of revenues decreased from
75.3% in 2004 to 74.3% in 2005 and to 71.7% in 2006, due to the increase in our
revenues from professional services as a percentage of total revenues as well as
the increase in employee payroll costs, driven by the continued increase in the
cost of employment per employee as well as an increase in the total number of
employees engaged in support and maintenance.

Operating Expenses

|                                 | Years ended December
      31, | % Change | % Change
|-------------------------------- | ------------------------------ | -------- | --------
|                                 | ($ in millions)                |         
|                                 |                                |          |         
|                                 | 2004                           | 2005     | 2006    
|                                 |                                |          |         
|Research and
      development   | 3.8                            | 5.1      | 6.1     
|Selling and
      marketing      | 4.5                            | 2.1      | 3.6     
|General and
      administrative | 1.9                            | 1.5      | 2.1     
|Total operating
      expenses   | 10.2                           | 8.7      | 11.8    

Research and Development. We make substantial investment
in research and development to maintain our advanced technology and add
functionality to our products. The increase in 2005 and 2006 in our research and
development expenses was primarily due to an increase in the cost attributable
to payroll and related expenses of our employees engaged in research and
development resulting from an increase in the salary per employee and an
increase in the total number of employees engaged in research and development.
Research and development expenses as a percentage of revenues increased from
21.5% in 2004 to 32.6% in 2005 and slightly decreased to 30.5% in 2006. The
increase between 2004 and 2005 was due to an increase of research and
development expenses accompanied by a decrease in revenues. The decrease between
2005 and 2006 was due to an increase in revenues in excess of the increase in
research and development expenses.

Selling
and Marketing Expenses. Selling and marketing expenses substantially
decreased from $4.5 million in 2004 to $2.1 million in 2005, primarily
reflecting a decrease in commission expenses (normally incurred as a percentage
of revenue), as a result of the decrease in revenues in 2005. In 2006 selling
and marketing expenses increased to $3.6 million mainly due to a significant
increase of our sales teams (especially in the United States as a result of the
acquisition of Sentori), and due to an increase in commission expenses as the
result of the increase in revenues. Selling and marketing expenses as a
percentage of revenues decreased from 25.4% in 2004 to 13.8% in 2005 due to a
decrease in expenses in excess of the decrease in revenues. Selling and
marketing expenses as percentage of revenues increased to 18.1% in 2006 due to
an increase in selling and marketing expenses in excess of the increase of
revenues.

General
and Administrative Expenses. General and administrative expenses decreased
from $1.9 million in 2004 to $1.5 million in 2005 and increased to $2.1 million
in 2006. The decrease between 2004 and 2005 was mainly because of a decrease in
the allowance for doubtful accounts. The increase between 2005 and 2006 was
mainly due to additional professional services, mainly legal.

Financial Income (Expenses). Financial income decreased
from $3.8 million in 2004 to $1.3 million in 2005. This decrease resulted from
the increase in the rate of the six-month LIBOR, which resulted in our three
long-term bank deposits ceasing to bear interest starting in May 2005. We did
not receive any interest on deposits in the aggregate amount of $30 million
until June 2006, and we did not receive any interest on a deposit in the amount
of $10 million from June thru December 2006. Financial income further decreased
from $1.3 million in 2005 to financial expenses of $0.2 million in 2006. This
decrease resulted mainly from a one-time penalty in the amount of approximately
$1.3 million for premature withdrawal of two of our three deposits. See also
below Item 5.B Liquidity and Capital Resources - Cash Deposits.

Corporate Tax Rate

The
general corporate tax rate in Israel is 34% for the 2005 tax year, 31% for the
2006 tax year and 29% for the 2007 tax year. Following an amendment to the
Israeli Income Tax Ordinance that came into effect on January 1, 2006, the
corporate tax rate is expected to decrease as follows: 27% for the 2008 tax
year, 26% for the 2009 tax year and 25% for the 2010 tax year and thereafter.
However, Israeli companies are generally subject to capital gains tax at a rate
of 25% for capital gains, other than gains deriving from the sale of listed
securities, derived after January 1, 2003. Our effective tax rate, however, was
1% in 2004, 1% in 2005 and 3% in 2006 (before taking in consideration the
one-time tax expenses in 2006 resulting from the finalization of the tax
assessment for tax years 2003 to 2005). We experienced the lower effective tax
rates in 2004 and 2005 primarily because of tax reductions to which we are
entitled under Israel's Law for Encouragement of Capital Investments, 1959. In
February 2007 we finalized tax assessments for the tax years 2003 to 2005 which
resulted in an additional tax expense in 2006 of approximately $1.5 million. We
cannot assure you that the low effective tax rates in 2004, 2005 and 2006 will
be available for us in the future. For more information about the taxes to which
we are subject, see above under the caption "Overview - Taxes on Income" and
below under Item 10.E "Taxation."

Critical Accounting
Policies

To
improve understanding of our financial statements, it is important to obtain
some degree of familiarity with our critical or principal accounting policies.
These policies are described in note 1 to the consolidated financial statements
contained in Item 18. We review our accounting policies annually to ensure that
the financial statements developed, in part, on the basis of these accounting
policies provide complete, accurate and transparent information concerning the
financial condition of our company. As part of this process, we reviewed the
selection and application of our critical accounting policies and financial
disclosures as of December 31, 2006, and we believe that the consolidated
financial statements contained in Item 18 present fairly, in all material
respects, the consolidated financial position of our company as of that
date.

In
preparing our financial statements in accordance with generally accepted
accounting policies in the United States of America, our management must often
make estimates and assumptions which may affect the reported amounts of assets,
liabilities, revenues, expenses and related disclosures as of the date of the
financial statements and during the reporting period. Some of those judgments
can be subjective and complex, and consequently actual results may differ from
those estimates. For any given individual estimate or assumption made by our
management, there may be alternative estimates or assumptions which are also
reasonable. However, we believe that, given the facts and circumstances before
our management at the time of making the relevant judgments, estimates or
assumptions, it is unlikely that applying any such other reasonable judgment
would cause a material adverse effect on the consolidated results of operations,
financial position or liquidity for the periods presented in the consolidated
financial statements included in this annual report.

We
are also subject to risks and uncertainties that may cause actual results to
differ from estimates and assumptions, such as changes in the economic
environment, competition, customer claims, foreign exchange, taxation and
governmental programs. Certain of these risks, uncertainties and assumptions are
discussed under the heading Cautionary Statement Regarding Forward-Looking
Information and in Item 3.D - Risk Factors.

We
consider our most significant accounting policies to be those discussed
below:

Revenue
Recognition We apply the provisions of Statement of Position 97-2 of the
American Institute of Certified Public Accounts ("SOP 97-2"), "Software Revenue
Recognition" and Statement of Position 81-1 ("SOP 81-1") "Accounting for
performance of construction type and certain production type contracts", as
follows:

i)
Sales of licenses: Revenue from sale of products is recognized when delivery
has occurred, persuasive evidence of an arrangement exists, the sales price is
fixed or determinable and collection is probable. Customization of the product,
if any, is performed before delivery occurs. If collection is not considered
probable, revenue is recognized when the fee is collected.

We generally do not grant a
right of return on products sold to customers, distributors and resellers. In
the event the right of return is granted, revenue is recognized after such right
has expired.

ii)
Services: The services we provide consist of implementation, training,
hardware installation, maintenance, support, managed services and project
management.

All services are priced on a
fixed price basis and are recognized ratably over the period in which the
services are provided except services which are recognized under the
percentage-of-completion method as described below.

Revenues from managed services
include a monthly fee for services and for right of use and are recorded as
service revenues and license revenues, respectively. The monthly fee is based on
number of subscribers and the agreements include a minimum monthly charge. These
revenues are recognized on a monthly basis.

Products are mainly supplied
with maintenance and support services for a period of one year from delivery.
When revenue on sale of the products is recognized, we defer a portion of the
sales price and recognize it as maintenance and support service revenue ratably
over the above period. The portion of the sales price that is deferred is
determined based on the fair value of the service as priced in transactions in
which we render solely maintenance and support services.

Where the services are considered essential to the
functionality of the software products, both the software product revenue and
the revenue related to the integration and implementation services are
recognized under the percentage-of-completion method in accordance with SOP
81-1. We generally determine the percentage-of-completion by comparing the costs
incurred to date to the estimated total costs required to complete the project.
When the estimate indicates that a loss will be incurred, such loss is recorded
in the period identified. Significant judgments and estimates are involved in
determining the percent complete of each contract. Different assumptions could
yield materially different results.

Provision for Doubtful Accounts. The provision for
doubtful accounts is for estimated losses resulting from the inability of our
customers to make required payments. We regularly evaluate the adequacy of this
provision by taking into account variables such as past experience, age of the
receivable balance, and current economic conditions that may affect a customer's
ability to pay. The use of different estimates or assumptions could produce
different provision balances. If collection is not probable at the time the
transaction is consummated, we do not recognize revenue until cash collection.
If the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional provision for doubtful
accounts may be required.

*Taxes on Income*.

Substantially all of our production facilities in Israel
have been granted Approved Enterprise status under the Law for the Encouragement
of Capital Investments, 1959. Income we have derived from the Approved
Enterprise is tax exempt. In the event of distribution of cash dividends from
tax-exempt income, we are required to pay up to 25% tax in respect of the amount
distributed. For more information about Approved Enterprises, see Item 10.E
"Taxation - Law for the Encouragement of Capital Investments, 1959" and Note 9
to our financial statements contained in Item 18.

In previous years, we did not provide for deferred taxes
because we intended to reinvest the amounts of all such income and not to
distribute dividends from such income. Commencing 2003, we changed our policy
with regard to distribution of dividends out of earnings derived from tax-exempt
income.

Due to the accumulated tax losses, no additional tax
liability will be incurred by the Company as a result of dividend distribution
from the balance of undistributed income.

Recently Issued Accounting
Pronouncements.

Recently issued accounting pronouncements are described
in note 1 paragraph t to the consolidated financial statements contained in Item
18.

Our Functional Currency

The
currency of the primary economic environment in which we operate is the U.S.
dollar. In 2006, approximately 94% of our revenues were derived from sales
outside Israel, which were denominated primarily in U.S. dollars. In addition,
most of our marketing costs are incurred outside Israel, primarily in U.S.
dollars. Transactions and balances originally denominated in U.S. dollars are
presented at their original amounts. Balances in non-dollar currencies are
remeasured into U.S. dollars using historical and current exchange rates for
non-monetary and monetary balances, respectively. For non-dollar transactions
and other items reflected in our income statements, the following exchange rates
are used:

- for transactions, exchange rates at the transaction
  dates or average rates; and

- for other items (derived from non-monetary balance
  sheet items such as depreciation and amortization, changes in inventories or
  similar items), historical exchange rates.

The
resulting currency transaction gains or losses are reported as financial income
or expenses as appropriate.

Impact of Foreign Currency
Fluctuations on Results of Operations

The
U.S. dollar cost of our operations is influenced by the extent to which any
inflation in Israel is offset, on a lagging basis, or is not offset by the
devaluation of the NIS in relation to the U.S. dollar. When the rate of
inflation in Israel exceeds the rate of devaluation of the NIS against the U.S.
dollar, companies experience increases in the U.S. dollar cost of their
operations in Israel. Unless offset by a devaluation of the NIS against the U.S.
dollar, inflation in Israel or weakening of the U.S. dollar in global markets
will have a negative effect on our profitability as we receive payment in U.S.
dollars for most of our sales while we incur a portion of our expenses,
principally salaries and related personnel expenses, in NIS.

The
following table presents information about the rate of inflation in Israel, the
rate of devaluation of the NIS against the U.S. dollar, and the rate of
inflation of Israel adjusted for the devaluation:

|Years ended December 31, | Israeli Inflation Rate | Israeli Devaluation Rate | Israel Inflation Adjusted for
  Devaluation
|------------------------ | ---------------------- | ------------------------ | -------------------------------------------
|                         |                        |                          |                                            
|2002                     | 6.5                    | 7.3                      | (0.8)                                      
|2003                     | (1.9)                  | (7.6)                    | 5.7                                        
|2004                     | 1.2                    | (1.6)                    | 2.8                                        
|2005                     | 2.4                    | 6.8                      | (4.4)                                      
|2006                     | (0.1)                  | (8.2)                    | (8.1)                                      

We
cannot assure you that we will not be materially and adversely affected in the
future if inflation in Israel exceeds the devaluation of the NIS against the
U.S. dollar or if the timing of the devaluation lags behind inflation in
Israel.

A
devaluation of the NIS in relation to the U.S. dollar has the effect of reducing
the U.S. dollar amount of any of our expenses or liabilities which are payable
in NIS, unless these expenses or payables are linked to the U.S. dollar. This
devaluation also has the effect of decreasing the U.S. dollar value of any
asset, which consists of NIS or receivables payable in NIS, unless the
receivables are linked to the U.S. dollar. Conversely, any increase in the value
of the NIS in relation to the U.S. dollar has the effect of increasing the U.S.
dollar value of any unlinked NIS assets and the U.S. dollar amounts of any
unlinked NIS liabilities and expenses. Because exchange rates between the NIS
and the U.S. dollar fluctuate continuously, exchange rate fluctuations and
especially larger periodic devaluations will have an impact on our profitability
and period-to-period comparisons of our results. The effects of foreign currency
re-measurements are reported in our consolidated financial statements in current
operations.

B. Liquidity and Capital
Resources

Since our inception, we have financed our operations
mainly through cash generated by operations. We supplemented this source by two
private rounds of equity financing, the first in 1997 (with a follow-on in 1999)
and the second in 2000 and our initial public offering in 2000, which raised
total net proceeds in the amount of $44.3 million.

As
of December 31, 2006, we had approximately $37.6 million in cash, cash
equivalents and long-term marketable debentures, and our working capital was
$28.9 million. In our opinion, our working capital is sufficient for our
requirements for the foreseeable future.

Net
Cash Provided by/Used in Operating Activities. Net cash provided by
operating activities in 2004 was $7.7 million, attributable to our net income of
$6.9 million and non-cash related items, net, in the amount of $0.9 million,
offset by a net decrease in operating assets and liabilities items in the amount
of $0.1 million. Net cash provided by operating activities in 2005 was $0.9
million, attributable to our net income of $4.1 million and non-cash related
items, net, in the amount of $0.8 million, offset by a net decrease in operating
assets and liabilities items in the amount of $4.0 million. Net cash provided by
operating activities in 2006 was $0.6 million, attributable to our net income of
$0.9 million and non-cash related items, net, in the amount of $1.6 million,
offset by a net decrease in operating assets and liabilities items in the amount
of $1.9 million.

Cash
Deposits. Since March 2002, we have deposited most of our cash in
structured, callable time deposits. Under the arrangements with the banks,
whether or not the deposits bear interest depends upon the prevailing U.S.
dollar LIBOR rate. Interest is payable in respect of days during which the rate
is within a certain range and no interest is payable in respect of days during
which it exceeds the range. Until May 2005, we achieved relatively high interest
rates of over 7% per annum. Starting in May 2005, due to the increase of the
six-month LIBOR rate, the deposits did not bear interest, causing our financial
income to decrease substantially starting in the third quarter of 2005. In the
second quarter of 2006, we withdrew two of our three structured deposits
accounts in the amount of $20 million. The financial expenses arising from the
early redemption of these two deposits were $1.33 million. In the fourth quarter
of 2006, the third and last structured deposit in the amount of $10 million was
released with no penalty.

In
December 2006 we purchased marketable debentures in the amount of $10 million
for 54 months. The debentures mature in one settlement in 2011 and the issuer
has a call option in December 2007. The debentures bear interest at an annual
rate of 5.4% and are presented in our balance sheet among the investment and
other non-current assets.

In
accordance with our existing cash management policy, all our funds are currently
invested in risk-free bank deposits and interest-bearing, investment grade bonds
or debentures.

Net
Cash Provided by/Used in Investing Activities. During 2004, 2005 and 2006,
our principal investment activity was long-term bank deposits and marketable
debentures. In 2005 we also used $4.2 million for the acquisition of Sentori,
Inc.

Net
Cash Provided by/Used in Financing Activities. In 2004. our financing
activities used $2.2 million due to a cash dividend of $2.7 million, offset by
$0.5 million in proceeds from the exercise of employee stock options. In 2005,
our financing activities used $4.8 million due to a cash dividend of $5.1
million, offset by $0.3 million in proceeds from the exercise of employee stock
options. In 2006, our financing activities used $2.9 million due to cash
dividend of $3.0 million, offset by $0.1 million in proceeds from the exercise
of employee stock options.

Capital
Expenditures. During 2004, 2005 and 2006, the aggregate cash amounts of our
capital expenditures were $1.2 million, $0.6 million and $0.4 million,
respectively. These expenditures were principally for the purchase of property
and other equipment. Although we have no material commitments for capital
expenditures, we anticipate an increase in capital expenditures if we decide to
construct a building for our office in Romania or if we purchase or merge with
companies or purchase assets in order to obtain complementary technology and to
expand our product offerings, customer base and geographical presence.

Cash
Dividends. Since 2003 the Company distributed cash dividends of
approximately $0.85 per share to its shareholders: $0.14 per share in 2003,
$0.13 per share in 2004, $0.24 per share in 2005, $0.14 per share in 2006 and
$0.20 per share in 2007. For information about our dividend policy, please see
Item 8 - "Financial Information-Dividend Policy."

C. Research and Development,
Patents and Licenses, etc.

We
believe that significant investment in research and development is essential for
maintaining and expanding our technological expertise in the market for billing
and customer care software and to our strategy of being a leading provider of
new and innovative convergent billing products. We work closely with our
partners, customers and distribution channels, who provide significant feedback
for product development and innovation.

We
have invested significant time and resources to create a structured process for
undertaking research and product development. We believe that the method that we
use for our product development and testing is well suited for identifying
market needs, addressing the activities required to release new products, and
bringing development projects to market successfully. Our product development
activities also include the release of new versions of our products. Although we
expect to develop new products internally, we may, based upon timing and cost
considerations, acquire or license technologies or products from third
parties.

Our
research and development personnel include engineers and software developers
with experience in the development and design of billing and customer care
software. As of December 31, 2006, our research and development department
consisted of 182 employees out of a total of 317 employees.

D. Trend Information

Our
billing and customer care solutions target tier 2 and tier 3 service providers.
The need for comprehensive billing solutions is driven by the market trend that
requires service providers to introduce new services more rapidly, to be
innovative in creating new product offers and to optimize business processes for
maximum efficiency. In this environment, flexible and stable billing software is
seen as business critical. If a system fails, or service quality is degraded, it
can be highly detrimental to both a carrier's ability to collect revenue and to
its customer relations.

In
our experience, the most active market lately is the Next Generation Network
("NGN") market. Many service providers are moving towards networks where
IP-based equipment will carry a large proportion, and in some cases all, of
their traffic. These NGNs offer cost savings over traditional switched networks,
as well as the potential to offer new services like VoIP. We have a strong
reputation in areas such as mediation and VoIP billing, and our products are
designed to work with NGN's.

Integrating voice and data in enterprise switches (the
IP private branch exchanges, or IP PBX's) is a trend in which we are
participating. Our goal is to develop marketing and sales relationships with the
vendors of IP PBX's such as Avaya, Cisco Systems and 3Com under which our
enterprise software will be sold together with these vendors' systems. This
requires us to develop new sales channels with the distributors of IP PBX's.
This process is time consuming and requires the investment of some resources to
conclude the necessary agreements and to certify and train these new channel
partners.

E. Off-balance Sheet
Arrangements

We
do not have any off-balance sheet arrangements.

F. Tabular Disclosure of
Contractual Obligations

|                                                                                 | Payment due by period
|-------------------------------------------------------------------------------- | ---------------------
|                                                                                 |                      
|Contractual Obligations                                                          | **Total**            
|                                                                                 |                      
|Long-Term Debt
      Obligations                                                 | 0                    
|Capital (Finance)
      Lease Obligations                                        | 0                    
|Operating Lease
      Obligations                                                | $
      1,556,000    
|Purchase
      Obligations                                                       | 0                    
|Other Long-Term
      Liabilities Reflected on our Balance Sheet under U.S. GAAP | 0                    
|Total                                                                            | $
      1,556,000    

Item 6. Directors, Senior
Management and Employees

A. Directors and Senior
Management

The following table sets forth certain information
regarding our directors and executive officers as of the date of filing of this
annual report:

|Name                   | Age | Position                                                                            
|---------------------- | --- | ------------------------------------------------------------------------------------
|                       |     |                                                                                     
|Monica
      Eisinger  | 49  | President,
      Chairperson of the Board of Directors and Chief Executive
  Officer
|Oren
      Bryan       | 32  | Chief Financial
      Officer                                                       
|Doron
      Segal      | 42  | Chief Technology
      Officer                                                      
|Sagee
      Aran       | 43  | Vice President -
      Sales for Asia Pacific and Africa                            
|Danny
      Engle      | 38  | Vice President -
      Sales for North America                                      
|Tal
      Shain        | 39  | Vice President -
      Professional Services                                        
|Rimon
      Ben-Shaoul | 62  | Director                                                                            
|Menahem
      Shalgi   | 57  | Director                                                                            
|Zamir
      Bar-Zion   | 50  | Director                                                                            

The background of each of our directors and executive
officers is as follows:

Monica
Eisinger. Ms. Eisinger founded our company and has been President,
Chairperson and Chief Executive Officer of our company since inception. Prior to
founding MIND, Ms. Eisinger served as an information systems consultant to
Raphael, the Israeli Armaments Industry and directed over 40 projects. Ms.
Eisinger holds a B.Sc. degree in Computer Science and a M.Sc. degree in
Telecommunications (with expertise in Voice and Data Integration over the
Ethernet) from the Technion, Israel Institute of Technology.

Oren
Bryan. Mr. Bryan has served as our Chief Financial Officer since July 2006.
Mr. Bryan joined MIND in November 2005 as Controller. Since January 2002 until
joining MIND, Mr. Bryan worked for Dor Chemicals Ltd., a multinational public
company. Prior to that Mr. Bryan was the Controller of a private software
company and worked as an auditor at Ernst & Young (Israel). Mr. Bryan is a
Certified Public Accountant and holds a B.A. in Economics and Accounting from
Haifa University.

Doron
Segal. Mr. Segal has served as our Chief Technology Officer since October
2004. Prior thereto, he worked for eight years at Comverse, at which he held a
number of positions including AVP with responsibility for product requirement
definition and product level design. Mr. Segal holds an M.Sc. degree in Computer
Science from Bar Ilan University and a B.Sc. degree in Physics, Mathematics
& Computer Science from the Hebrew University.

Sagee
Aran. Mr. Aran joined our company in March 2000 and has served as our Vice
President of Sales for Asia Pacific and Africa since November 2003. Prior to
that, Mr. Aran served as our Vice President of Professional Services. Prior to
joining our company, he worked for seven years at HISH Ltd., a company
specializing in process engineering and management, at which he held a number of
positions including Operations Manager and International Sales and Marketing
Manager. Mr. Aran holds a B.Sc. in Engineering from the Technion, Israel
Institute of Technology.

Danny
Engle. Mr. Engle is VP of North American Sales for Sentori. In his role, Mr.
Engle has responsibilities for Sentori's North American Sales. Mr. Engle joined
Sentori in 2003 as Director of Sales, and later became Sentori's Vice President
of North American Sales. Prior to joining Sentori, Mr. Engle was District
Manager at Siebel Systems, a leading CRM solutions provider; Director of Sales
for SOTAS, a leading provider of network efficiency maximization tools for
communication service providers. Mr. Engle holds a B.S. in Business
Administration from the University of Texas.

Tal
Shain. Mr. Shain joined our company in June 1999 and has served as our Vice
President of Professional Services since February 2006. Prior thereto, Mr. Shain
served as our R&D Manager in Romania and Chief Architect. Mr. Shain holds a
B.Sc. degree in Computer Engineering from the Technion, Israel Institute of
Technology.

Rimon
Ben-Shaoul. Mr. Ben-Shaoul has served as a director of our company since
August 2002. Mr. Ben-Shaoul has served as the President and CEO of Polar
Communications Ltd. since 2004 and between 2001 and 2004 as the Co-Chairman,
President and CEO of Koonras Technologies Ltd., an investment company controlled
by Polar Investments Ltd. From 1997 to 2001 Mr. Ben-Shaoul served as the
President and CEO of Clal Industries and Investments Ltd. Mr. Ben-Shaoul serves
as Chairman of Cimatron Ltd. and Nipson Digital Printing Plc. and as a director
of Nice Systems Ltd. and B.V.R. Technologies Ltd. and as a director on the
boards of several privately held companies. Mr. Ben-Shaoul holds an M.B.A.
degree and a B.A. degree in Economics, both from Tel Aviv University.

Menahem
Shalgi. Mr. Shalgi has served as an external director of our company since
April 2005. Mr. Shalgi served at Amdocs as Vice President of Business
Development and M&A from 1998 to 2003 and as Vice President and Executive
Account Manager from 1993 to 1998. From 1991 to 1993, Mr. Shalgi served as the
Chief Executive Officer of WIZTEC Ltd. Prior thereto, Mr. Shalgi served at
Amdocs since 1985, at which he held a number of positions. Mr. Shalgi serves on
the advisory board of a private company and as a director of a privately held
company. Mr. Shalgi holds a B.A. degree in Economics and Statistics from
Tel-Aviv University and a M.Sc. degree in Computer Science from Weizmann
Institute for Science.

Zamir
Bar-Zion. Mr. Bar-Zion has served as an external director of our company
since June 2002. Since May 2006 to the present date, Mr. Bar-Zion is serving as
the Managing Director of Investment Banking at Leumi & Co. Investment House
in alliance with Jefferies Broadview. Mr. Bar-Zion has also served as the
Managing Director of Investment Banking at Excellence Nessuah/Piper Jaffray from
May 2004 to February 2006. Mr. Bar-Zion was a Managing Director for investment
banking at Nessuah Zannex & Co. from 1998 to 2001. Mr. Bar-Zion currently
serves as a director of the following three companies: Attunity Ltd., Lapidot
Cheletz Ltd. and as a chairperson of Lapidot Ltd. Mr. Bar-Zion holds a B.S.
degree in Computer Science and Finance from the New York Institute of
Technology, an M.A. degree in Finance from Pace University and has graduated
from the Program of Management Development at Harvard University.

B. Compensation of Directors and
Executive Officers

The
aggregate direct remuneration paid to all persons who served in the capacity of
director or executive officer during 2006 was approximately $1.6 million,
including approximately $123,000 that was set aside for pension and retirement
benefits. This does not include amounts expended by us for automobiles made
available to our officers or expenses, including business, travel, professional
and business association dues and expenses, reimbursed to officers, and do not
include equity based compensation expenses.

During 2006, options to purchase 208,000 ordinary shares
were granted to our directors and executive officers under our option plans.

Our
shareholders in a meeting held on April 7, 2005, resolved to grant each of our
five directors (at that time) options to purchase 18,000 ordinary shares. The
exercise price of the options is $3.82, which is equal to the per share closing
price of our ordinary shares on the Nasdaq Global Market on the trading date
immediately preceding the shareholders meeting approving the grant. The options
will vest in three equal annual installments on February 1, 2006, 2007 and 2008
and will expire on February 8, 2012. The shareholders also approved to pay each
non-executive director an annual fee of $8,000 and a participation fee of $400
per meeting, which is the same amount of fees paid to our external
directors.

C. Board Practices

Board of Directors

Our
board is divided into three classes of directors, denominated Class I, Class II
and Class III. The term of Class I will expire in 2007, Class II in 2008 and
Class III in 2009. Monica Eisinger is a member of Class I, Rimon Ben-Shaoul is a
member of Class II, and currently there is no director who is a member of Class
III. At each annual general meeting of shareholders, directors will be elected
by a simple majority of the votes cast for a three-year term to succeed the
directors whose terms then expire. There is no legal limit on the number of
terms that may be served by directors who are not external directors. Our
external directors are not members of any class.

The
initial term of an external director is three years and may be extended for one
additional term of three years. Thereafter, an external director may be
reelected by our shareholders for additional periods of up to three years each
in certain circumstances described below. Mr. Zamir Bar-Zion was re-elected to a
second term as an external director in April 2005, effective June 27, 2005. Mr.
Menahem Shalgi was elected as an external director in April 2005.

Under the Companies Law, our board of directors must
determine the minimum number of directors having financial and accounting
experience, as defined in the regulations, that our board of directors should
have. In determining the number of directors required to have such expertise,
the board of directors must consider, among other things, the type and size of
the company and the scope and complexity of its operations. Our board of
directors has determined that we require one director with the requisite
financial and accounting expertise and that Mr. Zamir Bar-Zion has such
expertise.

External Directors

Under the Companies Law, companies incorporated under
the laws of Israel whose shares are listed for trading on a stock exchange or
have been offered to the public in or outside of Israel are required to appoint
two external directors. External directors are required to possess professional
qualifications as set out in regulations promulgated under the Companies Law.
The Companies Law provides that a person may not be appointed as an external
director if the person or the person's relative, partner, employer or any entity
under the person's control has, as of the date of the person's appointment to
serve as an external director, or had, during the two years preceding that date,
any affiliation with:

- the company;
- any entity controlling the company; or
- any entity controlled by the company or by its
  controlling entity.

The term affiliation includes:

- an employment relationship;
- a business or professional relationship maintained on
  a regular basis;
- control; and
- service as an office holder.

The
Companies Law defines the term "office holder" of a company to include a
director, the chief executive officer, the chief business manager, a vice
president and any officer that reports directly to the chief executive
officer.

No
person can serve as an external director if the person's position or other
business creates, or may create, conflict of interests with the person's
responsibilities as an external director or may otherwise interfere with the
person's ability to serve as an external director.

Until the lapse of two years from termination of office,
a company may not engage an external director to serve as an office holder and
cannot employ or receive services from that person, either directly or
indirectly, including through a corporation controlled by that person.

As
mentioned above, the initial term of an external director is three years and may
be extended for one additional term of three years. Thereafter, an external
director may be reelected by our shareholders for additional periods of up to
three years each only if our audit committee and our board of directors confirm
that, in light of the external director's expertise and special contribution to
the work of the board of directors and its committees, the reelection for such
additional period is beneficial to the Company.

External directors are to be elected by a majority vote
at a shareholders' meeting, provided that either:

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

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

External directors may be removed from office only by the
same percentage of shareholders as is required for their election, or by a
court, and then only if the external directors cease to meet the statutory
qualifications for their appointment or if they violate their duty of loyalty to
the company. Each committee of a company's board of directors that exercises a
power of the board of directors is required to include at least one external
director, except for the audit committee, which is required to include all the
external directors.

Under the Companies Law, our board of directors is
required to appoint an audit committee, comprised of at least three directors
including all of the external directors, but excluding:

- the chairman of the board of directors; and

- a controlling shareholder or a relative of a
  controlling shareholder and any director employed by the company or who
  provides services to the company on a regular basis.

Under the Companies Law, the role of the audit committee
is to examine flaws in the management of the company's business, in consultation
with the internal auditor and the company's independent accountants, suggest
remedial measures, and to approve specified related party transactions. Our
audit committee consists of all our external directors and Mr. Rimon
Ben-Shaoul.

The
approval of the audit committee is required to effect specified actions and
transactions with office holders, controlling shareholders and entities in which
they have a personal interest. An audit committee may not approve an action or a
transaction with related parties or with its office holders unless at the time
of approval at least two external directors are serving as members of the audit
committee and at least one of who was present at the meeting in which any
approval was granted.

Under the Nasdaq rules, our audit committee assists the
board in fulfilling its responsibility for oversight of the quality and
integrity of our accounting, auditing and financial reporting practices and
financial statements and the independence qualifications and performance of our
independent auditors. Our audit committee also has the authority and
responsibility to oversee our independent auditors, to recommend for shareholder
approval the appointment and, where appropriate, replacement of our independent
auditors and to pre-approve audit engagement fees and all permitted non-audit
services and fees. We have adopted an audit committee charter, which sets forth
the qualifications, powers and responsibilities of our audit committee.

Our
audit committee also serves as (i) our compensation committee, authorized to
determine the compensation of our executive officers, (ii) our nominations
committee, authorized to recommend all director nominees for the selection of
the board of directors, provided that no such recommendation is required in
cases, if any, where the right to nominate a director legally belongs to a third
party, and (iii) our qualified legal compliance committee, responsible for
investigating reports, made by attorneys appearing and practicing before the SEC
in representing us, of perceived material violations of U.S. federal or state
securities laws, breaches of fiduciary duty or similar violations by us or any
of our agents.

All
three members of our audit committee are "independent directors" under the
Nasdaq rules and meet the additional qualifications for membership on an audit
committee.

Internal Auditor

Under the Companies Law, the board of directors must
appoint an internal auditor proposed by the audit committee. The role of the
internal auditor is to examine, inter alia, whether the company's actions comply
with the law and orderly business procedure. The internal auditor may not be an
interested party, an office holder, or a relative of any of the foregoing, nor
may the internal auditor be the company's independent accountant or its
representative. The Companies Law defines the term "interested party" to include
a person who holds 5% or more of the company's outstanding share capital or
voting rights, a person who has the right to appoint one or more directors or
the general manager, or any person who serves as a director or as the general
manager. The accounting firm of Deloitte Touche Tohmatsu serves as our internal
auditor.

Fiduciary Duties of Office
Holders

The
Companies Law imposes a duty of care and a duty of loyalty on all office holders
of a company. The duty of care requires an office holder to act with the level
of care with which a reasonable office holder in the same position would have
acted under the same circumstances. The duty of care includes a duty to use
reasonable means to obtain:

- 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.

The duty of loyalty of an office holder includes a duty
to:

- 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.

Disclosure of Personal Interest of
an Office Holder

The
Companies Law requires that an office holder of a company disclose to the
company any personal interest that he may have and all related material
information known to him, in connection with any existing or proposed
transaction by the company. The disclosure is required to be made promptly and
in any event no later than the board of directors meeting in which the
transaction is first discussed. If the transaction is an extraordinary
transaction, the office holder must also disclose any personal interest held
by:

- the office holder's spouse, siblings, parents,
  grandparents, descendants, spouse's descendants and the spouses of any of
  these people; or

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

Under Israeli law, an extraordinary transaction is a
transaction:

- 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.

Approval of Related Party
Transactions

Once an office holder complies with the above disclosure
requirement, the board of directors may approve a transaction between the
company and an office holder, or a third party in which an office holder has a
personal interest. A transaction that is adverse to the company's interest may
not be approved.

If
the transaction is an extraordinary transaction, approval of both the audit
committee and the board of directors is required. Under specific circumstances,
shareholder approval may also be required. A director who has a personal
interest in a transaction that is considered at a meeting of the board of
directors or the audit committee generally may not be present at this meeting or
vote on the matter, unless a majority of the members of the board of directors
or the audit committee, as the case may be, has a personal interest in the
matter. If a majority of members of the board of directors have a personal
interest therein, shareholder approval is also required.

Disclosure of Personal Interests
of a Controlling Shareholder

Under the Companies Law, the disclosure requirements,
which apply to an office holder, also apply to a controlling shareholder of a
public company. A controlling shareholder is a shareholder who has the ability
to direct the activities of a company, including a shareholder that owns 25% or
more of the voting rights if no other shareholder owns more than 50% of the
voting rights, but excluding a shareholder whose power derives solely from his
or her position on the board of directors or any other position with the
company. Extraordinary transactions with a controlling shareholder or in which a
controlling shareholder has a personal interest, and the engagement of a
controlling shareholder as an office holder or employee, require the approval of
the audit committee, the board of directors and the shareholders of the company,
in that order. The shareholder approval must be by a majority of the shares
voted on the matter, provided that either:

- at least one-third of the shares of shareholders who
  have no personal interest in the transaction and who vote on the matter vote
  in favor thereof; 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.

Shareholders generally have the right to examine any
document in the company's possession pertaining to any matter that requires
shareholder approval. If this information is made public in Israel or elsewhere,
we will file the information with the Securities and Exchange Commission in the
United States.

For
information concerning the direct and indirect personal interests of an office
holder and principal shareholders in specified transactions with us, see Item
7.B "Related Party Transactions."

Remuneration of Members of the
Board of Directors

Under the Companies Law, no director may be paid any
remuneration by the company for his services as director except as may be
approved by our audit committee, board of directors and shareholders. Our
external directors are entitled to consideration and reimbursement of expenses
only as provided in regulations promulgated under the Companies Law and are
otherwise prohibited from receiving any other consideration, directly or
indirectly, in connection with their service as external directors. The
compensation paid to our directors is described above in Item 6.B. Our directors
are not entitled to benefits upon termination of service.

Executive Officers

Our
executive officers are appointed by our board of directors and serve at the
discretion of our board of directors. We maintain written employment agreements
with our executive officers. Each agreement terminates upon 30 days' written
notice and provides for standard terms and conditions of employment. All of our
executive officers have agreed not to compete with us for 12 months (or 24
months in the case of Monica Eisinger) following the termination of their
employment with us. Monica Eisinger is entitled to severance pay upon
termination of her employment by either her or us (other than by us for cause)
and to receive, during each month of the six-month period following termination
of her employment by us, or by her for cause, an amount of salary and benefits
equal to her former monthly salary and other benefits. Under recent Israeli case
law, the non-competition undertakings of employees may not be enforceable.

D. Employees

The
numbers and breakdowns of our employees as of the end of the past three years
are set forth in the following table:

|                                                               | As of December 31,
|-------------------------------------------------------------- | ------------------
|                                                               |                   
|                                                               | 2004              
|                                                               |                   
|Approximate
      numbers of employees by geographic location  |                   
|Israel                                                         | 105               
|Romania                                                        | 140               
|United States                                                  | 4                 
|China                                                          | 3                 
|                                                               |                   
|Total workforce                                                | 252               
|Approximate
      numbers of employees by category of activity |                   
|General and administration                                     | 14                
|Research and development                                       | 154               
|Professional services and customer support                     | 60                
|Sales and marketing                                            | 24                
|                                                               |                   
|Total workforce                                                | 252               

We
are subject to Israeli labor laws and regulations with respect to our Israeli
employees. These laws principally concern matters such as paid annual vacation,
paid sick days, length of the work day and work week, minimum wages, pay for
overtime, insurance for work-related accidents and severance payments upon the
retirement or death of an employee or termination of employment under specified
circumstances. The severance payments may be funded, in whole or in part,
through Managers' Insurance or a Pension Fund, as described below. The payments
to the Managers' Insurance fund or Pension Fund toward severance amount to 8.3%
of wages. Furthermore, Israeli employees and employers are required to pay
predetermined sums to the National Insurance Institute, which is similar to the
U.S. Social Security Administration. Since January 1, 1995, these amounts also
include payments for health insurance. The payments to the National Insurance
Institute amount to approximately 17.7% of wages, of which the employee
contributes approximately two-thirds and the employer contributes approximately
one-third.

Our
general practice in Israel is to contribute funds on behalf of all of our
employees to Managers' Insurance or a Pension Fund. Each employee who agrees to
participate in the Managers' Insurance plan contributes 5% of his or her base
salary and we contribute 13.3%. Each employee who agrees to participate in the
Pension Fund contributes 5.0% or 5.5% of his or her base salary and we
contribute 14.3%. Another savings plan we offer some of our employees, although
not legally required, is known as the Advanced Studies Fund. Each employee who
agrees to participate in the Advanced Studies fund contributes 2.5% of his or
her base salary and we contribute 7.5%.

Furthermore, by order of the Israeli Ministry of Labor
and Welfare, all employers and employees are subject to provisions of collective
bargaining agreements between the Histadrut, Federation of Labor, and the
Coordination Bureau of Economic Organizations in Israel. These provisions
principally concern cost of living increases, recreation pay, commuting expenses
and other conditions of employment. We provide our employees with benefits and
working conditions above the required minimums. Our employees are not
represented by a labor union. To date, we have not experienced any work
stoppages and our relationships with our employees are good.

E. Share Ownership

As
of June 1, 2007, Monica Eisinger owned 4,094,000, or 19.0%, of our ordinary
shares. In addition, as of such date, Ms. Eisinger held options to acquire
18,000 ordinary shares at an exercise price of $3.82, which vest in equal
installments on February 1, 2006, 2007 and 2008 and will expire on February 8,
2012.

None of our other directors or members of senior
management beneficially owns 1% or more of our ordinary shares.

We
have established stock option plans to provide for the issuance of options to
our directors, officers and employees. Under the plans, options to purchase our
ordinary shares may be issued from time to time to our directors, officers and
employees at exercise prices and on other terms and conditions as determined by
our board of directors. Our board of directors determines the exercise price and
the vesting period of options granted.

The
option plans permit the issuance of options to acquire up to 4,308,000 ordinary
shares. As of June 1, 2007, options to purchase 1,114,010 ordinary shares were
outstanding and options for 978,290 ordinary shares had been exercised. The
options vest over three to five years, commencing on the date of grant.
Generally, options not previously exercised will expire approximately seven
years after they are granted. Our board of directors elected the capital gains
treatment afforded under Section 102 of the Israeli Income Tax Ordinance [New
Version], 1961, or the Tax Ordinance, in respect of options awarded under our
Israeli option plan after January 1, 2003. Accordingly, gains derived from
options awarded after January 1, 2003, and held by a trustee for at least two
years from the end of the tax year in which they were awarded (or in some cases
for 30 months from the date of grant), will generally be taxed as capital gains
at a rate of 25%, and we will generally not be entitled to recognize an expense
for the award of such options. For grants of options made on or after January 1,
2006, the aforesaid minimum holding period by the trustee is two years from the
date of grant of the options. On April 13, 2004, our annual general meeting
resolved to extend our share option plans until December 31, 2010.

Item 7. Major Shareholders and
Related Party Transactions

A. Major Shareholders

The
following table sets forth certain information regarding the beneficial
ownership of our ordinary shares as of June 1, 2007, unless otherwise specified,
by each person who is known to own beneficially more than 5% of the outstanding
ordinary shares.

|Name of Beneficial Owners | Total Shares Beneficially Owned | Percentage of Ordinary Shares(1)
|------------------------- | ------------------------------- | --------------------------------
|                          |                                 |                                 
|Monica
      Eisinger     | 4,106,000(2)                    | 19.0%(1)                        

1. Based on 21,592,510 ordinary shares outstanding on
  June 1, 2007
2. Includes 12,000 ordinary shares issuable upon the
  exercise of warrants that are exercisable on June 1, 2007 or within 60 days
  thereafter.

As
of June 1, 2007, there were seven holders of record of our ordinary shares in
the United States who collectively held less than 1% of our outstanding ordinary
shares. In addition to this amount, there were also 12,981,939 shares held by
the Depositary Trust Company in the United States. The number of record holders
in the United States is not representative of the number of beneficial holders
nor is it representative of where such beneficial holders are resident since
many of these ordinary shares were held of record by brokers or other
nominees.

B. Related Party
Transactions

None.

C. Interests of Experts and
Counsel

Not
applicable.

Item 8. Financial
Information

Financial Statements

See
Item 18.

Legal Proceedings

We
are not a party to any material legal proceedings.

Dividend Policy

According to our dividend policy adopted in 2003, we
plan to distribute a cash dividend once in each calendar year in an amount equal
to our net profits for the preceding calendar year, if any. The new policy
commenced in 2004 with respect to our net profits for 2003. Each dividend under
the policy is subject to board approval and the requirements of applicable law.
Our board of directors plans to declare the annual dividend when it approves the
applicable year-end financial statements. There is no guarantee that we will
have net profits in any given year, even if we have operating profit in that
year.

Item 9. The Offer and
Listing

A. Offer and Listing
Details

Our
ordinary shares have been quoted on the Nasdaq Global Market under the symbol
MNDO since August 8, 2000 and on the Tel Aviv Stock Exchange under the symbol
MIND since July 11, 2002.

The
following table sets forth, for the periods indicated, the high and low closing
prices of our ordinary shares as reported on the Nasdaq Global Market. The table
contains actual prices in U.S. dollars, without adjustment for dividends paid on
our ordinary shares.

|Period              | High | Low 
|------------------- | ---- | ----
|                    |      |     
|Last six
  months: 
|May
2007            | 3.05 | 2.66
|April
    2007      | 3.03 | 2.77
|March
    2007      | 2.94 | 2.74
|February
      2007 | 3.02 | 2.62
|January
      2007  | 2.75 | 2.59
|December
      2006 | 2.76 | 2.59
|                    |      |     
|Last nine quarters:
|Q1 2007             | 3.02 | 2.59
|Q4 2006             | 2.83 | 2.47
|Q3 2006             | 2.66 | 2.37
|Q2 2006             | 3.18 | 2.40
|Q1 2006             | 3.38 | 2.59
|Q4 2005             | 2.89 | 2.56
|Q3 2005             | 3.13 | 2.67
|Q2 2005             | 3.95 | 2.69
|Q1 2005             | 5.64 | 3.89
|                    |      |     
|Last five years:   
|2006                | 3.38 | 2.37
|2005                | 5.64 | 2.56
|2004                | 6.33 | 3.86
|2003                | 6.34 | 1.24
|2002                | 1.84 | 0.79

The
following table sets forth, for the periods indicated, the high and low closing
prices of our ordinary shares as reported on the Tel Aviv Stock Exchange. The
table contains actual prices in NIS, without adjustment for dividends paid on
our ordinary shares.

|Period                    | High  | Low  
|------------------------- | ----- | -----
|                          |       |      
|Last six
  months:       
|May
2007                  | 12.24 | 10.72
|April
    2007            | 12.40 | 11.44
|March
    2007            | 12.57 | 11.57
|February
      2007       | 12.97 | 11.22
|January
      2007        | 11.57 | 10.76
|December
      2006       | 11.33 | 10.89
|                          |       |      
|Last nine quarters:      
|Q1 2007                   | 12.97 | 10.76
|Q4 2006                   | 12.27 | 10.74
|Q3 2006                   | 11.51 | 10.69
|Q2 2006                   | 14.59 | 10.40
|Q1 2006                   | 15.55 | 11.79
|Q4 2005                   | 13.23 | 11.66
|Q3 2005                   | 14.80 | 12.31
|Q2 2005                   | 17.89 | 12.18
|Q1 2005                   | 24.92 | 18.36
|                          |       |      
|Last five years:         
|2006                      | 15.55 | 10.40
|2005                      | 24.92 | 11.66
|2004                      | 28.54 | 17.03
|2003                      | 27.94 | 5.00 
|2002 (From July
      11) | 5.90  | 5.00 

B. Plan Of Distribution

Not
applicable

C. Markets

Our
ordinary shares are quoted on the Nasdaq Global Market under the symbol MNDO,
and on the Tel-Aviv Stock Exchange under the symbol MIND.

D. Selling Shareholders

Not
applicable

E. Dilution

Not
applicable

F. Expenses of the Issue

Not
applicable

Item 10. Additional
Information

A. Share Capital

Not
applicable

B. Memorandum and Articles of
Associations

Objects and Purposes

We
were first registered under Israeli law on April 6, 1995 as a private company,
and on August 8, 2000 became a public company. Our registration number with the
Israeli registrar of companies is 51-213448-7. The full details of our objects
and purposes can be found in Section 2 of our Memorandum of Association filed
with the Israeli registrar of companies. Among the objects and purposes
stipulated are the following: "to engage in any kind of commercial and/or
productive business and to engage in any action or endeavor which the company's
managers consider to be beneficial to the company."

Transfer of Shares and
Notices

Fully paid ordinary shares are issued in registered form
and may be freely transferred pursuant to our articles of association unless
such transfer is restricted or prohibited by another instrument. Unless
otherwise prescribed by law, we will provide at least 21 calendar days' prior
notice of any general shareholders meeting.

Election of Directors

The
ordinary shares do not have cumulative voting rights in the election of
directors. Thus, the holders of ordinary shares conferring more than 50% of the
voting power have the power to elect all the directors, to the exclusion of the
remaining shareholders. Our board is divided into three classes of directors
serving staggered three-year terms, in addition to our external directors, who
are not members of any class.

According to the Israeli Companies Law, the term of a
director commences upon his election, unless the company's articles of
association permit a later effective date. In order to allow our shareholders to
elect a director for a term that commences on a later effective date, our
shareholders amended our articles of association on April 7, 2005.

Dividend and Liquidation
Rights

Dividends on our ordinary shares may be paid only out of
profits and other surplus, as defined in the Companies Law, as of our most
recent financial statements or as accrued over a period of two years, whichever
is higher, unless otherwise approved by a court order. Our board of directors is
authorized to declare dividends, provided that there is no reasonable concern
that the dividend will prevent us from satisfying our existing and foreseeable
obligations as they become due. In the event of our liquidation, after
satisfaction of liabilities to creditors, our assets will be distributed to the
holders of ordinary shares in proportion to their respective holdings. Dividend
or liquidation right may be affected by the grant of preferential dividends or
distribution rights to the holders of a class of shares with preferential rights
that may be authorized in the future.

Voting, Shareholders' Meetings and
Resolutions

Holders of ordinary shares have one vote for each
ordinary share held on all matters submitted to a vote of shareholders.

These voting rights may be affected by the grant of any
special voting rights to the holders of a class of shares with preferential
rights that may be authorized in the future.

We
have two types of general shareholders meetings: the annual general meetings and
extraordinary general meetings. These meetings may be held either in Israel or
in any other place the board of directors determines. An annual general meeting
must be held in each calendar year, but not more than 15 months after the last
annual general meeting. Our board of directors may convene an extraordinary
meeting, from time to time, at its discretion and is required to do so upon the
request of shareholders holding at least 5% of our ordinary shares.

The
quorum required for an ordinary meeting of shareholders consists of at least two
shareholders present in person or by proxy who hold or represent between them at
least 25% of the outstanding voting shares, unless otherwise required by
applicable rules. Nasdaq generally requires a quorum of 33-1/3%, but we have an
exemption from that requirement and instead follow the generally accepted
business practice for companies in Israel. A meeting adjourned for lack of a
quorum generally is adjourned to the same day in the following week at the same
time and place or any time and place as the Chairman may designate with the
consent of the shareholders voting on the matter adjourned. At such reconvened
meeting, the required quorum consists of any two members present in person or by
proxy, unless otherwise required by applicable rules.

Under the Companies Law, unless otherwise provided in
the articles of association or applicable law, all resolutions of the
shareholders require a simple majority of the shares present, in person or by
proxy, and voting on the matter. However, our articles of association require
approval of 75% of the shares present and voting to remove directors or change
the structure of our staggered board of directors.

We
have obtained an exemption from Nasdaq's requirement to send an annual report to
shareholders prior to our annual general meetings. We file annual reports on
Form 20-F electronically with the SEC and post a copy on our website.

Duties of Shareholders

Under the Companies Law, each and every shareholder has
a duty to act in good faith in exercising his rights and fulfilling his
obligations towards the company and other shareholders and to refrain from
abusing his power in the company, such as in voting in the general meeting of
shareholders on the following matters:

- any amendment to the articles of association;

- an increase of the company's authorized share capital;

- a merger; or

- approval of certain actions and transactions which
  require shareholder approval.

In
addition, each and every shareholder has the general duty to refrain from
depriving rights of other shareholders. Furthermore, any controlling
shareholder, any shareholder who knows that it possesses the power to determine
the outcome of a shareholder vote and any shareholder that, pursuant to the
provisions of the articles of association, has the power to appoint or to
prevent the appointment of an office holder in the company or any other power
toward the company is under a duty to act in fairness towards the company. The
Companies Law does not describe the substance of this duty of fairness. These
various shareholder duties, which typically do not apply to shareholders of U.S.
companies, may restrict the ability of a shareholder to act in what the
shareholder perceives to be its own best interests.

Restrictions on Non-Israeli
Residents

The
ownership or voting of our ordinary shares by non-residents of Israel, except
with respect to citizens of countries which are in a state of war with Israel,
is not restricted in any way by our memorandum of association or articles of
association or by the laws of the State of Israel.

Mergers and Acquisitions under
Israeli Law

The
Companies Law includes provisions that allow a merger transaction and requires
that each company that is party to a merger approve the transaction by its board
of directors and a vote of the majority of its shares, voting on the proposed
merger at a shareholders' meeting. For purposes of the shareholder vote, unless
a court rules otherwise, the merger will not be deemed approved if a majority of
the shares held by parties other than the other party to the merger, or by any
person who holds 25% or more of the shares or the right to appoint 25% or more
of the directors of the other party, vote against the merger. Upon the request
of a creditor of either party of the proposed merger, the court may delay or
prevent the merger if it concludes that there exists a reasonable concern that
as a result of the merger, the surviving company will be unable to satisfy the
obligations of any of the parties to the merger. In addition, a merger may not
be completed unless at least (i) 50 days have passed from the time that a
proposal of the merger has been filed by each party with the Israeli Registrar
of Companies and (ii) 30 days have passed since the merger was approved by the
shareholders of each party.

The
Companies Law also provides that an acquisition of shares of public company must
be made by means of tender offer if as a result of the acquisition the purchaser
would become a 25% or more shareholder of the company and there is no 25% or
more shareholder in the company. In addition, an acquisition of shares of a
public company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 45% or more shareholder of the company
and there is no 45% or more shareholder in the company. These requirements do
not apply if the acquisition (i) is made in a private placement that received
shareholder approval, (ii) was from a 25% shareholder of the company and
resulted in the acquirer becoming a 25% shareholder of the company or (iii) was
from a 45% shareholder of the company and resulted in the acquirer becoming a
45% shareholder of the company. The tender offer must be extended to all
shareholders, but the offer or is not required to purchase more than 5% of the
company's outstanding shares, regardless of how many shares are tendered by
shareholders. The tender offer may be consummated only if (i) at least 5% of the
company's outstanding shares will be acquired by the offer or and (ii) the
number of shares tendered in the offer exceeds the number of shares whose
holders objected to the offer.

If
as a result of an acquisition of shares the acquirer will hold more than 90% of
a company's outstanding shares, the Companies Law requires that the acquisition
be made by means of a tender offer for all of the outstanding shares. If as a
result of a full tender offer the acquirer would own more than 95% of the
outstanding shares, then all the shares that the acquirer offered to purchase
will be transferred to it. The law provides for appraisal rights if any
shareholder files a request in court within three months following the
consummation of a full tender offer. If as a result of a full tender offer the
acquirer would own 95% or less of the outstanding shares, then the acquirer may
not acquire shares that will cause his shareholding to exceed 90% of the
outstanding shares.

Finally, Israeli tax law treats stock-for-stock
acquisitions between an Israeli company and a foreign company less favorably
than does U.S. tax law. For example, Israeli tax law subjects a shareholder who
exchanges his ordinary shares for shares in another corporation to taxation
prior to the sale of the shares received in such stock-for-stock swap.

Modification of Class
Rights

Our
articles of association provide that the rights attached to any class (unless
otherwise provided by the terms of such class), such as voting, rights to
dividends and the like, may be varied by a shareholders resolution, subject to
the approval of the holders of a majority of the issued shares of that
class.

Board of Directors

According to the Companies Law and our articles of
association, the oversight of the management of our business is vested in our
board of directors. The board of directors may exercise all such powers and may
take all such actions that are not specifically granted to our shareholders. As
part of its powers, our board of directors may cause the company to borrow or
secure payment of any sum or sums of money, at such times and upon such terms
and conditions as it thinks fit, including the grants of security interests on
all or any part of the property of the company.

A
resolution proposed at any meeting of the board of directors shall be deemed
adopted if approved by a majority of the directors present and voting on the
matter. For additional information, please see Item 6.C "Board Practices".

Exculpation of Office
Holders

Under the Companies Law, an Israeli company may not
exempt an office holder from liability for a breach of his duty of loyalty, but
may exempt in advance an office holder from his liability to the company, in
whole or in part, for a breach of his duty of care (except in connection with
distributions) provided the articles of association of the company allow it to
do so. Our articles allow us to exempt our office holders to the fullest extent
permitted by law.

Insurance of Office
Holders

Our
articles of association provide that, subject to the provisions of the Companies
Law, we may enter into a contract for the insurance of the liability of any of
our office holders, with respect to an act performed in the capacity of an
office holder for:

- 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.

Indemnification of Office
Holders

Our
articles of association provide that we may indemnify an office holder against
the following obligations and expenses imposed on or incurred by the office
holder with respect to an act performed in the capacity of an office holder:

- a financial obligation imposed on him in favor of
  another person by a court judgment, including a settlement or an arbitrator's
  award approved by the 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 attorneys'
  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 attorneys'
  fees, expended by the office holder or charged to him by a court in connection
  with:
  proceedings we institute against him or instituted
    on our behalf or by another person;a criminal charge from which he was acquitted; ora criminal proceeding in which he was convicted of
    an offense that does not require proof of criminal intent.
- proceedings we institute against him or instituted
    on our behalf or by another person;
- a criminal charge from which he was acquitted; or
- a criminal proceeding in which he was convicted of
    an offense that does not require proof of criminal intent.

Limitations on Exculpation,
Insurance and Indemnification

The
Companies Law provides that a company may not exculpate or indemnify an office
holder, or enter into an insurance contract, which would provide coverage for
any monetary liability incurred as a result of any of the following:

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

- 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.

In
addition, under the Companies Law, indemnification of, and procurement of
insurance coverage for, our office holders must be approved by our audit
committee and our board of directors and, if the beneficiary is a director, by
our shareholders.

We
have agreed to exempt from liability and indemnify our office holders to the
fullest extent permitted under the Companies Law. We have obtained directors and
officers liability insurance for the benefit of our office holders.

C. Material Contracts

None.

D. Exchange Controls

There are currently no Israeli currency control
restrictions on payments of dividends or other distributions with respect to our
ordinary shares or the proceeds from the sale of the shares, except for the
obligation of Israeli residents to file reports with the Bank of Israel
regarding certain transactions. However, legislation remains in effect, pursuant
to which currency controls can be imposed by administrative action at any
time.

E. Taxation

Israeli Tax Considerations

The
following is a summary of the current tax structure applicable to companies in
Israel, with special reference to its effect on us. Note that this tax structure
and any resulting benefit may not apply for any income derived by our foreign
subsidiaries, which subsidiaries may be taxed according to tax laws applicable
to their country of residence. The following also contains a discussion of the
material Israeli and United States tax consequences to persons purchasing our
ordinary shares. To the extent that the discussion is based on tax legislation,
which has not been subject to judicial or administrative interpretation, we
cannot assure you that the tax authorities or courts will accept the views
expressed in the discussion in question.

Prospective purchasers of our ordinary shares should
consult their own tax advisors as to the United States, Israeli or other tax
consequences of the purchase, ownership and disposition of ordinary shares,
including, in particular, the effect of any foreign, state or local taxes.

General Corporate Tax
Structure

The
general rate of corporate tax in Israel to which Israeli companies are subject
is 31% for the 2006 tax year and 29% for the 2007 tax year. Following an
amendment to the Israeli Income Tax Ordinance that came into effect on January
1, 2006, the corporate tax rate is expected to decrease as follows: 27% for the
2008 tax year, 26% for the 2009 tax year and 25% for the 2010 tax year and
thereafter. The general rate of capital gains tax in Israel to which Israeli
companies are subject is 25%, for capital gains derived after January 1, 2003
other than gains deriving from the sale of listed securities (regarding the last
statement, it relates only to assets that were purchased after 1.1.03. If the
asset was purchased before 1.1.03, and sold after said date, the applicable tax
rate will be determined according to a blended tax rates of 25% and the
corporate tax rate that was in forth on the date of the sale (based on a linear
calculation)). However, the effective tax rate payable by a company which
derives income from an "Approved Enterprise" (as defined below) may be
considerably less, as further discussed below.

Law for the Encouragement of
Capital Investments, 1959

General

The
Law for Encouragement of Capital Investments, 1959, or the Investments Law, as
in effect until 2005, provided that upon application to the Investment Center of
the Ministry of Industry and Trade of the State of Israel, a proposed capital
investment in eligible facilities may be designated as an "Approved Enterprise".
Please see discussion below regarding an amendment to the Investments Law.

Each certificate of approval for an Approved Enterprise
relates to a specific investment program delineated both by its financial scope,
including its capital sources, and by its physical characteristics, such as the
equipment to be purchased and utilized pursuant to the program. The tax benefits
derived from any such certificate of approval relate only to taxable income
derived from the specific Approved Enterprise. Tax benefits under the
Investments Law will also apply to income generated by a company from the grant
of a usage right with respect to know-how developed by the Approved Enterprise,
income generated from royalties, and income derived from a service which is
auxiliary to such usage right of royalties, provided that such income is
generated within the Approved Enterprise's ordinary course of business. If a
company has more than one approval or only a portion of its capital investments
are approved, its effective tax rate is the result of a weighted combination of
the applicable rates. The benefits under the Investments Law are usually not
available with respect to income derived from products manufactured outside of
Israel.

Taxable income of a company derived from an Approved
Enterprise is subject to corporate tax at the maximum rate of 25%, rather than
the regular corporate tax rate, for the benefit period. That income is eligible
for further reductions in tax rates depending on the percentage of the foreign
investment in the company's share capital (conferring rights to profits, voting
and appointment of directors) and the percentage of its combined share and loan
capital owned by non-Israeli residents ("foreign investment level"). The tax
rate is:

- 20% if the foreign investment level is 49% or more but
  less than 74%;

- 15% if the foreign investment level is 74% or more but
  less than 90%; and

- 10% if the foreign investment level is 90% or more.

The
lowest level of foreign investment during the tax year will be used to determine
the relevant tax rate for that year. These tax benefits are granted for a
limited period not exceeding seven years, or ten years for a company whose
foreign investment level exceeds 25% from the first year in which the Approved
Enterprise has taxable income.

The
period of benefits may in no event, however, exceed the lesser of 12 years from
the year in which production commenced and 14 years from the year of receipt of
Approved Enterprise status.

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

The
Alternative Route

A
company owning an Approved Enterprise may elect to receive, in lieu of certain
grants available to an Approved Enterprise, an alternative package of benefits.
Under the alternative package, the company's undistributed income derived from
an Approval Enterprise will be exempt from tax for a period of between two and
ten years from the first year of taxable income, depending on the geographic
location of the Approved Enterprise within Israel, and the company will be
eligible for the tax benefits under the Investments Law for the remainder of the
benefit period.

General
Requirements by the Investment Center

The
benefits available to an Approved Enterprise are conditional upon compliance
with the conditions stipulated in the Investments Law and related regulations
and the criteria set forth in the specific certificate of approval. In the event
that a company violates these conditions, in whole or in part, it may be
required to refund all or a portion of its tax benefits, linked to the Israeli
consumer price index and interest. These conditions include:

- adhering to the business plan contained in the
  application to the Investment Center;

- financing at least 30% of the investment in property,
  plant and equipment with the proceeds of the sale of shares;

- filing regular reports with the Investment Center with
  respect to the Approved Enterprise; and

- obtaining the approval of the Investment Center for
  changes in the ownership of a company.

The
Company's Approved Enterprises

Most of our manufacturing facilities in Yoqneam have
been granted the status of Approved Enterprise. Since our manufacturing
facilities are located in an area that was designated by the State of Israel as
"Development Area A" at the time of the approval of our three existing Approved
Enterprises, and since we elected to receive the alternative package of benefits
(involving waiver of investment grants), our income derived from each Approved
Enterprise is tax exempt for a period of ten years commencing in the first year
in which we earn taxable income from each Approved Enterprise. To date, we have
three Approved Enterprises. The period of tax benefits of the first approved
enterprise, which commenced operations in 1995, expired at the end of 2004. The
period of tax benefits in respect of the second approved enterprise entitled to
the said benefits commenced in 2000 and will expire at the end of 2009. The
period of tax benefits in respect of the third approved enterprise has not yet
commenced.

Dividends Taxation

When dividends are distributed from the Approved
Enterprise, they are generally considered to be attributable to the entire
enterprise and their effective tax rate is a result of a weighted combination of
the applicable tax rates. A company that has elected the alternative package of
benefits is not obliged to distribute exempt retained profits, and may generally
decide from which year's profits to declare dividends. In the event that we pay
a cash dividend from income that is derived from our Approved Enterprises
pursuant to the alternative package of benefits, which income would otherwise be
tax-exempt, we would be required to pay tax on the amount of income distributed
as dividends at the rate which would have been applicable if we had not elected
the alternative package of benefits, that rate is generally 10% to 25%,
depending upon the extent of foreign investment in the Company, and to withhold
at source on behalf of the recipient of the dividend an additional 15% of the
amount distributed.

In
March 2007, we distributed to our shareholders approximately $4.3 million.
Since, at that time we had insufficient retained earnings, the dividend was
distributed after obtaining an approval by an Israeli court in accordance with
Section 303 of the Israeli Companies Law. According to a pre-ruling received
from the Israeli Tax Authority, tax was withheld at a rate of 20%. This
pre-ruling applies only to this particular dividend and not to future dividends,
if any.

Amendment of the Investments Law

On
April 1, 2005, an amendment to the Investments Law came into effect. Pursuant to
the amendment, a company's facility will be granted the status of "Approved
Enterprise" only if it is proven to be an industrial facility (as defined in the
Investments Law) that contributes to the economic independence of the Israeli
economy and is a competitive facility that contributes to the Israeli gross
domestic product. The amendment provides that the Israeli Tax Authority and not
the Investment Center will be responsible for an Approved Enterprise under the
alternative package of benefits, referred to as a Benefited Enterprise. A
company wishing to receive the tax benefits afforded to a Benefited Enterprise
is required to select the tax year from which the period of benefits under the
Investment Law are to commence by simply notifying the Israeli Tax Authority
within 12 months of the end of that year. In order to be recognized as owning a
Benefited Enterprise, a company is required to meet a number of conditions set
forth in the amendment, including making a minimal investment in manufacturing
assets for the Benefited Enterprise and having completed a cooling-off period of
no less than two to four years from the company's previous year of commencement
of benefits under the Investments Law.

Pursuant to the amendment, a company with a Benefited
Enterprise is entitled, in each tax year, to accelerated depreciation for the
manufacturing assets used by the Benefited Enterprise and to certain tax
benefits, provided that no more than 12 to 14 years have passed since the
beginning of the year of commencement of benefits under the Investments Law. The
tax benefits granted to a Benefited Enterprise, as they apply to us, are
determined according one of the following new tax routes:

- 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; and

- 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; and

Generally, a company that is "abundant in foreign
investment" (as defined in the Investments Law) is entitled to an extension of
the benefits period by an additional five years, depending on the rate of its
income that is derived in foreign currency.

The
amendment changed the definition of "foreign investment" in the Investments Law
so that instead of an investment of foreign currency in the company, the
definition now requires a minimal investment of NIS 5 million by foreign
investors. Furthermore, such definition now also includes the purchase of shares
of a company from another shareholder, provided that the company's outstanding
and paid-up share capital exceeds NIS 5 million. Such changes to the
aforementioned definition are retroactive from 2003.

The
amendment applies to Approved Enterprise programs in which the year of
commencement of benefits under the Investments Law is 2004 or later, unless such
programs received approval from the Investment Center on or prior to December
31, 2004, in which case the provisions of the amendment will not apply.

As
a result of the amendment, tax-exempt income that will be generated under the
provisions of the amendment will subject the Company to taxes upon distribution
or liquidation. Therefore, if the Company holds a Benefited Enterprise it may be
required to record deferred tax liability with respect to such tax-exempt
income.

Law for the Encouragement of
Industry (Taxes), 1969

Under the Law for the Encouragement of Industry (Taxes),
1969, or the Industry Encouragement Law, a company qualifies as an "Industrial
Company" if it is resident in Israel and at least 90% of its income in a given
tax year, determined in NIS, exclusive of income from capital gains, interest
and dividends, is derived from Industrial Enterprises owned by that company. An
"Industrial Enterprise" is defined as an enterprise whose major activity in a
particular tax year is industrial production activity.

Industrial Companies qualify (based on tax regulations)
for accelerated depreciation rates for machinery, equipment and buildings used
by an Industrial Enterprise. An Industrial Company owning an Approved
Enterprise, as described above, may choose between the above depreciation rates
and the depreciation rates available to Approved Enterprises.

Pursuant to the Industry Encouragement Law, an
Industrial Company is also entitled to amortize the purchase price of know-how
and patents over a period of eight years beginning with the year in which such
rights were first used.

In
addition, an Industrial Company is entitled to deduct over a three-year period
expenses involved with the issuance and listing of shares on a stock exchange
and has the right, under certain conditions, to elect to file a consolidated tax
return with related Israeli Industrial Companies that satisfy conditions set
forth in the law.

Eligibility for the benefits under the law is not
subject to receipt of prior approval from any governmental authority. We believe
that we currently qualify as an Industrial Company within the definition of the
Industry Encouragement Law. However, the definition may be amended from time to
time and the Israeli tax authorities, which reassess our qualifications
annually, may determine that we no longer qualify as an Industrial Company. As a
result of either of the foregoing, the benefits described above might not be
available in the future.

Taxation Under Inflationary
Conditions

The Income Tax (Inflationary Adjustment) Law, 1985,
commonly referred to as the Inflationary Adjustments Law, attempts to overcome
some of the problems presented to a traditional tax system by rapid inflation.
The Inflationary Adjustments Law provides tax deductions and adjustments to
depreciation deduction and tax loss carry forwards to mitigate the effects
resulting from an inflationary economy. Our taxable income is determined under
this law. The Inflationary Adjustments Law features, which may be material to
us, can be summarized as follows:

- There is a special tax adjustment for the preservation
  of equity whereby some corporate assets are classified broadly into fixed
  assets and non-fixed assets. Where a company's equity, as defined in such law,
  exceeds the depreciated cost of fixed assets, a deduction from taxable income
  that takes into account the effect of the applicable annual rate of inflation
  on such excess is allowed up to a ceiling of 70% of taxable income in any
  single tax year, with the unused portion permitted to be carried forward on a
  linked basis. If the depreciated cost of fixed assets exceeds a company's
  equity, then such excess multiplied by the applicable annual rate of inflation
  is added to taxable income.

- Subject to specific limitations, depreciation
  deductions on fixed assets and losses carried forward are adjusted for
  inflation based on the increase in the consumer price index.

The
Israeli Income Tax Ordinance and regulations promulgated thereunder allow
"Foreign-Invested Companies," which maintain their accounts in U.S. dollars in
compliance with the regulations to adjust their tax returns based on exchange
rate fluctuations of the NIS against the U.S. dollar rather than changes in the
Israeli consumer price index, or CPI, in lieu of the principles set forth by the
Inflationary Adjustments Law. For these purposes, a Foreign-Invested Company is
a company more than 25% of the share capital of which in terms of rights to
profits, voting and appointment of directors, and of the combined share capital
of which including shareholder loans and capital notes, is held by persons who
are not residents of Israel. A company that elects to measure its results for
tax purposes based on the U.S. dollar exchange rate cannot change the election
for a period of three years following the election. We adjust our tax returns
based on the changes in the Israeli CPI. Because we qualify as a
"Foreign-Invested Company," we are entitled to measure our results for tax
purposes on the basis of changes in the exchange rate of the U.S. dollar in
future tax years.

Capital Gains Tax on the Sale of
our Ordinary Shares

General

Israeli law generally imposes a capital gains tax on the
sale of any capital assets by residents of Israel, as defined for Israeli tax
purposes, and on the sale of assets located in Israel, including shares in
Israeli companies, by non-residents of Israel, unless a specific exemption is
available or unless a tax treaty between Israel and the shareholder's country of
residence provides otherwise. The law distinguishes between real gain and
inflationary surplus. The inflationary surplus is equal to the increase in the
purchase price of the relevant asset attributable to the increase in the Israeli
consumer price index or, in certain circumstances, a foreign currency exchange
rate, between the date of purchase and the date of sale. The real gain is the
excess of the total capital gain over the inflationary surplus.

Israeli
Residents

Generally, the tax rate applicable to capital gains
derived from the sale of shares, whether listed on a stock market or not, is 20%
for Israeli individuals, unless such shareholder claims a deduction for
financing expenses in connection with such shares, in which case the gain will
generally be taxed at a rate of 25%. Additionally, if such shareholder is
considered a "significant shareholder" at any time during the 12-month period
preceding such sale, i.e., such shareholder holds directly or indirectly,
including with others, at least 10% of any means of control in the company, the
tax rate will be 25%. Israeli companies are subject to the corporate tax rate on
capital gains derived from the sale of shares, unless such companies were not
subject to the Inflationary Adjustments Law (or certain regulations) at the time
of publication of the aforementioned amendment to the Tax Ordinance that came
into effect on January 1, 2006, in which case the applicable tax rate is 25%.
However, the foregoing tax rates will not apply to: (i) dealers in securities;
and (ii) shareholders who acquired their shares prior to an initial public
offering (that may be subject to a different tax arrangement).

The
tax basis of shares acquired prior to January 1, 2003 will be determined in
accordance with the average closing share price in the three trading days
preceding January 1, 2003. However, a taxpayer may elect the actual adjusted
cost of the shares as the tax basis provided he can provide sufficient proof of
such adjusted cost.

Non-Residents of Israel

Non-Israeli residents are generally exempt from Israeli
capital gains tax on any gains derived from the sale of shares publicly traded
on the TASE, provided such gains are not derived from a permanent establishment
of such shareholders in Israel, and are exempt from Israeli capital gains tax on
any gains derived from the sale of shares of Israeli companies publicly traded
on a recognized stock exchange or regulated market outside of Israel, provided
that such capital gains are not attributed to a permanent establishment in
Israel and that such shareholders are not subject to the Inflationary
Adjustments Law and did not acquire their shares prior to the issuer's initial
public offering. However, non-Israeli corporations will not be entitled to such
exemption if an Israeli resident (i) has a controlling interest of 25% or more
in such non-Israeli corporation, or (ii) is the beneficiary of or is entitled to
25% or more of the revenues or profits of such non-Israeli corporation, whether
directly or indirectly.

Furthermore, under the income tax treaty between the
U.S. and Israel, known as the U.S.-Israel Tax Treaty, a holder of ordinary
shares who holds the ordinary shares as a capital asset and who qualifies as a
U.S. resident within the meaning of the U.S.-Israel Tax Treaty and who is
entitled to claim the benefits afforded to such resident by the U.S.-Israel Tax
Treaty will be generally exempted from Israeli capital gains tax on the sale,
exchange or disposition of ordinary shares unless: (i) the holder owned,
directly or indirectly, 10% or more of our voting power at any time during the
12-month period before the sale, exchange or disposition; or (ii) the capital
gains from such sale, exchange or disposition can be allocated to a permanent
establishment in Israel.

In
some instances where our shareholders may be liable to Israeli tax on the sale
of their ordinary shares, the payment of the consideration may be subject to the
withholding of Israeli tax at the source. However, such residents would be
permitted to claim a credit for such taxes against U.S. federal income tax
imposed with respect to such sale, exchange or disposition, subject to the
limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax
Treaty does not relate to state or local taxes.

A
non-resident of Israel who receives dividend income or that realizes capital
gains derived from the sale of our ordinary shares, from which tax was withheld
at the source, is generally exempted from the duty to file tax returns in Israel
with respect to such income, provided such income was not derived from a
business conducted in Israel by the taxpayer and the taxpayer has no other
taxable sources of income in Israel.

Dividend Taxation

Income Taxes on Dividends Distributed by the Company to
Israeli Residents

The
distribution of dividend income to Israeli residents will generally be subject
to income tax at a rate of 20% for individuals and will be exempt from income
tax for corporations. The portion of dividends paid out of profits earned under
an Approved Enterprise tax status of the Company, to both individuals and
corporations, is subject to withholding tax at the rate of 15% (in excess of the
corporate tax paid by the company when the dividend is paid of these profits -
25% tax).

In
addition, If an Individual Israeli shareholder is considered a "principal
shareholder" at any time during the 12-month period preceding such sale, i.e.,
such shareholder holds directly or indirectly, including with others, at least
10% of any means of control in the company, the tax rate on the dividend (not
source from Approved Enterprise income) will be 25%. The withholding tax by the
Company on such dividend would remain 20%.

Income Taxes on Dividends Distributed by the Company to
Non-Israeli Residents

Subject to the provisions of applicable tax treaties,
dividend distributions from regular profits (non-Approved Enterprise) by the
Company to a non-resident shareholder are generally subject to withholding tax
of 20%. The portion of dividends paid out of profits earned under an Approved
Enterprise tax status of the Company is subject to withholding tax at the rate
of 15% (in excess of the corporate tax paid by the company when the dividend is
paid of these profits - 25% tax).

Generally, under the Tax Treaty Between the Government
of the United States of America and the Government of the State of Israel with
Respect to Taxes on Income ("US Treaty") the maximum rate of withholding tax on
dividends paid to a shareholder who is a resident of the United States (as
defined in the US Treaty) will be 25%. Due to the fact that a tax rate of 25% is
higher than the maximum Israeli tax rate on dividends pursuant to the 2006 Tax
Reform, the maximum tax rate should be 20%. . However, when a U.S. tax resident
corporation is the recipient of the dividend, the rate on a dividend out of
regular (non-Approved Enterprise) profits may be reduced to 12.5% under the
treaty, where the following conditions are met:

1. the recipient corporation owns at least 10% of the
  outstanding voting rights of the Company for all of the period preceding the
  dividend during the Company's current and prior taxable year; and
2. generally not more than 25% of the gross income of the
  paying corporation for its prior tax year consists of certain interest and
  dividend income.

Otherwise, the usual rates apply.

U.S
Residents

Under the U.S.-Israel Tax Treaty, the maximum Israeli
tax on dividends paid to a holder of ordinary shares who is a U.S. resident (as
defined in the treaty) is 25%, and if such shareholder is a U.S. corporation
holding at least 10% of the issued voting shares throughout the tax year in
which the dividend is distributed as well as the previous tax year the tax rate
is 12.5% (however this reduced rate will not apply if more than 25% of the
Company's gross income consists of interest or dividends, other than dividends
or interest received from subsidiary corporations), or 15% for dividends of
income generated from an Approved Enterprise (or Benefited Enterprise).

United States Federal Income Tax
Considerations

Subject to the limitations described in the next
paragraph, the following discussion describes the material United States federal
income tax consequences of the purchase, ownership and disposition of the
ordinary shares to a U.S. holder.

A
U.S. holder is:

- an individual citizen or resident of the United
  States;

- a corporation or another entity taxable as a
  corporation created or organized under the laws of the United States or any
  political subdivision thereof;

- an estate, the income of which is includable in gross
  income for United States federal income tax purposes regardless of its source;
  or

- a trust, if a United States court is able to exercise
  primary supervision over its administration and one or more United States
  persons who have the authority to control all substantial decisions of the
  trust.

Unless otherwise specifically indicated, this summary
does not consider United States tax consequences to a person that is not a U.S.
holder and considers only U.S. holders that will own the ordinary shares as
capital assets.

This discussion is based on current provisions of the
Internal Revenue Code of 1986, as amended, referred to as the Code, current and
proposed Treasury regulations promulgated under the Code, and administrative and
judicial interpretations of the Code, all as in effect today and all of which
are subject to change, possibly with a retroactive effect. This discussion does
not address all aspects of U.S. federal income taxation that may be relevant to
any particular U.S. holder based on the U.S. holder's particular circumstances,
like the tax treatment of U.S. holders who are broker-dealers or who own,
directly, indirectly or constructively, 10% or more of our outstanding voting
shares, U.S. holders holding the ordinary shares as part of a hedging, straddle
or conversion transaction, U.S. holders whose functional currency is not the
U.S. dollar, insurance companies, tax-exempt organizations, financial
institutions and persons subject to the alternative minimum tax, who may be
subject to special rules not discussed below. Additionally, the tax treatment of
persons who hold the ordinary shares through a partnership or other pass through
entity is not considered, nor are the possible application of U.S. federal
estate or gift taxes or any aspect of state, local or non-U.S. tax laws.

You
are advised to consult your own tax advisor with respect to the specific tax
consequences to you of purchasing, holding or disposing of the ordinary
shares.

Subject to the discussion below under "Passive Foreign
Investment Company Status", a distribution paid by us with respect to the
ordinary shares to a U.S. holder will be treated as ordinary income to the
extent that the distribution does not exceed our current and accumulated
earnings and profits, as determined for U.S. federal income tax purposes. The
amount of any distribution which exceeds these earnings and profits will be
treated first as a non-taxable return of capital reducing the U.S. holder's tax
basis in its ordinary shares to the extent thereof, and then as capital gain
from the deemed disposition of the ordinary shares.

Dividends paid by us in NIS will be included in the
income of U.S. holders at the dollar amount of the dividend, based upon the spot
rate of exchange in effect on the date of the distributions. U.S. holders will
have a tax basis in the NIS for U.S. federal income tax purposes equal to that
U.S. dollar value. Any subsequent gain or loss in respect of the NIS arising
from exchange rate fluctuations will be taxable as ordinary income or loss and
will be U.S. source income or loss.

Subject to the limitations set forth in the Code, U.S.
holders may elect to claim as a foreign tax credit against their U.S. federal
income tax liability the Israeli income tax withheld from dividends received in
respect of the ordinary shares. The limitations on claiming a foreign tax credit
include among others, computation rules under which foreign tax credits
allowable with respect to specific classes of income cannot exceed the U.S.
federal income payable with respect each such class. In this regard, dividends
paid by us will generally be foreign source "passive income" for U.S. foreign
tax credit purposes or, in the case of a financial services entity, "financial
services income." U.S. holders that do not elect to claim a foreign tax credit
may instead claim a deduction for the Israeli income tax withheld. The rules
relating to foreign tax credits are complex, and you should consult your own tax
advisor to determine whether and to what extent you would be entitled to this
credit.

Subject to the discussion below under "Passive Foreign
Investment Company Status", upon the sale or exchange of the ordinary shares, a
U.S. holder generally will recognize capital gain or loss in an amount equal to
the difference between the amount realized on the sale or exchange and the U.S.
holder's tax basis in the ordinary shares. The gain or loss recognized on the
sale or exchange of the ordinary shares generally will be long-term capital gain
or loss if the U.S. holder held the ordinary shares for more than one year at
the time of the sale or exchange.

Gain or loss recognized by a U.S. holder on a sale,
exchange or other disposition of ordinary shares generally will be treated as
U.S. source income or loss for U.S. foreign tax credit purposes.

Generally, a foreign corporation is treated as a passive
foreign investment company, or PFIC, for U.S. federal income tax purposes for
any tax year if, in such tax year, either (i) 75% or more of its gross income is
passive in nature, referred to as the "Income Test", or (ii) the average
percentage of its assets during such tax year which produce, or are held for the
production of, passive income (determined by averaging the percentage of the
fair market value of its total assets which are passive assets as of the end of
each quarter of such year) is 50% or more, referred to as the "Asset Test".

There is no definitive method prescribed in the Code,
U.S. Treasury Regulations or administrative or judicial interpretations thereof
for determining the value of a foreign corporation's assets for purposes of the
Asset Test. However, the legislative history of the U.S. Taxpayer Relief Act of
1997, referred to as the 1997 Act, indicates that for purposes of the Asset
Test, "the total value of a publicly-traded foreign corporation's assets
generally will be treated as equal to the sum of the aggregate value of its
outstanding stock plus its liabilities". It is unclear under current
interpretations of the 1997 Act whether other approaches could be employed to
determine the value of our assets. Based on application of the approach of the
1997 Act, there is a reasonable likelihood that we may not be deemed a PFIC
starting 2003. A separate determination must be made each year as to whether we
are a PFIC. As a result, our PFIC status may change.

If
we are treated as a PFIC for U.S. federal income tax purposes for any year
during a U.S. holder's holding period of ordinary shares and the U.S. holder
does not make a QEF election or a "mark-to-market" election (both as described
below), any gain recognized by the U.S. holder upon the sale of ordinary shares
(or the receipt of certain distributions) would be treated as ordinary income.
This income generally would be allocated over a U.S. holder's holding period
with respect to our ordinary shares. The amount allocated to prior years will be
subject to tax at the highest tax rate in effect for that year and an interest
charge would be imposed on the amount of deferred tax on the income allocated to
prior taxable years.

Although we generally will be treated as a PFIC as to
any U.S. holder if we are a PFIC for any year during the U.S. holder's holding
period, if we cease to satisfy the requirements for PFIC classification, the
U.S. holder may avoid the consequences of PFIC classification for subsequent
years if he elects to recognize gain based on the unrealized appreciation in the
ordinary shares through the close of the tax year in which we cease to be a
PFIC. Additionally, if we are treated as a PFIC, a U.S. holder who acquires
ordinary shares from a decedent would be denied the normally available step-up
in tax basis for these ordinary shares to fair market value at the date of death
and instead would have a tax basis equal to the decedent's tax basis in these
ordinary shares.

A
U.S. holder who beneficially owns shares of a PFIC must file Form 8621 (Return
by a Shareholder of a Passive Foreign Investment Company or Qualified Electing
Fund) with the U.S. Internal Revenue Service for each tax year in which he holds
shares in a PFIC. This form describes any distributions received with respect to
these shares and any gain realized upon the disposition of these shares.

For
any tax year in which we are treated as a PFIC, a U.S. holder may elect to treat
his, her or its ordinary shares as an interest in a qualified electing fund,
referred to as a QEF election. In that case, the U.S. holder would be required
to include in income currently his proportionate share of our earnings and
profits in years in which we are a PFIC regardless of whether distributions of
our earnings and profits are actually distributed to the U.S. holder. Any gain
subsequently recognized upon the sale by the U.S. holder of his ordinary shares,
however, generally would be taxed as capital gain and the denial of the basis
step-up at death described above would not apply.

A
shareholder may make a QEF election with respect to a PFIC for any taxable year
of the shareholder. A QEF election is effective for the year in which the
election is made and all subsequent taxable years of the shareholder. Procedures
exist for both retroactive elections and the filing of protective statements. A
U.S. holder making the QEF election must make the election on or before the due
date, as extended, for the filing of the shareholder's income tax return for the
first taxable year to which the election will apply.

A
U.S. holder must make a QEF election by completing Form 8621 and attaching it to
their U.S. federal income tax return, and must satisfy additional filing
requirements each year the election remains in effect. We will provide to each
shareholder, upon request, the tax information required to make a QEF election
and to make subsequent annual filings

As
an alternative to a QEF election, a U.S. holder generally may elect to mark his
ordinary shares to market annually, recognizing ordinary income or loss (subject
to certain limitations) equal to the difference between the fair market value of
his ordinary shares and the adjusted tax basis of his ordinary shares. Losses
would be allowed only to the extent of net mark-to-market gain accrued under the
election. If a mark-to-market election with respect to ordinary shares is in
effect on the date of a U.S. holder's death, the normally available step-up in
tax basis to fair market value will not be available. Rather, the tax basis of
the ordinary shares in the hands of a U.S. holder who acquired them from a
decedent will be the lesser of the decedent's tax basis or the fair market value
of the ordinary shares.

The
implementation of many aspects of the Code's PFIC rules requires the issuance of
regulations which in many instances have yet to be promulgated and which may
have retroactive effect. We cannot be sure that any of these regulations will be
promulgated or, if so, what form they will take or what effect they will have on
the foregoing discussion.

Accordingly, and due to the complexity of the PFIC
rules, U.S. holders should consult their own tax advisors regarding our status
as a PFIC for each year and the eligibility, manner and advisability of making a
QEF election or a mark-to-market election, and the effect of these elections on
the calculation of the amount of foreign tax credit that may be available to a
U.S. holder.

Backup Withholding

A
U.S. holder may be subject to backup withholding at rate of 31% with respect to
dividend payments and receipt of the proceeds from the disposition of the
ordinary shares. Backup withholding will not apply with respect to payments made
to certain exempt recipients, such as corporations and tax-exempt organizations,
or if a U.S. holder provides a tax payer identification number (or certifies
that he has applied for a taxpayer identification number), certifies that such
holder is not subject to backup withholding or otherwise establishes an
exemption. Backup withholding is not an additional tax and may be claimed as a
credit against the U.S. federal income tax liability of a U.S. holder, or
alternatively, the U.S. holder may be eligible for a refund of any excess
amounts withheld under the backup withholding rules, in either case, provided
that the required information is furnished to the Internal Revenue Service.

Non-U.S. Holders of Ordinary
Shares

Except as provided below, a non-U.S. holder of ordinary
shares except certain former U.S. citizens and long-term residents of the United
States generally will not be subject to U.S. federal income or withholding tax
on the receipt of dividends on, and the proceeds from the disposition of, an
ordinary share, unless such item is effectively connected with the conduct by
the non-U.S. holder of a trade or business in the United States or, in the case
of a resident of a country which has an income tax treaty with the United
States, such item is attributable to a permanent establishment in the United
States or, in the case of an individual, a fixed place of business in the United
States. In addition, gain recognized by an individual non-U.S. holder will be
subject to tax in the United States if the non-U.S. holder is present in the
United States for 183 days or more in the taxable year of the sale and certain
other conditions are met.

Non-U.S. holders will not be subject to information
reporting or backup withholding with respect to the payment of dividends on
ordinary shares unless the payment is made through a paying agent, or an office
of a paying agent, in the United States. Non-U.S. holders generally will be
subject to information reporting and, under regulations generally effective
January 1, 2001, to backup withholding at a rate of 31% with respect to the
payment within the United States of dividends on the ordinary shares unless the
holder provides its taxpayer identification number, certifies to its foreign
status, or otherwise establishes an exemption.

Non-U.S. holders generally will be subject to
information reporting and backup withholding at a rate of 31% on the receipt of
the proceeds from the disposition of the ordinary shares to, or through, the
United States office of a broker, whether domestic or foreign, unless the holder
provides a taxpayer identification number, certifies to its foreign status or
otherwise establishes an exemption. Non-U.S. holders will not be subject to
information reporting or backup withholding with respect to the receipt of
proceeds from the disposition of the ordinary shares by a foreign office of a
broker; provided, however, that if the broker is a U.S. person or a "U.S.
related person," information reporting (but not backup withholding) will apply
unless the broker has documentary evidence in its records of the non-U.S.
holder's foreign status or the non-U.S. holder certifies to its foreign status
under penalties of perjury or otherwise establishes an exemption. For this
purpose, a "U.S. related person" is a broker or other intermediary that
maintains one or more enumerated U.S. relationships. Backup withholding is not
an additional tax and may be claimed as a credit against the U.S. federal income
tax liability of a U.S. holder, or alternatively, the U.S. holder may be
eligible for a refund of any excess amounts withheld under the backup
withholding rules, in either case, provided that the required information is
furnished to the Internal Revenue Service.

F. Dividends and paying
agents

Not
applicable.

G. Statement by Experts

Not
applicable.

H. Documents on Display

We
are subject to the informational requirements of the Securities Exchange Act of
1934, as amended, applicable to foreign private issuers and fulfill the
obligations with respect to such requirements by filing reports with the
Securities and Exchange Commission, or SEC. You may read and copy any document
we file, including any exhibits, with the SEC without charge at the SEC's public
reference room at 100 F Street, N.E., Washington, D.C. 20549. Copies of such
material may be obtained by mail from the Public Reference Branch of the SEC at
such address, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Certain of our SEC filings are
also available to the public at the SEC's website at http://www.sec.gov.

You may request a copy of our SEC filings, at no cost, by
e-mailing to investor@mindcti.com and upon said request copies will be sent by
e-mail. A copy of each report submitted in accordance with applicable U.S. law
is available for review at our principal executive offices.

I. Subsidiary Information

Not
applicable.

Item 11. Quantitative and
Qualitative Disclosures about Market Risk

Market risk represents the risk of changes in the value
of our financial instruments as a result of fluctuations in foreign currency
exchange rates.

The following table sets forth our consolidated balance
sheet exposure with respect to change in foreign currency exchange rates as of
December 31, 2006.

|Currency                          | Current Monetary Assets (Liabilities) -
    net
|--------------------------------- | -----------------------------------------------
|                                  |                                                
|                                  | (In
      US $ thousands)                      
|NIS                               | (1,192)                                        
|Euro                              | 2,962                                          
|Romanian
      Ron                | (232)                                          
|Other non-dollar
      currencies | 113                                            
|                                  |                                                
|                                  | 1,651                                          
|                                  |                                                

Our
annual expenses paid in NIS are approximately $7 million. Accordingly, we
estimate that a hypothetical increase of the value of the NIS against the U.S.
dollar by 1% would result in an increase in our operating expenses by
approximately $70,000 for the year ended December 31, 2007.

During the last quarter of 2004, we deposited an amount
of $30 million with several banks for periods between seven and ten years. The
arrangements with the banks are described above in Item 5.B.

As
of December 31, 2006, we did not hold any instruments that are subject to risk
arising from changes in equity prices. Also, we did not hold any derivative
financial instruments for either trading or non-trading purposes.

Item 12. Description of Securities
Other Than Equity Securities

Not
applicable.

# PART II

Item 13. Defaults, Dividend
Arrearages and Delinquencies

Not
applicable.

Item 14. Material Modifications to
the Rights of Security Holders and Use of Proceeds

The
effective date of our first registration statement, filed on Form F-1 under the
Securities Act of 1933 (No. 333-12266) relating to the initial public offering
of our ordinary shares, was August 7, 2000. Net proceeds to us were $29.9
million. From the time of receipt through December 31, 2006, all proceeds have
been invested in bank deposits.

Item 15. Controls and
Procedures

We
carried out an evaluation, under the supervision and with the participation of
our principal executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2006. Based on this evaluation, our principal
executive officer and principal financial officer have concluded that our
disclosure controls and procedures are effective to ensure that information
required to be included in our periodic reports to the Securities and Exchange
Commission is recorded, processed, summarized and reported in a timely
manner.

In addition, there were no changes in our internal
control over financial reporting that occurred during 2006 that have materially
affected, or that are reasonably likely to materially affect, our internal
control over financial reporting.

Item 16A. Audit Committee
Financial Expert

Our
board of directors has designated Mr. Zamir Bar-Zion as our "audit committee
financial expert" as defined by the SEC rules.

Item 16B. Code of Ethics

In
April 2004, our board of directors adopted our Code of Ethics, a code that
applies to all of our directors and employees.

Item 16C. Principal Accountant
Fees and Services

In
the annual meeting held in June 2006, our shareholders re-appointed Kesselman
& Kesselman, certified public accountants in Israel and a member of
PricewaterhouseCoopers International Limited, to serve as our independent
auditors. These accountants billed the following fees to us for professional
services in each of the last two fiscal years:

|                         | Years ended December 31,
|------------------------ | ------------------------
|                         | 2005                    
|                         |                         
|Audit
    Fees           | $
      55,000          
|Audit-Related
      Fees | 0                       
|Tax
Fees                 | 5,000                   
|All Other
      Fees     | 0                       
|                         |                         
|Total                    | $
      60,000          

Tax
Fees. Services comprising fees disclosed under this category includes:
preparation of original and amended tax returns; claims for refund; tax advice
and assistance related to: dividend distribution, approved enterprise and tax
audits and appeals.

Our
audit committee's policy is to approve each audit and non-audit service to be
performed by our independent accountant before the accountant is engaged.

Item 16D. Exemptions from the
Listing Standards for Audit Committees

Not
applicable.

Item 16E. Purchases of Equity
Securities by the Issuer and Affiliated Purchasers

Not
applicable.

# PART III

Item 17. Financial
Statements

Not
applicable.

Item 18. Financial
Statements

Our
consolidated financial statements and related auditors' report for the year
ended December 31, 2006 are hereby incorporated into this Annual Report by
reference to our Report on Form 6-K furnished to the Securities and Exchange
Commission on June 6, 2007.

Item 19. Exhibits

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

|Exhibit No. | Exhibit                                                                                                                                                  
|----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|            |                                                                                                                                                          
|1.1*        | Memorandum of
      Association, as amended                                                                                                              
|1.2***      | Articles of
      Association, as amended                                                                                                                
|4.1**       | MIND 1998 Share
      Option Plan                                                                                                                        
|4.2**       | MIND 2000 Share
      Option Plan                                                                                                                        
|8***        | List of
      Subsidiaries                                                                                                                               
|10.1        | Consent of
      Kesselman & Kesselman                                                                                                                   
|11**        | Code of Ethics
      and Business Conduct                                                                                                                
|12.1        | Certification of
      Principal Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act  
|12.2        | Certification of
      Principal Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act  
|13.1        | Certification of
      Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act
|13.2        | Certification of
      Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley
Act



|*   | Incorporated by reference to MIND C.T.I. Ltd.'s
      Annual Report on Form 20-F for the fiscal year ended December 31, 2002
      (Commission file number 000-31215).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**  | Incorporated by reference to MIND C.T.I. Ltd.'s
      Annual Report on Form 20-F for the fiscal year ended December 31, 2003
      (Commission file number 000-31215).
|*** | Incorporated by reference to MIND C.T.I. Ltd.'s
      Annual Report on Form 20-F for the fiscal year ended December 31, 2005
      (Commission file number 000-31215).

### SIGNATURES

The
Registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused and authorized the undersigned to sign this annual
report on its behalf.

| | MIND CTI LTD.*/s/ Monica Eisinger*===================By: Monica
      EisingerTitle: President & CEODate: 06/27/07
| | ------------------------------------------------------------------------------------------------------------------

EXHIBIT 10.1CONSENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in
this Registration Statements on Form S-8 (Registration No. 333-117054; No.
333-100804 and No. 333-54632) of our report dated June 6, 2007 relating to the
2006 consolidated financial statements of MIND C.T.I. Ltd., which are
incorporated by reference in this Form 20-F.

/s/ Kesselman & Kesselman

|Tel-Aviv, Israel | Kesselman & Kesselman                
|---------------- | -------------------------------------
|June 27, 2007    | Certified Public Accountants
  (Isr.)

EXHIBIT 12.1Certification of Principal Executive
Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act

I, Monica Eisinger, President and Chief Executive Officer
of MIND C.T.I. Ltd., certify that:

1. I have reviewed this annual report on Form 20-F of
  MIND C.T.I. Ltd.;
2. Based on my knowledge, this report does not contain
  any untrue statement of a material fact or omit to state a material fact
  necessary to make the statements made, in light of the circumstances under
  which such statements were made, not misleading with respect to the period
  covered by this report;
3. Based on my knowledge, the financial statements, and
  other financial information included in this report, fairly present in all
  material respects the financial condition, results of operations and cash
  flows of the company as of, and for, the periods presented in this report;
4. The company's other certifying officer and I are
  responsible for establishing and maintaining disclosure controls and
  procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
  company and have:
  designed such disclosure controls and procedures, or
    caused such disclosure controls and procedures to be designed under my
    supervision, to ensure that material information relating to the company,
    including its consolidated subsidiaries, is made known to us by others
    within those entities, particularly during the period in which this report
    is being prepared;[Paragraph omitted pursuant to SEC Release Nos. 33-8618
    and 34-52492]evaluated the effectiveness of the company's
    disclosure controls and procedures and presented in this report my
    conclusions about the effectiveness of the disclosure controls and
    procedures, as of the end of the period covered by this report based on such
    evaluation; anddisclosed in this report any change in the company's
    internal control over financial reporting that occurred during the period
    covered by the annual report that has materially affected, or is reasonably
    likely to materially affect, the company's internal control over financial
    reporting; and
5. designed such disclosure controls and procedures, or
    caused such disclosure controls and procedures to be designed under my
    supervision, to ensure that material information relating to the company,
    including its consolidated subsidiaries, is made known to us by others
    within those entities, particularly during the period in which this report
    is being prepared;
6. [Paragraph omitted pursuant to SEC Release Nos. 33-8618
    and 34-52492]
7. evaluated the effectiveness of the company's
    disclosure controls and procedures and presented in this report my
    conclusions about the effectiveness of the disclosure controls and
    procedures, as of the end of the period covered by this report based on such
    evaluation; and
8. disclosed in this report any change in the company's
    internal control over financial reporting that occurred during the period
    covered by the annual report that has materially affected, or is reasonably
    likely to materially affect, the company's internal control over financial
    reporting; and
9. The company's other certifying officer and I have
  disclosed, based on our most recent evaluation of internal control over
  financial reporting, to the company's auditors and the audit committee of the
  company's board of directors (or persons performing the equivalent functions):

  all significant deficiencies and material weaknesses
    in the design or operation of internal control over financial reporting
    which are reasonably likely to adversely affect the company's ability to
    record, process, summarize and report financial information; andany fraud, whether or not material, that involves
    management or other employees who have a significant role in the company's
    internal control over financial reporting.
10. all significant deficiencies and material weaknesses
    in the design or operation of internal control over financial reporting
    which are reasonably likely to adversely affect the company's ability to
    record, process, summarize and report financial information; and
11. any fraud, whether or not material, that involves
    management or other employees who have a significant role in the company's
    internal control over financial reporting.

|Date: June 27, 2007 | /s/ Monica Eisinger==================================Monica EisingerPresident and
      Chief Executive Officer(Principal Executive
      Officer)
|------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------

Exhibit 12.2

Certification of Principal
Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act

I, Oren Bryan, Chief Financial Officer of MIND C.T.I.
Ltd., certify that:

1. I have reviewed this annual report on Form 20-F of
  MIND C.T.I. Ltd.;
2. Based on my knowledge, this report does not contain
  any untrue statement of a material fact or omit to state a material fact
  necessary to make the statements made, in light of the circumstances under
  which such statements were made, not misleading with respect to the period
  covered by this report;
3. Based on my knowledge, the financial statements, and
  other financial information included in this report, fairly present in all
  material respects the financial condition, results of operations and cash
  flows of the company as of, and for, the periods presented in this report;
4. The company's other certifying officer and I are
  responsible for establishing and maintaining disclosure controls and
  procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
  company and have:
  designed such disclosure controls and procedures, or
    caused such disclosure controls and procedures to be designed under my
    supervision, to ensure that material information relating to the company,
    including its consolidated subsidiaries, is made known to us by others
    within those entities, particularly during the period in which this report
    is being prepared;[Paragraph omitted pursuant to SEC Release Nos. 33-8618
    and 34-52492]evaluated the effectiveness of the company's
    disclosure controls and procedures and presented in this report my
    conclusions about the effectiveness of the disclosure controls and
    procedures, as of the end of the period covered by this report based on such
    evaluation; anddisclosed in this report any change in the company's
    internal control over financial reporting that occurred during the period
    covered by the annual report that has materially affected, or is reasonably
    likely to materially affect, the company's internal control over financial
    reporting; and
5. designed such disclosure controls and procedures, or
    caused such disclosure controls and procedures to be designed under my
    supervision, to ensure that material information relating to the company,
    including its consolidated subsidiaries, is made known to us by others
    within those entities, particularly during the period in which this report
    is being prepared;
6. [Paragraph omitted pursuant to SEC Release Nos. 33-8618
    and 34-52492]
7. evaluated the effectiveness of the company's
    disclosure controls and procedures and presented in this report my
    conclusions about the effectiveness of the disclosure controls and
    procedures, as of the end of the period covered by this report based on such
    evaluation; and
8. disclosed in this report any change in the company's
    internal control over financial reporting that occurred during the period
    covered by the annual report that has materially affected, or is reasonably
    likely to materially affect, the company's internal control over financial
    reporting; and
9. The company's other certifying officer and I have
  disclosed, based on our most recent evaluation of internal control over
  financial reporting, to the company's auditors and the audit committee of the
  company's board of directors (or persons performing the equivalent functions):

  all significant deficiencies and material weaknesses
    in the design or operation of internal control over financial reporting
    which are reasonably likely to adversely affect the company's ability to
    record, process, summarize and report financial information; andany fraud, whether or not material, that involves
    management or other employees who have a significant role in the company's
    internal control over financial reporting.
10. all significant deficiencies and material weaknesses
    in the design or operation of internal control over financial reporting
    which are reasonably likely to adversely affect the company's ability to
    record, process, summarize and report financial information; and
11. any fraud, whether or not material, that involves
    management or other employees who have a significant role in the company's
    internal control over financial reporting.

|Date: June 27, 2007 | /s/ Oren Bryan==================================Oren BryanChief Financial
      Officer(Principal Financial
Officer)
|------------------- | --------------------------------------------------------------------------------------------------------------------

Exhibit 13.1

Certification of Principal
Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act

In connection with the annual report on Form 20-F for the
fiscal year ended December 31, 2006 of MIND C.T.I. Ltd. (the "Company") as filed
with the U.S. Securities and Exchange Commission (the "Commission") on the date
hereof (the "Report") and pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Monica Eisinger,
President and Chief Executive Officer of the Company, certify that:

- the Report fully complies with the requirements of
  Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
- the information contained in the Report fairly
  presents, in all material respects, the financial condition and results of
  operations of the Company.

Date: June 27, 2007

/s/ Monica EisingerMonica EisingerPresident and Chief
Executive Officer(Principal Executive Officer)

Exhibit 13.2

Certification of Principal
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act

In connection with the annual report on Form 20-F for the
fiscal year ended December 31, 2006 of MIND C.T.I. Ltd. (the "Company") as filed
with the U.S. Securities and Exchange Commission (the "Commission") on the date
hereof (the "Report") and pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Oren Bryan, Chief
Financial Officer of the Company, certify that:

- the Report fully complies with the requirements of
  Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
- the information contained in the Report fairly
  presents, in all material respects, the financial condition and results of
  operations of the Company.

Date: June 27, 2007

/s/ Oren BryanOren BryanChief Financial Officer(Principal Financial Officer)