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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 20-F




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

Or

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

For the fiscal year
ended December 31, 2008

Or

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

Or

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

Date of event requiring this shell company
report

For the transition
period
from                 
to

Commission File
number: 001-13128

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POINTER TELOCATION LIMITED  (Exact name of Registrant as specified in its charter)




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|                             |  |                               
|---------------------------- |  | ------------------------------
|N/A                          |  | ISRAEL                        
|(Translation of Registrants |  | (Jurisdiction of incorporation
|name into English)           |  | or organization)              

14 Hamelacha Street,
Rosh Haayin 48091, Israel
(Address of principal executive offices)




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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, NIS 3.00 nominal value per
 share |  | NASDAQ Stock Market LLC                  

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

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

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Indicate the number of outstanding shares
of each of the issuers classes of capital or common stock as of the close of
the period covered by the annual report.

Ordinary Shares, NIS
3.00 nominal value per share .4,752,931


Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.

Yes  o    No
  x

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

Yes  o    No  x

NoteChecking the box above will not
relieve any registrant required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 from their obligations under those
Sections.

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

Yes  x    No  o

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

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

Indicate by check mark which basis of
accounting the registrant has used to prepare the financial statements included
in this filing:

|             |                                                                                                          |         
|------------ | -------------------------------------------------------------------------------------------------------- | --------
|U.S.
 GAAP x | International Financial Reporting Standards
 as issued by the International Accounting Standards Board o | Other  o

2

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If Other has been checked in response
to the previous question, indicate by check mark which financial statement item
the registrant has elected to follow.

Item
17  o    Item
18  o

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

Yes  o    No  x

3

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|       |         |  |                                                       |   
|------ | ------- |  | ----------------------------------------------------- | --
|PART I | 8      
|       |         |  |                                                       |   
|       | ITEM 1. |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS | 8 
|       |         |  |                                                       |   
|       | ITEM 2. |  | OFFER STATISTICS AND EXPECTED TIMETABLE               | 8 
|       |         |  |                                                       |   
|       | ITEM 3. |  | KEY INFORMATION                                       | 8 
|       |         |  |                                                       |   
|       | A.      |  | SELECTED FINANCIAL DATA                               | 8 
|       |         |  |                                                       |   
|       | B.      |  | CAPITALIZATION AND INDEBTEDNESS                       | 8 
|       |         |  |                                                       |   
|       | C.      |  | REASONS FOR THE OFFER AND USE OF PROCEEDS             | 8 
|       |         |  |                                                       |   
|       | D.      |  | RISK FACTORS                                          | 8 
|       |         |  |                                                       |   
|       | ITEM 4. |  | INFORMATION ON THE COMPANY                            | 27
|       |         |  |                                                       |   
|       | A.      |  | HISTORY AND DEVELOPMENT OF THE COMPANY                | 27
|       |         |  |                                                       |   
|       | B.      |  | BUSINESS OVERVIEW                                     | 32
|       |         |  |                                                       |   
|       | C.      |  | ORGANIZATIONAL STRUCTURE                              | 43
|       |         |  |                                                       |   
|       | D.      |  | PROPERTY, PLANTS AND EQUIPMENT                        | 44
|       |         |  |                                                       |   
|       | ITEM 5. |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS          | 45
|       |         |  |                                                       |   
|       | A.      |  | OPERATING RESULTS                                     | 45
|       |         |  |                                                       |   
|       | B.      |  | LIQUIDITY AND CAPITAL RESOURCES                       | 65
|       |         |  |                                                       |   
|       | C.      |  | RESEARCH AND DEVELOPMENT                              | 68
|       |         |  |                                                       |   
|       | D.      |  | TREND INFORMATION                                     | 70
|       |         |  |                                                       |   
|       | E.      |  | OFF BALANCE SHEET ARRANGEMENTS                        | 72
|       |         |  |                                                       |   
|       | F.      |  | CONTRACTUAL OBLIGATIONS                               | 72
|       |         |  |                                                       |   
|       | ITEM 6. |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES            | 73
|       |         |  |                                                       |   
|       | A.      |  | DIRECTORS AND SENIOR MANAGEMENT                       | 73
|       |         |  |                                                       |   
|       | B.      |  | COMPENSATION                                          | 75
|       |         |  |                                                       |   
|       | C.      |  | BOARD PRACTICES                                       | 75
|       |         |  |                                                       |   
|       | D.      |  | EMPLOYEES                                             | 79
|       |         |  |                                                       |   
|       | E.      |  | SHARE OWNERSHIP                                       | 81
|       |         |  |                                                       |   
|       | ITEM 7. |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS     | 82
|       |         |  |                                                       |   
|       | A.      |  | MAJOR SHAREHOLDERS                                    | 82
|       |         |  |                                                       |   
|       | B.      |  | RELATED PARTY TRANSACTIONS                            | 83
|       |         |  |                                                       |   
|       | C.      |  | INTERESTS OF EXPERTS AND COUNSEL                      | 84

4

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|        |           |  |                                                                             |    
|------- | --------- |  | --------------------------------------------------------------------------- | ---
|        | ITEM 8.   |  | FINANCIAL INFORMATION                                                       | 84 
|        |           |  |                                                                             |    
|        | A.        |  | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION                     | 84 
|        |           |  |                                                                             |    
|        | B.        |  | SIGNIFICANT CHANGES                                                         | 84 
|        |           |  |                                                                             |    
|        | ITEM 9.   |  | THE OFFER AND LISTING                                                       | 85 
|        |           |  |                                                                             |    
|        | A.        |  | OFFER AND LISTING DETAILS                                                   | 85 
|        |           |  |                                                                             |    
|        | B.        |  | PLAN OF DISTRIBUTION                                                        | 86 
|        |           |  |                                                                             |    
|        | C.        |  | MARKETS                                                                     | 86 
|        |           |  |                                                                             |    
|        | D.        |  | SELLING SHAREHOLDERS                                                        | 86 
|        |           |  |                                                                             |    
|        | E.        |  | DILUTION                                                                    | 86 
|        |           |  |                                                                             |    
|        | F.        |  | EXPENSES OF THE ISSUE                                                       | 86 
|        |           |  |                                                                             |    
|        | ITEM 10.  |  | ADDITIONAL INFORMATION                                                      | 86 
|        |           |  |                                                                             |    
|        | A.        |  | SHARE CAPITAL                                                               | 86 
|        |           |  |                                                                             |    
|        | B.        |  | MEMORANDUM AND ARTICLES OF ASSOCIATION                                      | 86 
|        |           |  |                                                                             |    
|        | C.        |  | MATERIAL CONTRACTS                                                          | 93 
|        |           |  |                                                                             |    
|        | D.        |  | EXCHANGE CONTROLS                                                           | 95 
|        |           |  |                                                                             |    
|        | E.        |  | TAXATION AND GOVERNMENT PROGRAMS                                            | 95 
|        |           |  |                                                                             |    
|        | F.        |  | DIVIDENDS AND PAYING AGENTS                                                 | 103
|        |           |  |                                                                             |    
|        | G.        |  | STATEMENT BY EXPERTS                                                        | 103
|        |           |  |                                                                             |    
|        | H.        |  | DOCUMENTS ON DISPLAY                                                        | 103
|        |           |  |                                                                             |    
|        | I.        |  | SUBSIDIARY INFORMATION                                                      | 104
|        |           |  |                                                                             |    
|        | ITEM 11.  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                  | 104
|        |           |  |                                                                             |    
|        | ITEM 12.  |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                      | 107
|        |           |  |                                                                             |    
|PART II | 107      
|        |           |  |                                                                             |    
|        | ITEM 13.  |  | DEFAULTS, DIVIDEND AVERAGES AND DELINQUENCIES                               | 107
|        |           |  |                                                                             |    
|        | ITEM 14.  |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS | 107
|        |           |  |                                                                             |    
|        | ITEM 15T. |  | CONTROLS AND PROCEDURES                                                     | 107
|        |           |  |                                                                             |    
|        | ITEM 16.  |  | [RESERVED]                                                                  | 108

5

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|         |           |  |                                                                         |    
|-------- | --------- |  | ----------------------------------------------------------------------- | ---
|         | ITEM 16A. |  | AUDIT COMMITTEE FINANCIAL EXPERT                                        | 108
|         |           |  |                                                                         |    
|         | ITEM 16B. |  | CODE OF ETHICS                                                          | 108
|         |           |  |                                                                         |    
|         | ITEM 16C. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                  | 109
|         |           |  |                                                                         |    
|         | ITEM 16D. |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES              | 109
|         |           |  |                                                                         |    
|         | ITEM 16E. |  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
 PURCHASERS | 110
|         |           |  |                                                                         |    
|         | ITEM 16F. |  | CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT                            | 110
|         |           |  |                                                                         |    
|         | ITEM 16G. |  | CORPORATE GOVERNANCE                                                    | 110
|         |           |  |                                                                         |    
|PART III | 111      
|         |           |  |                                                                         |    
|         | ITEM 17.  |  | FINANCIAL STATEMENTS                                                    | 111
|         |           |  |                                                                         |    
|         | ITEM 18.  |  | FINANCIAL STATEMENTS                                                    | 111
|         |           |  |                                                                         |    
|         | ITEM 19.  |  | EXHIBITS                                                                | 111

6

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INTRODUCTION

As used in this Annual Report on
Form 20-F, the terms we, us, our and the
Company mean Pointer Telocation Limited and its subsidiaries, unless otherwise
indicated. We operate in two business segments, our Pointer segment and our
Cellocator segment. Our Pointer segment is comprised of services to the
automotive and insurance industries, road-side assistance and towing services, stolen
vehicle retrieval services and fleet management services. Our Cellocator segment is a
producer of leading automatic vehicle location products, including asset tracking
products, fleet management products having location, tracking, event driven reporting,
logging and security capabilities, and GSM-based security products. See Item 4
Information on the Company.

This Annual Report on Form 20-F, including, without
limitation, information appearing under Item 4  Information on the Company
and Item 5  Operating and Financial Review and Prospects, contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The use of the
words projects, expects, may, plans or intends, or words of similar
import, identifies a statement as forward-looking. The forward-looking
statements included herein are based on current expectations that involve a
number of risks and uncertainties. These forward-looking statements are based
on the assumption that Pointer will not lose a significant customer or
customers or experience increased fluctuations of demand or rescheduling of
purchase orders, that our markets will be maintained in a manner consistent with
our historical experience, that our products will remain accepted within their
respective markets and will not be replaced by new technology, that competitive
conditions within our markets will not change materially or adversely, that we
will retain key technical and management personnel, that our forecasts will
accurately anticipate market demand, and that there will be no material adverse
change in our operations or business. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive and market conditions, and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
our control. In addition, our business and operations are subject to
substantial risks which increase the uncertainty inherent in the
forward-looking statements. In light of the significant uncertainties inherent
in the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by us or any other
person that our objectives or plans will be achieved. Factors that could cause
actual results to differ from our expectations or projections include the risks
and uncertainties relating to our business described in this annual report at
Item 3Risk Factors. Except as
required by applicable law, including the securities laws of the United States,
we do not intend to update or revised any forward-looking statements, whether
as a result of new information, future events or otherwise.

On August 10, 2005 a 100 to 1 reverse stock split of our
ordinary shares was effected. As a result of the reverse stock split, each one
hundred shares of our ordinary shares with par value NIS 0.03 were converted
into one ordinary share NIS 3.00. All share numbers in this annual report
reflect this reverse split.

Cellocator is a trademark owned by us. References in this annual report to
dollars, U.S. dollars and $ are to United States Dollars and references
to shekels and NIS are to New Israeli Shekels, the Israeli currency.

7

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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

The selected financial data is incorporated by reference to Item 5A  Operating Results  Selected Financial Data
of this annual report and should be read in conjunction with our consolidated
financial statements and the notes thereto, which are set forth in Item 18  Financial Statements and are incorporated
by reference, and the other financial information appearing in Item 5 of this
annual report. We prepare our
consolidated financial statements in accordance with accounting principles
generally accepted in the United States.

B.              CAPITALIZATION
AND INDEBTEDNESS

Not applicable.

C.              REASONS
FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D.              RISK
FACTORS

Our
business, operating results and financial condition could be seriously harmed
due to any of the following risks, among others. If we do not successfully address the risks to which we are
subject, we could experience a material adverse effect on our business, results
of operations and financial condition and our share price may decline. We cannot assure you that we will
successfully address any of these risks.

General
Risks Factors Relating to Our Company

This annual
report and statements that we may make from time to time may contain
forward-looking information. There can be no assurance that actual results will
not differ materially from our expectations, statements or projections. Factors
that could cause actual results to differ from our expectations, statements or
projections include the risks and uncertainties relating to our business
described below.


8

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We
have a history of losses.

With
the exception of the years 2008, 2006 and 2003, we have incurred a loss in each year of
our existence. Our net income in 2008 was $2.3 million and principally resulted from the
contribution of a full year of results from our Cellocator segment. Our net income in 2006
was $1.2 million and was principally from continuing operations of $0.3 million and other
income of $1.3 million off-set by impairment of long lived assets of $0.4 million. Our net
income in 2003 of $5.3 million resulted from a one-time non-cash capital gain of $8.5
million from the disposal of discontinued operations and was offset by a $3.3 million loss
from continuing operations. Prior to 2004, our majority owned subsidiary, Shagrir Systems
Ltd. or Shagrir, had never recorded net profits but has recorded shareholders equity
surplus for the first time in 2006. Although Shagrir is currently profitable and we were
profitable in 2008 we may continue to sustain net losses for the foreseeable future, for
several reasons, including resulting from increases in working capital deficiency (see
Item 5  Liquidity and Capital Resources) and costs associated with other
business initiatives in Israel and abroad. As a part of our strategy, we are focusing on
the development of new businesses, products and services, in the territories in which we
currently operate as well as in new territories. Investing in such new businesses may
result in an increase in short term losses. If we may continue to sustain prolonged losses
or losses from continuing operations although we had net income in 2008, we may have to
cease our operations.

Conditions
and changes in the global economic environment may adversely affect our
business and financial results.

The
worldwide economy has recently been adversely affected by stock market
volatility, tightening of credit markets, concerns of inflation and deflation,
decreased consumer confidence, reduced corporate profits and capital spending,
adverse business conditions and liquidity concerns and business insolvencies.
These events and related uncertainty about future economic conditions could
negatively impact our customers and, among other things, postpone their
decision-making, decrease their spending and jeopardize or delay their ability
or willingness to make payment obligations, any of which could adversely affect
our business. Uncertainty about current global economic conditions could also
cause volatility of our stock price. We cannot predict the timing, strength or
duration of this global economic downturn or subsequent recovery.

In
addition, the automotive industries are cyclical in nature and are currently
experiencing a significant downturn, particularly in the United States. Although we do not currently operate in the
United States and although our business is not solely dependent on new car
sales, the industry as a whole has been adversely affected by many factors,
including the current global downturn, efforts by insurance and leasing
companies to reduce their spending and increased competition. These factors,
among other things, could limit our ability to maintain or increase our sales
or recognize revenue from committed contracts and in turn adversely affect our
business, operating results and financial condition.

9

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If the
general economy and the automobile services sector does not improve, our
business, financial condition and results of operations could be harmed.

A
decline in sales of consumer or commercial vehicles in the markets in which we
operate could result in reduced demand for our stolen vehicle retrieval
services and products.

Our stolen vehicle retrieval services, or SVR services, and location based services are
primarily installed before or immediately after the initial sale of consumer or commercial vehicles.
Consequently, a reduction in sales of new vehicles could reduce our applicable market for SVR services
and location based services.  New vehicle sales may decline for various reasons, including an increase
in new vehicle tariffs, taxes or gas prices, or an increased difficulty in obtaining credit or financing
in the applicable local or global economy.  A decline in sales of new vehicles in the markets in which
our Pointer segment provides our SVR or location based services and Cellocator segment provides location
based products could result in reduced demand for such services.

The
majority of our business operations are based in Israel, and as a result events
in Israel may have a disproportionate effect on our operations.

The
majority of the business activities of Shagrir and the majority of our
manufacturing operations for Cellocator are based in Israel. The Shagrir and Cellocator businesses
account for the majority of our revenues. Consequently, certain events in
Israel which may or may not be directly connected with our business may have a
disproportionate effect on our operations.

As
related to Shagrir, revenues may be adversely affected if fewer vehicles are used as a
result of an economic downturn in Israel, an increase in use of mass transportation, an
increase in vehicle related taxes, an increase in the imputed value of vehicles provided
as a part of employee compensation or other macroeconomic changes affecting the use of
vehicles. Although to date we have not seen a drop in private vehicle users as a result of
such factors, Shagrir has witnessed fewer new installations of its stolen vehicle
retrieval systems in Israel since the fourth quarter of 2008 due to the economic
environment. In addition, our stolen vehicle retrieval services business significantly
depends on Israeli insurance companies mandating subscription to a service such as ours.
If Israeli insurance companies cease to require such subscriptions, our business could be
significantly adversely affected. We also rely on the renewal and retention of several
operating licenses issued by certain Israeli regulatory authorities. Should such
authorities fail to renew any of these licenses, suspend existing licenses, or require
additional licenses, we may be forced to suspend or cease certain services that we
provide.

As related
to Cellocator segment, our manufacturing operations are principally based in
Israel. Any interruption or curtailment of
trade between Israel and its present trading partners could adversely affect
our operations. Since our manufacturing facilities are located mainly in
Israel, we could experience disruption of our manufacturing due to acts of
terrorism or any other hostilities involving or threatening Israel.

Additionally,
a sustained downturn in the Israeli economy could have a significant impact on
our business.

10

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The
manufacture of products in our Cellocator segment is highly complex, and an
interruption or delay by our suppliers or a failure to deliver by our
subcontractors or vendors could adversely affect our business, financial
condition or results of operations.

The
products in our Cellocator segment that we market, distribute and sell are
either manufactured at our own manufacturing facilities in Israel or, in
certain cases, through supply agreements with third party subcontractors. Many
of our products are the result of complex manufacturing processes, and are
sometimes dependent on raw materials with a limited source of supply. As a result, we can provide no assurances
that supply sources will not be interrupted from time to time. In addition, our subcontractors or vendors
may fail to obtain supply components and fail to deliver our products. As a result, a failure to deliver by our
subcontractors or vendors can result in decreased revenues. Such interruption or delay of our suppliers to deliver components
or interruption or delay of our vendors or subcontractors to deliver our
products could affect our business, financial condition or results of
operations.

Our
future operations depend on our ability to obtain additional financing.

We have
historically financed our operations through public and private placements of
equity and debt securities, cash generated from the sales of our systems,
grants for research and development projects, loans and bank credit lines. We
believe that our current assets, together with anticipated cash generated from
operations and outstanding bank credit lines, will sufficiently allow us to
continue our operations as a going concern for the foreseeable future. However,
we cannot assure that if we are required to raise additional financing in the future
that we will be able to obtain such financing on satisfactory terms, if at all,
and if we are able to raise financing through the issuance of shares, this may
result in the dilution of the interests of our current shareholders. In a
series of investments, since March 2003 to date, we raised $42 million from
investors, and in February 2005 our subsidiary Shagrir received approximately
$44 million in loans and convertible debt as part of Shagrirs acquisition of
the road-side assistance and towing services of Shagrir Towing Services. In
June 2004, as part of the purchase of all of the securities of Shagrir not
already held by our Company at such time, we issued further shares and warrants
to purchase our shares (for further information regarding agreements relating
to the acquisition of the road-side assistance and towing services of Shagrir
Towing Services, see Item 4 - Recent
Developments and Item 10  Material
Contracts). We have registered for resale securities issued and
issuable in connection with these transactions (for further information
regarding the private placement transactions see Item 10  Material Contracts). In May 2007 our
registration statement on Form F-3 was declared effective, pursuant to an
investment with a group of U.S. institutional investors consummated in April
2007, covering 1,207,500 of our ordinary shares (including 402,500 ordinary
shares issuable upon the exercise of warrants issued in connection with that
transaction). As a result of the registration statements that we currently have
outstanding and are currently filing, many or all of our investors who recently
purchased our securities may elect to sell some or all of our securities.
Should such sales be significant in volume or take place over a short period of
time, our share price may decline significantly, and we may find it difficult
to raise additional funding through the issuance of equity or convertible debt
securities. In September 2007 we received $7 million credit facility from Bank
HaPoalim, B.M. to finance part of Cellocator acquisition. In addition, in
January 2008 we received a $1 million credit facility from Israel Discount Bank
in favor of working capital, which currently is not drawn down. If our future capital requirements are
greater than the cash we obtain from our business and available financing, if
any, we may, among other things, be required to significantly reduce our
research, development, product commercialization, marketing or other activities
or even cease operations.

11

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Over recent
years, the securities markets in general have experienced increased volatility,
which has particularly affected the securities and operations of many
companies, including companies that have a significant presence in Israel.
Although the volatility of these companies securities has often been unrelated
to the operating performance of these companies, they may experience
difficulties in raising additional financing required to effectively operate
and grow their businesses. Such failure and the volatility of the securities
markets in general may affect our ability to obtain additional financing at
favorable terms.

Both,
our subsidiary Shagrir and the company have significant loans which we are
required to repay in accordance with strict schedules that we may not be able
to meet or that limit our operating and financial flexibility.

In order to
finance Shagrirs acquisition of the road-side assistance and towing services
of Shagrir Towing Services in 2005, Shagrir received loans of approximately $23
million from Bank Hapoalim B.M., a loan of approximately $9 million from
Shagrir Towing Services, a loan of approximately $11.5 million from a group of
investors led by Gandyr Investments Ltd. and Egged Holdings Ltd. and a loan of
approximately $2 million from the Company.

Shagrir
repaid all of these loans, other than the amounts held by Bank Hapoalim, prior to the end
of 2008, by means of available funds and through funds provided by additional loans from
Bank Hapoalim. These
loans provided by Bank Hapoalim to Shagrir are in NIS currency and the interest rate is
7%-7.75%. As of December 31, 2008 the outstanding balances of these loans were $6 million
and $ 1.7 million. As a result, as of December 31, 2008, Shagrir has in the aggregate approximately $22.2 million in
outstanding loans, which are all entered into with Bank Hapoalim. Although Shagrir has
repaid and recapitalized a significant amount of its debts, Shagrir still has substantial outstanding loans. Despite the fact
that we are cash positive, should Shagrir fail to repay the loans in accordance with the
repayment schedule pertaining
to each loan or should a lender refuse to amend the relevant repayment schedule, such
lender may realize certain liens that were created in its favor by Shagrir. This could
result in Shagrir having to divest itself of parts of its
business and may result in the cessation of its operations.

12

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Pointers
acquisition of the business of Cellocator required financing amounts in excess of what we
had in cash reserves on September 18, 2007 (the date of acquisition). For this requirement
we received a credit facility of $7 million from Bank Hapoalim, of which approximately
$4.6 million remains outstanding as of December 31, 2008. In addition, we have outstanding
a convertible debenture in the amount of $1.9 million, which we issued to the seller as
part of the consideration for the acquisition of Cellocator and which in January 2008 the
seller determined in writing not to convert. The debenture is due and payable in September
2010, and as of December 31, 2008 the debenture has an amount outstanding of approximately
$2.1 million. While Pointer is expected to be cash-positive, should we fail to repay the
credit facilities and loans in accordance with the repayment schedule pertaining to the
lender or if the lender refuses to amend the relevant repayment schedule, such lender may
realize certain liens that were created in its favor. Non repayment of any of the above
mentioned credit facility or loans may have a material adverse affect on our financial
condition.

These
credit facilities and loans further contain a number of restrictive covenants
on Pointer and Shagrir that limit our operating and financial flexibility. Our
ability to continue to comply with these and other obligations depends in part
on the future performance of our business. There can be no assurance that such
obligations will not materially adversely affect our ability to finance our
future operations or the manner in which we operate our business. In
particular, any noncompliance with performance-related covenants and other
undertakings of our credit facilities could result in an acceleration of our
outstanding debt under our credit facilities and restrict our ability to obtain
additional funds, which could have a material adverse effect on our business,
financial condition and results of operations.

For further
information on these loans, see Item 4  Recent
Developments, Item 5  Liquidity
and Capital Resources and Item 10  Material Contracts.

We
may not be able to successfully compete in the extremely competitive markets
for our products and services.

We face
intense competition in the markets in which we operate.

In Israel,
our primary competitors are Drachim Road Side & Towing Services Ltd., Femi
Premium Ltd. and Shlomo-SIXT Road Side Services & Garages Ltd. all of which
mainly compete with us in providing road-side assistance and towing services
although we currently are the leading road-side assistance and towing service
provider in Israel. Ituran Location & Control Ltd. is our main direct
competitor in the stolen vehicle retrieval services market in Israel and
Argentina. LoJack - Car Security S.A. and LoJack de Mexico, S. de RL de CV
are also our main competitors in Argentina and Mexico, respectively in Stolen Vehicle
Recovery. In Fleet Management there are various companies who compete with us
in Argentina and Mexico.

In Europe,
Latin America and Asia our Cellocator segment sells mostly GPS/GPRS based
vehicle devices and Radio Frequency based vehicle devices. In the GPS/GPRS
field there is strong competition with many manufacturers introducing vehicle
devices with competitive prices and various performance features. These devices
are offered to operators of Fleet Management and Stolen Vehicle Recovery
services and competition is on different aspects such as price, performance
parameters, etc.

13

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In other
countries in which we intend to provide road-side assistance, towing and other
services, our main competition is from local companies as well as large
international corporations with local operations. Our primary competitors in
the other geographical markets in which we currently provide our location based
services are mainly LoJack globally, Ituran in Argentina and other local
service providers in each country. Such competitors use different technologies
such as radio technologies, cellular and other technologies.

Should any
of our competitors in Israel or globally successfully provide a broader, more
efficient or attractive combination of services to insurance companies and
automobile owners, our business results could be materially adversely affected.

Should any of
our competitors successfully provide a broader range of products, with
competitive pricing, our business results could be materially adversely
affected.

Many of our
competitors have substantially greater capital resources and significant research
and development staffs, facilities, marketing and distribution networks, name
recognition and extensive customer bases. While we plan to continue to improve
our technology, products, services and maintain our marketing efforts, we
cannot guarantee that we will grow or even maintain our customer base or we may
need to invest more in our efforts to do so.

Due
to the significant penetration of stolen vehicle retrieval services and
location based services in Israel, and moderate overall growth of these markets
in Israel and Argentina, our prospects for growth in such market may be
limited.

Our ability
to increase demand for our stolen vehicle retrieval services, or SVR services,
and revenues from sales of our location based services is limited by the number
of potential vehicles in which our products can be installed in each relevant
market. In Israel and Argentina, we
anticipate that revenues from sales of our SVR services and location based services
will not increase significantly due to the already significant high penetration
of such services and moderate overall growth of the markets for such services
in Israel and Argentina, which could adversely affect our prospects for growth
in such markets.

Our
business depends on limited sources for components, and if we are unable to
obtain these components when needed, we will experience delays in manufacturing
our products and our financial results may be adversely affected.

We acquire
most of the components utilized in the products in our Cellocator segment, and
some products used in our Pointer segment, and certain services from a limited
number of suppliers and subcontractors. We may not be able to obtain such items
from these suppliers and subcontractors on satisfactory terms in the future.
Temporary disruptions of our manufacturing operations would result if we were
required to obtain materials from alternative sources, which may have an
adverse effect on our financial results.

14

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The
growth of our business depends on the successful execution of our growth
strategies.

Our growth
depends on the continued success of existing products, as well as the
successful design and introduction of new products. Our ability to create new
products and to sustain existing products is affected by whether we can
successfully anticipate and respond to consumer preferences and business
trends. The failure to develop and
launch successful new products could hinder the growth of our business. Also,
we may have to invest more in development than original planned, time to market
can be longer than expected and there is no assurance of successful development
and the returns from a potential market can be lower than expected. The
additional investment in development, delay in time to market may adversely
affect our business.

Undetected
defects in our products may increase our costs and impair the market acceptance
of our products.

The
development, enhancement and implementation of our complex fleet management and
command and control systems, and the products sold or used in our business,
entail substantial risks of product defects or failures. Despite testing by us and our customers,
errors may be found in existing or new products, resulting in delay or loss of
revenues, warranty expense, loss of market share or failure to achieve market
acceptance, or otherwise adversely affecting our business, financial condition
and results of operations. Moreover, the complexities involved in implementing
our systems entail additional risks of performance failures. We may encounter
substantial delays or other difficulties due to such complexities. Any such
occurrence could have a material adverse effect upon our business, financial
condition and results of operations. In addition, the potential harm to our
reputation that may result from product defects or implementation errors could
be damaging to us.

We
depend on a small number of customers.

We depend on a small number of customers
located mainly in Israel, Latin America and Europe for a significant part of
our revenues,and our future
depends on our ability to maintain our existing customers and attract new
customers. As a result of our acquisition of the activities of Shagrir Towing Services, the customers
which account for a major part of Shagrir revenues in future years are Israeli
insurance companies, which offer our road-side assistance and towing services
as part of their vehicle insurance policy packages which they sell to their
customers. As a result of our
acquisition of Cellocator the customers which account for a major of Cellocator
revenues are operators located in Europe and Latin America. Although in 2008
none of our customers comprised over 10% of our revenues, the loss of even a small
number of customers could materially affect our financial condition.

If the
creditworthiness or the financial strength of the customers were to decline,
there could be an adverse effect on our operating results and cash flows.
Should geopolitical situations change in the countries where our customers
operate, there could be additional credit risks.


15

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In cases
where our customer is the operator or distributor (not owned by us), we use
several methods in order to assure collectibility. In most cases, we demand
financial guarantees such as a Letter of Credit, export credit facilities or
payments before delivery. To a lesser extent we assess collectibility by
assessing the credit history for each customer on a case-by-case basis. However,
we cannot be certain that our estimations will prove correct as to any one of
our customers.

We
rely on operators to provide services for our location based solution systems
and to market and deliver our Cellocator
products.

In certain
countries where our subsidiaries conduct activities, we rely on subcontractors
and police forces to provide our stolen vehicle retrieval services. This
requires us to maintain good relationships with these third party operators and
governmental entities to ensure that they continue to work with us and provide
a good service to our customers. Since we do not own these subcontractors, we
have little or no control over their effectiveness or methods of operation.

In
countries where third party operators conduct stolen vehicle recovery and fleet
management services, the implementation of the operators business plans
depends mainly on factors unrelated to our interests such as their marketing
strategies, their financial stability and the specific requirements and
circumstances in their territories. Our consecutive end unit sales, future
system upgrades, future infrastructure extensions and revenues from other
sources, where applicable, from such territories is dependent on their
penetration rate and successful sale growth as well as on the operators
continuous success and their continuous decision to offer these services and
products in their respective territories. Should we fail to maintain
relationships with these third party operators, or these operators fail to
successfully market and service our products, our business would be adversely
affected.

We
use fixed price contracts with our customers.

Our
road-side services in Israel and most of our stolen vehicle retrieval services, or SVR
services, of our Pointer segment are sold through annually or monthly fixed price
contracts, according to which we are paid a fixed price by insurance companies for each of
their customers who subscribe to receive our services. Should operational expenses rise
due to factors such as a rise in the price of gasoline, labor costs or any other materials
necessary for our operations, our profit margins could suffer as a result. Since it is
often difficult to predict future price rises in the cost of raw materials or labor costs,
our fixed price contracts may not adequately cover our future outlays. Additionally, the
frequency by which vehicle users may take advantage of our road-side services can vary
unpredictably. Sustained adverse weather conditions, increased regional hostilities or
acts of terrorism, poor road maintenance or increased theft ratio may increase customer
usage of our services in any given year, thus reducing profit margins.

16

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Part of our
revenues from SVR services in Israel are linked to the U.S. dollar while
operational expenses, like salary, are linked to NIS. Our profit margins could
suffer as a result of revaluation of the NIS against the U.S. dollar. Since it
is difficult to predict future exchange rates our fixed price contracts may not
adequately cover our future outlays and reduce profit margins.

Most
of our Cellocator segment
products prices are linked to the U.S. dollar while operational expenses in
Israel such as labor costs and rental are linked indirectly to the NIS account
for an important portion of technology costs (both devices and software). Our
profit margins could suffer as a result of inflation, where labor costs and
other will rise without compensation, where foreign currency payments by
customers will not offset the increase. Since it is difficult to predict future
exchange rates our fixed price contracts may not adequately cover our future
outlays and reduce profit margins (for further information on exchange rate
risk see Item 5  Impact of Exchange Rate
Fluctuations on Results of Operations, Liabilities and Assets).

Our
Cellocator segment relies on limited suppliers to manufacture end units for our Locations Based Solution systems.

While we
have commenced diversifying our product base, offering some customers radio
frequency devices and others cellular units together with GPS devices, we are
still principally reliant on devices and components which we do not manufacture
ourselves. Most of our raw material components for our Location Based Solution
end unit devices are manufactured for us by independent manufacturers abroad.
Surface mounting on printed circuit boards is done by 2 sub-contractors.
Assembly is done by us and by a subcontractor located in Israel. There is no
certainty that these subcontractors will be able to continue to provide us with
manufacturing and assembly services in the future. Our reliance on independent
contractors, especially those located in foreign countries, involves a number
of risks, including:

| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| | · | reduced
 control over delivery schedules, quality assurance, manufacturing yields and
 cost;                                         
| | · | reduced
 manufacturing flexibility due to last moment quantity changes;                                                              
| | · | transportation
 delays;                                                                                                              
| | · | political
 and economic disruptions;                                                                                                 
| | · | the
 imposition of tariffs and export controls on such products;                                                                     
| | · | work
 stoppages;                                                                                                                     
| | · | changes in
 government policies;                                                                                                     
| | · | the loss of
 molds and tooling in the event of a dispute with a manufacturer; and                                                    
| | · | the loss of
 time, when attempting to switch from one assembly-manufacturer to another,
 thereby disrupting deliveries to
 customers.

Our
agreements and understandings with our suppliers are generally short-term in
nature and may be terminated with little or no notice. If a supplier of ours
were to terminate its relationship with us, we may be compelled to seek
additional sources to manufacture certain of the components of our systems or
even to change the design of our products. Although we believe that most of the
components of our systems may be readily acquired from numerous suppliers, we
cannot assure you that we would be successful in entering into arrangements
with other suitable independent manufacturers without significantly impairing
our sales in the interim period.

17

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We
are subject to several risks as a result of our international sales.

Systems
based on our products and systems are currently installed in Israel, Latin
America, Europe and Asia. In addition,
the majority of our sales of our Cellocator segment occur outside of
Israel. We are subject to the risks
inherent in international business activities, including changes in the
political and economic environment, unexpected changes in regulatory
requirements, foreign exchange controls, tariffs and other trade barriers and
burdens of complying with a wide variety of foreign laws and regulations. In
addition, if for any reason exchange, price controls or other restrictions on
conversion of foreign currencies were to be imposed, the above business could
be negatively impacted. Moreover, certain of these international operations
have experienced the following difficulties:

| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| | · | longer sales
 cycles, especially upon entry into a new geographic market;           
| | · | foreign
 exchange controls and licenses;                                            
| | · | trade
 restrictions;                                                                
| | · | changes in
 tariffs;                                                                
| | · | currency
 fluctuations;                                                             
| | · | economic or
 political instability;                                                 
| | · | international
 tax aspects;                                                         
| | · | greater
 difficulty in safeguarding intellectual property; and                      
| | · | difficulty
 in managing overseas subsidiaries, branches or international operations.

As an example of currency fluctuations, a severe and rapid currency
devaluation in Argentina adversely affected the U.S. dollar results during 2002
of our subsidiary, Pointer Localizacion Y Asistencia S.A., or PLA. This was mainly
due to PLAs inability to increase its Argentinian Peso-denominated prices to
its customers, while its major costs of inventory and infrastructure are
denominated in U.S. dollars. As an
example of foreign exchange controls, Venezuela has in recent years imposed
foreign exchange controls, for example in 2003, Venezuelas foreign exchange
controls effectively led to the cessation of purchase orders of our SVR
products and services from our main customer in Venezuela. Additionally there
is currently discussion by the Venezuelan government regarding the institution
of a nationalization program, which could further adversely affect our
operations there.

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We may
encounter significant difficulties in connection with the sale of our products
by the sales of Cellocator segment in international markets as a result of one
or more of these factors. In particular, the significant revaluation of the
U.S. dollar vis−à−vis the NIS during 2008 had and may continue to
have an adverse effect on our operations, as we derive most of our revenues in
U.S. dollars while we incur most of our expenses in NIS.

We
may be required to record a significant charge to earnings if our goodwill or
amortizable assets become impaired.

Under
accounting principles generally accepted in the United States, we review our
goodwill and amortizable intangible assets for impairment when events or
changes in circumstances indicate the carrying value may not be recoverable.
Goodwill is required to be tested for impairment at least annually and
potentially more frequently depending upon actual events and circumstances. Factors
that may be considered a change in circumstances indicating that the carrying
value of our goodwill or amortizable intangible assets may not be recoverable
include a sustained decline in our stock price, market capitalization or future
cash flows, slower growth rates in our industry, termination of contracts
assumed in connection with a merger or acquisition and obsolescence of acquired
technology. In particular, the severity of the current worldwide economic
downturn and the potential impact of this downturn on our business and our
stock price could require us to record a significant charge to earnings in our
financial statements due to impairment of our goodwill or amortizable
intangible assets. If that happens,
then our results of operations will be negatively impacted for the period in
which such determination was made.

The
Argentine government may enact or enforce measures to preempt or respond to
social unrest or economic turmoil which may adversely affect our business in
Argentina.

Our PLA
subsidiary operates in Argentina, where government has historically exercised
significant influence over the countrys economy. In 2008, Argentina faced
nationwide strikes and protests from farmers due to increased export taxes on
agricultural products, which disrupted economic activity and have heightened
political tension. Future government policies to preempt, or in response to,
social unrest may include expropriation, nationalization, forced renegotiation
or modification of existing contracts, suspension of the enforcement of
creditors rights, new taxation policies, including royalty and tax increases
and retroactive tax claims, and changes in laws and policies affecting foreign
trade and investment. Such policies could destabilize the country and adversely
and materially affect the economy, and thereby our business. In addition, agreements with unions in
Argentina may increase the minimum wages and salaries or impose other
conditions which could adversely effect PLAs business.

19

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Any
inability to comply with Section 404 of the Sarbanes−Oxley Act of 2002
regarding internal control attestation may negatively impact the report on our
financial statements to be provided by our independent auditors.

We are
subject to the reporting requirements of the United States Securities and
Exchange Commission, or the SEC. The SEC, as directed by Section 404 of the
United States Sarbanes−Oxley Act of 2002, adopted rules requiring public
companies to include a report of management on the Companys internal control
over financial reporting in its annual report on Form 20−F that contains
an assessment by management of the effectiveness of the Companys internal
control over financial reporting. Our management may not conclude that our internal
controls over financial reporting are effective. Moreover, even if our management does conclude that our internal
controls over financial reporting are effective, if the independent accountants
are not satisfied with our internal controls, the level at which our controls
are documented, designed, operated or reviewed, or if the independent
accountants interpret the requirements, rules or regulations differently from
us, they may issue an adverse opinion on our internal control over financial
reporting at such time applicable rules require our accountants to provide such
an opinion. Any of these possible outcomes could result in a loss of investor
confidence in the reliability of our financial statements, which could
negatively impact the market price of our shares.

As a
non−accelerated filer, we must now comply with the annual disclosure
requirements of Section 404 regarding managements report on internal control
over financial reporting. Pursuant to Section 404(b), under the current rules
we will be required to provide an independent auditors attestation in the 2009
annual report, i.e., for the year ended December 31, 2009.

If we
determine that we are not in compliance with Section 404, we may be required to
implement new internal control procedures and re−evaluate our financial
reporting. We may experience higher than anticipated operating expenses as well
as outside auditor fees during the implementation of these changes and
thereafter. Further, we may need to hire additional qualified personnel in
order for us to be compliant with Section 404. If we are unable to implement
these changes effectively or efficiently, it could harm our operations,
financial reporting or financial results and could result in our conclusion
that our internal controls over financial reporting are not effective.

The
technology and standards in the stolen vehicle retrieval and the location based
services industry in which we operate change rapidly and the introduction of
products using new technology and the emergence of new industry standards and
practices could negatively impact our business.

The
wireless communications industry is characterized by rapid technological
changes. The introduction of products using new technology and the emergence of
new industry standards and practices could make our products less competitive
and cause us to reduce the prices of our products. There are several wireless
communications technologies, including cellular telephone, WiMax, personal
communications services, specialized mobile radio and mobile satellite services
which have been or may be implemented in the future for applications
competitive with the applications we provide. Future implementation and
technological improvements could lead to the production of systems which are
competitive with, or superior to ours.

20

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We cannot
give any assurance that we will timely or successfully introduce or develop new
or enhanced products, which will effectively compete with new products
available in the market. Our business will be negatively impacted if we do not
introduce or develop technologically competitive products that respond to
customer needs and are priced competitively.

We
may be unable to adequately protect our proprietary rights, which may limit our
ability to compete effectively.

Our success
and our ability to compete, particularly in software licensing and sales of
Cellocator products depend on our proprietary technology. We rely on a
combination of proprietary technology, know-how and trade secret laws, together
with non-disclosure agreements and licensing arrangements to establish and
protect proprietary rights in our products. We cannot assure you that these
efforts will successfully protect our technology because:

| |   |                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | the laws of
 some foreign countries may not protect our proprietary rights as fully as do
 the laws of the United States;                                                                                         
| | · | unauthorized
 third parties may attempt to copy or obtain and use the technology that we
 regard as proprietary;                                                                                                  
| | · | if a competitor
 were to infringe on our proprietary rights, enforcing our rights may be time
 consuming and costly, diverting managements attention and our resources;                                          
| | · | measures
 like entering into non-disclosure agreements afford only limited protection;
 and                                                                                                                       
| | · | our
 competitors may independently develop or patent technologies that are
 substantially equivalent or superior to our technology, duplicate our
 technologies or design around our intellectual property rights.

In
addition, others may assert infringement claims against us. The cost of
responding to infringement claims could be significant, regardless of whether
the claims are valid.

The
use of our proprietary Location Based Solution systems is subject to
international regulations.

While the
use of our Cellular Monitoring Units and services does not require regulatory
approvals, the use of our traditional Location Based Services systems is
subject to regulatory approvals of government agencies in each of the countries
in which our systems are operated by us or by our customers, including the
State of Israel. We thus obtained in 2001 a regulatory acceptance from the FCC
for our vehicular end-unit device (RMU) and for our SVR receiving base station,
to the extent required for sale in the U.S. Our operators typically must obtain
authorization from each country in which these systems are installed. While, in
general, applicants have not experienced problems in obtaining regulatory
approvals to date, the regulatory schemes in each country are different and may
change from time to time. We cannot guarantee that approvals, which our
operators have obtained, are or will remain sufficient in the view of
regulatory authorities. In addition, we cannot assure you that operators of our
systems will obtain licenses and approvals on a timely basis in all
jurisdictions in which we wish to sell our systems or that restrictions on the
use of our systems will not be unduly burdensome.

21

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We
may not be able to retain or attract key managerial, technical and research and
development personnel that we need to succeed.

Our success
has largely depended and will depend in the future on our skilled professional
and technical employees, substantially all of whom have written employment
agreements. The competition for these employees is intense. We may not be able
to retain our present employees, or recruit additional qualified employees, as
we require them.

Our
major shareholder has a controlling stake in our company and affiliated with
three members of our board of directors.

Pursuant to
a series of investments in our company since March 2003, and the exercise of
certain warrants, DBSI Investments Ltd., or DBSI, currently owns approximately
38% of our issued and outstanding shares, or 32% on a fully diluted basis. As a
result, DBSI has the ability to control material decisions requiring the
approval of our shareholders.

Our board
of directors currently consists of 6 members, of which three are affiliated
with DBSI. As a result, DBSI has the ability to affect the decisions made by
our full board of directors.

Risk Factors
Relating to our Ordinary Shares

We
do not expect to distribute cash dividends.

We do not
anticipate paying cash dividends in the foreseeable future. Our Board of
Directors will decide whether to declare any cash dividends in the future based
on the conditions then existing, including our earnings and financial
condition. According to the Israeli Companies Law, a company may distribute
dividends out of its profits, so long as the company reasonably believes that
such dividend distribution will not prevent the company from paying all its
current and future debts. Profits, for purposes of the Israeli Companies Law,
means the greater of retained earnings or earnings accumulated during the
preceding two years.

The
market price of our ordinary shares has been, and may continue to be, very
volatile.

The market
prices of our ordinary shares have fluctuated widely. The following factors,
among others, may significantly impact the market price of our ordinary shares:

| |   |                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | changes in
 the global financial markets and U.S. and Israeli stock markets relating to
 turbulence amid stock market volatility, tightening of credit markets,
 concerns of inflation and deflation, decreased consumer confidence, reduced
 corporate profits and capital spending, adverse business conditions and
 general liquidity concerns;
| | · | macro
 changes and changes in market share in the markets in which we provide
 services and products;                                                                                                                                                                                                                                             

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| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| | · | announcements
 of technological innovations or new products by us or our competitors;                                                
| | · | developments
 or disputes concerning patents or proprietary rights;                                                                  
| | · | publicity
 regarding actual or potential results relating to services rendered by us or
 our competitors;                            
| | · | regulatory
 development in the United States, Israel and other countries;                                                            
| | · | events or
 announcements relating to our collaborative relationship with others;                                                     
| | · | economic,
 political and other external factors;                                                                                     
| | · | period-to-period
 fluctuations in our operating results; and                                                                         
| | · | substantial
 sales by significant shareholders of our ordinary shares which are currently
 or are in the process of being registered.

In
addition, the securities markets in general have experienced volatility, which
has particularly affected the market prices of equity securities of many
companies and companies that have a significant presence in Israel. This
volatility has often been unrelated to the operating performance of such
companies.

Our
ordinary shares may be affected by limited trading volume and may fluctuate
significantly in price.

Our
ordinary shares are traded on the NASDAQ Capital Market and the Tel Aviv Stock
Exchange, or TASE. Trading in our ordinary shares has been limited and there
can be no assurance that an active trading market for our ordinary shares will
develop. As a result, this could adversely affect our shareholders ability to sell
our ordinary shares in short time periods, or possibly at all. Thinly traded
ordinary shares can be more volatile than ordinary shares traded in an active
public market. The average daily trading volume of our ordinary shares from
January 1, 2009 to February 28, 2009, on the NASDAQ Capital Market was 1,972
shares and on the TASE was 1,326 shares. The high and low bid price of our
ordinary shares for since January 1, 2009 to February 28, 2009, has been $4.06
and $3.00, respectively on the NASDAQ Capital Market and between NIS 16.5
(approximately $4.3) and NIS 12.9 (approximately $3.4) during the same period
on the TASE. Our ordinary shares have experienced, and are likely to experience
in the future, significant price and volume fluctuations, which could adversely
affect the market price of our ordinary shares without regard to our operating
performance.

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 Capital Market, and since
December 19, 2006, on the TASE. Trading in our ordinary shares are traded on
these markets in different currencies (U.S. dollars on the NASDAQ and New
Israeli Shekels on the TASE), and at different times (resulting from different
time zones, different trading days and different public holidays in the United
States and Israel). Actual trading volume on the TASE is expected to be lower
compared to the trading volume on the NASDAQ Capital Market, and as such, could
be subject to higher volatility. The trading prices of our ordinary shares on
these two markets are expected to often differ, resulting from as a result of
the factors described above, as well as in this paragraph, and because of
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.

23

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Corporate
governance scandals and new legislation in the United States could increase the
cost of our operations.

As a result
of corporate governance scandals in the United States and the legislative and
litigation environment resulting from those scandals, the costs of being a
public company in general have increased and may continue to increase in the
near future. Legislation, such as the Sarbanes-Oxley Act of 2002, has had and
may continue to have the effect of increasing the burdens and potential
liabilities of being a public reporting company. This and other proposed
legislation may increase the costs of compliance with this legislation and our
insurance premiums.

Risk Factors
Relating to Our Operations in Israel

Political
and Military Conditions in Israel affect our operations.

We are
incorporated under the laws of the State of Israel. Our headquarters, the
headquarters of Shagrir, our operations, development resources and the products
manufacturing, the operations of Shagrir and Cellocator, are located in Israel.
We are directly affected by the political, economic and military conditions
affecting Israel. Any major hostilities involving Israel or the interruption or
curtailment of trade between Israel and its present trading partners could
materially adversely affect our business, financial condition and results of
operations. Israels economy has been subject to numerous destabilizing
factors, including a period of rampant inflation in the early to mid-1980s,
low foreign exchange reserves, fluctuations in world commodity prices, military
conflicts and civil unrest. Since the establishment of the State of Israel in
1948, hostility has existed, varying in degree and intensity, between Israel
and the Arab countries. In addition, Israel and companies doing business with
Israel have been subject to an economic boycott by the Arab countries. Although
Israel has entered into agreements with some Arab countries and the Palestinian
Authority, and various declarations have been signed in connection with efforts
to resolve some of the economic and political problems in the Middle East,
there has been a significant increase in violence since September 2000 which
continued with varying levels of severity through 2004. Since the death of
Yasser Arafat in 2004, low-level negotiations between Israel and Palestinian
representatives have been renewed. Nevertheless, the political and security situation
in Israel may result in certain parties with whom we have contracts claiming
that they are not obligated to perform their commitments under those agreements
pursuant to force majeure provisions. In addition, recently there was an
escalation in violence among Israel, Hamas, the Palestinian Authority and other
groups, as well as extensive hostilities along Israels northern border with
Lebanon in the summer of 2006, and extensive hostilities along Israels border
with the Gaza Strip since June 2007 when the Hamas effectively took control of
the Gaza Strip. The hostilities with Hamas in the Gaza Strip further
significantly escalated in December of 2008 and January of 2009.

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Any
hostilities involving Israel or the interruption or curtailment of trade
between Israel and its present trading partners could adversely affect our
operations and could make it more difficult for us to raise capital. Since
our manufacturing facilities are located mainly in Israel, we could experience
disruption of our manufacturing due to acts of terrorism or any other
hostilities involving or threatening Israel.
Furthermore,
many of our employees and subcontractors are located in Israel, which could
still face a renewal of civil unrest, terrorist activity and military action.
Since we do not have a detailed disaster recovery plan that would allow us to
quickly resume business activity, we could experience serious disruptions if
acts associated with this conflict result in any serious damage to our
facilities. Our business interruption insurance may not adequately compensate
us for losses that may occur and any losses or damages incurred by us could
have a material adverse effect on our business. We cannot give any
assurance that security and political conditions will not have such an effect
in the future. Any future armed conflicts or political instability in the
region would likely negatively affect business conditions and harm our results
of operations.

Furthermore,
all non-exempt male adult permanent residents of Israel especially under the
age of 40, including some of our office holders and employees, are obligated to
perform military reserve duty and may be called to active duty under emergency
circumstances. In the past there have been significant call ups of military
reservists, and it is possible that there will be additional call-ups in the
future. While we have operated
effectively despite these conditions in the past, we cannot assess the impact
these conditions may have on us in the future, particularly if emergency
circumstances occur. Our operations could be disrupted by the absence for a
significant period of one or more of our executive officers or key employees or
a significant number of our other employees due to military service. Any
disruption in our operations would harm our business.

We
may be adversely affected by a change in the exchange rate of the New Israeli
Shekel against the U.S. dollar.

Because
exchange rates between the New Israeli Shekel, or NIS, and the U.S. dollar
fluctuate continuously, exchange rate fluctuations, particularly larger
periodic devaluations, may have an impact on our revenues and profitability and
period-to-period comparisons of our results. In 2002 and 2005 the rate of
devaluation of the NIS against the dollar was 7.3% and 6.8% respectively, while
in 2003, 2004, 2006 and 2007 the NIS appreciated in value in relation to the
dollar by 7.6% 1.6%, 8.2% and 9%, respectively. In 2008 the rate of the
revaluation of the NIS against the dollar was 1.1% while the fluctuation during
2008 was between 16% revaluation and 13% devaluation.

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A majority
of our revenues are denominated in NIS because our Shagrir subsidiary whose
revenues are mainly in NIS, account for approximately 70% of our revenues in
2008. A portion of our loans and credit facilities, the amount of approximately
$26 million, approximately 74% out of our total loans and credit facilities, is
also denominated in NIS. A portion of
our expenses, primarily labor expenses in Israel of Cellocator and Shagrir
operation, is incurred in NIS.
Additionally, certain assets, as well as a portion of our liabilities,
are denominated in NIS. On the other
hand, our exports, including our sales of Cellocator products, are denominated
mainly in U.S. dollars and a significantly lesser portion in Euro and
Argentinean pesos. A portion of our loans and credit facilities, consisting of
approximately $9.3 million as of December 31, 2008, are denominated in U.S.
dollars.

Our results
may be adversely affected by the devaluation of the NIS in relation to the
dollar (or if such devaluation is on lagging basis), if our revenues in NIS are
higher than our expenses in NIS and/or the amount of our assets in NIS are
higher than our liabilities in NIS. Alternatively, our results may be adversely
affected by appreciation of the NIS in relation to the dollar (or if such
appreciation is on a lagging basis), if the amount of our expenses in NIS are
higher than the amount of our revenues in NIS and/or the amount of our
liabilities in NIS are higher than our assets in NIS. We may utilize partial
hedging to manage currency risk. For
example, in 2008 we entered into a foreign currency hedging transaction to
partial manage risk related to salary expenses in 2009. Therefore, to the
extent our currency risk is not hedged or sufficient hedged, we may experience
exchange rate losses which could significantly and negatively affect our
business and results of operations.

For
further discussion of such fluctuation of the $ to the NIS, see Item 5 - Impact of Exchange Rate
Fluctuations on Results of Operations, Liabilities and Assets, and Item 11 - Quantitative and Qualitative Disclosures About Market Risk.There can be no assurance that
we will not incur losses from such fluctuations in the future.

We
may be adversely affected by a change of the Israeli Consumer Price Index.

Our exposure to market rate risk for
changes in the Israeli Consumer Price Index, or Israeli CPI, relates primarily
to loans borrowed by us from banks and other lenders. As of December 31, 2008, we had total loans borrowed linked to Israeli
CPI of approximately $6.9 million. Therefore, we are exposed to the risk that
the rate of Israeli CPI, which measures inflation in Israel, will exceed the
rate of devaluation of the NIS in relation to the dollar or that the timing of
this devaluation lags behind inflation in Israel. This would have the effect of
increasing the dollar cost of our borrowings.

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We
may not be eligible to receive grants or programs provided to us from our
participation in research and development, investments and other programs or we
may be restricted from manufacturing products or transferring our intellectual
property outside of Israel.

We have
received certain grants and programs from the Israeli Government. Some of these
programs may restrict our right to manufacture products or transfer our
intellectual property outside of Israel. If we do not meet certain conditions
in the future, we may have to refund payments previously received under these
programs or pay fines.

Service
and enforcement of legal process.

Service of process upon directors and officers of our company and the
Israeli experts named herein, all of who reside outside the United States, may
be difficult to effect within the United States. Furthermore, since the
majority of our assets are located outside the United States, any judgment
obtained against us in the United States may not be enforceable within the
United States. We have been informed by our legal counsel in Israel, Yigal
Arnon & Co., that there is doubt as to the enforceability of civil
liabilities under the Securities Act of 1933, as amended, or the Securities
Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act,
in original actions instituted in Israel. However, subject to certain time
limitations, Israeli courts may enforce United States final executory judgments
for liquidated amounts in civil matters obtained after due trial before a court
of competent jurisdiction (according to the rules of private international law
currently prevailing in Israel) which enforces similar Israeli judgments,
provided that: (i) due service of process has been effected; (ii) such
judgments or the enforcement thereof are not contrary to the law, public
policy, security or sovereignty of the State of Israel; (iii) such judgments
were not obtained by fraud and do not conflict with any other valid judgment in
the same matter between the same parties; and (iv) 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 foreign court.

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

A.          HISTORY
AND DEVELOPMENT OF THE COMPANY

The legal
and commercial name of our company is Pointer Telocation Ltd. We were incorporated under the laws of the
State of Israel in July 17, 1991 under the name Nexus Telecommunications
Systems Ltd. We changed our name to
Nexus Telocation Systems Ltd. in December 1997 and to Pointer Telocation Ltd.
in January 2006. The principal legislation under which we operate is the
Israeli Companies Law, 5759-1999, as amended.

Our
principal place of business is located at 14 Hamelacha Street Afek Industrial
Park, Rosh Haayin, Israel, and our telephone number is 972-3-572-3111. Our Web site is www.pointer.com. Information on our web site is not part of,
nor incorporated by reference into, this annual report.

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We are a
leading provider of advanced command and control technologies for the
automotive and insurance industries.
During 2008, as a result of our Cellocator acquisition in September 2007, the
Company began to present its operating results in two discrete business units,
the Cellocator segment and the Pointer segment, following a determination by
the Companys management to control and manage the results of the Companys
business according to the above mentioned segments.

Our Pointer
segment sells products and provides a range of services to automotive and
insurance companies, and to a lesser extent to other corporate and individual
customers. The range of services are comprised of road-side assistance and
towing services, stolen vehicle retrieval services and fleet management
services. We provide services, for the
most part, in Israel, through our subsidiary Shagrir Systems Ltd., or Shagrir,
and in Argentina, Mexico and Romania through our local subsidiaries.

Our
Cellocator segment is a producer of leading automatic vehicle location products, including
asset tracking products, fleet management products having location, tracking, event driven
reporting, logging and security capabilities, and GSM-based security products. The
Cellocator segment produces Cellular/GPS and Radio Monitoring Units fleet management
software and mobile resource management software used for fleet command and control
centers. We develop, manufacture and distribute or sell these products to our Pointer
segment and to independent operators in 25 countries.

For a
description of our business segments, see Item 4.B  Business Overview.

Until 2003,
our business focused primarily on the development, manufacture and sale of
location based services and stolen vehicle retrieval services. In April 2003,
our management decided to strategically focus on providing a range of
additional services to automobile owners and insurance companies.

Our
strategy was implemented through several acquisitions in Israel, Argentina and
the establishment of subsidiaries in Mexico and Romania.

In June
2004 we purchased all of the outstanding and issued share capital of Shagrir
not already held by us. Shagrir was our local Israeli operator and service
provider, which mainly provided stolen vehicle retrieval and other security
value-added services mainly for vehicle owners through a communication network
based on our technology. We currently
own approximately 56.56% of the Shagrir, following the conversion on November
30, 2005 of a loan convertible into shares of Shagrir which was issued to
Gandyr Investments Ltd. in connection with the acquisition of Shagrir.

In June
2004, we also incorporated a Mexican company, Pointer Recuperacion de Mexico,
SA de CV, or PRM, to serve as our local Mexican operator and service provider,
which would provide stolen vehicle retrieval and fleet management services for
vehicle owners using a communication network based on our technology.

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In February
2005, our subsidiary, Shagrir, purchased the assets and activities of Shagrir
Towing Services, an Israeli company which provided road-side assistance and
towing services, in Israel.

In August
2005, we effected a 100 to 1 reverse stock split of our ordinary shares. As a
result of the reverse stock split, each one hundred shares of the Companys
ordinary shares with par value of NIS 0.03 each were converted into one
ordinary share of NIS 3.00 par value.

On November
16, 2005, our ordinary shares resumed trading on the NASDAQ Capital Market
under the symbol NXUS, from where they had been trading on OTC Bulletin Board. Please see Item 9  The Offer and Listing for further
information about the trading of our ordinary shares. On February 21, 2006 our shares began trading under a new
symbol, PNTR.

On December
19, 2006, our ordinary shares began trading on the Tel Aviv Stock Exchange in
Israel, or TASE, also under the symbol PNTR, and we became a dual listed
company.

In
September 2007, we purchased the assets and activities of Cellocator, a
developer and manufacturer of GPS/GPRS based vehicle devices. See Recent
Developments below for further information regarding the Cellocator
acquisition.

In July
2008, Shagrir, together with a Romanian citizen, incorporated a Romanian
company, S.C. Pointer S.R.L., or Pointer Romania, to provide road-side
assistance and towing services in Romania. Each of Shagrir and the Romanian
citizen owns 50% of the issued share capital of Pointer Romania. Shagrir also has the right to acquire an
additional 1% of the share capital held by
the Romanian holder.

We also
incorporated subsidiaries in Brazil in August 2008 and the United States in
October 2008, without significant operations.
See Recent Developments
below for further information regarding the subsidiaries.

As a result
of the implementation of our strategy, we currently provide technology (devices
and command & control software) to independent operators of mobile resource
management solutions as well as our existing range of services to automobile
owners and insurance companies.

As a result
of the acquisitions we made in Israel, the Shagrir operations and technology
manufacturing of Cellocator are currently the most significant operations we
have, and are expected to account for the majority of our business and revenues
in the foreseeable future. In Israel we
currently provide the full range of our services.

In addition
to our companys principal place of business described above, the headquarters
of our subsidiary, Shagrir, are located in Holon, Israel. The headquarters of
our subsidiary, PLA, are located in Buenos Aires, Argentina. The headquarters
of our subsidiary, PRM, are located in Mexico City, Mexico. The headquarters of
our subsidiary, Pointer Romania, are located in Bucharest, Romania.

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In January
2005 our subsidiary, Pointer (Eden Telecom Group) Ltd., was renamed Shagrir
Motor Vehicle Systems Ltd and in March 2007 was renamed Shagrir Systems Ltd.

For as
discussion of our capital expenditures and divestitures, see Item 5.B.  Operating and Financial Review and Prospects 
Liquidity and Capital Resources.

Recent Developments

Since
January 1, 2008, the following important events have occurred to us:

Acquisition of
Cellocator Ltd.

In
September 2007, we acquired the assets and activities of Cellocator Ltd. and Matan Y.
Communication Tracking Systems Ltd., or Cellocator, a private Israeli company active in
the field of cellular location-based services and technology. The consideration for the
acquisition consisted of (i) $16.7 million in cash, (ii) 160,000 ordinary shares of the
Company, and (iii) a non-tradable debenture with a fair value of $ 1,951,000, which
was convertible into 160,000 ordinary shares of the Company.

In January
2008, the seller decided not to convert the debenture, and as a result
Cellocator and/or its shareholders hold, in the aggregate, approximately 3.4%
of our issued and outstanding share capital.
As part of the acquisition, we agreed to continue to fulfill specified
conditions allowing Cellocator to meet particular existing tax benefit
qualifications under Israeli law.

Allocation of Shares
in Argentinean Subsidiary

In March
2007, we executed a Memorandum of Understanding, or MOU, with SOS, a leading
provider of road side assistance in Argentina, or the Argentinean Provider, to
cooperate in offering location based services and stolen vehicle retrieval
services in Argentina. In June 2008 the
Company allocated 5% of the shares in our Argentinean subsidiary, PLA, to the
Argentinean Provider. Both sides have
an option to repurchase or return the 5% shares until March 1, 2010 for the
higher of an agreed amount or a formula based on the EBITDA of PLA. The closing
of the transaction referenced in the MOU is subject to the success of the Argentinean
Provider in reaching an agreement with a leading automotive manufacturer in
Argentina and other factors. As of
December 31, 2008, the closing had not yet taken place.

In
connection with the above MOU, we also entered into a non-binding Letter of
Intent to acquire controlling ownership of the Argentinean Provider discussed
above, in consideration for $9 million.
A due diligence process relating to the Letter of Intent will commence
only if the Argentinean Provider has undergone a specified restructuring
process, and to date a number of required steps in this process remain pending.

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Loan to Hungarian
automotive service provider

On January
8, 2008, we entered into a loan agreement with a Hungarian automotive service
provider, pursuant to which we loaned them 290,000 Euros (approximately
$450,000), of which up to 240,000 Euros are subject to repayment.

Private Placement
with Israeli Institutional Investor

On July 18,
2008, we consummated a private placement of 140,056 of our ordinary shares to
DBSI Investments Ltd., our principal shareholder, for an aggregate price of
$1,000,000 at a price per share of $7.14 per share, which was 10% above to the
average closing price of our ordinary shares between the date of our boards
approval of the private placement on May 27, 2008 until July 10, 2008.

Repayment and
Recapitalization by Shagrir of Outstanding Debt; Entry into New Loan Agreement

Shagrir
funded its acquisition of Shagrir Towing Services in February 2005 through a
credit line of approximately $23 million, made available by Bank Hapoalim B.M.,
and loans of approximately $22.5 million from a group of investors, including a
loan of approximately $9 million
provided by Shagrir Towing Services, a loan of approximately $11.5 million
provided by a group of investors led by Gandyr Investments Ltd. and Egged
Holdings Ltd., or Egged, and a loan of approximately $2 million provided by the
Company.

During 2006 and 2008, Shagrir repaid
all of these loans, other than the amounts held by Bank Hapoalim, by means of available
funds and through funds provided by additional loans from Bank Hapoalim. In 2008 Shagrir
entered into new loans agreements with Bank Hapoalim. The loans provided by Bank Hapoalim
to Shagrir are in NIS currency and the interest rate is 7%-7.75%. As of December 31, 2008
the outstanding balances of the loans were $6 million and $ 1.7 million. As a result, as
of December 31, 2008, Shagrir has in the aggregate approximately $22.2 million in
outstanding loans, which are all entered into with Bank Hapoalim. For further information,
see Note 10c of our consolidated financial statements. See Item 10  Material
Contracts  Loan Agreements.

Settlement of Legal
Claim

In February
2008 we finalized the settlements of outstanding litigation with China National
Electronics Import & Export Beijing Co., or CEIEC, regarding the alleged
breach of agreements regarding CEIEC customer Sino Telocation Ltd.s purchase
of a car localization system. Pursuant
to the settlement both parties withdrew the claims against each other and
against the bank, Bank Hapoalim B.M., used in connection with the agreement.

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Options

On
August 13, 2008 our board of directors resolved to issue options to one of our suppliers
to purchase 3,000 of our ordinary shares, pursuant to our 2003 Employee Share Option Plan,
which will vest immediately at an exercise price of $6.91 per share.

In
July 2008 our shareholders resolved to issue to three of our directors options to purchase
9,000 of our ordinary shares, pursuant to our 2003 Employee Share Option Plan, which will
vest in three equal annual installments over a period of three years, commencing as of the
date of the grant, at an exercise price of $5.71 per share.

On February
25, 2009 our board of directors resolved to issue to our employees options to
purchase 15,000 of our ordinary shares, pursuant to our 2003 Employee Share Option
Plan, which will vest in four equal annual installments over a period of four
years, commencing as of the date of the grant, at an exercise price of $3.14
per share.

On February
25, 2009 our board of directors resolved to modify the price of 166,750 options
granted to our employees between the period of May 2005 and December 2007 to
purchase 166,750 of our ordinary shares, pursuant to our 2003 Employee Share
Option Plan, to be reduced to an exercise price of $3.14 per share.

Establishment
of Subsidiaries in Romania, Brazil and the United States

In July
2008, Shagrir, together with a Romanian citizen, incorporated a Romanian
company, S.C. Pointer S.R.L., or Pointer Romania, to provide road-side
assistance and towing services in Romania.
Each of Shagrir and the Romanian citizens owns 50% of the issued share
capital of Pointer Romania. Shagrir
also has the right to acquire an additional 1% of the share capital held by the
Romanian holder. Pointer Romania signed
an agreement to provide roadside assistance services in Romania starting
October 1, 2008 for over a period of two years, to a large Romanian-based
petrol company, which in turn will offer the services to its customers.


In August
2008, we established a subsidiary in Brazil, Cellocator Comercial S.A., which
has 60% of its share capital held by us and the remaining amount held by
Brazilian shareholders, and inuring October 2008 we established a wholly-owned
subsidiary in the United States, Pointer Telocation Inc. Neither of these subsidiaries currently has
any significant operations.

B.          BUSINESS
OVERVIEW

A. General

We are a
leading provider of advanced command and control technologies for the
automotive and insurance industries. We
operate in two segments, our Pointer segment and our Cellocator segment. Our Pointer segment sells products and
provides a range of services to automotive and insurance companies, and to a
lesser extent to other corporate and individual customers. The range of
services are comprised of road-side assistance and towing services, stolen
vehicle retrieval services and fleet management services. We provide these services, for the most
part, in Israel, through our subsidiary Shagrir Systems Ltd., or Shagrir, and
in Argentina, Mexico and Romania through our subsidiaries Pointer Localisation
y Assitencia S.A, which we refer to as PLA, Pointer Recuperacion Mexico SA,
which we refer to as PRM, and S.C. Pointer S.R.L, which we refer to as Pointer
Romania, respectively.

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Our
Cellocator segment is a producer of leading automatic vehicle location products, including
asset tracking products, fleet management products having location, tracking, event driven
reporting, logging and security capabilities, and GSM-based security products. The
Cellocator segment produces Cellular/GPS and radio monitoring units, fleet management
software and mobile resource management software used for fleet command and control
centers. We develop, manufacture and distribute or sell these products to our Pointer
segment and to third party local operators in Europe, Latin America, Asia and Israel who
use our products and / or software and through which they provide location based and
security services.

Pointer Segment

Our Pointer
segment currently provides the following range of services to insurance
companies and, to a lesser extent, other corporate and individual customers:

| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | Road-side
 assistance and towing services  our road-side assistance services include
 towing services, mobile automobile repair services, vehicle replacement
 services, sales of spare-parts and services connecting the driver to other
 service providers. We provide our
 road-side assistance service through our Shagrir subsidiary, which currently
 operates in Israel. In order to provide such services, we use our own fleet
 and employees as well as sub-contractors.                                                                                                                                                                    
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (ii) | Stolen
 vehicle retrieval services - we are operators and providers of services
 directly targeted to stolen and missing vehicle retrieval, which we refer to
 as our SVR services. SVR services
 includes in some cases both preventing vehicles from being stolen as well as
 retrieving them in co-operation with law enforcement and private security
 agencies. The services incorporate
 both a spread spectrum technology (SPSP) in the ISM frequency band, intended for self-deployed wide area
 networks (WAN) and Cellular / GPS technology communication system in order to
 offer a total remote vehicle monitoring and retrieval solution.

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| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) | Fleet
 management services  we provide an array of services to enhance our
 customers fleet management capabilities in order to ensure better
 utilization of vehicles and other mobile resources and operation cost
 savings, mainly in fuel savings. We provide end units for after market
 in-vehicle installations, to monitor online the operating parameters of a
 vehicle fleet and to report the results to the fleet owners and managers,
 through web-based or OS-based monitoring and management location
 applications. Our end-unit products can retrieve data from various sensors in
 the vehicle utilizing RS-232, CAN bus driver and controller, standard
 One-wire (Dallas) serial communication standards, or by analog and discrete
 ports.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (iv)  | Other services
  In 2007 our Shagrir subsidiary established an operation to provide
 household services to insurance companies relating to insurance coverage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

i. Road-side Assistance and Towing Services

Our Pointer
segment provides road-side assistance and towing services mainly in Israel
through our subsidiary Shagrir. We believe Shagrir is a leader in Israel in
providing road-side assistance and towing services. Shagrir provides services
to its subscribers throughout Israel and its fleet of vehicles includes
approximately 100 service cars, mobile garages and towing vehicles, which are
dispatched by the control center to the vehicle requiring assistance, through a
sophisticated management and monitoring software application, connected via
remote terminals used in the service cars, mobile garages and towing vehicles.

Subscribers
for road side assistance and towing services are mainly referred to Shagrir by Israeli insurance
companies, which are our customers. To a lesser extent, additional subscribers
are comprised of fleet vehicle customers and private customers. A subscription
entitles a subscriber during the subscription period (which is usually one
year), to certain of our road-side assistance services, which are usually
available to the subscriber twenty-four hours a day, every day of the year
depending on the type of insurance policy purchased and the service contract
with Shagrir.

A
subscription is personal and non-transferable. A subscriber may, however,
change the vehicle that is the subject of the subscription at any time. The price of a subscription is based, among
other things, on the type of subscription and the type of vehicle (private or
commercial).

Under the
service contracts, Shagrir
is responsible for a vehicle from the time Shagrir begins rendering services and until such time as the
vehicle is delivered to its destination. Similarly, Shagrir undertakes to compensate the subscriber for any direct
damage caused to his/her car as a result of the provision of the services,
subject to the rules of the Israeli Civil Wrongs Ordinance.

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Road-side Assistance
-- Equipment, Subcontractors and Supplies

As of
January 2009, Shagrir
owned approximately 100 service
cars, mobile garages and towing vehicles and owned approximately 100
replacement vehicles.

The general
policy of Shagrir
is to replace its towing vehicles, towing equipment and mobile garages
approximately every five years, all depending on prevailing economic
conditions.

The majority
of the road-side assistance and towing services are carried out by employees of
Shagrir.
During peak demand periods, Shagrir
calls on the services of certain independent contractors who render road-side
assistance and towing services on behalf of Shagrir. Shagrir
has entered into agreements with these independent contractors. Independent
contractors are also often used in the provision of services by Shagrir as per operating requirements
in peak and non-peak periods.

Most of the
replacement vehicles are rented from various rental companies in Israel and
about 25% performed by Shagrirs own fleet. Shagrir purchases the spare parts it
uses in the provision of road-side assistance from various suppliers in Israel.

ii.
Stolen Vehicle Retrieval (SVR) Services

Pointer operates
SVR services in Israel through our Shagrir subsidiary and in Argentina and
Mexico through our subsidiaries, PLA and PRM, respectively. Our services are provided based on spread
spectrum technology (SPSP) intended for wide area networks (WAN) or Cellular /
GPS technology. In Israel, Argentina
and Mexico we provide location based services for vehicles using our command
and control centre, radio frequency products and infrastructure, cellular
network and other sophisticated systems for the protection and location of
vehicles.

If a
vehicle is stolen, our system may be alerted by sensors located in the vehicle
as well as by the vehicle owner. The
sensors maintain alert as to the progress of a theft by the transmission of
information to our twenty-four hour manned command and control center. Once
received by the center, the necessary steps to recover the vehicle are taken.
In addition, our value added location based services include the provision of a
distress button, using which a person can alert our command and control center,
which locates the vehicle and immediately sends the required service as well as
the location of vehicles through the Internet, by inserting a personal code, at
any given time.

Remote Monitoring
& Control Security

Our SVR
services (and our larger fleet management package of services) offer a remote
monitoring and control solution. Our
system is comprised of three major parts:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Command
 & Control Center (CCC)
 The CCC includes databases, as well as other software modules required for
 the execution of our operations. It also includes monitors on which location
 and other data collected from the end units is displayed and analyzed in
 order to determine the location of the end unit. Commands can be down-linked
 to the end units from the CCC using either a commercial paging system (while
 using the Pointerware network) or through cellular networks.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Mobile /
 Vehicle Unit Installation A unit which may be
 installed on the vehicle, and which generally consists of a transceiver
 (radio frequency or cellular modem communication) with inputs and outputs
 capability, which is installed in a vehicle or any remote object to be
 monitored. The end-units inputs are connected to sensors in the vehicle or
 object or to the vehicle computer (mostly called CAN Bus), while the outputs
 send commands (which they receive from the CCC) to the object. Location of the vehicle is achieved either
 by triangulation measurements from several base stations installed by the
 operator or by means of GPS device in the vehicle unit.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | · | Communication
 InfrastructureCommunication is accomplished by either the cellular
 network in each territory of operations or radio frequency infrastructure
 with base stations. These stations are dispersed throughout a specific
 territory and connected to an existing communications infrastructure. Each
 base station is equipped with antennae which receive the end-units signal
 and measure the angle from which the signal arrived for the purpose of
 locating the vehicle. These measurements, together with additional data
 received from the end-units, are then converted into digital data and sent to
 the Command & Control Center.                                  

The design
of our system allows for seamless integration with existing infrastructures,
low-cost expansion, development of multiple applications, and access to the
internet and public switched telephone network gateways.

Our command
and control monitoring center connects to the end-units via radio frequency or
cellular communications. For SVR and
location based services in Israel, our subsidiary Shagrir mainly uses our
proprietary Pointerware SPSP (spread spectrum technology) system and products,
and to a lesser but growing extent end units based on Cellular/GPS technology,
mainly for fleet management applications.

In order to
retrieve the stolen cars Shagrir uses its own personnel as well as law
enforcement and various subcontractors.


In Israel,
Argentina and Mexico, we also operate the command and control center from which
we dispatch external security personnel subcontracted by us to retrieve the
stolen vehicles or provide assistance as required by the driver. Installations
and de-installations of end units in the vehicles are performed either by our
in-house employees, or by subcontractors mainly in designated installation
centers. Fleet Management services are
provided to customers as web-based applications.

36

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Our
Argentinean subsidiary PLA provides mainly SVR services based on our
proprietary Pointerware system and fleet management based on Cellular / GPS
technology. This technology enables us also to extend services outside Buenos
Aires.

Our Mexican
subsidiary, PRM, provides SVR and fleet management services based on Cellular /
GPS technology.

iii.
Fleet Management Services (and other Monitoring Systems) and Value Added
Location Based Services

Our
subsidiary Shagrir is also a leading provider of fleet management services in Israel. The communication method for this service is
predominantly cellular with location via GPS and connectivity to the vehicle
either by CAN Bus or to sensors via inputs and outputs. Operators monitor
vehicles using a web-based application with capabilities for monitoring the
vehicles location, speed and various inputs (if connected). Reports to
operators employees are provided automatically or upon request, via internet,
GPRS or SMS. These reports may include parameters that enable monitoring performance

In our
fleet management services, Cellular / GPS Units & Web-based application
enable many fleet management capabilities, ensuring better utilization of
vehicles and other mobile resources. The end-unit can connect to various
sensors by RS-422 or RS-232 or CANbus standards, by analog or by discrete (on
or off) wirelines. The sensors monitor
various vehicle operating parameters, and the end unit will report the results
to the fleet owners and managers.

In
Argentina, PLA provides fleet management services based on Cellular / GPS
technology and stolen vehicle retrieval
services both based on Radio frequency and Cellular / GPS technologies and in
Mexico our subsidiary, PRM, provides both fleet management and stolen vehicle
retrieval services, based on Cellular / GPS technology.

iv.
Other Services Household Insurance Services

In 2007 our
Shagrir subsidiary established an operation to provide household services to
insurance companies relating to insurance coverage, which operations were
insignificant to our financial results as of the end of December 31, 2008.

Cellocator Segment

Our
Cellocator segment is a producer of
leading automatic vehicle location products, including asset tracking products,
fleet management products having location, tracking, event driven reporting,
logging and security capabilities, and GSM-based security products. The Cellocator segment  produces
cellular/GPS and radio monitoring units fleet management software and mobile
resource management software used for fleet command and control centers. We develop, manufacture and distribute or
sell these products to our Pointer business and to third party local operators
in Europe, Latin America, Asia and Israel who use our products and / or software
and through which they provide location based and security services.

37

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Our
Cellocator segment develops, manufactures and distributes the following
products:

| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | Stolen
 Vehicles Recovery (SVR) - Both SPSP
 and cellular / global positioning system, or GPS, communication systems
 enable unique features for SVR solutions, including (i) communication &
 location facilities (ii) concealed terminal (iii) alarm system adaptability (iv) remote command (v) accuracy (vi)
 back-up power supply, and (vii) 24x7 redundant command and control center
 (CCC). The radio frequency monitoring devices use our proprietary Pointerware
 technology SPSP (spread spectrum technology) used for wide area
 networks. We still rely on third
 party suppliers to manufacture our Location Based Services systems which
 primarily consist of radio frequency devices.                                                                                                                                                                                
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       | As a result,
 in connection with our SVR services, we have used both cellular and radio
 frequency (Location Based Services) monitoring devices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (ii)  | Cellular
 Monitoring Units; Location Based Services systems - Since the acquisition of
 Cellocator in 2007, we are manufacturing our own cellular units and are no
 longer reliant on third party suppliers.
 The Cellocator units enable us to provide versatile information as
 well as nationwide coverage, utilizing the cellular network in each
 territory. These units are specially designed to operate in harsh conditions
 installed in the vehicle; the design takes into consideration the metallic
 envelope that surrounds the unit, the temperature and vibration stress that
 are imposed on it, the limited and unstable power supply that characterizes
 the car power supplies generally, and specific installation requirements of
 the variety of cars available in the market.
 The design is intended to provide a high degree of reliability and
 flexibility.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (iii) | Fleet
 Management Application Products  In connection with our fleet management
 services, we provide cellular / GPS units & web-based application to
 enhance many fleet management capabilities, ensuring better utilization of
 vehicles and other mobile resources. The end-unit can connect to various
 sensors by RS-422 or RS-232 or CANbus standards, by analog or by discrete
 wirelines. The sensors monitor various vehicle operating parameters, and the
 end unit will report the results to the fleet owners and managers.                                                                                                                                                                                                                                                                                                                                             

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| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) | Mobile
 Resource Management/Command and Control Software  We provide web access
 required for the execution of vehicular and fleet management operations. The product also includes monitors on which
 location and other data collected from the end units is displayed, tracked,
 analyzed and reported, in order to determine location, utilization and
 certain functionalities (e.g. vehicle status and some driving patterns such
 as speed).

Our
Cellocator segment distributes and sells these products to our Pointer
operations and to third party operators and distributors in 25 countries in
Europe, Latin America and Asia.

Operators
purchase either Cellular Monitoring Units or Location Based Services systems,
including our Cellocator products, or Command & Control software or our
fleet management application products or a combination of them and are
responsible for the commercialization of their services, which are based on our
systems and products in their designated territories and in their licensed
coverage area. They control the sales and marketing of the end user devices as
well as services to their final customers according to their business focus and
business plans. In order to provide these services, our domestic operators
purchase from us, and deploy, the Command and Control software and fleet
management application products and, if they provide SVR services via our radio
frequency solution, sufficient base stations to cover their respective
territories.


B. Sales and
Marketing

Pointer Segment Israel

For the
provision of its road-side assistance and towing services, Shagrir sales and
marketing team directs its sales and marketing efforts to promoting its
subscriptions mainly to Israeli insurance companies, and to lesser extent fleet
vehicle customers. Our SVR services are marketed primarily through vehicle
importers and to a lesser extent to fleet vehicle operators, leasing companies
and private individuals. Other value added location based services are marketed
directly to fleet vehicle operators and private individuals who have already
installed our products. We employ an in house sales and marketing force and
also direct the sale of our security products and car units for installation in
the vehicles of private customers, business customers and vehicle fleets either
directly or through our network of approximately 70 authorized installers
across Israel.

In
addition, the Shagrir
sales team captures and analyzes sales data from various sources including
insurance companies and agents, fleet vehicle customers and private customers
which it then uses to formulate future sales and marketing strategies.

Argentina and Mexico

In order to
execute their sales and marketing initiatives, our Argentinean and Mexican
subsidiaries, PLA and PRM, employ an in-house sales and marketing force and
third party dealers whose efforts are focused on sales and marketing to
insurance companies and vehicle agents, fleet operators directly, or indirectly
through insurance agents, vehicle distributors and vehicle financing
corporations in their respective designated territories.

39

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Cellocator Segment

Our
sales and marketing efforts to operators in other countries, mainly in respect of the
products of our Cellocator segment, are executed by our internal marketing, sale force and
customer support employees operate from Israel, focusing on sales of our technology and
being attentive to needs of these customers, in order to provide them with the solutions
they require.

C. Patent and Licenses; Government Regulation

In Israel,
we are not dependent on any patent or licenses, which are material, to our
business or profitability, with the exception of the following licenses:

| |   |                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | a business
 license to render towing and retrieval/extrication services under the Control
 of Commodities and Services (Vehicle Towing and Extrication) Order,
 5734-1974, which is valid until December 31, 2009;
| |   |                                                                                                                                                                                                                   
| | · | a license
 for the operation of mobile garages under the Control of Commodities and
 Services (Vehicle Garages and Factories) Order, 5730-1970, which is valid
 until December 31, 2009; and                      
| |   |                                                                                                                                                                                                                   
| | · | a license to
 rent self-drive vehicles under the Control of Commodities and Services (Tour
 Transport, Special Transport and Vehicle Rental) Order, 5745-1995, which is
 valid until December 31, 2009.           

The use of
products incorporating our Pointerware technology in the State of Israel
requires a license from the Israel Ministry of Communications. In May 1996,
Shagrir was granted an operational license to operate our wireless messaging
system over 2 MHz in the 966 to 968MHz radio spectrum band. Since 1999, this
license has been renewed on a regular basis.

Our
Argentinean subsidiary, PLA, is not dependent on any patent or licenses which
is material to its business or profitability.

Most Latin
American countries have dedicated a part of their radio spectrums for the ISM
band for unlicensed services, however, the local operator is required to obtain
a specific license for its operations. PLA has been required to obtain domestic
licenses for the deployment of our systems in Argentina.

Regarding
our Mexican subsidiary, PRM, since 2006 our services in Mexico through PRM are
based entirely upon Cellular Monitoring Units and therefore require no specific
governmental licenses. We are registered by the federal commission to provide
services.

40

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While
the use of our Cellular Monitoring Units and services does not require
regulatory approvals, the use of our radio frequency (Location Based Systems)
is subject to regulatory approvals of government agencies in each of the
countries in which our systems are operated, including the State of Israel. We
thus obtained in 2001 a regulatory acceptance from the Federal Communications
Commission in the United States for our vehicular end-unit device (RMU) and for
our SVR services receiving base station, to the extent required for sale in the
U.S. Our operators typically must obtain authorization from each country in
which these systems are installed. While, in general, applicants have not
experienced problems in obtaining regulatory approvals to date, the regulatory
schemes in each country are different and may change from time to time. We
cannot guarantee that approvals, which our operators have obtained, are or will
remain sufficient in the view of regulatory authorities. In addition, we cannot
assure you that operators of our systems will obtain licenses and approvals on
a timely basis in all jurisdictions in which we wish to sell our systems or
that restrictions on the use of our systems will not be unduly burdensome. See
Item 3  Risk Factors.

D. Competition

Pointer Segment

In
Israel, our primary competitors are Drachim Road Side & Towing Services
Ltd., Femi Premium Ltd. and Shlomo-SIXT Road Side Services & Garages Ltd.,
all of which mainly compete with us in providing road-side assistance and
towing services. In addition, other companies which provide assistance services
through insurance companies may attempt to compete with us. Ituran is our main
direct competitor in the stolen vehicle retrieval and fleet management services
market.

Our
primary competitors in the stolen vehicle retrieval services market in
Argentina are LoJack and Ituran. In Mexico our prime competitor in the stolen
vehicle retrieval services are LoJack and MISANTI.

Many additional competitors
operate in both countries, however their positioning is not as strong as LoJack
and Ituran.

In
fleet management services market our prime competitors in Argentina are
Megatrans and Sitrack while in Mexico Omnitrack and Inmosat. In fleet
management services we have many competitors for the low-entry level services
for monitoring vehicles. When management is required (analysis, reporting,
diagnostics, driver-behavior patterns) fewer competitors operate in both
countries however activities are intensive.

Some
competitors in the stolen vehicle retrieval services market offer a similar
solution to ours and others, like LoJack, use a VHF based messaging unit,
without a wide area network, which is sold to customers and is connected via
radio to local law enforcement communication networks.

41

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In
addition, in these markets and also some other potential markets, some primary
location based service providers who directly or indirectly compete with us
employ other technologies, such as a combination of GPS (satellite-based
location technology) over cellular-like systems. These systems use commonly
existing infrastructure, which offer location based services, which conform
with the recent FCC ruling, requiring mobile phones to be equipped with either
relatively accurate 911 capabilities (using GPS or differential time of arrival
technologies), or less accurate 911 capabilities (using cell-id, analog or
paging technologies).

Cellocator Segment

Many
companies manufacture vehicle devices based on GPS / Cellular technology. Our
primary competitors in the vehicle devices (GPS/Cellular) product market in
Argentina and Mexico include Skypatrol, Webtech, Trafficmaster, Octotelematics,
Cobra, AirIQ and the modem manufacturer Enfora. Our competitors in Europe and
Asia consist mainly of Enfora USA and European manufacturers such as
Octotelematics, Trafficmaster, Falcom and Cobra.

Significant
differences from one GPS / Cellular device to the other are mainly a result of
proprietary firmware that enables applications (for monitoring, management and
sensor-data inputs) and connectivity of products to their network, and only to
a lesser extent by hardware and packaging.

E. Seasonality

Our
Pointer segment is not significantly seasonal. In Israel, the demand for
road-side assistance, towing services and replacement vehicles is moderately
seasonal, as it is greatly impacted by weather conditions, with Shagrir usually receiving more
service calls on winter and summer days and less service calls on spring and
fall days. Furthermore, the demand for replacement vehicle services is greatly
impacted by the number of vehicles being stolen in Israel at a given time, with
Shagrir receiving more calls
for replacement vehicles where the number of vehicles being stolen in Israel is
high. The location based services market is not seasonal in Israel.

Our Pointer segment provided in Argentina and Mexico
is not significantly seasonal.

Our
Cellocator segment is not significantly seasonal.

Principal Markets:

For the
breakdown of our revenues by category of segments please see Item 5  Selected segment financial data. The following is a breakdown of our revenues by category of activity,
including the percentage of our total consolidated sales for each period:

|          |  |              |  |                       |     |              |  |                       |  |              |     |                       |  |        |  |  |     | 
|--------- |  | ------------ |  | --------------------- | --- | ------------ |  | --------------------- |  | ------------ | --- | --------------------- |  | ------ |  |  | --- | 
|          |  | 2008         |  | 2007                  |     | 2006        
|          |  |              |  |                       |     |             
|          |  | In thousands |  | % of our
 total sales |     | In thousands |  | % of our
 total sales |  | In thousands |     | % of our
 total sales
|          |  |              |  |                       |     |              |  |                       |  |              |     |                      
|          |  |              |  |                       |     |              |  |                       |  |              |     |                      
|Services: |  | 46,010       |  |                       | 60  |              |  | 35,806                |  |              | 69  |                       |  | 32,211 |  |  | 77  | 
|         
|Products: |  | 30,645       |  |                       | 40  |              |  | 15,821                |  |              | 31  |                       |  | 9,701  |  |  | 23  | 
|         
|Total:    |  | 76,655       |  |                       | 100 |              |  | 51,627                |  |              | 100 |                       |  | 41,912 |  |  | 100 | 

42

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The following is a breakdown of our revenues by geographic region,
including the percentage of our total consolidated sales for each period:

|              |  |              |        |                       |  |              |  |                       |        |              |  |                       |  |  |        |  |  |    
|------------- |  | ------------ | ------ | --------------------- |  | ------------ |  | --------------------- | ------ | ------------ |  | --------------------- |  |  | ------ |  |  | ---
|              |  | 2008         |        | 2007                  |  | 2006        
|              |  |              |        |                       |  |             
|              |  | In thousands |        | % of our
 total sales |  | In thousands |  | % of our
 total sales |        | In thousands |  | % of our
 total sales
|              |  |              |        |                       |  |              |  |                       |        |              |  |                      
|              |  |              |        |                       |  |              |  |                       |        |              |  |                      
|Israel        |  |              | 54,322 |                       |  | 71           |  |                       | 42,859 |              |  | 83                    |  |  | 37,346 |  |  | 89 
|             
|Latin America |  |              | 7,923  |                       |  | 10           |  |                       | 4,647  |              |  | 9                     |  |  | 3,424  |  |  | 8  
|             
|Europe        |  |              | 12,826 |                       |  | 17           |  |                       | 3,836  |              |  | 7                     |  |  | 1,077  |  |  | 3  
|             
|Other         |  |              | 1,584  |                       |  | 2            |  |                       | 285    |              |  | 1                     |  |  | 65     |  |  | 0  
|             
|Total         |  |              | 76,655 |                       |  | 100          |  |                       | 51,627 |              |  | 100                   |  |  | 41,912 |  |  | 100
|              |  |              |        |                       |  |              |  |                       |        |              |  |                       |  |  |        |  |  |    

C.          ORGANIZATIONAL
STRUCTURE

We
are organized under the laws of the State of Israel. The following is a list of
our currently active subsidiaries, their countries of incorporation and our
ownership interest in each of them:

|                                           |  |                              
|------------------------------------------ |  | -----------------------------
|NAME OF SUBSIDIARY                         |  | JURISDICTION OF INCORPORATION
|                                           |  |                              
|                                           |  |                              
|Pointer Localisacion y Assistencia S.A (1) |  | Argentina                    
|Shagrir System Ltd.(2)                     |  | Israel                       
|Pointer Recuperacion Mexico SA (3)         |  | Mexico                       
|S.C. Pointer S.R.L. (4)                    |  | Romania                      
|Cellocator Comercial S.A.(5)               |  | Brazil                       
|Pointer Telocation Inc. (6)                |  | USA                          

| |     |                                                                               
| | --- | ------------------------------------------------------------------------------
| | (1) | We hold 88% of the issued and outstanding shares
 of PLA.                     
| | (2) | We hold 56.56% of the issued and outstanding
 shares of Shagrir.              
| | (3) | We hold 74% of the issued and outstanding shares
 of PRM.                     
| | (4) | Shagrir holds 50% of the issued and outstanding
 shares of S.C. Pointer S.R.L.
| | (5) | We hold 60% of the issued and outstanding shares
 of Cellocator Comercial S.A.
| | (6) | We hold 100% of the issued and outstanding shares
 of Pointer Telocation Inc. 

43

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D.          PROPERTY,
PLANTS AND EQUIPMENT

Our
executive offices, operational, research and development and laboratory
facilities are located at 14 Hamelacha Street, Rosh Haayin 48091, Israel (a
suburb of Tel Aviv) where we currently lease approximately 1,755 square meters
with annual lease payments of approximately $286,000. PLAs offices and
operations facility are located in Buenos Aires. PLA currently leases 2,033
square meters (including 1,313 square meters used by its installation centers)
with an annual lease payment of $180,000. Shagrirs offices and main operations
facility are located in Holon, Israel. Shagrir currently leases 5,820 square
meters in Holon with annual rental fees of approximately $363,000. In addition,
Shagrir purchased from Shagrir (1985) its Haifa property (2,100 square meters)
for approximately $389,000; and leases an additional property in Jerusalem,
Israel (approximately 606 square meters) with annual rental fees of
approximately $46,000. PRMs offices and operations facility are located in
Mexico City, Mexico. PRM currently leases 600 square meters with an annual
lease payment of $54,000. Pointer Romanias offices and operations facility are
located in Bucharest, Romania. PRM currently leases 150 square meters with an
annual lease payment of $59,000. In February 2009 Pointer Telocation Inc.s
leased offices in New Jersey, USA. Pointer Telocation Inc. currently leases 200
square meters with an annual lease payment of $100,000. For further
information, see Note 11d of our consolidated financial statements.

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

Not applicable.

44

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

A.          OPERATING
RESULTS

The
following discussion of our results of operations and financial condition
should be read in conjunction with our consolidated financial statements and
the related notes thereto included elsewhere in this annual report. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including,
but not limited to, those set forth in Item 3.D.  Key InformationRisk Factors. The results of
operations discussed herein include the operating results of Cellocator for the
period from and including September 18, 2007 through December 31, 2008.

Overview

We
are a leading provider of advanced command and control technologies for the automotive and
insurance industries. We operate in two segments, our Pointer segment and our Cellocator
segment. Our Pointer segment is comprised of services to the automotive and insurance
industries, road-side assistance and towing services, stolen vehicle retrieval services
and fleet management services. We provide services, for the most part, in Israel, through
our subsidiary Shagrir Systems Ltd., or Shagrir, and in Argentina, Mexico and Romania
through our local subsidiaries.

Our
Cellocator segment is a producer of leading automatic vehicle location
products, including asset tracking products, fleet management products having
location, tracking, event driven reporting, logging and security capabilities,
and GSM-based security products. The Cellocator segment  produces
Cellular/GPS and radio monitoring units fleet management software and mobile resource
management software used for fleet command and control centers. We develop,
manufacture and distribute or sell these products to our Pointer segment and to
third party operators in 25 countries.

Our
revenues are principally derived from (i) provision of services through our
Pointer segment, including our road-side assistance services, subscriber fees,
SVR services and fleet management services; and to a lesser extent, by
technical support services that we provide, and (ii) sales of our systems
and products through our Cellocator segment and to also through our Pointer
segment, including sales of our Cellular/GPS and radio monitoring units, sales
of our fleet management application products and command and control software
and third party products.

We
operate as service providers predominantly in Israel and Latin America
(Argentina and Mexico), mainly to insurance companies and automobile owners. As
technology and product developers, we sell our products in Latin America,
Europe, Israel and Asia.

45

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Since
our acquisition of Shagrir in 2004 and certain of the activities and assets of
Shagrir Towing Services in 2005, and the acquisition of Cellocator in 2007 we
have expanded our operations and increased our revenues in Israel and
internationally. Our revenues from customers in Israel in 2008 were $54
million and, approximately 71% of our revenues in 2008 were derived from the
Israeli market in comparison to 83% in 2007. The increase of our international
revenues in 2008 is primarily attributable to Cellocator products which were
$19 million in 2008 to third party, while in 2007 these Cellocator revenues
were only included only from the fourth quarter of 2007.

In
2006 we introduced a new line of products, Cellular Monitoring Units, into our
SVR services and fleet management services businesses, which we purchased from
third party subcontractor. In September 2007 we acquired Cellocator, a
developer and manufacturer of cellular monitoring units, and this acquisition is
assisting us in our objective to present new products to the market, improve
our gross margin from cellulars products and to achieve vertical efficiencies
of scale by manufacturing our own units without being required solely to use
third party subcontractors. As a result of the Cellocator acquisition in the
fourth quarter of 2007, Cellocator was organized into a separate segment in
2008, called our Cellocator segment, and is a significant contributor to our
revenues with significant revenues derived from exports to customers in Latin
America, Europe and Asia. In 2008 a majority of our revenues from sales of
products were derived from sales of such units and from selling of other
products under development to the vehicle location market. Thus, the portion of
revenues from sales of our products out of our total revenues has been
increased in 2008 and due to the uncertainty of the automotive market we expect
that the portion of revenues from sales of our products out of our total
revenues in 2009 will decrease.

As
a result of these acquisitions we made in Israel, the Shagrir operations and
the technology manufacturing by Cellocator are currently the most significant
operations we have, and are expected to account for the majority of our
business and revenues in the foreseeable future.

Since
our acquisition of Cellocator in September 2007, we also expanded our sales of
products and technology in Latin America, Europe and Asia.

Acquisitions and
Initiatives

As
part of our strategy, we have pursued and may continue to pursue acquisitions
and other initiative in order to offer new products or services to enhance our
market position, globalization and strength. Our acquisitions are either
technology or operators that provide services. As a result of those
acquisitions the total goodwill and other intangible assets in our balance
sheets were $65 million and $69 million as of December 31, 2008 and 2007
respectively. See about our acquisitions in Item 4  History and Development of
the Company and Recent Developments.

Research and Development

The research and development
activities of our Cellocator segment involve the development of new products in respond to
an identified market demand primarily of our internal products development, in conjunction
with a customer requirement and may increase in order to meet those demands. Research and
development expenditures were $2.5 million, $1.7 million and $1.2 million in the fiscal
years ended December 31, 2008, 2007 and 2006 respectively, respecting 3.3%, 3.2% and 2.8%
respectively, of our total revenues in these fiscal years while in respect of revenues
from products only the percentages were 8.2%, 10.6% and 12 % in these fiscal years.

46

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Business Challenges/ Areas of Focus

Our
primary areas of focus and business include:

| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Continuing
 the growth and revenues and profitability of our products and services by the
 subsidiaries;                                                                                                   
| |   |                                                                                                                                                                                                            
| | · | Enhancing
 the introduction and recognition of our new products, including the
 Cellocator products, into the markets;                                                                                     
| |   |                                                                                                                                                                                                            
| | · | Penetrating
 into new markets, mainly Latin America and Europe through our Cellocator
 products, and strengthening our presence in existing markets by proposing
 full scope of services;                  
| |   |                                                                                                                                                                                                            
| | · | Succeeding
 in selling diversify products in territories where we already activity,
 mainly in Latin America and Europe; and                                                                               
| |   |                                                                                                                                                                                                            
| | · | Achieving
 operating profitability of our Mexican subsidiary by increasing number of
 subscribers using our technology, and by expanding the revenue generated by
 our Romanian and Brazilian subsidiaries.

Certain Issues Affecting our Results of
Operations

The
results of operations discussed herein include the operating results of
Cellocator for the period from and including the acquisition of Cellocator on
September 18, 2007.

Since 2005 we have consolidated our
financial reports in order to reflect 100% of our subsidiary Shagrirs financial
results. On November 30, 2005, a group of investors, led by Gandyr Investments Ltd.,
exercised their options to convert their loan of approximately $6.7 million into 43.44% of
the shares of Shagrir Systems. As a result, our holdings in Shagrir Systems were reduced
to 56.56%. Since 2006 Shagrirs shareholders equity became positive and we have
consolidated its financial results only for the then existing holding (by recording a
minority interest), which materially negatively affects our net income (loss) at such
periods.

47

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Revenues

Products

We
generate revenues through our Cellocator segment from sales of our products and third
party products to our Pointer segment, and also to third party operators in Latin America,
Europe, Israel and our other sale locations around the world which account for the
majority of our revenues from sales of products. The ratio of products out of the total
revenues increased since the fourth quarter of 2007 due to the inclusion of Cellocator
products sales beginning in September 2007. We anticipate that the increase of products
ratio out of the total revenues will not increase in 2009 due to the worldwide automotive
market recession in the beginning of 2009. The acquisition of Cellocator enables us to
spread our sales in new areas primarily in Europe and Latin America.

Services

We
generate revenues through our Pointer segment from sales of our services
primarily by our subsidiaries in Israel and Latin America. The services
included mainly road side assistance and towing, SVR, fleet management and
other value added services. A majority of our revenues represent subscription
fees paid to us by our customers who include insurance companies, commercial
companies and individuals. Due to very intense competition in road side
assistance in Israel we expect on-going price erosion. However, such
competitive pressures are not expected to have a major impact on our Israeli
subsidiarys Shagrirs, operating results and cash flow for 2009.

Costs and Expenses

Cost of Revenues

Cost
of revenues referring to services consists primarily of the operational costs
of our subsidiaries, which mainly include salaries and employee benefits, costs
related to towing and mobile automobile repair vehicles and replacement
vehicles, subcontractors, system maintenance, end-unit installation, system
communications, security and recovery, and the depreciation of fixed assets.
Cost of revenues referring to products includes expenses related to the cost of
purchasing or manufacturing systems and products, including raw materials and
components, salaries and employee benefits, subcontractors and consulting.
Amortization of intangible assets is primarily attributable to the Cellocator
acquisitions intangible assets of developed technology.

Operating Expenses

Research and Development Expenses.

Research
and development expenses consist primarily of salaries and employee benefits,
subcontractors and consulting in connection with our products.

48

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Selling & Marketing Expenses.

Selling
& marketing expenses consist primarily of expenses for salaries and
employee benefits, sales commissions and other selling and marketing
activities.

General and Administrative Expenses.

General
and administrative expenses consist primarily of salaries and employee benefits
for executive, accounting, administrative personnel, professional fees,
provisions for doubtful accounts, and other general expenses.

Amortization of intangible assets.

Intangible
assets consist of the acquired patents, customer list and brand names.
Intangible assets are amortized over their useful life using a method of
amortization that reflects the pattern in which the economic benefits of the
intangible assets are consumed or otherwise used up.

Financial Income (Expenses), Net.

Financial
expenses consist mainly of bank charges and interest expenses, foreign currency
translation adjustments, hedging expenses and others. Financial income consists
of interest on short-term bank deposits.

Other Expenses, Net.

Other
expenses, net relate primarily to items of income or expenses outside our
ordinary course of business.

Tax expense.

Tax
expense consists of federal, state, local taxes on the income of our business,
deferred income taxes and amortization of goodwill related to the acquisition
of Shagrir. See Item 10.E  Taxation and Government Programs for further
information on taxation applicable to us.

Critical Accounting Policies

The
consolidated financial statements include Pointer and the accounts of our subsidiaries.
Intercompany transactions and balances are eliminated in consolidation.   The
preparation of financial statements in conformity with U.S. GAAP requires us, in certain
instances, to use estimates and assumptions that affect the amounts reported in the
consolidated financial statements and the notes thereto. The actual results could differ
from those estimates and the use of different assumptions would likely result in
materially different results of operations. Our accounting policies are described in note
2 to the consolidated financial statements included herein at Item 18. A critical
accounting policy is one that is both important to the portrayal of our financial
condition and results of operations and requires managements most difficult,
subjective and complex judgments, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain.

49

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The
significant accounting policies and estimates, which we believe to be the most
critical in understanding and evaluating our reported financial
position and results of operations, include:

Revenue recognition

We
and our subsidiaries generate revenues primarily from the provision of
services, subscriber fees and sales of systems and products, mainly in the
areas of road-side assistance services, automobile repair and towing services,
stolen vehicle recovery and other value added services. To a lesser extent, revenues are also derived
from technical support services that we provide. We and our subsidiaries sell
our systems primarily through a direct sales force as well as through
resellers. Sales consummated by our sales forces and sales to resellers are
considered sales to end-users.

Revenues
from the sale of systems and products are recognized in accordance with Staff
Accounting Bulletin (SAB) No. 104, Revenue Recognition (SAB No. 104),
when delivery has occurred, persuasive evidence of an agreement exists, the
vendors fee is fixed or determinable, no further obligation exists and
collectability is probable.

Service
revenues including subscriber fees are recognized as services are performed,
over the term of the agreement.

Deferred
revenue includes amounts received under maintenance and support contracts, and
amounts received from customers but not yet recognized as revenues.

In
accordance with Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables (EITF 00-21), revenue from certain arrangements may include
multiple elements within a single contract. Our accounting policy complies with
the requirements set forth in EITF 00-21, relating to the separation of
multiple deliverables into individual accounting units with determinable fair
values. We consider the sale of products and subscriber fees to be separate
units of accounting.

Revenues
from stolen vehicle retrieval services are recognized upon success, when the
related stolen vehicle is recovered, and such recovery is approved by the
customer or ratably over the term of the agreement.

Revenues
generated from technical support services, installation and de-installation are
recognized when such services are rendered.

Generally,
we do not grant rights of return. We follow SFAS No. 48, Revenue Recognition
when Right of Return Exists. Based on our experience, no provision for returns
has been recorded.

50

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Inventory

Inventories
are stated at the lower of cost or market value. Cost is determined using the
moving average method. Inventory write-offs are provided to cover risks
arising from slow-moving items, technological obsolescence, excess inventories,
and for market prices lower than cost. The level of our write-offs related to
our inventories accounts fluctuates depending upon all of the factors mentioned
above.

Valuation of Long-Lived Assets, Intangibles and Goodwill

Goodwill
reflects the excess of the purchase price of the acquired subsidiary or activities over
the fair value of net assets acquired. Pursuant to SFAS 142, Goodwill and Other
Intangible Assets, goodwill is not amortized but rather tested for impairment at
least annually. We have elected to test for goodwill impairment on December 31 of each
year. We compare the fair value of each reporting unit to its carrying value, including
goodwill. We estimate the fair value of each reporting unit by estimating the present
value of the reporting units discounted cash flows. The discounted cash flow
calculations use projections that are based on managements estimations. If the fair
value exceeds the carrying value, no impairment loss is recognized. We evaluate the
reasonableness of the fair value calculations of its reporting units by reconciling the
total of the fair values of all of its reporting units to the total market capitalization,
and adjusting for an appropriate control premium. If the carrying value exceeds the fair
value, the goodwill of the reporting unit is considered potentially impaired and the
second step is completed in order to measure the impairment loss. Under the second step
goodwill is reduced to its implied fair value through an adjustment to the goodwill
balance, resulting in an impairment charge.

51

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No
impairment losses were identified in 2008, 2007 or 2006.

During
2008 and 2007, the Company reduced the goodwill at the amount of $ 805,000 and
$ 532,000, respectively due to the realization of tax loss carryforward of
subsidiary, that at the date of acquisition of the subsidiary were not
more-likely-than-not to be realized.

We
cannot reliably predict the occurrence of future events, if any, that might
adversely affect the reported value of goodwill, other intangible assets or its
long lived assets at December 31, 2008. Subsequent to December
31, 2008 our share price has been volatile and has from time to time declined.
Accordingly, the Company will continue to evaluate the carrying value of the
goodwill to determine whether the decline in share price is an indication that
there is a triggering event that may require the Company to perform an interim
impairment test and record impairment charges to earnings, which could
adversely affect the Companys financial results.

Other
future events include decisions made in response to economic and competitive
conditions, the impact of the economic environment on our customer base, or a
material negative change in our relationships with significant customers. A
variance in the discount rate or cash flows could have had a significant impact
on the outcome of future goodwill impairment tests. If in the future we will be
required to record an impairment of goodwill, our results of operations could
be materially harmed and our equity could be decreased.

Intangible
assets consist of the brand name, customer related intangibles, developed technology
and acquired patents. Intangible assets are amortized over their useful life
using a method of amortization that reflects the pattern in which the economic
benefits of the intangible assets are consumed or otherwise used up. Intangible
assets are stated at amortized cost.

The
brand names are amortized over periods between two and nine years; and the
customer related intangibles are amortized over periods between five and nine
years; the developed technology is amortized over a five-year period; and
patents are amortized over an eight-year period.

Our
long lived assets are reviewed for impairment in accordance with SFAS No.144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
No.144) whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of the assets to
the future undiscounted cash flows expected to be generated by the assets. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets.

52

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During
2006, due to the requirement of certain major potential customers in Mexico to
increase the territorial coverage to a nationwide coverage and due to the
increased costs of communication services with respect to the proprietary
system that was used, Pointer Mexicos management has decided to migrate from
the Companys traditional radio frequency (RF) system communication technology
to Cellular/GPS technology in Mexico. Therefore, Pointer Mexicos management
has recognized an impairment loss related to its base stations (network installation),
which constitute the base of its former installed technology to provide its
services, and installed products (RMUs) which are the devices used to locate
the vehicles. 
This group of assets has been reduced to its fair value as determined by the
management based on present value of future net cash flows. Impairment loss has
been recognized in a separate caption within the statement of operations in the
amount of $ 372,000 for the year ended December 31, 2006 and $ 36,000 for
the year ended December 31 2007.

Share based compensation

Stock-Based Compensation Expense.

The
Company accounts for stock-based compensation in accordance with Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
(SFAS 123(R)).

SFAS
123(R) requires companies to estimate the fair value of equity-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as an expense
over the requisite service periods in the Companys consolidated income
statement. Prior to the adoption of SFAS 123(R), the Company accounted for
equity-based awards to employees and directors using the intrinsic value method
in accordance with APB 25 as allowed under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123).

The Company adopted SFAS 123(R) using the modified prospective transition method,
which requires the application of the accounting standard starting from
January 1, 2006, the first day of the Companys fiscal year 2006. Under
that transition method, compensation cost recognized in 2006, includes: (a)
compensation cost for all share-based payments granted prior to, but not yet
vested as of January 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of Statement 123, and (b) compensation
cost for all share-based payments granted subsequent to January 1, 2006, based
on the grant-date fair value estimated in accordance with the provisions of
Statement 123(R). Results for prior periods have not been restated.

The Company
recognizes compensation expenses for the value of its awards, which have graded
vesting, based on the accelerated attribution method over the vesting period,
net of estimated forfeitures. Estimated forfeitures are based on actual
historical pre-vesting forfeitures.

During the
years ended December 31, 2008, 2007 and 2006, the Company recognized
stock-based compensation expenses related to employee stock options in the
amounts of $ 350,000 $ 783,000 and $ 251,000 respectively.

53

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Deferred
income taxes

The Company
accounts for income taxes in accordance with SFAS No. 109, Accounting for
Income Taxes (SFAS No. 109). SFAS No. 109 prescribes the use of the
liability method whereby deferred tax assets and liability account balances are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The
Company and its subsidiaries provide a valuation allowance, if necessary, to
reduce deferred tax assets to their estimated realizable value, if it is more
likely than not that a portion or all of the deferred tax assets will not be
realized.

In July
2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48
clarifies the accounting for income taxes by prescribing the minimum
recognition threshold a tax position is required to meet before being
recognized in the financial statements. FIN 48 utilizes a two-step approach for
evaluating tax positions. Recognition (step one) occurs when an enterprise
concludes that a tax position, based solely on its technical merits, is
more-likely-than-not to be sustained upon examination. Measurement (step two)
is only addressed if step one has been satisfied (i.e., the position is
more-likely-than-not to be sustained). Under step two, the tax benefit is
measured as the largest amount of benefit, determined on a cumulative
probability basis that is more-likely-than-not to be realized upon ultimate settlement

FIN 48
applies to all tax positions related to income taxes subject to the Financial
Accounting Standard Board Statement No. 109, Accounting for Income Taxes
(FAS 109). This includes tax positions considered to be routine as well as
those with a high degree of uncertainty.

The
adoption of FIN 48 did not have a material effect on the Companys financial
statements and no affect has been recorded on January 1, 2007, and no
provisions were recorded during 2007 and 2008.

Selected Financial Data

We
derived the following selected consolidated financial data presented below as
of December 31, 2007 and 2008 and for each of the years ended December 31,
2006, 2007 and 2008 from our consolidated financial statements and related
notes included in this annual report. The selected consolidated financial data
(including balance sheet data) for the years ended December 31, 2004 and
2005 have been derived from audited financial statements not included in this
annual report.

The
financial data set forth below should be read in conjunction with Item
5Operating and Financial Review and Prospectus and our consolidated financial
statements and the notes thereto and the other financial information appearing
elsewhere in this annual report. The following financial data includes the
results for Cellocator for the period from and including the date of its
acquisition on September 18, 2007 through December 31, 2008.

54

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Year Ended December 31,

(in thousands
of U.S. dollars  except weighted average number of ordinary shares, and basic
and diluted income (loss) per ordinary share)

|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|---------------------------------------------------------------------- |  | ------- | - | ---- | ------- | ---- |  | ------- | - | ---- | ------- | - |  | ------ | - | 
|                                                                       |  | 2008    |   | 2007 |         | 2006 |  | 2005    |   | 2004 |        
|                                                                       |  |         |   |      |         |      |  |         |   |      |        
|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Statement of Income Data:                                              |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Revenues:                                                              |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Products                                                               |  | 30,645  |   |      | 15,821  |      |  | 9,701   |   |      | 8,856   |   |  | 5,594  |   | 
|Services                                                               |  | 46,010  |   |      | 35,806  |      |  | 32,211  |   |      | 28,108  |   |  | 5,375  |   | 
|Total Revenues                                                         |  | 76,655  |   |      | 51,627  |      |  | 41,912  |   |      | 36,964  |   |  | 10,969 |   | 
|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Cost of revenues:                                                      |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Products                                                               |  | 16,392  |   |      | 9,414   |      |  | 5,602   |   |      | 5,727   |   |  | 4,297  |   | 
|Services                                                               |  | 29,869  |   |      | 23,034  |      |  | 20,786  |   |      | 17,587  |   |  | 3,301  |   | 
|Amortization of intangible assets                                      |  | 980     |   |      | 277     |      |  |        |   |      |        |   |  |       |   | 
|Total Cost of Revenues                                                 |  | 47,241  |   |      | 32,725  |      |  | 26,388  |   |      | 23,314  |   |  | 7,598  |   | 
|Gross profit                                                           |  | 29,414  |   |      | 18,902  |      |  | 15,524  |   |      | 13,650  |   |  | 3,371  |   | 
|Operating Expenses:                                                    |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Research and development, net                                          |  | 2,511   |   |      | 1,675   |      |  | 1,170   |   |      | 892     |   |  | 482    |   | 
|Selling, general and administrative
 expenses                          |  | 15,245  |   |      | 11,143  |      |  | 8,676   |   |      | 9,211   |   |  | 4,419  |   | 
|Total Operating Expenses                                               |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Amortization of deferred stock based
 compensation                     |  |        |   |      |        |      |  |        |   |      | 126     |   |  | 465    |   | 
|Amortization of intangible assets and
 Impairment of long lived assets |  | 2,365   |   |      | 1,877   |      |  | 2,112   |   |      | 2,462   |   |  | 932    |   | 
|Other income, net                                                      |  |        |   |      |        |      |  | (1,292  | ) |      |        |   |  |       |   | 
|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Operating income (loss)                                                |  | 9,293   |   |      | 4,207   |      |  | 4,858   |   |      | 959     |   |  | (2,927 | ) | 
|Financial expenses                                                     |  | 4,054   |   |      | 2,814   |      |  | 2,577   |   |      | 4,027   |   |  | 758    |   | 
|Other income (expenses)                                                |  | 22      |   |      | 12      |      |  | 14      |   |      | 341     |   |  | (42    | ) | 
|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Income (loss) before tax on income                                     |  | 5,261   |   |      | 1,381   |      |  | 2,295   |   |      | (2,727  | ) |  | (3,727 | ) | 
|Taxes on income                                                        |  | 640     |   |      | 353     |      |  | 82      |   |      |        |   |  | 37     |   | 
|Income (loss) before Minority interest                                 |  | 4,621   |   |      | 1,028   |      |  | 2,213   |   |      | (2,727  | ) |  | (3,764 | ) | 
|Minority interest                                                      |  | 2,248   |   |      | 1,366   |      |  | 1,044   |   |      |        |   |  |       |   | 
|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Net income (loss)                                                      |  | 2,373   |   |      | (338    | )    |  | 1,169   |   |      | (2,727  | ) |  | (3,764 | ) | 
|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Basic net earning (loss) per share                                     |  | 0.51    |   |      | (0.08   | )    |  | 0.39    |   |      | (1.17   | ) |  | (2.58  | ) | 
|Diluted net earning (loss) per share                                   |  | 0.50    |   |      | (0.08   | )    |  | 0.31    |   |      | (1.17   | ) |  | (2.58  | ) | 
|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Basic weighted average number of shares
 outstanding (in thousands)    |  | 4,679   |   |      | 4,271   |      |  | 2,983   |   |      | 2,339   |   |  | 1,457  |   | 
|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Diluted weighted average number of shares
 outstanding (in thousands)  |  | 4,679   |   |      | 4,310   |      |  | 3,003   |   |      | 2,339   |   |  | 1,457  |   | 
|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Balance Sheet Data:                                                    |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Total assets                                                           |  | 102,599 |   |      | 100,236 |      |  | 76,399  |   |      | 67,214  |   |  | 25,513 |   | 
|Net assets (liabilities) of continuing
 operations                     |  | 35,815  |   |      | 32,203  |      |  | 19,430  |   |      | 10,805  |   |  | 7,086  |   | 
|Working capital (deficit)                                              |  | (7,965  | ) |      | (15,327 | )    |  | (10,874 | ) |      | (13,999 | ) |  | (6,698 | ) | 
|                                                                       |  |         |   |      |         |      |  |         |   |      |         |   |  |        |   | 
|Shareholders equity (deficiency)                                      |  | 35,815  |   |      | 32,203  |      |  | 19,430  |   |      | 10,805  |   |  | 7,086  |   | 
|Share capital                                                          |  | 3,266   |   |      | 3,139   |      |  | 2,140   |   |      | 1,680   |   |  | 1,145  |   | 
|Additional paid-in capital                                             |  | 118,015 |   |      | 116,910 |      |  | 103,880 |   |      | 100,707 |   |  | 94,127 |   | 

55

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Operating Results

The following
table presents, for the periods indicated, certain financial data expressed as
a percentage of revenues for the
line items discussed below:

Year Ended December 31,

|                                                                       |  |      |  |      |     |      |  |     |   | 
|---------------------------------------------------------------------- |  | ---- |  | ---- | --- | ---- |  | --- | - | 
|                                                                       |  | 2008 |  | 2007 |     | 2006 | 
|                                                                       |  |      |  |      |     |      | 
|                                                                       |  |      |  |      |     |      |  |     |   | 
|Revenues:                                                              |  |      |  |      |     |      |  |     |   | 
|Products                                                               |  | 40   |  |      | 31  |      |  | 23  |   | 
|Services                                                               |  | 60   |  |      | 69  |      |  | 77  |   | 
|Total Revenues                                                         |  | 100  |  |      | 100 |      |  | 100 |   | 
|Cost of Revenues:                                                      |  |      |  |      |     |      |  |     |   | 
|Products                                                               |  | 21   |  |      | 18  |      |  | 13  |   | 
|Services                                                               |  | 39   |  |      | 45  |      |  | 50  |   | 
|Amortization of intangible                                             |  | 1    |  |      | 0.5 |      |  |    |   | 
|Total Cost of Revenues                                                 |  | 62   |  |      | 63  |      |  | 63  |   | 
|Gross profit                                                           |  | 38   |  |      | 37  |      |  | 37  |   | 
|                                                                      
|Operating Expenses:                                                    |  |      |  |      |     |      |  |     |   | 
|Research and development costs, net                                    |  | 3    |  |      | 3   |      |  | 3   |   | 
|Selling, general and administrative
 expenses                          |  | 20   |  |      | 22  |      |  | 21  |   | 
|Total Operating Expenses                                               |  | 23   |  |      | 28  |      |  | 24  |   | 
|                                                                       |  |      |  |      |     |      |  |     |   | 
|Amortization of intangible assets and
 Impairment of long lived assets |  | 3    |  |      | 4   |      |  | 5   |   | 
|Other income, net                                                      |  |     |  |      |    |      |  | (3  | ) | 
|                                                                       |  |      |  |      |     |      |  |     |   | 
|Operating income (loss)                                                |  | 12   |  |      | 8   |      |  | 12  |   | 
|Financial expenses                                                     |  | 5    |  |      | 5   |      |  | 6   |   | 
|Other income (expenses)                                                |  |     |  |      |    |      |  |    |   | 
|                                                                       |  |      |  |      |     |      |  |     |   | 
|Income (loss) before tax on income                                     |  | 7    |  |      | 3   |      |  | 5   |   | 
|Taxes on income                                                        |  | 1    |  |      | 1   |      |  |    |   | 
|Income (loss) before Minority interest                                 |  | 6    |  |      | 2   |      |  | 5   |   | 
|Minority interest                                                      |  | 3    |  |      | 3   |      |  | 2   |   | 
|                                                                       |  |      |  |      |     |      |  |     |   | 
|Net income (loss)                                                      |  | 3    |  |      | (1  | )    |  | 3   |   | 

56

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Twelve Months Ended
December 31, 2008 Compared with Twelve Months Ended December 31, 2007

We acquired Cellocator on September 18, 2007,
and have determined to present segment financial data for Cellocator beginning
in the fiscal year ended December 31, 2008. We do not present a comparison of
financial results by segment for the twelve months ended December 31, 2008
compared with the twelve months ended December 31, 2007, as a result of having
only one full year of financial results by segment. For more information about
our financial information by segment, see Selected
segment financial data below.

Revenues.
Revenues sharply increased by $25 million, or 48% from $52 million in 2007 to
$77 million in 2008. The increase in total revenues in 2008 as compared to 2007
is primarily attributable to the Cellocator acquisition in September 2007,
revaluation of the NIS against the dollar by 13% and increase in revenues from
services.

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The revenues
from products increased by $15 million to $ 30.6 million from $ 15.8 million in
2007. This increase of 94% in products is primarily attributable to Cellocator
acquisition which contributed to $13 million.

The revenues
from services increased by $10.2 million from $35.8 million to $46 million.
This increase of 28% was positively impacted also by revaluation of the NIS
against the dollar of our sell of services in Israel.

Revenues from
services in 2008 accounted for 60% out of total revenues as compared with 69%
in 2007. This change is primarily attributable to the sharply increase of
revenues from products due to the contribution of commencing sale of
Cellocators products since September 2007.

Our
international revenues in 2008 accounted for 30% out of total revenues compared
to 17% in 2007. During 2008 we increased our sales, primarily products, to
Latin America from $4.6 million in 2007 to $7.9 million in 2008 and in Europe
from $ 3.8 million in 2007 to $12.8 million in 2008 and to the rest of the
world from $0.3 million in 2007 to $1.6 million in 2008.

Cost of Revenues.
Our cost of revenues increased to $47.2 million for the twelve months ended
December 31, 2008 as compared to $32.7 million for the same period in 2007.
This increase of 44% was associated with commence of selling Cellocators
products, revaluation of the NIS against the dollar, increase of services and
amortization of intangible assets on the amount of $0.7 million attributable to
Cellocator acquisition.

Gross Profit.
Our gross profit increased by $10.5 million from $18.9 million in 2007 to $29.4
million in 2008. This increase is mainly as a result of the foregoing. As a
percentage of total revenues gross profit accounted 38% in 2008 compared to 37%
in 2007. Our gross margin on products sales in 2008 was 46%, compared to 40% in
2007 without amortization. Gross margins in services is approximately 35% in
2008 and 2007.

Research and
Development Costs. Research and development
expenses in 2008 increased by $0.9 million from $1.7 million in 2007 to $2.5
million in 2008, this is mainly as a result of our continuance investment in
R&D which include among other increase of salary and subcontractors
expenses.

Selling and
Marketing Expenses. Selling and marketing costs
increased by $2 million to $6.9
million in 2008 from $4.9
million in 2007. The major increase in 2008 resulted from the increase in salaries, and marketing costs as
part of our efforts to increase revenues in both products and services.

General and
Administrative Expenses. General and
administrative expenses increased by $2.1 million to
$8.3 million in 2008
from $6.2 million in 2007. The main impact in 2008 resulted from increase in
our salaries and overhead cost due to the merger of Cellocator and business
development efforts to penetrate to new territories.

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Amortization of
intangible assets and Impairment of long lived assets.Amortization of intangible assets and
impairment of long lived assets increased by $488,000 from $1.9 million in 2007
to $2.4 million in 2008. The amortization of intangible assets includes
amortization of intangible assets related to our acquisitions.

Operating Profit.
As a result of the foregoing, we recorded in 2008
a $9.3 million operating profit, compared to an
operating profit of $4.2 million in 2007.
Most of our operations are located in Israel and are in NIS and as a result
were also impacted by the revaluation of the NIS against the dollar of 13% in 2007, which negatively impacted our
expenses such as labor, local operating and other maintenance expenses.

Financial Expenses
(Net). Financial expenses increased from $2.8
Million in 2007 to $4.1 million in 2008 mainly due to the effect of foreign
currency translation adjustment and $1 million of discount expenses due to
early loan repayment.

Taxes on income.
Taxes on income were $640,000 in 2008 compare to $353,000 in 2007. In 2008,
taxes on income include an increase of $160,000 in the deferred tax assets
related to operating losses carried forward, other timing differences and
amortization expenses of goodwill related to tax adjustment of approximately $800,000.

Minority interest.
We recorded minority interest in the Statement of Operations of our Israeli
subsidiary Shagrir as results based on actual holdings, which is 56.6%. The
minority interest recorded in 2008 and 2007 were $2.2 million and $1.4 million
respectively.

Net Income (Loss).
In 2008, we had net income of $2.4 million
compared to a loss of $0.3 million in 2007.

Selected segment
financial data:

As a result of
Cellocator acquisition in September 2007, the Company in 2008 commenced to
organize its operating results into two separate business units, the Cellocator
segment and the Pointer segment. See Item 4.B  Business Overview.

The Company evaluates performance and allocates resources based on
operating profit or loss. The accounting policies of the reportable segments
are the same as those described in the summary of significant accounting
policies in the financial
statements.

The results of
operations for the year ended December 31, 2008 include twelve months of
combined operations resulting from our acquisition of Cellocator on September,
18 2007. Since the acquisition occurred near the end of the third quarter of
2007, results of operations for the year ended December 31, 2007 include our
historical results and the operating results of Cellocator for the period
September 18, 2007 through December 31, 2007 and are not reflective of the
combined operations for the full year.

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|                                         |  |                                |        |      |   |        |  
|---------------------------------------- |  | ------------------------------ | ------ | ---- | - | ------ | -
|                                         |  | 2008                           |        | 2007 |  
|                                         |  |                                |        |      |  
|                                         |  | (in thousands of U.S. dollars) |       
|                                         |  |                                |       
|                                         |  |                                |        |      |   |        |  
|Cellocator Segment Revenues              |  | $                              | 24,964 |      | $ | 10,022 |  
|Pointer Segment Revenues                 |  |                                | 57,553 |      |   | 45,953 |  
|Intersegment adjustment                  |  |                                | (5,862 | )    |   | (4,348 | )
|                                         |  |                                |        |      |   |        |  
|                                         |  |                                |        |      |   |        |  
|Total revenue                            |  |                                | 76,655 |      |   | 51,627 |  
|                                         |  |                                |        |      |   |        |  
|Cellocator Segments operating profit     |  |                                | 3,777  |      |   | (1,454 | )
|Pointer Segments operating profit (loss) |  |                                | 6,394  |      |   | 5,703  |  
|Intersegments adjustment                 |  |                                | (878   | )    |   | (43    | )
|                                         |  |                                |        |      |   |        |  
|Total operating profit (loss)            |  | $                              | 9,293  |      | $ | 4,206  |  

Revenues.
Pointer segment revenues increased by $11.6 million to $57.6 million from $46
million in 2007. The increase of 25% is primarily attributable to revaluation
of the NIS against the dollar by 13% and increase in revenues from services in
Israel. Pointer segment revenues derive from the services provided by the
Pointer segment and the utilization and sale of products relating to those
services provided by the Pointer segment. A portion of these products are
obtained from our Cellocator segment and a portion are obtained from third
parties.

Cellocator
segment revenues in 2008 and 2007 are $25 million (include $5.8 million
intersegment revenues) and $10 million (include $4.3 million intersegment
revenues) the increase of $15 million or 150% is primarily attributable to the
Cellocator acquisition in September 2007. The Cellocator segment revenues
derive from selling the products in the Cellocator segment.

Operating profit
(loss). Pointer segment operating profit increase
by $0.7 million from $5.7 million to $6.4 million this increase of 12%
primarily attributable to increase services sell in 2008.

Cellocator
segment operating profit on 2008 was $3.8 million compare to an operating loss
of $1.5 million on 2007. This increase is primarily attributable to the
Cellocator acquisition in September 2007 which fully contributed to the
operating profit in 2008.

Twelve Months Ended
December 31, 2007 Compared with Twelve Months Ended December 31, 2006

Revenues.Revenues sharply increased by $9.7
million, or 23% from $42 million in 2006 to $51.6 million in 2007. The increase
in total revenues in 2007 as compared to 2006 is attributable to the Cellocator
acquisition in September 2007, revaluation of the NIS against the dollar by
7.8% and internal growth. The revenues from products increased by $6.1 million
to $ 15.8 million from $ 9.7 million in 2006. This increase of 63% is primarily
attributable to Cellocator acquisition which contributed to $3.5 million and
the rest attributable to internal growth. The revenues from services increased
by $3.6 million from $32.2 million to $35.8 million. This increase of 11% was
impacted also by revaluation of the NIS against the dollar.

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Revenues from
services in 2007 accounted for 69% out of total revenues as compared with 77%
in 2006. This change is primarily attributable to the increase of revenues from
products due to the contribution of selling Cellocators products since
September 2007.

Our
international revenues in 2007 accounted for 17% out of total revenues compare
to 11% in 2006. During 2007 we increase our sales to Latin America from $3.4
million in 2006 to $4.6 million in 2007 and in Europe from $ 1 million in 2006
to $3.8 million in 2007.

Cost of Revenues.
Our cost of revenues increased to $32.7 million for the twelve months ended
December 31, 2007 as compared to $26.3 million for the same period in 2006.
This increase of 24% was associated with commence of selling Cellocators products,
revaluation of the NIS against the dollar and amortization of intangible assets
on the amount of $277,000 attributable to Cellocator acquisition

Gross Profit.
Our gross profit increased by $3.4 million from $15.5 million in 2006 to $18.9
million in 2007. This increase is mainly as a result of the foregoing. As a
percentage of total revenues gross profit accounted 37% in 2007 and 2006.

Research and
Development Costs. Net research and development
expenses in 2007 increased by $0.5 million from $1.2 million in 2006 to $1.7
million in 2007, this is mainly as a result Cellocator acquisition and merger
of our R&D department with Cellocators R&D.

Selling and
Marketing Expenses. Selling and marketing costs
increased by $1 million to $4.9 million in 2007 from $3.9 million in 2006. The
major increase in 2007 resulted from the increase in salaries and marketing
costs.

General and
Administrative Expenses. General and
administrative expenses increased by $1.5 million to $ 6.2 million in 2007 from
$4.7 million in 2006. The main impact in 2007 resulted from increase in our
salaries cost and due to the merger of Cellocator which we accounted, among
other, expenses in salaries and rental.

Amortization of
intangible assets and Impairment of long lived assets.Amortization of intangible assets and
impairment of long lived assets decreased by $235,000 from $2.1 million in 2006
to $1.9 million in 2007. The amortization of intangible assets includes
amortization of intangible assets related to our acquisitions.

Due to the requirement of certain major
potential customers in Mexico to increase the territorial coverage to a
nationwide coverage and due to the increased costs of communication services
with respect to the proprietary system that we used (such increase in costs was
observed only in Mexico), we decided to migrate from the traditional RF (radio
frequency) system communication technology to Cellular/GPS technology in
Mexico. This process required us to impair equipment valued at about $372,000
recorded in 2006.

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Other income. On May 26, 2006, we entered into a
settlement agreement, with respect to a past claim against a Latin American
customer, pursuant to which we received a net amount of approximately $1.3
million.

Operating Profit.
As a result of the foregoing, we recorded in 2007 a $4.2 million operating
profit, compared to an operating profit of $4.9 million in 2006. Most of our
operations are located in Israel and are in NIS and as a result were also
impacted by the revaluation of the NIS against the dollar of 7.8% in 2007,
which negatively impacted our expenses such as labor, local operating and other
maintenance expenses, by $0.8 million in 2007.

Financial Expenses
(Net). Financial expenses increased from $2.6
Million in 2006 to $2.8 million in 2007 mainly due to the effect of foreign
currency translation adjustment. Financial expenses of 2007 include $1.8
million of net interest expenses and bank charges, adjustment of foreign
currency $0.5 million and other financial expenses $0.5 million.

Taxes on income.
Taxes on income were $353,000 in 2007 compare to $82,000 in 2006. In 2007,
taxes on income on the amount of $2.2 million were partially offset by an
increase in the deferred tax asset of $1.9 million related to operating losses
carried forward and other timing differences and in 2006, taxes on income in
the amount of $1.7 million were partially offset by an increase in the deferred
tax asset of $1.6 million related to operating losses carried forward and other
timing differences.

Minority interest.
We recorded minority interest in the Statement of Operations of our Israeli
subsidiary Shagrir as results based on actual holdings, which is 56.6%. The
minority interest recorded in 2007 and 2006 were $1.4 million and $1.04 million
respectively.

Net Income (Loss).
In 2007, we had loss of $338,000 compared to a net income of $1.2 million in
2006.

Impact of Exchange Rate Fluctuations on
Results of Operations, Liabilities and Assets

Our results
of operations, liabilities and assets were mainly impacted by the fluctuations
of exchange rates between the U.S. dollar and the New Israeli Shekel (NIS),
and to a lesser extent between the U.S. dollar and the Argentine, Mexican Peso
and Euro. For a discussion regarding the functional and reporting currency of
each of our subsidiaries see Note 2b to our financial reports.

We
made two acquisitions in Israel. Due to the acquisition of Shagrir, our
business in Israel currently accounts for the majority of our business and
revenues. The business in Israel, especially the activities acquired from
Shagrir Towing Services are mainly denominated in NIS. On the other hand, the
majority of Cellocator revenues are generated in U.S. dollars while part of the
expenses such as raw materials are mainly in U.S. dollars and part of the
expenses such as labor and rental are in NIS. See Risk Factors  We may be
adversely affected by a change in the exchange rate of the New Israeli Shekel
against the U.S. dollar for a discussion of the risks relating to income and
expenses in U.S. dollars and NIS.

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For
many years prior to 1986, the Israeli economy was characterized by high rates
of inflation and devaluation of the Israeli currency against the U.S. dollar
and other currencies. However, since the institution by the Israeli government
of an economic recovery program in 1985, inflation, while generally continuing,
has been significantly reduced and the rate of devaluation has been
substantially diminished and in some years reversed.

We
believe that inflation in Israel and fluctuations in the U.S. dollar - NIS
exchange rate may have substantial effects on our business, and our net income.
Increased inflation may increase our NIS costs in Israel including among others
salaries of our employees in Israel, costs of communications, subcontractors,
rental, financial expenses associated with loans related to the Israeli CPI,
and other expenses, which are paid in New Israeli Shekels. Regarding
fluctuations in the U.S. dollar  NIS exchange rate a devaluation of the NIS
against the U.S. dollar will reduce our NIS denominated revenues and expenses
in U.S. dollar terms and therefore may impact negatively our consolidated net
income (losses). Revaluation of the NIS against the U.S. dollar will increase
our NIS denominated revenues and expenses in U.S. dollar terms. See Risk
Factors. Due to the potential off-set of the affects described above, we
cannot evaluate the net impact on our results of operations.

The
exchange rate fluctuated during 2008 and 2009 from a low of NIS 3.2 to the U.S.
dollar to a high of NIS 4.342 to the dollar. The average high and low exchange
rates between the NIS and U.S. dollar during the most recent six months, as
published by the Bank of Israel, were as follows:

|               |  |                       |  |                      |       |  | 
|-------------- |  | --------------------- |  | -------------------- | ----- |  | 
|MONTH          |  | HIGH
 1 U.S. dollar = |  | LOW
 1 U.S. dollar = |      
|               |  |                       |  |                      |      
|               |  |                       |  |                      |       |  | 
|September 2008 |  | 3.635                 |  |                      | 3.396 |  | 
|October 2008   |  | 3.879                 |  |                      | 3.465 |  | 
|November 2008  |  | 4.022                 |  |                      | 3.752 |  | 
|December 2008  |  | 3.99                  |  |                      | 3.677 |  | 
|January 2009   |  | 4.065                 |  |                      | 4.191 |  | 
|February 2009  |  | 3.783                 |  |                      | 4.012 |  | 

The
average exchange rate, using the average of the exchange rates on the last day
of each month during the period, for each of the five most recent fiscal years,
was as follows:

|                                    |  |               
|----------------------------------- |  | --------------
|Period                              |  | Exchange
 Rate
|                                    |  |               
|                                    |  |               
|January 1, 2004  December 31, 2004 |  | 4.4820
 NIS/$1
|January 1, 2005  December 31, 2005 |  | 4.4878
 NIS/$1
|January 1, 2006  December 31, 2006 |  | 4.4565
 NIS/$1
|January 1, 2007  December 31, 2007 |  | 4.1081
 NIS/$1
|January 1, 2008  December 31, 2008 |  | 3.5878
 NIS/$1

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In
2004, the Israeli economy recorded inflation
of approximately 1.2% where the U.S. dollar devalued against the NIS by
approximately 1.6%. As a result of the revaluation of the NIS, we
experienced increases in the costs of our Israel operations, as expressed in
U.S. dollars in 2004, but they did not materially affect our results of
operations in such periods. In 2005, the
Israeli economy recorded inflation of approximately 2.4% where the NIS devalued
against the U.S. dollar by approximately 6.8%. As a result of the
devaluation of the NIS, we experienced decreases in the costs of our Israel
operations, as expressed in U.S. dollars, in 2005. In 2006, the Israeli economy recorded negative inflation
of approximately 0.1% where the NIS revalued against the U.S. dollar by
approximately 8.21%. As a result of the revaluation of the NIS, we
experienced increases in the costs of our Israel operations, as expressed in
U.S. dollars, in 2006. In 2007, the Israeli
economy recorded positive inflation of approximately 3.4% where the NIS
revalued against the U.S. dollar by approximately 9%. We experienced
increases in the costs of our Israel operations, as expressed in U.S. dollars,
in 2007. In 2008, the Israeli economy
recorded positive inflation of approximately 3.8% where the NIS revalued against
the U.S. dollar by approximately 1.1%. We experienced increases in the
costs of our Israel operations, as expressed in U.S. dollars in 2008. In
February 2009, there was devaluation of the
NIS against the U.S. dollar by approximately 9.5%.

Regarding
our operation in Argentina and the fact that most of PLAs revenues are not
denominated in U.S. dollars, we believe that inflation in Argentina and fluctuations in
the exchange rate between U.S. dollar and Argentinean Peso may have a significant effect
on the business and overall profitability of PLA and as a consequence, on the results of
our operations. In 2002, a severe and rapid currency devaluation in Argentina adversely
affected PLAs U.S. dollar results. This was mainly due to PLAs inability to
increase its Argentinean Peso-denominated prices to its customers, while its major costs
of inventory and infrastructure were denominated in U.S. dollars. In 2004, the U.S. dollar
 Argentinean Peso exchange rate fluctuated between 2.92 and 2.98 Pesos to the
dollar. From January 1, 2004 to December 31, 2004, the value of the Argentinean Peso
increased by approximately 2.02% against the U.S. dollar. This increase had no material
effect on our business during 2004. In 2005 the U.S. dollar  Argentinean Peso
exchange rate fluctuated between 2.979 and 3.032 Pesos to the dollar. From January 1, 2005
to December 31, 2005, the value of the Argentinean Peso increased by approximately 1.78%
against the U.S. dollar. In 2006 the U.S. dollar  Argentinean Peso exchange rate
fluctuated between 2.979 and 3.062 Pesos to the dollar. From January 1, 2006 to December
31, 2006, the value of the Argentinean Peso increased by approximately 2.79% against the
U.S. dollar. This increase had no material effect on our business during 2006. In 2007 the
U.S. dollar  Argentinean Peso exchange rate fluctuated between 3.062 and 3.149 Pesos
to the dollar. From January 1, 2007 to December 31, 2007, the value of the Argentinean
Peso increased by approximately 2.84% against the U.S. dollar. This increase had no
material effect on our business during 2007. In 2008 the U.S. dollar  Argentinean
Peso exchange rate fluctuated between 3.145 and 3.453 Pesos to the dollar. From January 1,
2008 to December 31, 2008, the value of the Argentinean Peso increased by approximately
9.79% against the U.S. dollar. This increase had no material effect on our business during
2008. In March 2009 the U.S. dollar  Argentinean Peso exchange rate fluctuated
between 3.062 and 3.149 Pesos to the dollar. From January 1, 2008 to December 31, 2008,
the value of the Argentinean Peso increased by approximately 2.84% against the U.S. dollar

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The
fluctuations of the Mexican Peso are not material to our business.

We
are engaged from time to time, in hedging expenses relating to foreign currency
exchange rate and other transactions intended to manage the risks relating to
foreign currency exchange rate or interest rate fluctuations. In 2008 we
entered into a foreign currency hedging transaction to manage risk related to
salary expenses in NIS in 2009. We may in the future undertake, such
transactions if management determines that such is necessary to offset such
risks.

Governmental and
Fiscal Policies which May Affect Our Business

In
recent years the market for vehicle leasing in Israel has grown. Employers
often provide vehicles to their employees as benefits mainly through operating
leasing companies. Such benefits are tax deductible for the employer, while the
employee pays taxes on the vehicle based on a predefined valuation by the income
tax authorities. Starting January 1, 2008 the tax authorities announced a
significant increase in the valuation of employee vehicles for the coming
years. Its still early to evaluate how such resolution might affect our
business, it may reduce the affordability of such vehicles, thereby causing an
overall decrease in private vehicle ownership.

Argentinas
ongoing debt crisis since 2001 has caused the government to implement fiscal
and monetary policies, making it extremely difficult to receive credit from the
banks. This policy may also contribute to the volatility of the exchange rate
of the U.S. dollar against the Argentinean Peso. Additionally, the growing
success of law enforcement programs in Argentina has reduced the rate of car
theft and may continue to adversely affect our business. In 2008, the volatility in the global financial system has had a
negative impact on the Argentine economy, and could continue to adversely
affect the conditions in the country in the foreseeable future.

B.          LIQUIDITY
AND CAPITAL RESOURCES

As
of December 31, 2008, we had a negative working capital of $8 million, our
current assets to current liabilities ratio was 0.74 and we had cash and cash
equivalents of $2.7 million and an unused credit facility of $5.8 million. We
believe that we have access to sufficient capital to meet the Companys
requirements for at least the next twelve months.

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Since
our inception, our operations have been funded through capital contributions,
bank loans, private and public placements, research and development grants from
the Office of the Chief Scientist in Israel, the BIRD Foundation, the European
Community and cash flow from operations. We no longer receive grants from the
Office of the Chief Scientist in Israel, the BIRD Foundation or the European
Community.

As
a result, we expect to fund our operations through positive net cash provided
by operating activities, capital contributions, bank loans, private and public
placements and cash flow from our operations. These sources of liquidity consist
of our long-term and short-term credit facilities, and our private placements
with Israeli investors or investors, the latest of which we consummated in July
2008. See Item 4  Information on the Company
 Recent Developments.

As
of December 31, 2008, we had loans under long-term credit facilities for approximately $28
million in outstanding aggregate amount, of which $22.8 million was provided to our
subsidiary Shagrir by Bank Hapoalim B.M. and $4.6 million was provided to us to finance
part of the Cellocator acquisition as referenced below. Of this aggregate amount,
approximately $5.3 million are long-term loans in or linked to the U.S. dollar from banks
and other sources, $15.7 million are long-term loans denominated in NIS from a bank and
other sources and $7 million are long-term loans denominated in NIS and adjusted to the
Israeli consumer price index from banks and other sources. For further information
regarding our consolidated long-term loans, loan maturity and interest rate structure, see
notes 10 and 11 to our consolidated financial statements contained elsewhere in this
report.

As of December 31, 2008, we had a
short-term credit facility for available credit of approximately $7.6 million.
Approximately $5.8 million of this short term credit facility as of December 31, 2008
remains available, and can be utilized according to our needs.

In September 2007 we obtained credit
facilities for $7 million with Bank Hapoalim B.M. to finance part of our Cellocator
acquisition. As of December 31, 2008, approximately $4.6 million in long-term loans out of
the $7 million was outstanding and being utilized.

In
January 2008 we received credit facilities for $1 million with Israel Discount Bank B.M.
to finance our working capital. As of December 31, 2008, none of these credit facilities
were utilized.

In
2008, net cash provided by our continuing operating activities amounted to $11 million as
compared to net cash provided from continuing operating activities of $8.0 million in
2007. The increase was primarily attributable to the increase of our operating income.

In
2008, net cash used in our continuing investing activities was $3.2 million as
compared to $18.4 million in 2007. The decrease was primarily attributable to
our Cellocator acquisition in the amount of $16.6 million during 2007.

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In
2008, net cash used in financing activities was $6 million as compared to net
cash provided by financing activities of $5.7 million in 2007. Net cash used in
financing activities of $6 million was primarily attributable to repayment and
replacement of long term loans from Bank Hapoalim and other lenders. See Item 4
 Recent Developments.

Current
liabilities decreased from $32.9 million in 2007 to $31 million as of December
31, 2008, mainly due to the decrease of short terms bank credit and current
maturities of long term loans. Long-term liabilities decreased from $32 million
in December 31, 2007 to $30 million as of December 31, 2008 mainly due to
repayment of long term loans.

The
acquisitions we made in Israel in 2004 and 2005 had a positive impact on our
cash flow from our operating activities, which is offset by a negative impact
on our cash flow used in financing activities. The acquisition we made in
Israel in 2007 of Cellocator has a positive impact on our cash flow from our
operating activities, which is offset by a negative impact on our cash flow
used in financing activities. However, we cannot assure, that any such net
positive cash flows, if any, will sufficiently cover negative cash flows
expected to be incurred by our other operative subsidiaries, and by our
significant operating expenses, which we expect to incur in connection with our
development and marketing of our systems and products, as well as increased
investments in the deployment of our existing and new networks in different
geographical regions around the world.

For
further information relating to the purchase of the activities and assets of
Shagrir Towing Services, and the Cellocator acquisition see Item 10  Material Contracts.

We
believe that our current assets, together with anticipated cash generated from
operations and the bank credit lines, will be sufficient to allow us to
continue our operations as a going concern. However, we cannot assure you that
we will be able to generate sufficient revenues from the sale of our services
and products or succeed to obtain such additional sources of equity or debt
financing. In raising additional funds, we may depend on receiving financial
support from our principal shareholders or other external sources. We cannot
assure you that they will continue to provide us with funds when requested, and
that such funds, if any, will be sufficient to finance our additional cash
requirements.

Aside
for the aforementioned long-terms and credit facilities from banks, we have no
firm commitments or arrangements for additional financing, and there can be no
assurance that any such financing will be available on terms satisfactory to
us, if at all. To the extent that our capital requirements exceed cash provided
from operations and available financing (if any), we may, among other things,
be required to reduce significantly research & development, product
commercialization, marketing and/or other activities. Under certain
circumstances, our inability to secure additional financing could cause us to
cease our operations. Our business has also been harmed as a result of the
current general duress and difficult global economic conditions in general and
particular of he automotive market and political conditions in certain
countries in which we operate, such as Argentina.

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For
a discussion of certain commitments and contingent liabilities of ours, see
Note 10 to our financial statements included herein. For further information
regarding information regarding investments in our Company see Item 4  Recent Developments and Item 10  Material Contracts.

Capital expenditures were $19.3
million in 2007 and $3.5 million in 2008. Capital expenditures in 2008 were used
principally for purchasing property and equipment and in 2007 were used for purchasing of
property and equipment in the amount of $2.6 million and the acquisition of Cellocator in
the amount of $16.6 million.

We
estimate that our capital expenditures for 2009 will total approximately $2.7
million, substantially all of which will relate to fixed assets that serve our
road side assistance and SVR business as well as our pursuit of new business
opportunities, of which approximately 66% is estimated to be spent in Israel,
30% in Latin America and 4 % in other countries. We also will need to continue
to provide our subsidiaries in Latin America and in USA with financing until
they have sufficient cash flows to run their operations. We expect to finance
these expenditures primarily from our cash and cash equivalents, operating cash
flow and our credit facilities. However, the actual amount of our capital
expenditures will depend on a variety of factors, including general economic
conditions, changes in the demand for our products, fluctuation of the $
against the NIS and the risks and uncertainties involved in doing business in
Israel.

C.          RESEARCH AND DEVELOPMENT

We
invest a significant amount of our resources on our internal research and
development operations. We believe that continued and timely development of new
products and new applications as well as enhancements to our existing systems
and products are necessary to compete effectively in the rapidly evolving
market. We dedicate a significant portion of our resources to (i) introducing
new products to market and advancing our products and systems; (ii) designing
improvements to existing products and applications by working closely with our
customer support department in order to implement suggestions received from our
customers investing in improvements to our production methods and services
provision in, and by working in tandem with our operation department; and (iii)
improving the customer friendliness of our products.

In
order to facilitate future growth we are focusing on expanding our ability to
enhance our existing systems and products and to introducing new versions and
new products on a timely basis. Since we commenced operations we have conducted
extensive research and development activities and we continue to improve our
products including the Pointerware network. Our net expenditures for research
and development programs during the years ended December 31, 2008 and December
31, 2007, totaled approximately $2.5 million and $1.7 million respectively. We
expect that we will continue to commit substantial resources to research and
development in the future. As of December 2008, we employed 21 persons in
research and development. Our research and development expenses constituted
approximately 3.2% of such sales, in years ended December 31, 2008 and 2007.
For additional information concerning commitments for research development
programs, see Note 10 to our financial statements included elsewhere in this
annual report.

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The
Government of Israel encourages research and development projects oriented
towards products for export through the Office of the Chief Scientist of the
Ministry of Industry and Commerce of the State of Israel. Under the terms of
Israel Government participation, a royalty of 2% to 5% of the net sales of
products developed from a project funded by the Chief Scientist must be paid,
beginning with the commencement of sales of products developed with grant funds
and ending when 100% to 150% of the grant is repaid. The terms of the Israeli
government participation also require that the manufacture of products
developed with government grants be performed in Israel, unless a special
approval has been granted. Separate Israeli government consent is required to
transfer to third parties technologies developed through projects in which the
government participates. Such restrictions do not apply to exports from Israel
of products developed with such technologies. Royalty bearing grants received
from the State of Israel for research and development were offset against our
research and development costs.

We
also received funding for certain research and development expenses relating to
our joint venture with API from the Israel-United States Bi-national Industrial
Research and Development Foundation, or BIRD Foundation. As of December 31,
2008, our contingent obligation to the BIRD Foundation was $2.2 million.

We
hold various United States patents relating to the use of Pointerware
communications technology for various aspects of reverse paging and mobile
location. We have not invested the requisite payment to maintain our patents,
and we may lose or have already lost our rights to this proprietary technology
in the near future.

The
pending patent applications filed by us involve complex legal and factual
questions, and the scope and breadth of claims to be allowed is uncertain.
Accordingly, there can be no assurance that patent applications filed by us
will afford protection against competitors with similar technology. In
addition, we cannot assure you that the patents issued to us will not be
infringed, designed around by others or invalidated. Some foreign countries
provide significantly less patent protection than the United States. Patent
applications in the United States are maintained in secrecy until patents
issue, and because publication of discoveries in the scientific or patent
literature tends to lag behind actual discoveries by several months, we cannot
be certain that we were the first creator of inventions covered by pending
patent applications or the first to file patent applications on such
inventions. There can also be no assurance that any application of our technologies
will not infringe patents or proprietary rights of others or that licenses that
might be required for our processes or products would be available on
reasonable terms. Furthermore, there can be no assurance that challenges will
not be instituted against the validity or enforceability of any patent owned by
us or, if instituted, that such challenges will not be successful. The cost of
litigation to uphold the validity and prevent infringement of a patent can be
substantial.

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In
addition to potential patent protection, we rely on the laws of unfair
competition and trade secrets to protect our proprietary rights. We attempt to
protect our trade secrets and other proprietary information by non-disclosure
agreements with our employees, consultants, customers, strategic partners and
potential strategic partners. Although we intend to protect our rights
vigorously, there can be no assurance that secrecy obligations will be honored
or that others will not independently develop similar or superior technologies
or trade secrets. We believe that such
measures provide only limited protection of our proprietary information, and
there is no assurance that our proprietary technology will remain a secret or
that others will not develop similar technology and use this technology to
compete with us. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary. To the extent that
consultants, key employees or other third parties, such as prospective joint
venture partners or subcontractors, apply technological information
independently developed by them or by others to our projects, disputes may
arise as to the proprietary rights to such information, which disputes may not
be resolved in our favor.

Our
proprietary technology also includes software. Much of the software algorithms
are also included and claimed in the patent applications for Pointerware
communications technology. Although software protection is anticipated to be
available in the United States, there can be no assurance that the software
will have patent protection in the United States. Foreign patent protection for
software is generally afforded lesser protection than in the United States. See
Item 3.D  Risk Factors -- We may be unable to adequately protect our
proprietary rights, which may limit our ability to compete effectively.

D.          TREND INFORMATION

The
following discussion should be read in conjunction with the selected financial
data included above and our consolidated financial statements and the related
notes thereto included in this annual report.

Since
our acquisition of Shagrir in 2004 and certain of the activities and assets of Shagrir
Towing Services in 2005, and due to the acquisition of Cellocator assets on September 18,
2007, we have expanded our operations and increased our revenues in Israel and
internationally. The majority of our revenues are now derived from customers in Israel,
with total revenues of $54.3 million. In 2008, approximately 71% of our revenues were
derived from the Israeli market in comparison to 83% in 2007. The continued increase of
revenues from international sales in 2008 compared to 2007 is mainly attributable to
the Cellocator acquisition in September 2007. Most of Cellocator revenues are generated from
sales out of Israel, and due to the recession in the worldwide automotive market and the
fluctuation of the NIS to the USD, we cannot evaluate the impact on our ratio of
international sales in 2009. Due to very intense competition in road side assistance in
Israel we expect price erosion in that business.

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In 2008 our
Argentinean subsidiary, PLA, has continued to be negatively affected from the
very intense competition in SVR services and on-going price erosion in addition
to the devaluation of the Argentine peso to the dollar.

In February
2005, our subsidiary, PRM, commenced operations in Greater Mexico City. We
currently hold 74% of the issued and outstanding shares of PRM. We still need
to provide it with financing until it has sufficient cash flows to run its
operations. However, this business is growing in subscribers and revenues,
despite economic instability in that market.

In 2006 we
introduced third party Cellular Monitoring Units which provide high
functionality for location based services, utilizing advanced cellular modems
with GPS. Following the acquisition of Cellocator in 2007, we are currently
manufacturing our own units and no longer depend on a third party. These units
enable us to provide versatile information as well as nationwide coverage,
utilizing the cellular network in each territory. These units are specially
designed to operate in harsh conditions inside the vehicle; the design takes
into consideration the metallic envelope that surrounds the unit, the
temperature and vibration stress that are imposed on it, the limited and
unstable power supply that characterizes the car power supplies generally, and
specific installation requirements of the variety of cars available in the
market. The design takes special concern of these requirements, with high
degree of reliability and flexibility.

As a result
of our Cellocator acquisition, we have expanded our sales mainly in Latin
America and Europe to the existing customers of Cellocator and new customers.
Prices are slowing driven down for high feature devices in the stolen vehicle
retrieval market, such as those sold by Cellocator, which include many
features, functions, sensors input and connectivity to vehicle computers,
whereas prices for lower feature products have been driven down in recent years
due to increased competition.

As a result
of the acquisitions we made in Israel, the Shagrir operations and technology
manufacturing by Cellocator are currently the most significant operations we
have, and are expected to account for the majority of our business and revenues
in the foreseeable future. In Israel we currently provide the full range of our
services.

Events
affecting the global vehicle industry have a significant bearing on the demand
for our products business. We continue to closely monitor events affecting that
industry; however, at this point in time, we cannot estimate their impact. On
the other hand, our services business currently has a stable outlook even
considering the current uncertainties in the global economy.

We believe
the current economic downturn, together with the increasing demand for
high-quality services and cheaper products from automotive manufacturers,
importers and dealers, fleet operators as well as insurance companies, will
present new challenges and create unique business opportunities for our
company. We are currently in the process of evaluating partnerships that should
enable us to capitalize on economies of scale to sustain our growth strategy in
existing territories and new ones. In 2008 we established subsidiaries in
Romania, the USA and Brazil.

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E.          OFF-BALANCE
SHEET ARRANGEMENTS

The company has no off balance arrangement as described in this
section.

F.          CONTRACTUAL
OBLIGATIONS

|                                                               |  |  |   |  |       |        |                    |  |            |  |            |        |                     |  |       |  |  |       | 
|-------------------------------------------------------------- |  |  | - |  | ----- | ------ | ------------------ |  | ---------- |  | ---------- | ------ | ------------------- |  | ----- |  |  | ----- | 
|Contractual Obligations 
 December 31, 2008
(in thousands USD) |  |  |   |  | Total |        | Less
 than 1
 Year |  | 1-3
 Years |  | 3-5
 Years |        | More
 than 5
 Years | 
|                                                               |  |  |   |  |       |        |                    |  |            |  |            |        |                     | 
|                                                               |  |  |   |  |       |        |                    |  |            |  |            |        |                     |  |       |  |  |       | 
|Short term debt and other current
 liabilities                 |  |  | 1 |  |       | 30,955 |                    |  | 30,955     |  |            |       |                     |  |      |  |  |      | 
|Long-term loans                                                |  |  | 2 |  |       | 23,825 |                    |  |           |  |            | 19,798 |                     |  | 3,015 |  |  | 1,012 | 
|Accrued severance pay                                          |  |  | 3 |  |       | 6,375  |                    |  |           |  |            |       |                     |  |      |  |  | 6,375 | 
|Management fees to DBSI                                        |  |  | 4 |  |       | 52     |                    |  | 52         |  |            |       |                     |  |      |  |  |      | 
|Operating lease obligations                                    |  |  | 5 |  |       | 2,666  |                    |  | 1,035      |  |            | 1,582  |                     |  | 49    |  |  |      | 
|Royalties to BIRD                                              |  |  | 6 |  |       | 2,232  |                    |  |           |  |            |       |                     |  |      |  |  | 2,232 | 
|Total contractual obligations                                  |  |  |   |  |       | 66,105 |                    |  | 32,042     |  |            | 21,380 |                     |  | 3,064 |  |  | 9,619 | 
|                                                               |  |  |   |  |       |        |                    |  |            |  |            |        |                     |  |       |  |  |       | 

---

1 Short term debt and other current
liabilities include short term bank credits and current maturates if bank term
loan, trade accounts payable for equipment and services that have already been
supplied, deferred revenues, customer advance and other accrued expenses.


2Long term loans include principal and
interest payments in accordance with the terms of the agreements with Banks and
other third parties. For further information please see Item 11 -- Liquidity
and Capital Resources.


3Accrued severance pay maturity depends on
the date our employees will actually cease being employed.


4We pay annual fees $180,000 in
consideration for DBSI management services pursuant to an agreement with DBSI,
which is automatically renewable every 12 months unless either party provides
prior notice of termination three months prior to the beginning of a renewal
term.


5Operating lease obligations include rental
payments of offices, cars, and other premises and equipment.6 Royalties to BIRD include the amount received by BIRD foundation
indexed as per the agreement, which the Company has undertaken to pay based on
sales of a specific product. The Company does not anticipate selling this
product and therefore, does not anticipate paying these contingent royalties
(See Note 13c to our Financial Statements).


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

A.          DIRECTORS
AND SENIOR MANAGEMENT

The
executive officers, directors and key employees of the Company are as follows:

|                     |  |     |  |                                            
|-------------------- |  | --- |  | -------------------------------------------
|Name                 |  | Age |  | Position with Company                      
|                     |  |     |  |                                            
|                     |  |     |  |                                            
|Yossi Ben
 Shalom    |  | 53  |  | Chairman of
 Board of Directors            
|Danny Stern          |  | 57  |  | President
 and CEO                         
|Gil Oren             |  | 57  |  | External
 Director                         
|Zvi
 Rutenberg       |  | 53  |  | External
 Director                         
|Barak Dotan          |  | 41  |  | Director                                   
|Noga Knaz            |  | 43  |  | Director                                   
|Yoel
 Rosenthal      |  | 54  |  | Director                                   
|Amnon
 Duchovne-Nave |  | 53  |  | Chief
 Technology Officer                  
|Israel Ronn          |  | 53  |  | General
 Manager of the Cellocator segment 
|Zvi Fried            |  | 44  |  | Vice
 President and Chief Financial Officer

Yossi Ben Shalom
has served as our Chairman of the Board of Directors since April 2003. Mr. Ben
Shalom was Executive Vice President and Chief Financial Officer of Koor Industries
Ltd. (KOR) from 1998 through 2000. Before that, Mr. Ben-Shalom served as Chief
Financial Officer of Tadiran Ltd. Mr. Ben-Shalom was an active director in
numerous boards, such as at NICE Systems (NICE), (computer telephony),
Machteshim Agan (chemistry), and Investec Bank, amongst others. Mr. Ben-Shalom
was an active chairman in successful turnaround programs, such as Eurocar
Israel, and American Express Israel. He participated in the creation of TDA VC
fund (a joint venture between Tempelton and Tadiran). He was an active Chairman
of Scopus - a technology company with sales of over $30 million. Yossi is a
co-founder of DBSI Investments Ltd. Mr. Ben Shalom holds BA in Economics and MA
in Business Management from Tel Aviv University.

Danny Stern was appointed as our President and Chief
Executive Officer in May 2005. Mr. Stern was General Manager of Technoplast
Industries Ltd. from 2002 through 2004. Before that, Mr. Stern served as
Co-Founder and Chief Executive Officer of Appilog Inc. Israel and USA from 1999
through 2002 and as Co-Founder and Chief Executive Officer of PIDC (Israel)
Ltd. and LIMS Technologies Ltd. from 1990 through 1999. Mr. Stern holds a
Bachelor of Arts degree in Economics from Tel Aviv University.

Gil Oren
is an independent business advisor. During the years 2002-2007 Mr. Oren served
as the Chief Executive Officer of Ytong Industries Ltd. During such years Mr.
Oren also served on the Board of Directors of Ytong Industries Ltd., Nirlat
Ltd., Aloni Conglomerate Ltd., Carmit Ltd., Orlit Industries Ltd. (in addition
to serving as the Chief Executive Officer of such company), Orlit Millennium
Ltd., Uulcan Casting Ltd., Urdan Industries Ltd. Mr. Oren holds a B.A in
accounting and economics from Tel Aviv University and a M.B.A from Tel Aviv
University. Mr. Oren is also Certified Public Accountant. Upon his appointment
as an external director the Company shall deem Mr. Oren as possessing
accounting and financial expertise.

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Zvi Rutenberg
is the Chief Executive Officer of Ashkalit Chemiprod Ltd. Mr. Rutenberg has
been with Ashkalit Chemiprod Ltd. as of 1997 and has also served as the Chief
Executive Officer of Durband, a subsidiary of Ashkalit Chemprod Ltd. based in
Hungary. Mr. Rutenberg holds a B.A. in Industry and Management Engineering from
Ben Gurion University.

Barak Dotan was appointed a director on our board in
April 2003. Mr. Dotan is a co-founder of DBSI Investments Ltd., a private
investment company that has made various investments in private and public
companies. Before establishing DBSI Investments, Mr. Dotan worked as Product
Manager for Jacada (Nasdaq: JCDA), formerly CST, a software company that
provides a complete software infrastructure to transform legacy systems into
e-business and wireless solutions, and thereafter managed private investments
in high-tech and other areas. Mr. Dotan graduated from the Hebrew University of
Jerusalem summa cum laude with a B.Sc. in Computer Science and Business
Management.

Noga Knaz is the Chief Executive Officer of Rosario
Capital Ltd. as of 2007. From 2006 until 2007 Ms. Knaz served as the Chief
Executive Officer of Dash Securities and Investments Ltd. During the years 2002
 2006 Ms. Knaz served in variuos mangerial positions in Migdal Capital Markets
Ltd., including co-Chief Executive Officer and head of investments and
marketing division. Ms. Knaz holds a B.A from Haifa University.

Yoel Rosenthal was appointed a director on our Board in
April 2003. He is a veteran accountant with over 20 years of experience. Prior
to joining D.B.S.I. Mr. Rosenthal was a founder and partner of a private
accounting firm in Israel, Bruckner, Rosenthal, Ingber, He also held the
position of Loan Officer for multinational corporations at the Bank of Montreal
in the USA. Mr. Rosenthal received an MBA with honors from the University of
California at Los Angeles and a BA in Economics and Accounting from Tel Aviv
University.

Amnon Duchovne Nave
is the founder of Cellocator and was its General Manger and R&D
Manager until Pointers acquisition. Mr. Duchovne Nave has been appointed as
Pointers CTO- Chief Technology Officer. He is responsible for the continuous
development of Cellocators family products and Pointers Automotive Solutions.
Mr. Duchovne Nave has over 20 years of experience in communication and location
systems. His resume includes being a system consultant to Israel Aircraft
Industries, the Israeli Air Force, being the head of R&D in the special
projects section of Tadirans communication group, where he was involved in the
Mini RPV and smart weapons communications project, as well as being in charge
of the development of the communications payload for the prestigious Ofek
satellite program. Mr. Duchovne Nave holds a B.Sc. in Electronic Engineering
from the Tel Aviv University. He is a Pointer Ltd. shareholder.

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Israel Ronn Joined
Pointer Ltd. as the General Manager of the Product and Technology Business
Division in August 2007. Before joining Pointer, during the past 10 years, Mr.
Ronn served as a CEO of several companies in US and Israel such as Telrad
USA and Tenecs. He also lead the merger of Tenecs and Congruency which created
Telrad Connegy. Later he was the CEO of Cellmax Systems.Mr. Ronn holds a B.A. degree in Computer Science and Economics from Bar
Ilan University and is a graduate of Tafnit Executive Business Administration
Program.

Zvi Fried was
appointed our Chief Financial Officer in February 2007. Prior to his
appointment Mr. Fried was Chief Financial Officer of the publicly traded Chim
Nir (TASE: CMNR) and Finance Director for Amdocs (Nasdaq: DOX). Mr. Fried holds
a B.A. in Economics and Accounting degree from Bar Ilan University.

B.          COMPENSATION

The
aggregate direct remuneration paid to all persons as a group who served in the
capacity of director or executive officer during the year ended December 31,
2008, was approximately $887,000, including amounts expended by us for
automobiles made available to our officers, expenses reimbursed to officers
(including professional and business association dues and expenses) and other
fringe benefits commonly reimbursed or paid by companies in Israel, but
excluding amounts set aside or accrued to provide pension, retirement or
similar benefits, which amounted to $123,000. This amount includes remuneration
paid to former directors who did not continue as directors following the
election of directors at our 2008 annual meeting of stockholders.

In
addition, during 2008 a total of 9,000 options were granted to all persons as a
group who served in the capacity of directors. The options were granted at an
exercise price of $5.71.

C.          BOARD
PRACTICES

Our
Articles of Association provide for a board of directors of not less than three
nor more than eleven members. Our board of directors is currently comprised of
six members. Pursuant to the DBSI investment, three of these directors are
affiliated with DBSI. Each director is elected to serve until the next annual
general meeting of shareholders and until his or her successor has been elected.
Officers serve at the discretion of the board of directors. We are subject to
the Israeli Companies Law which entered into effect on February 1, 2000, as
amended, and which requires the board of directors of a public company to
determine the number of directors who shall possess accounting and financial
expertise.

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Under the
Israeli Companies Law, a person who is already serving as a director will not
be permitted to act as a substitute director. Additionally, the Israeli
Companies Law also prohibits a person from serving as a substitute director for
more than one director. Appointment of a substitute director for a member of a
board committee is only permitted if the substitute is a member of the board of
directors and does not regularly serve as a member of such committee. If the
committee member being substituted is an external director, the substitute may
only be another external director who possesses the same expertise as the
external director being substituted and may not be a regular member of such
committee The term of appointment of a substitute director may be for one
meeting of the board of directors or for a specified period or until notice is
given of the cancellation of the appointment. To our knowledge, no director currently
intends to appoint any other person as a substitute director, except if the
director is unable to attend a meeting of the board of directors.

Under the
Israeli Companies Law, companies registered under the laws of Israel the shares
of which have been offered to the public in or outside of Israel are required
to appoint no less than two external directors. No person may be appointed as
an external director if such person or the persons relative, partner, employer
or any entity under the persons control, has or had, on or within the two
years preceding the date of the persons appointment to serve as external
director, any affiliation with the company or any entity controlling,
controlled by or under common control with the company. The term affiliation
includes:

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

A person
shall be qualified to serve as an external director only if he or she possesses
accounting and financial expertise or professional qualifications. At least one
external director must posses accounting and financial expertise. The
conditions and criteria for possessing accounting and financial expertise or
professional qualifications were recently determined in regulations promulgated
by the Israeli Minister of Justice in consultation with the Israeli Securities
Authority.

Regulations
have been recently promulgated under the Israeli Companies Law which now
mandate that in the future when appointing an external director to the board of
directors of a public company, in addition to the already existing requirements
for such external director, such external director must either have expertise
in finance and accounting or be professionally qualified. Additionally, at
least one of the external directors must have expertise in finance and
accounting.

A person is
deemed to have expertise in finance and accounting if his or her education,
experience and qualifications provide him or her with expertise and
understanding in business matters - accounting and financial
statements, in a way that allows him or her to understand, in
depth, the companys financial statements and to encourage discussion about the
manner in which the financial data is presented.

The
companys board of directors must evaluate the proposed external directors
expertise in finance and accounting, by considering, among other things, his or her
education, experience and knowledge in the following: (i) accounting and
auditing issues typical to the field in which the company
operates and to companies of a size and complexity similar to such company;
(ii) a companys independent public accountants duties and
obligations; (iii) preparing company financial statements and their approval in
accordance with the Companies Law and the Israeli Securities Law.

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A director
is deemed to be professionally qualified if he or she meets any of the
following criteria: (i) has an academic degree in any of the following professions:
economics, business administration, accounting, law or public administration;
(ii) has a different academic degree or has completed higher education in a
field that is the companys main field of operations, or a field relevant to
his or her position; or (iii) has at least five years experience in any of the
following, or has a total of five years experience in at least two of the
following: (A) a senior position in the business management of a corporation
with significant operations, (B) a senior public position or a senior position
in public service, or (C) a senior position in the companys main field of
operations. The board of directors here too must evaluate the proposed external
directors professional qualification in accordance with the criteria set
forth above.

The
affidavit required by law to be signed by a candidate to serve as an external
director must include a statement by such candidate concerning his or her
education and experience, if relevant, in order that the board of directors may
properly evaluate whether such candidate meets the requirements set forth in
the regulations. Additionally, the candidate should submit documents and
certificates that support the statements set forth in the affidavit.

Additionally,
under the Israel Companies Law, a public companys board of directors must
determine the minimum number of directors who have expertise in finance and
accounting taking into account the type of company, its size, the extent of
its activities and the complexity of the companys operations.

No
person may serve as an external director if the persons
position or other business activities create, or may create, a conflict of interest
with the persons responsibilities as an external director or may otherwise
interfere with the persons ability to serve as an external director. If, at
the time external directors are to be appointed, all current members of the
board of directors are of the same gender, then at least one external director
must be of the other gender.

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

| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | the majority
 of shares voted at the meeting, including at least one-third of the shares
 held by non-controlling shareholders voted at the meeting, vote in favor of
 election of the director; or
| | · | the total
 number of shares held by non-controlling shareholders voted against the
 election of the director does not exceed one percent of the aggregate voting
 rights in the company.           

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The initial
term of an external director is three years and may be extended for one
additional term of three years. External directors may be removed 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, violate their duty of loyalty to the
company or are found by a court to be unable to perform their duties on a full
time basis. External directors may also be removed by an Israeli court if they
are found guilty of bribery, fraud, administrative offenses in a company or use
of inside information. Each committee of a companys board of directors must
include at least one external director.

Mr. Gil
Oren and Mr. Zvi Rotenberg were elected as our external directors in our 2008
annual meeting of the Companys stockholders.

Audit Committee

Nasdaq
Requirements

Our
ordinary shares are listed for quotation on the NASDAQ Capital Market and we
are subject to the rules of the Nasdaq Marketplace Rules applicable to listed
companies. Under the current Nasdaq rules, a listed company is required to have
an audit committee consisting of at least three independent directors, all of
whom are financially literate and one of whom has accounting or related
financial management expertise. Ms. Noga
Knaz and our two external directors, Mr. Gil Oren and Mr. Zvi Rutenberg qualify as independent directors under
the current Nasdaq requirements, and all are members of the Audit Committee.
Mr. Gil Oren is our audit committee financial expert.

Our Audit
Committee assists our 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. The 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.

Israeli
Companies Law Requirements

The
Israeli Companies Law requires public companies to appoint an audit committee.
The responsibilities of the audit committee include identifying irregularities
in the management of the companys business and approving related party
transactions as required by law. An audit committee must consist of at least
three directors, including the external directors of the company. The chairman
of the board of directors, any director employed by or otherwise providing
services to the company, and a controlling shareholder or any relative of a
controlling shareholder, may not be a member of the audit committee.

Currently,
Ms. Noga Knaz and our two external directors, Mr. Gil Oren and
Mr. Zvi Rutenberg, serve as members of our audit committee.

78

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Under
the Israeli Companies Law, the board of directors must appoint an internal
auditor, recommended by the audit committee. The role of the internal auditor
is to examine, among other matters, whether the companys actions comply with
the law and orderly business procedure. Under the Israeli Companies Law, the
internal auditor may be an employee of the company but not an office holder (as
defined below), or an affiliate, or a relative of an office holder or
affiliate, and he may not be the companys independent accountant or its
representative. Our board of directors appointed Daniel Schapira
Certified Public Accountant (ISR) to be our internal auditor.

Remuneration Committee

The compensation
payable to executive officers must be approved by a majority of the directors
on our board.

We have not entered into service contracts with any of the members of
our board of directors.

D.          EMPLOYEES

The
following table sets forth the number of our employees at the end of each of
the last three years:

|                          |  |        |     |       |  |       |  |  |     | 
|------------------------- |  | ------ | --- | ----- |  | ----- |  |  | --- | 
|                          |  | Israel |     | Other |  | Total | 
|                          |  |        |     |       |  |       | 
|                          |  |        |     |       |  |       |  |  |     | 
|2008                      |  |        |     |       |  |       |  |  |     | 
|Sales and
 Marketing      |  |        | 101 |       |  | 35    |  |  | 136 | 
|Administration            |  |        | 369 |       |  | 17    |  |  | 56  | 
|Research and
 Development |  |        | 21  |       |  |      |  |  | 21  | 
|Other                     |  |        | 335 |       |  | 53    |  |  | 388 | 
|Total                     |  |        | 496 |       |  | 105   |  |  | 601 | 
|                          |  |        |     |       |  |       |  |  |     | 

|                          |  |        |     |       |  |       |  |  |     | 
|------------------------- |  | ------ | --- | ----- |  | ----- |  |  | --- | 
|                          |  | Israel |     | Other |  | Total | 
|                          |  |        |     |       |  |       | 
|                          |  |        |     |       |  |       |  |  |     | 
|2007                      |  |        |     |       |  |       |  |  |     | 
|Sales and
 Marketing      |  |        | 90  |       |  | 23    |  |  | 113 | 
|Administration            |  |        | 36  |       |  | 15    |  |  | 51  | 
|Research and
 Development |  |        | 21  |       |  |      |  |  | 21  | 
|Other                     |  |        | 326 |       |  | 48    |  |  | 374 | 
|Total                     |  |        | 473 |       |  | 86    |  |  | 559 | 
|                          |  |        |     |       |  |       |  |  |     | 

|                          |  |        |     |       |  |       |  |  |     | 
|------------------------- |  | ------ | --- | ----- |  | ----- |  |  | --- | 
|                          |  | Israel |     | Other |  | Total | 
|                          |  |        |     |       |  |       | 
|                          |  |        |     |       |  |       |  |  |     | 
|2006                      |  |        |     |       |  |       |  |  |     | 
|Sales and
 Marketing      |  |        | 85  |       |  | 20    |  |  | 105 | 
|Administration            |  |        | 30  |       |  | 12    |  |  | 42  | 
|Research and
 Development |  |        | 12  |       |  |      |  |  | 12  | 
|Other                     |  |        | 303 |       |  | 44    |  |  | 347 | 
|Total                     |  |        | 430 |       |  | 76    |  |  | 506 | 
|                          |  |        |     |       |  |       |  |  |     | 

79

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We
have entered into employment contracts with substantially all of our employees,
all of which include non-competition, nondisclosure and confidentiality
provisions relating to our proprietary information. We believe that our
relations with our employees are satisfactory. We are not party to any
collective bargaining agreements. However, in Israel, certain provisions of the
collective bargaining agreements between the Histadrut (General Federation of
Labor in Israel) and the Coordination Bureau of Economic Organizations
(including the Industrialists Association) are applicable to our employees by
order of the Israeli Ministry of Labor. These provisions concern principally
the length of the workday, minimum daily wages for professional workers,
insurance for work-related accidents, procedures for dismissing employees,
determination of severance pay, and other conditions of employment. We
generally provide our employees in Israel, with benefits and working conditions
beyond the required minimums.

As
a result of Cellocator acquisition in September 2007 we engaged with
Cellocators employees, about 30, and they were employed by us. Most of the
employees are engaged with us under the success of their rights. Their
compensation is like the compensation of our employees.

Israeli
law generally requires severance upon the retirement or death of an employee or
termination of employment without due cause. We currently fund our ongoing
severance obligations by contributing funds on behalf of our employees to a
fund known as the Managers Insurance or pension funds. This fund provides a
combination of savings plan, life insurance and severance pay benefits to the
employee, giving the employee a lump sum of payment upon retirement and
securing the severance pay, if legally entitled, upon termination of
employment. We decide whether each employee is entitled to participate in the
plan, and each employee who agrees to participate contributes an amount equal
to 5% of his or her salary and the employer contributes between 13.3% and 15.8%
of the employees salary. In addition, Israeli employees and employers are
required to pay predetermined sums to the National Insurance Institute, an
agency, which is similar to the United States Social Security Administration.
Since January 1, 1995, such amounts also include payments for national
health insurance. The payments to the National Insurance Institute are
approximately 14.5% of wages up to a specified amount, of which the employee
contributes approximately 66% and the employer contributes approximately 34%.

80

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E.          SHARE
OWNERSHIP

The
following table details the number of our ordinary shares beneficially owned (including
the shares underlying options or warrants held by such person that are exercisable within
60 days), by our directors and members of our senior management, as of March 30, 2009:

|                                       |  |                                 |  |                                               |     |                                                              |       |   | 
|-------------------------------------- |  | ------------------------------- |  | --------------------------------------------- | --- | ------------------------------------------------------------ | ----- | - | 
|Name                                   |  | Title/Office                    |  | Number of Ordinary Shares Beneficially
 Owned |     | As a % of Outstanding Ordinary Shares
 Beneficially Owned(1) |      
|                                       |  |                                 |  |                                               |     |                                                              |      
|                                       |  |                                 |  |                                               |     |                                                              |       |   | 
|Yossi Ben
 Shalom                      |  | Chairman of
 Board of Directors |  | 1,783,590                                     | (2) |                                                              | 37.53 | % | 
|Danny Stern                            |  | President
 and CEO              |  | *                                             |     |                                                              | *     |   | 
|Gil Oren                               |  | External
 Director              |  | *                                             |     |                                                              | *     |   | 
|Zvi
 Rutenberg                         |  | External
 Director              |  | *                                             |     |                                                              | *     |   | 
|Barak Dotan                            |  | Director                        |  | 1,783,590                                     | (2) |                                                              | 37.53 | % | 
|Noga Knaz                              |  | Director                        |  | *                                             |     |                                                              | *     |   | 
|Yoel
 Rosenthal                        |  | Director                        |  | *                                             |     |                                                              | *     |   | 
|Zvi Fried                              |  | Chief
 Financial Officer        |  | *                                             |     |                                                              | *     |   | 
|Amnon
 Duchovne-Nave                   |  | Chief
 Technology Officer       |  | 160,000                                       | (3) |                                                              | 3.37  | % | 
|Israel Ronn                            |  | Cellocator segment              |  | *                                             |     |                                                              | *     |   | 
|All
 directors and officers as a group |  |                                 |  | 1,943,590                                     |     |                                                              | 40.89 | % | 

* Less than 1%.

|    |                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The
 percentage of outstanding ordinary shares beneficially owned is based on
 4,752,931 shares outstanding as of March 30, 2009. The number of shares
 beneficially owned by a person includes ordinary shares subject to options or
 warrants held by that person that are currently exercisable or exercisable
 within 60 days of March 30, 2009.
|(2) | As office
 holders of DBSI Investment Ltd., Messrs. Yossi Ben Shalom and Barak Dotan may
 be considered to be the beneficial holders of the 37.53% of our issued and
 outstanding shares held by DBSI Investment Ltd.                                                                                                                               
|(3) | As the
 Cellocator founder and principal shareholder of Cellocator prior to its
 acquisition by us, Mr. Amnon Duchovne-Nave may be considered to be the
 beneficial holder of the 3.47% of our issued and outstanding shares received
 in the acquisition.                                                                                          

81

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Employee Share Option Plans

For
information concerning our employee share option plans, see as
incorporated by reference, Note 11d of our
consolidated financial statements.

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

A.          MAJOR
SHAREHOLDERS

The
following table and notes thereto set forth certain information as of, March 30, 2009,
concerning the beneficial ownership (as defined in Rule 13d  3 under the Securities
Exchange Act of 1934) of ordinary shares by each person or entity who, to the best of our
knowledge, beneficially owned more than 5% of our outstanding ordinary shares. The voting
rights of our major shareholders do not differ from the voting rights of holders of all of
our ordinary shares.

|                              |  |                                               |  |                                                             |       |   | 
|----------------------------- |  | --------------------------------------------- |  | ----------------------------------------------------------- | ----- | - | 
|Name of Beneficial Owner      |  | Number of Ordinary Shares Beneficially Owned* |  | Percent of Outstanding Ordinary Shares Beneficially
 Owned* |      
|                              |  |                                               |  |                                                             |      
|                              |  |                                               |  |                                                             |       |   | 
|DBSI Investment Ltd.(1)       |  | 1,783,590                                     |  |                                                             | 37.53 | % | 
|Eurocom
 Holdings (1979) Ltd. |  | 701,592                                       |  |                                                             | 14.76 | % | 

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The percentage of outstanding
ordinary shares beneficially owned is based on 4,752,931 shares outstanding as of March
30, 2009. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The number of shares beneficially owned by a person
includes ordinary shares subject to options or warrants held by that person that are
currently exercisable or exercisable within 60 days of March 30, 2009, notwithstanding the
Issuance Limitation or the Funds Issuance Limitation as defined in footnotes 3 and 5
below. Such shares issuable pursuant to such options or warrants are deemed outstanding
for computing the percentage ownership of the person holding such options but not deemed
outstanding for the purposes of computing the percentage ownership of any other person. To
our knowledge, the persons named in this table have sole voting and investment power with
respect to all ordinary shares shown as owned by them.

|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As office
 holders of DBSI Investment Ltd., Messrs. Barak Dotan and Yossi Ben Shalom may
 be considered to be the beneficial holders of the 37.53% of our outstanding
 shares held by DBSI.

As
of March 11, 2009 there were approximately 32 record holders of our ordinary shares,
including approximately 14 record holders in the United States (who held approximately 74%
of our outstanding ordinary shares).

82

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Changes in the percentages of ownership
held by our various shareholders during the past three years were primarily
results of investments during these years, the conversion of debentures in
March 2003, our acquisition of Shagrir in 2004 and our acquisition of
Cellocator in 2007. For further information regarding such investments and
acquisition see Item 4  Information on the Company.

B.          RELATED
PARTY TRANSACTIONS

Agreements with
Shagrir

In February 2005 we consummated a
management services agreement with Shagrir pursuant to which we will provide
Shagrir with management services with respect to its business for a period of 2
years beginning February 28, 2005, in consideration for a management fee of
approximately $263,000 million (NIS 1 million), subject to certain conditions.

In September 2008, Shagrir repaid and recapitalized loans from
affiliates which were used to fund Shagrirs purchase of Shagrir Towing Systems
in 2005,these repayments were financed in part by new loan facilities between
Shagrir and Bank Hapoalim As of December 31, 2008 the balance of this loan was
$1.7 million. See Item 10  Material Contracts
 Loan Agreements.

Management Agreement
with DBSI Investments Ltd.

Pursuant to
the share purchase agreement with DBSI Investments Ltd., we entered a
management services agreement with DBSI in April 2003. Pursuant to the
management agreement, DBSI will provide us with management services with
respect to our business for a period of three years, in consideration for a
management fee of $180,000 per annum for a period of three years commencing
April 2003, to be paid in equal quarterly installments of $45,000. In April
2008, the agreement was automatically renewed for an additional 12 months
period and may be automatically renewed for additional 12 month terms unless
terminated by either of the parties.

Cooperation and
Share Exchange Agreements with Shagrir

On February
25, 2004, we entered into a cooperation agreement with Shagrir, the operator of
our system in Israel. As part of this agreement Shagrir renewed its commitment
to purchase exclusively from us end units for its stolen vehicle retrieval
system. Shagrir undertook to purchase in 2004 end-units in an amount of $2.3
million and during the following three years, in a minimum amount of $4.2
million. We undertook to expand Shagrirs infrastructure network. The term of
the agreement was until the end of year 2007 and we are in negotiations
regarding its renewal. The second addendum of the agreement, which was entered
into in 2008, updated the product prices and does not include an undertaking to
purchase a minimum amount of products or to exclusively purchase systems from
the Company.

83

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C.          INTERESTS
OF EXPERTS AND COUNSEL

Not applicable

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

A.          CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION

The Financial
Statements required by this item are found at the end of this annual report,
beginning on page F - 1.

Legal
Proceedings

As of
December 31, 2008, several claims were filed against Shagrir, mainly by
customers. The claims are in an amount aggregating to approximately $0.3
million. The substance of the claims is the malfunction of Shagrir products,
which occurred during the ordinary course of business. The Companys management
is of the opinion that no material costs will arise to Shagrir in respect to
these claims and, therefore, no provision was recorded in the financial
statements in respect of the claims.

B.
          SIGNIFICANT CHANGES

For a
description of significant events, which took place since the year ending
December 31, 2008, see as incorporated by reference in Item 4 - Information on
the Company  Recent Developments above.

84

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

A.          OFFER
AND LISTING DETAILS

Markets and Share
Price History

Between
June 1994 and April 1997, and commencing again on October 31, 1997 until August
2002, our Ordinary Shares were quoted on Nasdaq under the symbol NXUS. Between
April 17, 1997, and October 30, 1997, and commencing again as of August 2002
the OTC Bulletin Board reported trading in the Ordinary Shares under the symbol
NXUS and later changed to NXUSF. On November 16, 2005, our shares
resumed trading on the NASDAQ Capital Market under the symbol NXUS. On February
21, 2006 our shares began trading under a new symbol, PNTR. The table below sets forth
the high and low bid prices of our Ordinary Shares, as reported by NASDAQ or
the OTC Bulletin Board during the indicated periods.

|                                          |  |       |  |     |      |  | 
|----------------------------------------- |  | ----- |  | --- | ---- |  | 
|Period                                    |  | High  |  | Low |     
|                                          |  |       |  |     |     
|                                          |  |       |  |     |      |  | 
|2009 March (until March 30, 2009)         |  | 3.60  |  |     | 2.85 |  | 
|2009 February                             |  | 3.86  |  |     | 3.00 |  | 
|2009 January                              |  | 4.06  |  |     | 3.22 |  | 
|2008 December                             |  | 4.10  |  |     | 2.81 |  | 
|2008 November                             |  | 5.33  |  |     | 2.70 |  | 
|2008 October                              |  | 6.66  |  |     | 5.05 |  | 
|2009 First Quarter (until March 30, 2009) |  | 4.06  |  |     | 2.85 |  | 
|2008 Fourth Quarter                       |  | 6.66  |  |     | 2.70 |  | 
|2008 Third Quarter                        |  | 7.18  |  |     | 5.23 |  | 
|2008 Second Quarter                       |  | 7.20  |  |     | 4.62 |  | 
|2008 First Quarter                        |  | 6.95  |  |     | 4.23 |  | 
|2007 Fourth Quarter                       |  | 9.84  |  |     | 6.00 |  | 
|2007 Third Quarter                        |  | 9.27  |  |     | 7.58 |  | 
|2007 Second Quarter                       |  | 11.65 |  |     | 7.80 |  | 
|                                          |  |       |  |     |      |  | 
|2008                                      |  | 7.20  |  |     | 2.70 |  | 
|2007                                      |  | 14.53 |  |     | 6.00 |  | 
|2006                                      |  | 19.30 |  |     | 5.20 |  | 
|2005                                      |  | 21.00 |  |     | 5.90 |  | 
|2004                                      |  | 58.00 |  |     | 9.00 |  | 

On
December 19, 2006, we commenced listing our ordinary shares on the TASE in
Israel under the symbol PNTR The following table sets forth, for the periods
indicated, the high and low reported sales prices, in NIS, of the ordinary
shares on the Tel Aviv Stock Exchange:

|                                          |  |      |    |     |  |    | 
|----------------------------------------- |  | ---- | -- | --- |  | -- | 
|Period                                    |  | High |    | Low | 
|                                          |  |      |    |     | 
|                                          |  |      |    |     |  |    | 
|2009 March (until March 30, 2009)         |  |      | 16 |     |  | 11 | 
|2009 February                             |  |      | 17 |     |  | 13 | 
|2009 January                              |  |      | 15 |     |  | 14 | 
|2008 December                             |  |      | 16 |     |  | 11 | 
|2008 November                             |  |      | 19 |     |  | 11 | 
|2008 October                              |  |      | 22 |     |  | 18 | 
|2009 First Quarter (until March 30, 2009) |  |      | 17 |     |  | 11 | 
|2008 Fourth Quarter                       |  |      | 22 |     |  | 11 | 
|2008 Third Quarter                        |  |      | 27 |     |  | 18 | 
|2008 Second Quarter                       |  |      | 24 |     |  | 16 | 
|2008 First Quarter                        |  |      | 27 |     |  | 15 | 
|2007 Fourth Quarter                       |  |      | 40 |     |  | 23 | 
|2007 Third Quarter                        |  |      | 40 |     |  | 32 | 
|2007 Second Quarter                       |  |      | 47 |     |  | 33 | 
|                                          |  |      |    |     |  |    | 
|2008                                      |  |      | 27 |     |  | 11 | 
|2007                                      |  |      | 58 |     |  | 23 | 

85

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B.
          PLAN
OF DISTRIBUTION

Not applicable

C.          MARKETS

Our shares are listed on the NASDAQ Capital Market under the symbol
PNTR and on the Tel Aviv Stock Exchange under the same symbol.

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 ASSOCIATION

Our
registration number at the Israeli registrar of companies is 52-004147-6.

Articles of Association; Israeli Companies
Law

Articles of Association

The
following is a summary description of certain provisions of our memorandum of
association and articles of association:

September
2003, we adopted a new Articles of Association in order to comply with the new
Israeli Companies Law. The provisions of our new Articles are substantially the
same as the material provisions of our previous Articles.

86

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The
objective of our company as stated in our Articles and in our Memorandum of
Association is to engage in any lawful activity.

We have
currently outstanding only one class of securities. Pursuant to a one-for-one
hundred reverse stock split of our ordinary shares, effective as of August
2005, each share of our old Ordinary Shares with a par value of NIS 0.03 each
were converted into one Ordinary Share with a par value of NIS 3.00 per share.
Accordingly, all shares and per share data in this annual report have been
retroactively adjusted to reflect the reverse stock split. No preferred shares
are currently authorized.

Holders of
Ordinary Shares have one vote per share, and are entitled to participate
equally in the payment of dividends and share distributions and, in the event
of our liquidation, in the distribution of assets after satisfaction of
liabilities to creditors. Our Articles may be amended by a resolution carried
at a General Meeting by 75% of those who voted is required. The shareholders
rights may not be modified in any other way unless otherwise expressly provided
in the terms of issuance of the shares.

Our
Articles require that we hold our annual general meeting of shareholders each
year no later than 15 months from the last annual meeting, at a time and place
determined by the board of directors, upon at least 21 days prior notice to our
shareholders. No business may be commenced until a quorum of two or more
shareholders holding at least one-third of the voting rights are present in
person or by proxy. Shareholders may vote in person or by proxy, and will be
required to prove title to their shares as required by the Israeli Companies
Law (the Companies Law) pursuant to procedures established by the board of
directors. Resolutions regarding the following matters must be passed at a
general meeting of shareholders:

| |   |                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | amendments
 to our Articles (other than modifications of shareholders rights as mentioned
 above);                                                                                                                                                                      
| | · | appointment
 or termination of our auditors;                                                                                                                                                                                                                            
| | · | appointment
 and dismissal of directors;                                                                                                                                                                                                                                
| | · | approval of
 acts and transactions requiring general meeting approval under the Israeli
 Companies Law;                                                                                                                                                                 
| | · | increase or
 reduction of our authorized share capital or the rights of shareholders or a
 class of shareholders- Sections 286 and 287 of the Israeli Companies Law;                                                                                                    
| | · | any merger
 as provided in section 320 of the Israeli Companies Law; and                                                                                                                                                                                                
| | · | the exercise
 of the board of directors powers by a general meeting, if the board of
 directors is unable to exercise its powers and the exercise of any of its
 powers is vital for our proper management, as provided in section 52(a) of
 the Israeli Companies Law.

A special
meeting of our shareholders shall be convened by the board, at the request of
any two directors or one quarter of the officiating directors, or by request of
one or more shareholders holding at least 5% of our issued share capital and 1%
of the voting rights, or by request of one or more shareholders holding at
least 5% of the voting rights. Shareholders requesting a special meeting must
submit their proposed resolution with their request. Within 21 days of receipt
of the request, the board must convene a special meeting and send out notices
setting forth the date, time and place of the meeting. Such notice must be
given at least 21 days, but not more than 35 days, prior to the special
meeting.

87

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The Israeli
Companies Law

The
Israeli Companies Law, as amended most recently in March 2006, codifies the
fiduciary duties that office holders, including directors and executive
officers, owe to a company. An office holder, is defined in the Israeli
Companies Law, as a (i) director, (ii) general manager, (iii) chief business
manager, (iv) deputy general manager, (v) vice general manager, (vi) executive
vice president, (vii) vice president, (viii) another manager directly
subordinate to the managing director or (ix) any other person assuming the
responsibilities of any of the forgoing positions without regard to such
persons title.

The
Israeli Companies Law requires that an office holder of a company promptly
disclose, no later than the first board meeting in which such transaction is
discussed, any personal interest that he or she may have and all related
material information known to him or her, in connection with any existing or
proposed transaction by the company. In addition, if the transaction is an extraordinary
transaction, as defined under Israeli law, 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 the
foregoing, or by any corporation in which the office holder is a 5% or greater
shareholder, holder of 5% or more of the voting power, director or general
manager or in which he or she has the right to appoint at least one director or
the general manager. An extraordinary transaction is defined as a transaction
not in the ordinary course of business, not on market terms, or that is likely
to have a material impact on the companys profitability, assets or
liabilities.

In
the case of a transaction that is not an extraordinary transaction, after the
office holder complies with the above disclosure requirement, only board
approval is required unless the Articles of Association of the company provide
otherwise. The transaction must not be adverse to the companys interest. If
the transaction is an extraordinary transaction, then, in addition to any
approval required by the Articles of Association, it must also be approved by
the audit committee and by the board of directors, and, under specified
circumstances, by a meeting of the shareholders.

Subject
to certain exceptions provided for in the regulations to the Israeli Companies
Law, agreements regarding directors terms of employment require the approval
of the board of directors and the audit committee. In all matters in which a
director has a personal interest, including matters of his/her terms of
employment, he/she shall not be permitted to vote on the matter or be present
in the meeting in which the matter is considered. However, should a majority of
the audit committee or of the board of directors have a personal interest in
the matter, then:

(a)          all
of the directors are permitted to vote on the matter and attend the meeting in
which the matter is considered; and

(b)          the
matter requires approval of the shareholders at a general meeting.

88

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According
to the Israeli Companies Law, the disclosure requirements discussed above also
apply to a controlling shareholder of a public company. Such requirements also
apply to certain shareholders of a public company, with respect to private
placements that will increase their relative holdings in the company. In
general, extraordinary transactions with a controlling shareholder or in which
a controlling shareholder has a personal interest, and agreements relating to
employment and compensation terms of a controlling shareholder require the
approval of the audit committee, the board of directors and the shareholders of
the company. The term controlling shareholder is defined as a shareholder who
has the ability to direct the activities of a company, other than if this power
derives solely from the shareholders position on the board of directors or any
other position with the company. The definition also includes shareholders that
hold 25% or more of the voting rights if no other shareholder owns more than
50% of the voting rights in the company. In general, extraordinary transactions
with a controlling shareholder or in which a controlling shareholder has a
personal interest, and agreements relating to employment and compensation terms
of a controlling shareholder, require the approval of the audit committee, the
board of directors and the shareholders of the company.

The
shareholder approval must either include at least one-third of the shares held
by disinterested shareholders who actively participate in the voting process
(without taking abstaining votes into account), or, alternatively, the total
shareholdings of the disinterested shareholders who vote against the
transaction must not represent more than one percent of the voting rights in
the company.

Private
placements in a public company require approval by a companys board of
directors and shareholders in the following cases:

(a) A
private placement that meets all of the following conditions:

(i) the private placement will increase the relative holdings of
a
shareholder that holds five percent or more of the companys outstanding share
capital, assuming the exercise of all of the securities convertible into shares
held by that person, or that will cause any person to become, as a result of
the issuance, a holder of more than five percent of the companys outstanding
share capital.

(ii) 20 percent or more of the voting rights in the company
prior to
such issuance are being offered.

(iii) all or part of the consideration for the offering is not
cash or
registered securities, or the private placement is not being offered at market
terms.

(b) A
private placement that results in anyone becoming a controlling shareholder of
the public company.

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In
addition, under the Israeli Companies Law, certain transactions or a series of
transactions are considered to be one private placement.

Any
placement of securities that does not fit the above description may be issued
at the discretion of the Board of Directors.

Under
the Israeli Companies Law, a shareholder has a duty to act in good faith
towards the company and other shareholders and refrain from abusing his power
in the company, including, among other things, 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 interested party transactions that require shareholder
 approval as provided in sections 255 and 268 to 275 of the Israeli Companies
 Law.

In
addition, any controlling shareholder, any shareholder who knows that it
possesses power to determine the outcome of a shareholder vote and any
shareholder who has the power to appoint or prevent the appointment office
holder in the company is under a duty to act with fairness towards the company.
The breach of such duty is governed by Israeli contract law. The Israeli
Companies Law does not describe the substance of this duty. The Israeli
Companies Law requires that specified types of transactions, actions and
arrangements be approved as provided for in a companys articles of association
and in some circumstances by the audit committee, by the board of directors and
by the shareholders. The vote required by the audit committee and the board of
directors for approval of these matters, in each case, is a majority of the
disinterested directors participating in a duly convened meeting.

Provisions
Restricting Change in Control of Our Company

Tender
Offer. A person wishing to acquire shares or any class of shares of a publicly
traded Israeli company and who would as a result hold over 90% of the companys
issued and outstanding share capital or of a class of shares which are listed,
is required by the Companies Law to make a tender offer to all of the companys
shareholders for the purchase of all of the issued and outstanding shares of
the company. If the shareholders who do not respond to the offer hold less than
5% of the issued share capital of the company, all of the shares that the
acquirer offered to purchase will be transferred to the acquirer by operation
of law. The Companies Law provides for an exception regarding the threshold
requirement for a shareholder that prior to and following February 2000 holds
over 90% of a companys issued and outstanding share capital. However, the
shareholders may petition the court to alter the consideration for the
acquisition. If the dissenting shareholders hold more than 5% of the issued and
outstanding share capital of the company, the acquirer may not acquire additional
shares of the company from shareholders who accepted the tender offer if
following such acquisition the acquirer would then own over 90% of the
companys issued and outstanding share capital.

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The
Companies Law provides that 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 25% or greater shareholder of the company. This rule
does not apply if there is already another 25% shareholder of the company. Similarly,
the Companies Law provides that an acquisition of shares in 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 greater shareholder of the company, if there is
no 45% or greater shareholder of the company.

Merger.
The Companies Law permits merger transactions if approved by each partys board
of directors and the majority of each partys shares voted on the proposed
merger at a shareholders meeting called on at least 21 days prior notice.
Under the Companies Law, merger transactions may be approved by holders of a
simple majority of our shares present, in person or by proxy, at a general
meeting and voting on the transaction. In determining whether the required
majority has approved the merger, if shares of a company are held by the other
party to the merger, or by any person holding at least 25% of the outstanding
voting shares or 25% of the means of appointing directors of the other party to
the merger, then a vote against the merger by holders of the majority of the
shares present and voting, excluding shares held by the other party or by such
person, or anyone acting on behalf of either of them, is sufficient to reject
the merger transaction. If the transaction would have been approved but for the
exclusion of the votes of certain shareholders as provided above, a court may
still approve the merger upon the request of holders of at least 25% of the
voting rights of a company, if the court holds that the merger is fair and reasonable,
taking into account the value of the parties to the merger and the
consideration offered to the shareholders. Upon the request of a creditor of
either party to 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 executed unless
at least 30 days have passed from the receipt of the shareholders approval and
50 days have passed from the time that a proposal for approval of the merger
has been filed with the Israeli Registrar of Companies.

Nasdaq
Marketplace Rules and Home Country Practices

In
accordance with Israeli law and practice and subject to the exemption set forth
in Rule 4350(a)(1) of the NASDAQ Marketplace Rules, we follow the provisions of
the Israeli Companies Law  1999, rather than the requirements of Marketplace
Rule 4350 with respect to the following requirements:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Distribution of annual and quarterly reports to shareholders  Under
 Israeli law we are not required to distribute annual and quarterly reports
 directly to shareholders and the generally accepted business practice in
 Israel is not to distribute such reports to shareholders. We do however make
 our audited financial statements available to our shareholders prior to our
 annual general meeting and file quarterly financial results with the
 Securities Exchange Commission on Form 6-K.                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | · | Quorum  Under Israeli law a company is entitled to determine in its
 articles of association the number of shareholders and percentage of holdings
 required for a quorum at a shareholders meeting. Our Articles of Association
 provide that a quorum of two or more shareholders holding at least 33.3% of
 the voting rights in person or by proxy is required for commencement of
 business at a general meeting. However, the quorum set forth in our Articles
 of Association with respect to an adjourned meeting, consists of two or more
 shareholders in person or by proxy.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Approval of Related Party Transactions  All related party
 transactions are approved in accordance with the requirements and procedures
 for approval of interested party acts and transactions, set forth in sections
 268 to 275 of the Israeli Companies Law-1999, and the Regulations promulgated
 thereunder, which require audit committee approval and shareholder approval,
 as well as board approval, for specified transactions, rather than those
 approvals under Nasdaq Marketplace Rules which require approval by the audit
 committee or other independent body of our board. Provided that our executive
 officers do not serve on our board, Israeli law does not
 require nor do we engage in the recommendation to, or determination by, independent
 members of our board of the compensation of our executive officers. See also Item 10B  Additional Information 
Memorandum and Articles of Association  The
 Israeli Companies Law, for the definition and procedures for the
 approval of, related party transactions.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Shareholder Approval  We seek shareholder approval for all corporate
 action requiring such approval, in accordance with the requirements of the
 Israeli Companies Law  1999, which are different or in addition to the
 requirements for seeking shareholder approval under Nasdaq Marketplace Rule
 4350(i).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Independence
 of Directors  our board contains two independent directors in accordance
 with the provisions contained in Sections 239-249 of the Israeli Companies
 Law  1999 and Rule 10A-3(b) of the general rules and regulations promulgated
 under the Securities Act of 1933, rather than a majority of independent
 directors. Israeli law does not require nor do our independent directors
 conduct, regularly scheduled meetings at which only they are present.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Nomination
 of our Directors  With the exception of our independent directors, our
 directors are elected for terms of one year or until the following annual
 meeting, by a general meeting of our shareholders. The nominations for
 director which are presented to our shareholders are generally made by our
 directors but may be made by one or more of our shareholders holding together
 at least one percent of the voting power at the general meeting, and such
 nomination under Israeli law are not required to be made by our independent
 directors. Israeli law does not require the adoption of and our board has not
 adopted a formal written charter or board resolution addressing the
 nomination process and related matters.                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Israeli law
 does not require and our board has not adopted a formal written audit
 committee charter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Our audit
 committee complies with all of the requirements under Israeli law.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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Mr. Gil Oren
and Mr. Zvi Rutenberg currently serve on our Board of Directors as
          external directors. Mr. Gil Oren, Mr. Zvi Rutenberg and Ms. Noga Knaz currently
          serve on our Audit Committee, and Mr. Gil Oren has been determined by our board
          to be an audit committee financial expert.

C.
          MATERIAL
CONTRACTS

Acquisition of
Cellocator Ltd.

In
September 2007, we acquired the assets and activities of Cellocator Ltd. and Matan Y.
Communication Tracking Systems Ltd., or Cellocator, a private Israeli company active in
the field of cellular location-based services and technology, in exchange for
approximately US$18.6 million, consisting of (i) approximately US$ 16.7 million in cash;
(ii) the issuance of 160,000 of our ordinary shares and (iii) a non-tradable convertible
debenture with a face value of $1.9 million, which in January 2008 the seller determined
in writing not to convert. As a result of the acquisition, Cellocator and/or its
shareholders hold approximately 3.4% of our issued and outstanding share capital. As part
of the acquisition, we agreed to continue to fulfill specified conditions allowing
Cellocator to meet particular existing tax benefit qualifications under Israeli law.

Private Placements
with U.S. Institutional Investors

On April 2,
2007, we entered into and consummated a share purchase agreement, with a group
of United States institutional investors for the purchase of 805,000 of our
ordinary shares for an aggregate price of $8.5M. Pursuant to the transaction,
the investors were also issued warrants to purchase 402,500 of our ordinary
shares, such that for each one share purchased the investors were entitled to a
warrant to purchase half a share. The warrants are exercisable into ordinary
shares, at an exercise price per share of $12.6 and will be exercisable for a
period of five years.

Loan Agreements

ShagrirOur subsidiary
Shagrir funded its acquisition of Shagrir Towing Services in February 2005
through a credit facility of approximately $23 million, made available by Bank
Hapoalim B.M., and loans of approximately $22.5 million from a group of
investors, including a loan of approximately $9 million provided by Shagrir
Towing Services, a loan of approximately $11.5 million provided by a group of
investors led by Gandyr Investments Ltd., or Gandyr, and Egged Holdings Ltd.,
or Egged, and a loan of approximately $2 million provided by the Company.

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During
2006 and 2008, Shagrir repaid all of these loans, other than the amounts held by Bank
Hapoalim, by means of available funds and through funds provided by additional loans from
Bank Hapoalim. In 2008 Shagrir entered into new loans agreements with Bank Hapoalim. The
loans provided by Bank Hapoalim to Shagrir are in NIS currency and the interest rate is
7%-7.75%. As of December 31, 2008 the outstanding balances of the loans were $6 million
and $1.7 million. As a result, as of December 31, 2008, Shagrir has in the aggregate
approximately $22.2 million in outstanding loans, which are all entered into with Bank
Hapoalim. For further information, see Note 10d of our consolidated financial statements.

PointerPointers
acquisition of the business of Cellocator required financing amounts in excess
of what we had in cash reserves on September 18, 2007 (the date of
acquisition). For this requirement we received a credit facility of $7 million
from Bank Hapoalim, of which approximately $4.6 million remains outstanding as
of December 31, 2008. The credit facility matures on 2013 and interest is
payable at a determined rate above the London Interbank Offered Rate, or Libor.
For further information, see Note 10c of our consolidated financial statements.

In addition, we have outstanding a
convertible debenture in the amount of $1.9 million, which we issued to the seller as part
of the consideration for the acquisition of Cellocator, which in January 2008 the seller
determined in writing not to convert. The debenture is due and payable in September 2010
at a rate of 4.1875%, and as of December 31, 2008 the debenture has an amount outstanding
of approximately $2.1 million.

For further
information regarding these loans, including related financial covenants, see
Note 10c to our consolidated financial statements as of December 31, 2008,
contained elsewhere in this report, and which is incorporated herein by
reference.

Management Services
Agreement with Gandyr and Egged

On November
16, 2004, Shagrir entered into a management services agreement with Gandyr and
Egged, pursuant to which Gandyr and Egged were to grant management services to
Shagrir, commencing March 1, 2007, in consideration for approximately NIS 1
million (approximately $263,000) per year.

For a
summary of other relevant contracts, see Item 4  Information on the Company Recent Developments
and Property, Plants and Equipment,
Item 6  Related Party Transactions,
and Item 7  Major Shareholders and Related
Party Transactions, which
is incorporated herein by reference.

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D.          EXCHANGE
CONTROLS

Under
current Israeli regulations, any dividends or other distributions paid in
respect of our ordinary shares purchased by nonresidents of Israel with certain
non-Israeli currencies (including dollars) and any amounts payable upon the
dissolution, liquidation or winding up of our affairs, as well as the proceeds
of any sale in Israel of our securities to an Israeli resident, will be freely
repatriable in such non-Israeli currencies at the rate of exchange prevailing
at the time of conversion pursuant to the general permit issued under the
Israeli Currency Law, 1978, provided that Israeli income tax has been paid on
(or withheld from) such payments. Because exchange rates between the NIS and
the U.S. dollar fluctuate continuously, U.S. shareholders will be subject to
any such currency fluctuation during the period from when such dividend is
declared through the date payment is made in U.S. dollars.Investments
outside Israel by the Company no longer require specific approval from the
Controller of Foreign Currency at the Bank of Israel.

E.          TAXATION
AND GOVERNMENT PROGRAMS

The
following is a summary of some of the current tax law applicable to companies
in Israel, with special reference to its effect on us and our subsidiaries. The
following also contains a discussion of specified Israeli tax consequences to
our shareholders and government programs from which we, and some of our
subsidiaries benefit. To the extent that the discussion is based on tax
legislation that has not been subject to judicial or administrative
interpretation, there can be no assurance that the views expressed in the
discussion will be accepted by the tax authorities in question.

The
discussion is not intended, and should not be construed, as legal or
professional tax advice and is not exhaustive of all possible tax
considerations.

General Corporate Tax Structure

Israeli
companies are subject to Corporate Tax on their taxable income. On July 25,
2005, the Knesset (Israeli Parliament) approved the Law of the Amendment of the
Income Tax Ordinance (No. 147), 2005, which prescribes, among others, a gradual
decrease in the corporate tax rate in Israel to the following tax rates: in
2005  34%, in 2006 - 31%, in 2007 - 29%, in 2008 - 27%, in 2009 - 26% and in
2010 and thereafter - 25%. However, the effective tax rate payable by a company
which derives income from an approved enterprise (as further discussed below)
may be considerably less.

Following
an additional amendment to the Tax Ordinance, which came into effect on January
1, 2009, for a period of one year, an Israeli corporation may elect a 5% rate
of corporate tax (instead of 25%) for dividend distributions received from a
foreign subsidiary which is used in Israel in 2009, or within one year after
actual receipt of the dividend, whichever is later. The 5% tax rate is subject
to various conditions, with include conditions with regard to the identity of
the corporation that distributes the dividends, the source of the dividend, the
nature of use of the dividend income and the period during which the dividend
income will be used in Israel.

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Special Provisions Relating to Taxation Under
Inflationary Conditions
          Under the
Income Tax (Inflationary Adjustments) Law, 1985 (the Israeli law), results
for tax purposes are measured in real terms, in accordance with the changes in
the Israeli Consumer Price Index (Israeli CPI). Accordingly, until 2002,
results for tax purposes were measured in terms of earnings in NIS after
certain adjustments for increases in the Israeli CPI. Commencing in taxable
year 2003, the Company has elected to measure its taxable income and file its
tax return under the Israeli Income Tax Regulations (Principles Regarding the
Management of Books of Account of Foreign Invested Companies and Certain
Partnerships and the Determination of Their Taxable Income), 1986. Such an
elective obligates the Company for three years. Accordingly, commencing taxable
year 2003, results for tax purposes are measured in terms of earnings in
dollar.
          In February
2008, the Knesset (Israeli parliament) passed an amendment to the Income Tax
(Inflationary Adjustments) Law, 1985, which limits the scope of the law
starting 2008 and thereafter. Starting 2008, the results for tax purposes will
be measured in nominal values, excluding certain adjustments for changes in the
Consumer Price Index carried out in the period up to December 31, 2007. The
amended law includes, inter alia, the elimination of the inflationary additions
and deductions and the additional deduction for depreciation starting 2008.

Tax Benefits and Grants for Research and
Development

Israeli tax
law allows, under certain conditions, a tax deduction in the year incurred for
expenditures (including capital expenditures) in scientific research and
development projects if the expenditures are approved by the relevant Israeli
Government Ministry (determined by the field of research) and the research and
development is for the promotion of the enterprise and is carried out by or on
behalf of the company seeking such deduction. Expenditures not so approved are
deductible over a three-year period. However, expenditures made out of proceeds
made available to us through government grants are not deductible according to
Israeli law.

Law for the Encouragement of Capital
Investments, 1959

Certain of
our facilities have been granted Approved Enterprise status under the Law for
the Encouragement of Capital Investments, 1959, as amended, or the Investment
Law. The Investment Law provides that a capital investment in eligible
facilities may, upon application to the Israel Investment Center of the
Ministry of Industry and Trade of the State of Israel (referred to as the
Investment Center), be designated as an Approved Enterprise. 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 its
physical characteristics, for example, 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 attributable to the
specific Approved Enterprise.

A recent
amendment to the Investment Law which came into effect as of April 1, 2005, or
the Amendment, significantly changed the provisions of the Investment Law. The
Amendment limits the scope of enterprises which may be approved by the
Investment Center by determining criteria for the approval of a facility as an
Approved Enterprise, such as provisions generally requiring that at least 25%
of the income of an Approved Enterprise will be derived from export.
Additionally, as explained below, the Amendment sets forth major changes in the
manner in which tax benefits are awarded under the Investment Law whereby
companies no longer require Investment Center approval (and Approved Enterprise
status) in order to qualify for tax benefits. However, the Investment Law
provides that terms and benefits included in any certificate of approval
already granted will remain subject to the provisions of the Investment Law as
in effect on the date of such approval. Therefore the tax benefits granted to
our Approved Enterprises under the Investment Law will generally not be subject
to the provisions of the Amendment.

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Tax Benefits Prior to the Amendment

In general,
taxable income of a company derived from an Approved Enterprise was subject to
corporate tax at the maximum rate of 25% rather than the rates stated above
(this will also apply to Approved Enterprises approved after the Amendment, as
explained below). The 25% corporate tax rate applies for a period of time
termed the benefit period. The benefit period is a period of seven years
commencing with the year in which the Approved Enterprise first generated
taxable income. In any event, the benefit period is limited to 12 years from
the commencement of production or 14 years from the year of receipt of
approval, whichever is earlier. Under certain circumstances (as further
detailed below), the benefit period may extend to a maximum of ten years from
the commencement of the benefit period. In the event that a company is
operating under more than one approval or that only part of its capital
investments are approved, or a Mixed Enterprise, its effective Company Tax rate
is the result of a weighted combination of the various applicable rates.

A company
which qualifies as a Foreign Investors Company is entitled to an extended
benefit period and to further reductions in the tax rate normally applicable to
Approved Enterprises. Subject to certain conditions, a Foreign Investors
Company is a company in which persons who are not residents in Israel invested
more than 25% of its combined shareholders investment in share capital (in
terms of rights to profits, voting and the appointment of directors) and in
long term shareholders loans, as defined in the Investment Law. The percentage
owned by nonresidents of Israel for any tax year will be determined by the
lowest percentage of any of the above rights held by nonresidents during that
year. Such a company will pay corporate tax at reduced rates for an extended
ten-year (rather than the otherwise applicable seven-year) period as detailed
below:

|                             |  |                    |  |                       
|---------------------------- |  | ------------------ |  | ----------------------
|Level of
 Foreign Investment |  | Corporate Tax Rate |  | Benefit period (years)
|                             |  |                    |  |                       
|                             |  |                    |  |                       
|Over
 0% but less than 25%   |  | 25%                |  | 7                     
|Over
 25% but less than 49%  |  | 25%                |  | 10                    
|Over
 49% but less than 74%  |  | 20%                |  | 10                    
|Over
 74% but less than 90%  |  | 15%                |  | 10                    
|90% or more                  |  | 10%                |  | 10                    

There
can be no assurance that the above-mentioned shareholding proportion will be
reached by us.

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Prior to the
Amendment, a company owning an Approved Enterprise approved after April 1, 1986
(or prior thereto provided no government grants or loans had previously been
granted regarding such enterprise) was entitled to elect (as we have) to forego
certain Government grants extended to Approved Enterprises in return for an
alternative track of tax benefits, or the Alternative Track. Under the
Alternative Track, a companys undistributed income derived from an Approved
Enterprise is exempt from corporate 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 such company is eligible
for the reduced tax rates under the Investment Law for the remainder of the
benefit period as mentioned above.

The
entitlement to the above benefits is conditional upon fulfillment of the
conditions stipulated by the law, regulations published thereunder and the
instruments of approval for the specific investments in the Approved
Enterprise. In the event of failure to comply with these conditions, the
benefits may be canceled and a company may be required to refund the amount of
the benefits, in whole or in part, with the addition of linkage differences,
interest and penalties.

Should we
derive income from sources other than the Approved Enterprise during the
relevant periods of benefits, such income will be taxable at regular corporate
tax rates.

A company
that elected the Alternative Track and that subsequently pays a dividend out of
income derived from the Approved Enterprise(s) during the tax exemption period
will be subject to corporate tax in the year the dividend is distributed in
respect of the amount distributed (including the corporate tax thereon), at the
rate that would have been applicable had the company not elected the
Alternative Route (10%-25%, depending on the level of foreign investment in the
company, as explained above). In addition, the dividend recipient is taxed at
the reduced rate applicable to dividends from Approved Enterprises (15%), if
the dividend is distributed during the tax exemption period or within a
specified period thereafter (In the event, however, that the company qualifies
as a Foreign Investors Company, there is no such time limitation). This tax
must be withheld by the company at source, regardless of whether the dividend
is converted into foreign currency.

Subject to
certain provisions concerning income subject to the Alternative Route, all
dividends are considered to be attributable to the entire enterprise and the
effective tax rate is the result of a weighted combination of the various
applicable tax rates.

The
Investment 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.

Grants and
certain other incentives received by a company in accordance with the
Investment Law remain subject to final ratification by the Israel Investment
Center and final determination by the Israel Tax Authority. Such ratification
and determination are conditional upon fulfillment of all of the terms of the
approved program.

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Tax Benefits under the Amendment

As a result
of the Amendment, it is no longer required to acquire Approved Enterprise
status in order to receive the tax benefits previously available under the
Alternative Track of benefits and therefore companies need not apply to the
Investment Center for this purpose. However, the Investment Center will
continue to grant Approved Enterprise status to companies seeking governmental
grants. A company may claim the tax benefits offered by the Investment Law directly
in its tax returns, provided that its facilities meet the criteria for tax
benefits set forth in the Amendment, or a Benefited Enterprise. Companies are
also entitled to approach the Israeli Tax Authority and request for a
pre-ruling regarding their eligibility for benefits under the Amendment. The
Amendment includes provisions intended to ensure that a company will not enjoy
both government grants and tax benefits for the same investment program.

Tax
benefits are available under the Amendment to production facilities and to
other eligible facilities, which are generally required to derive more than 25%
of their business income from export. In order to receive the tax benefits, the
Amendment states that the company must make an investment in the Benefited
Enterprise exceeding a minimum amount specified in the Investment Law. Such
investment may be made over a period of no more than three years concluding at
the end of the year in which the company requests to have the tax benefits
apply to its Benefited Enterprise, or the Year of Election. Where the company
requests to have the tax benefits apply to an expansion of existing facilities,
only the expansion will be considered a Benefited Enterprise and the companys
effective tax rate will be the result of a weighted combination of the
applicable rates. In the case of an expansion of existing facilities, the
minimum investment required in order to qualify as a Benefited Enterprise is
determined as a certain percentage of the companys production assets before
the expansion.

The tax
benefits available under the Amendment to qualifying income of a Benefited
Enterprise are determined by the geographic location of the Benefited
Enterprise in Israel. The Investment Law divides the country into three zones 
A, B and C, so that a Benefited Enterprise operating in Zone A (which generally
includes areas remote from the center of Israel) will receive the greatest
benefits and Benefited Enterprises in Zone C will receive the least benefits.

The
Amendment provides that a company producing income from a Benefited Enterprise
in Zone A may elect either that (i) the undistributed income derived from the
Benefited Enterprise will be fully tax exempt for the entire benefit period
described below, or tax exemption, in which case the ordinary provisions
described below concerning the taxation of the company and shareholder for
distribution of dividends will apply; or (ii) that the income from its
Benefited Enterprise will be subject to corporate tax at a rate of a 11.5%, in
which case dividends paid out of such income to a foreign resident will be
taxed at a rate of 4% and the company will not be subject to additional tax
upon dividend distribution. Further benefits are available in the event of
certain large investments by multinational companies. Benefited Enterprises
located in Zones B and C will be exempt from tax for six and two years,
respectively, and subject to tax at a rate of 10%-25% for the remainder of the
benefit period, depending on the extent of foreign investment in the Company,
as described above.

99

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Similarly
to a company which elected the Alternative Track before the amendment,
dividends paid out of income derived by a Benefited Enterprise, or out of
dividends received from a company whose income is derived from a Benefited
Enterprise, are generally subject to withholding tax at the rate of 15%, such
tax being deductible at source. The reduced withholding tax rate of 15% is
limited to dividends and distributions out of income derived during the benefit
period and actually paid at any time up to 12 years thereafter. A company
qualifying for tax benefits under the Amendment which pays a dividend out of
income derived by its Benefited Enterprise during the tax exemption period will
be subject to corporate tax in respect of the gross amount of the dividend. The
rate of such corporate tax will be 25%, which is the rate to which a Benefited
Enterprise is generally subject. Such tax rate is lower in the case of a
qualified Foreign Investors Company. The dividend recipient is subject to
tax at the rate of 15% on the amount received which tax is deductible at
source.

The period
for which tax benefits are available under the Amendment is also determined by
the geographical location of the Benefited Enterprise in Israel. The benefit
period for Benefited Enterprises in Zone A will end on the earlier of (i) a
period of ten years from the tax year in which the company first derived
taxable income from the Benefited Enterprise, or the Commencement Year; or (ii)
twelve years (or in certain cases fourteen years) from the first day of the
Year of Election. The benefit period for Benefited Enterprises in Zones B and C
will extend until the earlier of (i) seven years from the Commencement Year or
(ii) 12 years from the first day of the Year of Election. This period may be
extended for Benefited Enterprises owned by a Foreign Investors Company
during all or part of the benefit period.

Additionally,
the Amendment sets forth a minimal amount of foreign investment required for a
company to be regarded a Foreign Investors Company.

There can
be no assurance that we will attain approval for additional tax benefits under
the Amendment, or receive approval for Approved Enterprises in the future.

Law for the Encouragement of Industry
(Taxes), 1969

Under the
Law for the Encouragement of Industry (Taxes), 1969, or the Industry
Encouragement Law, Industrial Companies (as defined below) are entitled to the
following tax benefits:

(a)
Amortization of purchases of know-how and patents over eight years for tax
purposes.

(b) The
right to elect, under specified conditions, to file a consolidated tax return
with other related Israeli Industrial Companies.

100

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(c)
Amortization of expenses incurred in connection with certain public securities
issuances over a three-year period.

(d) Tax
exemption for shareholders who held shares before a public offering on capital
gains derived from the sale (as defined by law) of securities, if realized
after more than five years from the public issuance of additional securities of
the company. (As of November 1994, this exemption was repealed, however, it
applies to some of our shareholders pursuant to a grand-fathering clause; the
recent tax reform repealed the grandfathered exemption for any gains accrued
from January 1, 2003).

(e)
Accelerated depreciation rates on equipment and buildings.

Eligibility
for benefits under the Industry Encouragement Law is not subject to receipt of
prior approval from any governmental authority. Under the Industry
Encouragement Law, an Industrial Company is defined as a company resident in
Israel, at least 90% of the income of which, in any tax year, determined in
Israeli currency, exclusive of income from government loans, capital gains,
interest and dividends, is derived from an Industrial Enterprise owned by it.
An Industrial Enterprise is defined as an enterprise whose major activity in
a given tax year is industrial production activity.

We believe
that we currently qualify as an Industrial Company within the definition of the
Industry Encouragement Law. No assurance can be given that we will continue to
qualify as an Industrial Company or that the benefits described above will be
available in the future.

Israeli Capital Gains Tax

Until
the end of the year 2002, and provided we maintained our status as an
industrial corporation, capital gains from the sale of our securities were generally
exempt from Israeli Capital Gains Tax. This exemption did not apply to a
shareholder whose taxable income was determined pursuant to the Israeli Income
Tax Law (Inflationary Adjustments) 1985, or to a person whose gains from
selling or otherwise disposing of our securities were deemed to be business
income.

From
January 1, 2003, capital gains from the sale of our securities were generally
subject to tax. On January 1, 2006, an amendment to the Israeli tax regime
became effective (the 2006 Tax Reform). The 2006 Tax Reform significantly
changed the tax rates applicable to income derived from securities.

According
to the 2006 Tax Reform, an individual is subject to a 20% tax rate on real
capital gains derived from the sale of shares, as long as the individual is not
a substantial shareholder (generally a shareholder with 10% or more of the
right to profits, right to nominate a director and voting rights) in the
company issuing the shares.

A
substantial shareholder will be subject to tax at a rate of 25% in respect of
real capital gains derived from the sale of shares issued by the company in
which he or she is a substantial shareholder. The determination of whether the
individual is a substantial shareholder will be made on the date that the
securities are sold. In addition, the individual will be deemed to be a
substantial shareholder if at any time during the 12 months preceding this date
he had been a substantial shareholder.

101

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Non-Israeli
residents are exempt from Israeli capital gains tax on any gains derived from
the sale of shares in an Israeli corporation publicly traded on the TASE and/or
on a foreign stock exchange, provided such gains do not derive from a permanent
establishment of such shareholders in Israel and that such shareholders 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.
          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.

Pursuant to
the treaty between the Governments of the United States and Israel with respect
to taxes on income, or the U.S.-Israel tax treaty, the sale, exchange or
disposition of our ordinary shares by a person who qualifies as a resident of
the United States under the treaty and who is entitled to claim the benefits
afforded to him by the treaty, will generally not be subject to Israeli capital
gains tax. This exemption shall not apply to a person who held, directly or
indirectly, shares representing 10% or more of the voting power in our company
during any part of the 12 month period preceding the sale, exchange or
disposition, subject to certain conditions. A sale, exchange or disposition of
our shares by a U.S. resident qualified under the treaty, who held, directly or
indirectly, shares representing 10% or more of the voting power in our company
at any time during the preceding 12 month period would be subject to Israeli
tax, to the extent applicable; however, under the treaty, this U.S. resident
would be permitted to claim a credit for these taxes against the U.S. income
tax with respect to the sale, exchange or disposition, subject to the
limitations in U.S. laws applicable to foreign tax credits.

Israeli Tax on Dividend Income

Non-residents
of Israel are subject to income tax on income accrued or derived from sources
in Israel.  These sources of income include passive income such as
dividends, royalties and interest, as well as non-passive income from services
rendered in Israel.  On distributions of dividends other than bonus
shares, or stock dividends, to Israeli individuals and foreign resident
individuals and corporations we would be required to withhold income tax at the
rate of 20%.  If the income out of which the dividend is being paid is
attributable to an Approved Enterprise under the Law for the Encouragement of
Capital Investments, 1959, the rate is 15%.  A different rate may be
provided for in a treaty between Israel and the shareholders country of
residence.  Under the U.S.-Israel tax treaty, if the income out of which
the dividend is being paid is not attributable to an Approved Enterprise, then
income tax with respect to shareholders that are U.S. corporations holding at
least 10% of our voting power in the twelve-month period preceding the
distribution of such dividends, is required to be withheld at the rate of
12.5%.

102

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Residents
of the United States will generally have taxes in Israel withheld at source.
Such persons generally would be entitled to a credit or deduction for United
States Federal income tax purposes for the amount of such taxes withheld,
subject to limitations applicable to foreign tax credits. Non-residents of
Israel are subject to income tax on income accrued or derived from sources in
Israel.  These sources of income include passive income such as dividends,
royalties and interest, as well as non-passive income from services rendered in
Israel.  On distributions of dividends other than bonus shares, or stock
dividends, to Israeli individuals and foreign resident individuals and
corporations we would be required to withhold income tax at the rate of
20%.  If the income out of which the dividend is being paid is
attributable to an Approved Enterprise under the Law for the Encouragement of
Capital Investments, 1959, the rate is 15%.  A different rate may be
provided for in a treaty between Israel and the shareholders country of
residence.  Under the U.S.-Israel tax treaty, if the income out of which
the dividend is being paid is not attributable to an Approved Enterprise, then
income tax with respect to shareholders that are U.S. corporations holding at
least 10% of our voting power in the twelve-month period preceding the
distribution of such dividends, is required to be withheld at the rate of
12.5%.

Residents
of the United States will generally have taxes in Israel withheld at source.
Such persons generally would be entitled to a credit or deduction for United
States Federal income tax purposes for the amount of such taxes withheld,
subject to limitations applicable to foreign tax credits.

F.          DIVIDENDS
AND PAYING AGENTS

Not Applicable

G.          STATEMENT
BY EXPERTS

Not Applicable

H.          DOCUMENTS
ON DISPLAY

We are
required to file reports and other information with the Securities and Exchange
Commission, or SEC, under the Securities Exchange Act of 1934 and the
regulations thereunder applicable to foreign private issuers. Reports and other
information filed by us with the SEC may be inspected and copied at the SECs
public reference facilities described below. As a foreign private issuer we are
not required to file periodic information as frequently or as promptly as
United States companies. Therefore, we publicly announce our year-end results
promptly and file information with the SEC under the cover of Form 6-K as
required. As a foreign private issuer, we are also exempt from the rules under
the Exchange Act prescribing the furnishing and content of proxy statements and
our officers, directors and principal shareholders are exempt from the
reporting and other provisions in Section 16 of the Exchange Act.

103

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You may
read and copy any document we file with the SEC without charge at the SECs
public reference room, located 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
l−800−SEC−0330 for further information on the public
reference room. In addition, such information concerning our company can be
inspected and copied at the offices of the Israel Securities Authority at 22
Kanfei Nesharim St., Jerusalem, Israel.
As a foreign private issuer, all documents which were filed after
November 4, 2002 on the SECs EDGAR system will be available for retrieval on
the SECs website at www.sec.gov. You may read and copy any reports, statements
or other information that we file with the SEC at the SEC facilities listed
above. These SEC filings are also available to the public from commercial
document retrieval services. We also
generally make available on our own web site (www.pointer.com) all our interim
and year-end financial statements as well as other information. The information contained in, or
incorporated into, our website is not part of this annual report.

Any
statement in this annual report about any of our contracts or other documents
is not necessarily complete. If the contract or document is filed as an exhibit
to the registration statement, the contract or document is deemed to modify the
description contained in this annual report. We urge you to review the exhibits
themselves for a complete description of the contract or document.

As a
foreign private issuer, we are exempt from the rules under the Exchange Act
prescribing the furnishing and content of proxy statements, and our officers,
directors and principal shareholders are exempt from the reporting and short−swing
profit recovery provisions contained in Section 16 of the Exchange Act. In
addition, we are not required under the Exchange Act to file periodic reports
and financial statements with the SEC as frequently or as promptly as United
States companies whose securities are registered under the Exchange Act. A copy
of each report submitted in accordance with applicable United States law is
available for public review at our principal executive offices.

I.          SUBSIDIARY
INFORMATION

Not Applicable

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

In the
course of our normal operations, we are exposed to market risks including
fluctuations in foreign currency exchange rates, interest rates and the Israeli
CPI.

104

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Foreign
exchange risk

The
majority of our revenues is generated in or linked to U.S. dollars (Dollars).
In addition, a substantial portion of our costs is incurred in Dollars. We
believe that the Dollar is the currency of the primary economic environment in
which we operate. Thus, the functional and reporting currency of the Company is
the Dollar.
          For
Shagrir whose functional currency has been determined to be its local currency,
the new Israeli shekel (NIS) is its functioning and reporting currency. For
PLA, whose functional currency has been determined to be its local currency,
the Argentine peso is its functioning and reporting currency, and for Pointer
Mexico, whose functional currency has been determined to be its local currency,
the Mexican peso is its functioning and reporting currency. Assets and
liabilities are translated at year-end exchange rates and statement of
operations items are translated at average exchange rates prevailing during the
year. Such translation adjustments are recorded as a separate component, other
comprehensive income (loss), in shareholders equity (deficiency).

As
of December 31, 2008, accumulated other comprehensive loss decreased by
$70 thousands compared to December 31, 2007. As of December 31, 2007,
accumulated other comprehensive loss increased by $1,668 million compared to
December 31, 2006.

Our
operating and pricing strategies take into account changes in exchange rates
over time. However, there can be no assurance that future fluctuations in the
value of foreign currencies will not have an adverse material effect on our
business, operating results or financial condition.

Market risk
was estimated as the potential change in fair value resulting from a hypothetical
10% change in the year-end Dollar exchange rate.

Our
revenues and expenses generated in NIS are exposed to exchange rate
fluctuations between the NIS and the Dollar. As of December 31, 2008 we had net
assets of $21 million and net income of $117,000, denominated in the NIS.
Assuming an adverse foreign exchange rate fluctuation, we would experience a
change in Dollar revenues and net income. A hypothetical 10% devaluation of the
Dollar against the NIS would thus result in approximately $43,000 net decrease
in our earnings

Our
revenues and expenses generated in Argentinian Pesos are exposed to exchange
rate fluctuations between the Argentinian Pesos and the Dollar. As of December
31, 2008 we had net assets of $3 million and net loss of $864,000, denominated
in the Argentinian Pesos. Assuming an adverse foreign exchange rate
fluctuation, we would experience a change in Dollar revenues and net income. A
hypothetical 10% devaluation of the Dollar against the Argentinian Pesos would
thus result in approximately $86,000 net decrease in our earnings

Our
revenues and expenses generated in Euro are exposed to exchange rate
fluctuations between the Euro and the Dollar. As of December 31, 2008 we had
net assets of $0.7 million and net income of $2.4 million, denominated in the
Euro. Assuming an adverse foreign exchange rate fluctuation, we would
experience a change in Dollar revenues and net income. A hypothetical 10%
devaluation of the Dollar against the Euro would thus result in approximately
$310,000 net decrease in our earnings

The
exposure to exchange rate fluctuations between the Mexican Peso and the U.S.
dollar has no materiality effect.

105

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Interest
rate risk

Our
exposure to market rate risk for changes in interest rates relates primarily to
funds borrowed by us from banks and other.
See also disclosure about hedging in Item 5  Impact of Exchange Rate Fluctuations. As of December 31, 2008, we had total loans
borrowed bearing variable interest rates of $ 6.2 million.
          The net
decrease in our earnings for the next year resulting from an increase of 10% in
variable interest rates will be approximately $25,000 assuming all other
variables are constant.

Israeli
CPI

Our exposure to market rate risk for changes in CPI relates primarily
to loans borrowed by us from banks and other.
As of December 31, 2008, we had total loans borrowed linked to CPI of $
7 million. The net decrease in our earnings for the next year resulting from an
increase of 10% in CPI will be approximately $27,000 assuming all other
variables are constant.

The table below details the balance sheet exposure by currency and
interest rates:

|                                                |  |                |           |      |                         |      |  |       |  |      |       |                      |  |       |  |  |       |  | 
|----------------------------------------------- |  | -------------- | --------- | ---- | ----------------------- | ---- |  | ----- |  | ---- | ----- | -------------------- |  | ----- |  |  | ----- |  | 
|                                                |  |                |           |      | Expected Maturity Dates |     
|                                                |  |                |           |      |                         |     
|                                                |  |                |           | 2009 |                         | 2010 |  | 2011  |  | 2012 |       | 2013 and
 thereafter | 
|                                                |  |                |           |      |                         |      |  |       |  |      |       |                      | 
|interest                                        |  | (In thousands) |          
|                                                |  |                |          
|                                                |  |                |           |      |                         |      |  |       |  |      |       |                      |  |       |  |  |       |  | 
|Assets:                                         |  |                |           |      |                         |      |  |       |  |      |       |                      |  |       |  |  |       |  | 
|                                                |  |                |           |      |                         |      |  |       |  |      |       |                      |  |       |  |  |       |  | 
|cash - in U.S. dollars                          |  |                |           |      | 1,045                   |      |  |       |  |      |       |                      |  |       |  |  |       |  | 
|Cash- In other nis                              |  |                |           |      | 1,613                   |      |  |       |  |      |       |                      |  |       |  |  |       |  | 
|Cash- In other currency:                        |  |                |           |      | 50                      |      |  |       |  |      |       |                      |  |       |  |  |       |  | 
|                                                |  |                |           |      |                         |      |  |       |  |      |       |                      |  |       |  |  |       |  | 
|Liabilities:                                    |  |                |           |      |                         |      |  |       |  |      |       |                      |  |       |  |  |       |  | 
|                                                |  |                |           |      |                         |      |  |       |  |      |       |                      |  |       |  |  |       |  | 
|Short-term bank credit                          |  |                |           |      |                         |      |  |       |  |      |       |                      |  |       |  |  |       |  | 
|In NIS:                                         |  |                | 4.5-5.8   |      | 1,644                   |      |  |      |  |      |      |                      |  |      |  |  |      |  | 
|                                                |  |                |           |      |                         |      |  |       |  |      |       |                      |  |       |  |  |       |  | 
|Long-term loans (including
 current maturities) |  |                |           |      |                         |      |  |       |  |      |       |                      |  |       |  |  |       |  | 
|In U.S. dollars:                                |  |                | Libor
 +2 |      | 800                     |      |  | 800   |  |      | 800   |                      |  | 800   |  |  | 1,400 |  | 
|In NIS                                          |  |                | 5.48-7.75 |      | 5,373                   |      |  | 5,479 |  |      | 5,022 |                      |  | 4,723 |  |  | 1,615 |  | 
|In other currency                               |  |                |           |      |                         |      |  |       |  |      |       |                      |  |       |  |  | 737   |  | 

106

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|         |                                                        
|-------- | -------------------------------------------------------
|ITEM 12. | DESCRIPTIONS 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

Not applicable.

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

(a)     Evaluation
of Disclosure Controls and Procedures

Management
of the Company, with the participation of the Chief Executive Officer and the
Chief Financial Officer, evaluated the effectiveness of the design and
operation of the Companys disclosure controls and procedures, as of
December 31, 2008. The term
disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be disclosed
by a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time period specified
in the SECs rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the companys
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding adequate disclosure.
Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on the
evaluation of the Companys disclosure controls and procedures as of December 31,
2008, our Chief Executive Officer and Chief Financial Officer concluded that,
as of such date, the Companys disclosure controls and procedures were
effective at the reasonable assurance level.

107

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(b)     Managements
Report on Internal Control Over Financial Reporting

Management
of the Company is responsible for establishing and maintaining adequate internal control
over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the
Exchange Act). Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

Management
conducted an assessment of the effectiveness of the Companys internal control
over financial reporting as of December 31, 2008 based on
the framework published by the Committee of Sponsoring Organizations of the
Treadway Commission, Internal Control  Integrated Framework.
Based on this assessment, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of December 31, 2008, our internal control over
financial reporting is effective based on those criteria.

(c) Attestation report of the registered public
accounting firm. Not Applicable.

(d) Changes in Internal Control over Financial
Reporting. There were no changes to our internal control over
financial reporting that occurred during the period covered by this annual
report that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

|          |                                  
|--------- | ---------------------------------
|ITEM 16.  | [RESERVED]                       
|          |                                  
|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT.

Our board of directors has determined that Mr. Gil Oren is our audit
committee financial expert.

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

On June 22,
2003, our company adopted a code of ethics, which applies to all of our
employees, officers and directors, including our chief executive officer, our
chief financial officer and our principal accountant. We shall provide any person with a copy of our code upon request.

108

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

The following table presents fees for professional audit services
rendered by our principal auditors for the audit of the Companys consolidated
annual financial statements for the years ended December 31, 2008 and
2007.

|                       |  |                     |  |      |     |  | 
|---------------------- |  | ------------------- |  | ---- | --- |  | 
|                       |  | In USD in thousands | 
|                       |  | 2008                |  | 2007 |    
|                       |  |                     |  |      |    
|                       |  |                     |  |      |     |  | 
|Audit
 Fees(1)         |  | 217                 |  |      | 153 |  | 
|Audit-Related
 Fees(2) |  |                    |  |      | 109 |  | 
|Tax Fees(3)            |  | 22                  |  |      | 10  |  | 
|All Other
 Fees        |  |                    |  |      | 18  |  | 

|    |                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit fees
 consist of fees for professional services rendered for the audit of the
 Companys consolidated financial statements and review of financial
 statements and services normally provided by the independent auditor in
 connection with statutory and regulatory filings or engagements.
|    |                                                                                                                                                                                                                                                                                                    
|(2) | Audit-related
 fees are fees principally for services not provided in Audit Fees, such as
 services provided in connection with the preparation of our registration
 statement on Forms F-3, filed with the SEC in May 2007 and amended in
 September 2007.                                        
|    |                                                                                                                                                                                                                                                                                                    
|(3) | Tax services
 fees consist of compliance fees for the preparation of original and amended
 tax returns, claims for refunds and tax payments.                                                                                                                                                       

Pre-Approval
Policies and Procedures

Our Audit
committee has approved all audit and non-audit services rendered by our
independent public accountants, Kost Forer Gabbay & Kasierer, a member firm
of Ernst & Young Global. Pre-approval of an audit or non-audit service may
be given as general pre-approval, as part of the audit committees approval of
the scope of the engagement of our independent auditors, or on an individual
basis. Any proposed services exceeding general pre-approved levels also require
specific pre-approval by our audit committee. The Audit Committee has not
approved prohibited non-audit functions defined in section 201 of the
Sarbanes-Oxley Act or the rules of the Securities and Exchange Committee, and
the Audit Committee considers whether proposed services are compatible with the
independence of the public accountants. All the services provided by our
independent accountants in 2008 were approved by our Audit Committee.

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

Not
applicable.

109

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

None.

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

Not
applicable.

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

As a foreign
private issuer whose shares are listed on the NASDAQ Capital Market, we are
permitted to follow certain home country corporate governance practices instead
of certain requirements of the NASDAQ Marketplace Rules.

As
described in Item 10.B Additional Information  NASDAQ Marketplace Rules and
Home Country Practices, we do not comply with the NASDAQ requirement that an
issuer listed on the NASDAQ Capital Market have a quorum requirement that in no
case be less than 33 1/3% of the outstanding shares of the companys common
voting stock. However, our articles of association, consistent with the Israeli
Companies Law, provide that the quorum requirements for an adjourned meeting
are the presence of a minimum of two shareholders present in person. Our quorum
requirements for an adjourned meeting do not comply with the NASDAQ
requirements and we instead follow our home country practice.

As a
foreign private issuer listed on the NASDAQ Capital Market, we may also follow
home country practice with regard to, among other things, distribution of
annual and quarterly reports to shareholders, approval of related party
transactions, composition of the board of directors, approval of compensation
of executive officers, director nomination process and regularly scheduled
meetings at which only independent directors are present. In addition, we may
follow our home country practice, instead of the NASDAQ Marketplace Rules,
which require that we obtain shareholder approval for certain dilutive events,
such as for the establishment or amendment of certain equity based compensation
plans, an issuance that will result in a change of control of the company,
certain transactions other than a public offering involving issuances of a 20%
or more interest in the company and certain acquisitions of the stock or assets
of another company. Under NASDAQ
Marketplace Rules, U.S. domestic issuers are required to solicit proxies,
provide proxy statements for all shareholder meetings and provide copies of
such proxy materials to NASDAQ; however, as a foreign private issuer, we are
generally exempt from the SECs rules governing the solicitation of shareholder
proxies.

See Item 6
Directors, Senior Management and Employees  Board Practices and Item 10.B
Additional Information  NASDAQ Marketplace Rules and Home Country Practices
for a detailed description of the significant ways in which the registrants
corporate governance practices differ from those followed by U.S. companies
under the listing standards of the NASDAQ Capital Market.

110

---

---



PART
III

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

Not Applicable.

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

The
Financial Statements required by this item are found at the end of this Annual
Report, beginning on page F - 1.

|         |         
|-------- | --------
|ITEM 19. | EXHIBITS

|    |                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1 | Memorandum of Association
incorporated herein by reference to Exhibit 3.1 to the our Registration Statement on Form
F-1, filed with the Commission on June 10, 1994 (registration number 33-76576).                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                
|1.2 | Amended
 Articles of Association of the Registrant.                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                
|2.1 | Form of Convertible Debenture due September 18, 2010 of the Registrant.                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                
|4.1 | English
 translation of Hebrew language translation of Agreement between the Company,
 Matan Y. Communication Tracking Systems Ltd. and Amnon Duchovna-Naveh dated
 July 16, 2007, incorporated herein by reference to Exhibit 10.1 to the Registrants
 Registration Statement on Form F-3/A, filed with the Commissionon September
 24, 2007.
|    |                                                                                                                                                                                                                                                                                                                                                
|4.2 | Securities
 Purchase Agreement among the Company and the Investors as defined therein,
 dated April 2, 2007, incorporated herein by reference to Registrants Report of
 Foreign Issuer on Form 6-K, filed with the Commission on April 3, 2007.                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                
|4.3 | Registration
 Rights Agreement among the Company and the Investors as defined therein, dated
 April 2, 2007, incorporated herein by reference to Registrants Report of Foreign
 Issuer on Form 6-K, filed with the Commission on April 3, 2007.                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                
|4.4 | Form of
 Ordinary Share Purchase Warrant issued to the investor parties to the
 Securities Purchase Agreement, dated April 2, 2007, incorporated herein by reference
 to Registrants Report of Foreign Issuer on Form 6-K, filed with the
 Commission on April 3, 2007.                                                                       

111

---

---



|     |                                                                                                                                                                                                                                                                                           
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.5  | English
 Translation of Hebrew Language Order Form and Warrant issued in Israeli
 Private Placement in January 2007, incorporated herein by reference to Exhibit 4.5
 to Registrants Form 20F/A, filed with the Commission on July 31, 2007.                                             
|     |                                                                                                                                                                                                                                                                                           
|4.6  | Letter
 Agreement, by and among Pointer (Eden Telecom Group)
 Ltd. and Bank Hapoalim Ltd., dated November 16, 2004, incorporated herein by
 reference to Exhibit 4.18 to Registrants Form 20-F, filed with the
 Commission on June 30, 2005.                                             
|     |                                                                                                                                                                                                                                                                                           
|4.7  | Management Services Agreement, by and
among Shagrir Systems Ltd., Gandyr Investments Ltd., Egged Holdings Ltd. and other lenders
therein, dated November 16, 2004, incorporated herein by reference to Exhibit 4.13 to
Registrants Form 20-F, filed with the Commission on June 30, 2005.
|     |                                                                                                                                                                                                                                                                                           
|8.1  | A list of our subsidiaries.                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                           
|12.1 | Certification by Chief Executive Officer pursuant to section 302 of
 the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                           
|12.2 | Certification by Chief Financial Officer pursuant to section 302 of
 the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                           
|13.1 | Certification by Chief Executive Officer pursuant to 18 U.S.C.,
 Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
 2002.                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                           
|13.2 | Certification by the Chief Financial Officer pursuant to 18 U.S.C.,
 Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
 2002.                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                           
|14.1 | Consent of
 Kost, Forer, Gabbay & Kasierer Certified Public Accountants (Israel).                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                           
|14.2 | Consent of
 Grant Thornton Argentina S.C. Certified Public Accountants (Argentina).                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                           
|14.3 | Consent of
 Salles, Sainz  Grant Thornton, S.C. Certified Public Accountants (Mexico).                                                                                                                                                                                                   

112

---

---



SIGNATURE

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

|                            |     |                                     | 
|--------------------------- | --- | ----------------------------------- | 
|POINTER
 TELOCATION LIMITED |    
|                            |     |                                     | 
|                            | By: | /s/ Yossi
 Ben Shalom               | 
|                            |     |                                     | 
|                            |     | Yossi Ben
 Shalom                   | 
|                            |     | Chairman of
 the Board of Directors | 

March 31, 2009.

113

---

---



POINTER TELOCATION
LTD. AND ITS SUBSIDIARIES

CONSOLIDATED
FINANCIAL STATEMENTS

AS OF DECEMBER 31,
2008

IN U.S. DOLLARS

INDEX

|                                                         |               
|-------------------------------------------------------- | --------------
|                                                         | Page          
|                                                         |               
|                                                         |               
|Report of Independent Registered Public
 Accounting Firm | F - 2         
|                                                         |               
|Consolidated Balance Sheets                              | F - 3  F - 4 
|                                                         |               
|Consolidated Statements of Operations                    | F - 5         
|                                                         |               
|Statements of Changes in Shareholders
 Equity           | F - 6         
|                                                         |               
|Consolidated Statements of Cash Flows                    | F - 7  F - 8 
|                                                         |               
|Notes to Consolidated Financial Statements               | F - 9  F - 44

---

---



(ERNST & YOUNG LOGO)

REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of
Directors and Shareholders of

POINTER TELOCATION
LTD.

We have
audited the accompanying consolidated balance sheets of Pointer Telocation Ltd.
(the Company) and its subsidiaries as of December 31, 2008 and 2007 and the
related consolidated statements of operations, changes in shareholders equity
and cash flows for each of the three years in the period ended December 31,
2008. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of one subsidiary in
2008 and two subsidiaries in 2007 and 2006, whose financial statements reflect
total assets constituting 4% and 3.7% as of December 31, 2008 and 2007,
respectively, and total revenues constituting 4%, 6.5% and 5.2% of the related
consolidated totals for the years ended December 31, 2008, 2007 and 2006,
respectively. The financial statements of these companies were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as
it relates to amounts included for those subsidiaries, is based solely on the
reports of the other auditors.

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Companys internal control over financial reporting.
Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits and the reports of the other auditors provide a reasonable
basis for our opinion.

In our
opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2008 and 2007 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2008, in conformity with U.S. generally accepted accounting
principles.

|                 |                                  
|---------------- | ---------------------------------
|                 | /s/ Kost Forer Gabbay & Kasierer 
|Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER     
|March 31, 2009   | A Member of Ernst & Young
 Global

F - 2

---

---



[Grant Thornton Letterhead]

Grant Thornton Argentina
Av. Corrientes 327 piso 3°
C1043AAD - Buenos Aires
Argentina
T (54 11) 4105 0000

F (54 11) 4105 0100

| |                                       |                
| | ------------------------------------- | ---------------
| | E post@gtar.com.ar                   
| |                                       | www.gtar.com.ar
| | To the Shareholders of               
| | Pointer Localización y Asistencia S.A

REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying balance sheets of Pointer Localización
y Asistencia S.A. as of December 31, 2008 and 2007, and the related statements
of operations, changes in shareholders deficit, and cash flows for each of the
three years in the period ended December 31, 2008. These financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Bord (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not required
to have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Pointer
Localización y Asistencia S.A. as of December 31, 2008 and 2007 and the results
of its operations and cash flows for each of the three years in the period
ended December 31, 2008 in conformity with accounting principles generally
accepted in the United States of America.

/s/ GRANT THORNTON ARGENTINA S.C.
Buenos Aires, Argentina
March 30, 2009



---

---



[Salles, Sainz-Grant Thornton, S.C.
Letterhead]

Pointer  Recuperación de México,
S. A. de C. V.

Certified Public Accountants
Member of Grant Thornton International

Report of Independent
Registered Public Accounting Firm

Board of Directors and ShareholdersPointer Recuperación de México, S. A de C. V.

We have audited the accompanying balance sheets of Pointer Recuperación
de México, S.A de C.V. (based in Mexico) as of December 31, 2007 and 2006, and
therelated statements of operations, changes in shareholders equity and cash
flows, for each of the three years in the period ended December 31, 2007. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amount and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Pointer
Recuperación de México, S. A. de C.V. as of December 31, 2007 and 2006, and the
related statements of operations, changes in shareholders equity and cash
flows, for each of the three years in the period ended December 31, 2007, in
conformity with accounting principles generally accepted in the United States
of America.

SALLES, SAINZ  GRANT THORNTON, S.C.

Rogelio Avalos
Partner
Mexico City, MEXICO
January 25, 2008



---

---

|                                             
|---------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES
|                                             
|CONSOLIDATED BALANCE SHEETS                  
|                                             
|U.S. dollars in thousands                    

|                                                                                                                         |  |              |         |      |   |         | 
|------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------- | ---- | - | ------- | 
|                                                                                                                         |  | December 31, |        
|                                                                                                                         |  |              |        
|                                                                                                                         |  | 2008         |         | 2007 |  
|                                                                                                                         |  |              |         |      |  
|                                                                                                                         |  |              |         |      |   |         | 
|ASSETS                                                                                                                   |  |              |         |      |   |         | 
|                                                                                                                         |  |              |         |      |   |         | 
|CURRENT ASSETS:                                                                                                          |  |              |         |      |   |         | 
|Cash and cash equivalents                                                                                                |  | $            | 2,708   |      | $ | 1,200   | 
|Trade receivables (net of allowance for doubtful accounts of $604 and
 $321 at December 31, 2008 and 2007, respectively) |  |              | 13,509  |      |   | 11,756  | 
|Other accounts receivable and prepaid expenses (Note 3)                                                                  |  |              | 2,774   |      |   | 2,001   | 
|Inventories (Note 4)                                                                                                     |  |              | 3,999   |      |   | 2,657   | 
|                                                                                                                         |  |              |         |      |   |         | 
|                                                                                                                         |  |              |         |      |   |         | 
|Total current assets                                                                                                     |  |              | 22,990  |      |   | 17,614  | 
|                                                                                                                         |  |              |         |      |   |         | 
|                                                                                                                         |  |              |         |      |   |         | 
|LONG-TERM ASSETS:                                                                                                        |  |              |         |      |   |         | 
|Long-term accounts receivable                                                                                            |  |              | 339     |      |   | 337     | 
|Severance pay fund                                                                                                       |  |              | 4,925   |      |   | 4,866   | 
|Property and equipment, net (Note 5)                                                                                     |  |              | 7,998   |      |   | 7,708   | 
|Deferred income taxes                                                                                                    |  |              | 1,037   |      |   | 941     | 
|Other intangible assets, net (Note 6)                                                                                    |  |              | 14,894  |      |   | 18,058  | 
|Goodwill (Note 7)                                                                                                        |  |              | 50,416  |      |   | 50,712  | 
|                                                                                                                         |  |              |         |      |   |         | 
|                                                                                                                         |  |              |         |      |   |         | 
|Total long-term assets                                                                                                   |  |              | 79,609  |      |   | 82,622  | 
|                                                                                                                         |  |              |         |      |   |         | 
|                                                                                                                         |  |              |         |      |   |         | 
|Total assets                                                                                                             |  | $            | 102,599 |      | $ | 100,236 | 
|                                                                                                                         |  |              |         |      |   |         | 

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

F - 3

---

---



|                                                           
|-----------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES              
|                                                           
|CONSOLIDATED BALANCE SHEETS                                
|                                                           
|U.S. dollars in thousands (except share and per share data)

|                                                                                                                                                                 |  |              |         |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- | - | ------- | -
|                                                                                                                                                                 |  | December 31, |        
|                                                                                                                                                                 |  |              |        
|                                                                                                                                                                 |  | 2008         |         | 2007 |  
|                                                                                                                                                                 |  |              |         |      |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                             |  |              |         |      |   |         |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|CURRENT
 LIABILITIES:                                                                                                                                            |  |              |         |      |   |         |  
|Short-term bank credit and current
 maturities of long-term loans (Note 8)                                                                                       |  | $            | 7,849   |      | $ | 10,564  |  
|Trade payables                                                                                                                                                   |  |              | 8,613   |      |   | 8,001   |  
|Deferred revenues and customer advances                                                                                                                          |  |              | 8,701   |      |   | 8,253   |  
|Other accounts payable and accrued expenses
 (Note 9)                                                                                                            |  |              | 5,792   |      |   | 6,123   |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|Total
 current liabilities                                                                                                                                       |  |              | 30,955  |      |   | 32,941  |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|LONG-TERM
 LIABILITIES:                                                                                                                                          |  |              |         |      |   |         |  
|Long-term loans from banks (Note 10)                                                                                                                             |  |              | 20,520  |      |   | 18,460  |  
|Long-term loans from shareholders and others
 (Note 11)                                                                                                          |  |              | 3,305   |      |   | 5,767   |  
|Deferred revenues                                                                                                                                                |  |              | 257     |      |   | 89      |  
|Accrued severance pay                                                                                                                                            |  |              | 6,375   |      |   | 5,730   |  
|Convertible debentures (Note 12)                                                                                                                                 |  |              |        |      |   | 1,979   |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|                                                                                                                                                                 |  |              | 30,457  |      |   | 32,025  |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|MINORITY
 INTEREST                                                                                                                                               |  |              | 5,372   |      |   | 3,067   |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|SHAREHOLDERS
 EQUITY:                                                                                                                                           |  |              |         |      |   |         |  
|Share capital (Note 14) -                                                                                                                                        |  |              |         |      |   |         |  
|Ordinary shares of NIS 3 par value -                                                                                                                             |  |              |         |      |   |         |  
|Authorized: 8,000,000 shares at December 31, 2008 and 2007; Issued
 and outstanding: 4,752,931 and 4,612,875 shares at December 31, 2008 and
 2007, respectively |  |              | 3,266   |      |   | 3,139   |  
|Additional paid-in capital                                                                                                                                       |  |              | 118,015 |      |   | 116,910 |  
|Accumulated other comprehensive income                                                                                                                           |  |              | 1,773   |      |   | 1,766   |  
|Accumulated deficit                                                                                                                                              |  |              | (87,239 | )    |   | (89,612 | )
|                                                                                                                                                                 |  |              |         |      |   |         |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|Total
 shareholders equity                                                                                                                                      |  |              | 35,815  |      |   | 32,203  |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|                                                                                                                                                                 |  |              |         |      |   |         |  
|Total
 liabilities and shareholders equity                                                                                                                      |  | $            | 102,599 |      | $ | 100,236 |  
|                                                                                                                                                                 |  |              |         |      |   |         |  

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

F - 4

---

---



|                                                 
|-------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES    
|                                                 
|CONSOLIDATED STATEMENTS OF OPERATIONS            
|                                                 
|U.S. dollars in thousands (except per share data)

|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|-------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ | - | - | ------ | -
|                                                                                 |  | Year ended December 31, |       
|                                                                                 |  |                         |       
|                                                                                 |  | 2008                    |        | 2007 |   | 2006   |  
|                                                                                 |  |                         |        |      |   |        |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|Revenues
 (Note 18b):                                                            |  |                         |        |      |   |        |   |   |        |  
|Products                                                                         |  | $                       | 30,645 |      | $ | 15,821 |   | $ | 9,701  |  
|Services                                                                         |  |                         | 46,010 |      |   | 35,806 |   |   | 32,211 |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|Total
 revenues                                                                  |  |                         | 76,655 |      |   | 51,627 |   |   | 41,912 |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|Cost of
 revenues:                                                               |  |                         |        |      |   |        |   |   |        |  
|Products                                                                         |  |                         | 16,392 |      |   | 9,414  |   |   | 5,602  |  
|Services                                                                         |  |                         | 29,869 |      |   | 23,034 |   |   | 20,786 |  
|Amortization of intangible assets                                                |  |                         | 980    |      |   | 277    |   |   |       |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|Total
 cost of revenues                                                          |  |                         | 47,241 |      |   | 32,725 |   |   | 26,388 |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|Gross profit                                                                     |  |                         | 29,414 |      |   | 18,902 |   |   | 15,524 |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|Operating
 expenses:                                                             |  |                         |        |      |   |        |   |   |        |  
|Research and development                                                         |  |                         | 2,511  |      |   | 1,675  |   |   | 1,170  |  
|Selling and marketing                                                            |  |                         | 6,934  |      |   | 4,934  |   |   | 3,927  |  
|General and administrative                                                       |  |                         | 8,311  |      |   | 6,209  |   |   | 4,749  |  
|Amortization of intangible assets and
 impairment of long-lived assets (Note 5c) |  |                         | 2,365  |      |   | 1,877  |   |   | 2,112  |  
|Other income, net (Note 1g)                                                      |  |                         |       |      |   |       |   |   | (1,292 | )
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|Total
 operating expenses                                                        |  |                         | 20,121 |      |   | 14,695 |   |   | 10,666 |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|Operating
 income                                                                |  |                         | 9,293  |      |   | 4,207  |   |   | 4,858  |  
|Financial
 expenses, net (Note 19a)                                              |  |                         | 4,054  |      |   | 2,814  |   |   | 2,577  |  
|Other
 expenses (income), net (Note 19b)                                         |  |                         | (22    | )    |   | 12     |   |   | (14    | )
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|Income
 before taxes on income                                                   |  |                         | 5,261  |      |   | 1,381  |   |   | 2,295  |  
|Taxes on
 income                                                                 |  |                         | 640    |      |   | 353    |   |   | 82     |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|Income
 before minority interest                                                 |  |                         | 4,621  |      |   | 1,028  |   |   | 2,213  |  
|Minority
 interest in earnings of subsidiaries                                   |  |                         | 2,248  |      |   | 1,366  |   |   | 1,044  |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|Net income
 (loss)                                                               |  | $                       | 2,373  |      | $ | (338   | ) | $ | 1,169  |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|Basic net
 earnings (loss) per share (Note 15)                                   |  | $                       | 0.51   |      | $ | (0.08  | ) | $ | 0.39   |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  
|Diluted net
 earnings (loss) per share (Note 15)                                 |  | $                       | 0.50   |      | $ | (0.08  | ) | $ | 0.31   |  
|                                                                                 |  |                         |        |      |   |        |   |   |        |  

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

F - 5

---

---



|                                             
|---------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES
|                                             
|STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
|                                             
|U.S. dollars in thousands (except share data)

|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|------------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | -------------- | - | ---------------------------- |  | ----------------------------------- | ------- | ------------------------------- | - | ------------------------------------------------ | - | -------------------- | ------ | ------------------------------------ | - | ---------------------------- | - | - | ------- | - | - | ----- | - | - | ------ | -
|                                                                                                              |  | Number
 of
 shares |           | Share
 capital |   | Additional
 paid-in
 capital |  | Deferred
 stock-based
 compensation |         | Receipts
 on account
 of shares |   | Accumulated
 other
 comprehensive
 income (loss) |   | Accumulated
 deficit |        | Total
 comprehensive
 income
 (loss) |   | Total
 shareholders
 equity |  
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |  
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|Balance as of January 1, 2006                                                                                 |  |                    | 2,479,020 |                | $ | 1,680                        |  | $                                   | 100,707 |                                 | $ | (1                                               | ) | $                    |       |                                      | $ | (1,138                       | ) | $ | (90,443 | ) |   |       |   | $ | 10,805 |  
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|Reclassification of deferred stock compensation into additional
 paid-in capital upon adoption of SFAS 123(R) |  |                    |          |                |   |                             |  |                                     | (1      | )                               |   | 1                                                |   |                      |       |                                      |   |                             |   |   |        |   |   |       |   |   |       |  
|Stock-based compensation expenses                                                                             |  |                    |          |                |   |                             |  |                                     | 153     |                                 |   |                                                 |   |                      |       |                                      |   |                             |   |   |        |   |   |       |   |   | 153    |  
|Exercise of warrants and stock options                                                                        |  |                    | 743,855   |                |   | 460                          |  |                                     | 3,021   |                                 |   |                                                 |   |                      |       |                                      |   |                             |   |   |        |   |   |       |   |   | 3,481  |  
|Receipts on account of shares                                                                                 |  |                    |          |                |   |                             |  |                                     |        |                                 |   |                                                 |   |                      | 2,586  |                                      |   |                             |   |   |        |   |   |       |   |   | 2,586  |  
|Comprehensive income:                                                                                         |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|Foreign currency translation adjustments                                                                      |  |                    |          |                |   |                             |  |                                     |        |                                 |   |                                                 |   |                      |       |                                      |   | 1,236                        |   |   |        |   | $ | 1,236 |   |   | 1,236  |  
|Net income                                                                                                    |  |                    |          |                |   |                             |  |                                     |        |                                 |   |                                                 |   |                      |       |                                      |   |                             |   |   | 1,169   |   |   | 1,169 |   |   | 1,169  |  
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|Total comprehensive income                                                                                    |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   | $ | 2,405 |   |   |        |  
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|Balance as of December 31, 2006                                                                               |  |                    | 3,222,875 |                |   | 2,140                        |  |                                     | 103,880 |                                 |   |                                                 |   |                      | 2,586  |                                      |   | 98                           |   |   | (89,274 | ) |   |       |   |   | 19,430 |  
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|Issuance of shares (net of issuance costs)                                                                    |  |                    | 1,390,000 |                |   | 999                          |  |                                     | 10,019  |                                 |   |                                                 |   |                      |       |                                      |   |                             |   |   |        |   |   |       |   |   | 11,018 |  
|Stock-based compensation expenses                                                                             |  |                    |          |                |   |                             |  |                                     | 425     |                                 |   |                                                 |   |                      |       |                                      |   |                             |   |   |        |   |   |       |   |   | 425    |  
|Receipts on account of shares                                                                                 |  |                    |          |                |   |                             |  |                                     | 2,586   |                                 |   |                                                 |   |                      | (2,586 | )                                    |   |                             |   |   |        |   |   |       |   |   |       |  
|Comprehensive income:                                                                                         |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|Foreign currency translation adjustments                                                                      |  |                    |          |                |   |                             |  |                                     |        |                                 |   |                                                 |   |                      |       |                                      |   | 1,668                        |   |   |        |   | $ | 1,668 |   |   | 1,668  |  
|Net loss                                                                                                      |  |                    |          |                |   |                             |  |                                     |        |                                 |   |                                                 |   |                      |       |                                      |   |                             |   |   | (338    | ) |   | (338  | ) |   | (338   | )
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|Total comprehensive income                                                                                    |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   | $ | 1,330 |   |   |        |  
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|Balance as of December 31, 2007                                                                               |  |                    | 4,612,875 |                |   | 3,139                        |  |                                     | 116,910 |                                 |   |                                                 |   |                      |       |                                      |   | 1,766                        |   |   | (89,612 | ) |   |       |   |   | 32,203 |  
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|Issuance of shares                                                                                            |  |                    | 140,056   |                |   | 127                          |  |                                     | 873     |                                 |   |                                                 |   |                      |       |                                      |   |                             |   |   |        |   |   |       |   |   | 1,000  |  
|Stock-based compensation expenses                                                                             |  |                    |           |                |   |                             |  |                                     | 232     |                                 |   |                                                 |   |                      |       |                                      |   |                             |   |   |        |   |   |       |   |   | 232    |  
|Comprehensive income:                                                                                         |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|Foreign currency translation adjustments                                                                      |  |                    |           |                |   |                             |  |                                     |        |                                 |   |                                                 |   |                      |       |                                      |   | (71                          | ) |   |        |   | $ | (71   | ) |   | (71    | )
|designated Unrealized gains on derivatives as cash flow hedges                                                |  |                    |           |                |   |                             |  |                                     |        |                                 |   |                                                 |   |                      |       |                                      |   | 78                           |   |   |        |   |   | 78    |   |   | 78     |  
|Net Income                                                                                                    |  |                    |           |                |   |                             |  |                                     |        |                                 |   |                                                 |   |                      |       |                                      |   |                             |   |   | 2,373   |   |   |       |   |   | 2,373  |  
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|Total comprehensive income                                                                                    |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   | $ | 7     |   |   |        |  
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  
|Balance as of December 31, 2008                                                                               |  |                    | 4,752,931 |                | $ | 3,266                        |  | $                                   | 118,015 |                                 | $ |                                                 |   | $                    |       |                                      | $ | 1,773                        |   | $ | (87,239 | ) |   |       |   | $ | 35,815 |  
|                                                                                                              |  |                    |           |                |   |                              |  |                                     |         |                                 |   |                                                  |   |                      |        |                                      |   |                              |   |   |         |   |   |       |   |   |        |  

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

F - 6

---

---



|                                             
|---------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES
|                                             
|CONSOLIDATED STATEMENTS OF CASH FLOWS        
|                                             
|U.S. dollars in thousands                    

|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|-------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- | - | ------- | - | - | ------ | -
|                                                                                                   |  | Year ended December 31, |        
|                                                                                                   |  |                         |        
|                                                                                                   |  | 2008                    |         | 2007 |   | 2006    |  
|                                                                                                   |  |                         |         |      |   |         |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|Cash flows from operating
 activities:                                                             |  |                         |         |      |   |         |   |   |        |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|Net income (loss)                                                                                  |  | $                       | 2,373   |      | $ | (338    | ) | $ | 1,169  |  
|Adjustments required to reconcile net income (loss) to net cash
 provided by operating activities: |  |                         |         |      |   |         |   |   |        |  
|Depreciation, amortization and impairment                                                          |  |                         | 6,918   |      |   | 5,273   |   |   | 4,490  |  
|Accrued interest and exchange rate changes of convertible debenture
 and long-term loans           |  |                         | 1,187   |      |   | 750     |   |   | 137    |  
|Accrued severance pay, net                                                                         |  |                         | 619     |      |   | (70     | ) |   | (166   | )
|Gain from sale of property and equipment, net                                                      |  |                         | (36     | )    |   | (182    | ) |   | (563   | )
|Stock-based compensation                                                                           |  |                         | 350     |      |   | 783     |   |   | 251    |  
|Minority interest in earnings of subsidiary                                                        |  |                         | 2,248   |      |   | 1,366   |   |   | 1,044  |  
|Increase in trade receivables, net                                                                 |  |                         | (1,773  | )    |   | (1,172  | ) |   | (1,167 | )
|Increase in other accounts receivable and prepaid expenses                                         |  |                         | (6      | )    |   | (421    | ) |   | (36    | )
|Increase in inventories                                                                            |  |                         | (2,088  | )    |   | (395    | ) |   | (490   | )
|Write-off of inventories                                                                           |  |                         | 112     |      |   | 150     |   |   | 127    |  
|Deferred income taxes                                                                              |  |                         | (178    | )    |   | (174    | ) |   | (99    | )
|Decrease (increase) in long-term accounts receivable                                               |  |                         | 23      |      |   | (141    | ) |   | 60     |  
|Increase in trade payables                                                                         |  |                         | 888     |      |   | 730     |   |   | 1,049  |  
|Increase (decrease) in other accounts payable and accrued expenses                                 |  |                         | 379     |      |   | 1,855   |   |   | (400   | )
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|Net cash provided by
 operating activities                                                         |  |                         | 11,016  |      |   | 8,014   |   |   | 5,406  |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|Cash flows from investing
 activities:                                                             |  |                         |         |      |   |         |   |   |        |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|Increase in other accounts receivable                                                              |  |                         | (357    | )    |   |        |   |   |       |  
|Purchase of property and equipment                                                                 |  |                         | (3,476  | )    |   | (2,638  | ) |   | (2,277 | )
|Proceeds from sale of property and equipment                                                       |  |                         | 605     |      |   | 860     |   |   | 1,026  |  
|Acquisition of Cellocator (a)                                                                      |  |                         |        |      |   | (16,571 | ) |   |       |  
|Acquisition of other intangible assets                                                             |  |                         |        |      |   | (117    | ) |   |       |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|Net cash used in investing
 activities                                                             |  |                         | (3,228  | )    |   | (18,466 | ) |   | (1,251 | )
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|Cash flows from financing
 activities:                                                             |  |                         |         |      |   |         |   |   |        |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|Receipt of long-term loans from banks                                                              |  |                         | 9,064   |      |   | 5,000   |   |   | 2,243  |  
|Repayment of long-term loans from banks                                                            |  |                         | (4,930  | )    |   | (4,347  | ) |   | (2,949 | )
|Receipt of long-term loans from shareholders and others                                            |  |                         |        |      |   |        |   |   | 131    |  
|Repayment of long-term loans from others                                                           |  |                         | (10,201 | )    |   | (2,767  | ) |   | (4,529 | )
|Proceeds from issuance of shares and exercise of warrants, net                                     |  |                         | 1,000   |      |   | 9,588   |   |   | 3,481  |  
|Receipts on account of shares                                                                      |  |                         |        |      |   |        |   |   | 2,586  |  
|Short-term bank credit, net                                                                        |  |                         | (970    | )    |   | (1,752  | ) |   | (973   | )
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|Net cash provided by (used
 in) financing activities                                               |  |                         | (6,037  | )    |   | 5,722   |   |   | (10    | )
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|Effect of exchange rate
 changes on cash and cash equivalents                                      |  |                         | (243    | )    |   | 80      |   |   | 9      |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|Increase (decrease) in cash
 and cash equivalents                                                  |  |                         | 1,508   |      |   | (4,650  | ) |   | 4,154  |  
|Cash and cash equivalents
 at the beginning of the year                                            |  |                         | 1,200   |      |   | 5,850   |   |   | 1,696  |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  
|Cash and cash equivalents
 at the end of the year                                                  |  | $                       | 2,708   |      | $ | 1,200   |   | $ | 5,850  |  
|                                                                                                   |  |                         |         |      |   |         |   |   |        |  

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

F - 7

---

---



|                                             
|---------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES
|                                             
|CONSOLIDATED STATEMENTS OF CASH FLOWS        
|                                             
|U.S. dollars in thousands                    

|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|--- | ------------------------------------------------------------------------------ |  | ----------------------- | ----- | ---- | - | ------- | - | - | ----- | 
|    |                                                                                |  | Year ended December 31, |      
|    |                                                                                |  |                         |      
|    |                                                                                |  | 2008                    |       | 2007 |   | 2006    |  
|    |                                                                                |  |                         |       |      |   |         |  
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|(a) | Acquisition
 of Cellocator and Matan activities:                               |  |                         |       |      |   |         |   |   |       | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|    | Fair
 value of assets acquired and liabilities assumed at date of acquisition: |  |                         |       |      |   |         |   |   |       | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|    | Working
 capital                                                               |  | $                       |      |      | $ | (1,323  | ) | $ |      | 
|    | Property
 and equipment                                                        |  |                         |      |      |   | (151    | ) |   |      | 
|    | Customer
 related intangibles                                                  |  |                         |      |      |   | (3,943  | ) |   |      | 
|    | Brand
 name                                                                    |  |                         |      |      |   | (1,775  | ) |   |      | 
|    | Developed
 technology                                                          |  |                         |      |      |   | (4,890  | ) |   |       | 
|    | Goodwill                                                                       |  |                         |      |      |   | (8,750  | ) |   |      | 
|    | Accrued
 severance pay, net                                                    |  |                         |      |      |   | 20      |   |   |       | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|    |                                                                                |  |                         |      |      |   | (20,812 | ) |   |      | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|    | Fair value of shares issued                                                    |  |                         |      |      |   | 1,430   |   |   |       | 
|    | Fair value of convertible debentures                                           |  |                         |      |      |   | 1,951   |   |   |       | 
|    | Accrued expenses                                                               |  |                         |      |      |   | 860     |   |   |      | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|    |                                                                                |  |                         |      |      |   | 4,241   |   |   |       | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|    |                                                                                |  | $                       |      |      | $ | (16,571 | ) | $ |      | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|(b) | Supplemental
 disclosure of cash flow activity:                                |  |                         |       |      |   |         |   |   |       | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 
|    | Cash
 paid during the period for interest                                      |  | $                       | 2,504 |      | $ | 1,750   |   | $ | 2,549 | 
|    |                                                                                |  |                         |       |      |   |         |   |   |       | 

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

F - 8

---

---



|                                                           
|-----------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES              
|                                                           
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|         |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------- | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1:- | GENERAL
|         |        
|         | a.      | Pointer
 Telocation Ltd., (the Company) was incorporated in Israel and commenced
 operations in July 1991. The Company provides a range of services and
 products to insurance
 companies and automobile owners, including road-side assistance, vehicle
 towing, stolen vehicle retrieval, fleet management location based and other
 value added services. We also develop, manufacture, market and sell products
 relating to these types of services (other than road side assistance) to
 independent operators, including cellular monitoring units, fleet management
 software and mobile resource management software used for fleet command and
 control centers. The Company provides services, for the most part, in Israel,
 Argentina and Mexico, through its local subsidiaries. Independent operators
 provide similar services in Latin America, Europe and other countries
 utilizing the Companys technology and operational know-how. The Companys
 shares are traded on the NASDAQ Capital Market and the Tel-Aviv Stock
 Exchange.
|         |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | b.      | On September 18, 2007, the Company
 completed the acquisition of all of the assets and assumed substantially all
 of the liabilities and operations of Cellocator Ltd and Matan Y.
 Communication and Tracking Systems (2007 acquisition transaction)
 which were engaged in selling automatic vehicle location products. The
 consideration for the acquisition consisted of (i) $16.7 million in cash (ii)
 160,000 Ordinary shares of the Company; and (iii) a non-tradable debenture
 with a fair value of $1,951 convertible into 160,000 of the Company Ordinary
 shares (see Note 12).                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |         | In respect of the acquisition, the Company
 entered into $5,000 loan agreement with Bank Hapoalim B.M. (See Note 10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |         | The consideration is comprised of the
 following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                     |  |   |        | 
|------------------------------------ |  | - | ------ | 
|Cash                                 |  | $ | 16,731 | 
|Issuance of shares                   |  |   | 1,430  | 
|Issuance of Convertible debenture    |  |   | 1,951  | 
|Transactions costs                   |  |   | 700    | 
|                                     |  |   |        | 
|                                     |  |   |        | 
|Total consideration  purchase price |  | $ | 20,812 | 
|                                     |  |   |        | 

| |  |                                                                                                                                                                                                                                                                                                                                                            
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The acquisition was accounted under the
 purchase method of accounting as determined by Statement of Financial
 Accounting Standards (SAFS) No. 141, Business Combinations (SFAS No.
 141) and, accordingly, the purchase price was allocated to the assets
 acquired and liabilities assumed based on their fair values at the date of
 acquisition.
| |  |                                                                                                                                                                                                                                                                                                                                                            
| |  | Based upon a valuation of tangible and
 intangible assets acquired and liabilities assumed, the Company allocated the
 total cost of the acquisition, as follows:                                                                                                                                                                                          

F - 9

---

---



|                                                           
|-----------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES              
|                                                           
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

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

|                              |  |                            |        |  
|----------------------------- |  | -------------------------- | ------ | -
|                              |  | U.S.
 dollars
 in thousand |       
|                              |  |                            |       
|                              |  |                            |        |  
|Working
 capital              |  | $                          | 1,323  |  
|Property and
 equipment       |  |                            | 151    |  
|Customers
 related intangible |  |                            | 3,943  |  
|Brand name                    |  |                            | 1,775  |  
|Developed
 technology         |  |                            | 4,890  |  
|Goodwill                      |  |                            | 8,750  |  
|Accrued
 severance pay, net   |  |                            | (20    | )
|                              |  |                            |        |  
|                              |  |                            |        |  
|                              |  |                            | 20,812 |  
|                              |  |                            |        |  

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | For
 estimated amortization expenses related to intangible assets, see Note 6c.                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | For
 estimated amortization periods related to intangible assets, see Note 2g.                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | As of
 December 31, 2008, the Company had tax deductible goodwill of $7,627.                                                                                                                                                                                                                                                                                                                                                                              
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | The
 unaudited pro forma information below assumes that the 2007 acquisition
 transaction had been consummated on January 1, 2007 and 2006 and includes the
 effect of amortization of intangible assets from those dates. This data is
 presented for information purposes only and is not necessarily indicative of
 the results that would have been achieved had the acquisition taken place on
 those dates. The pro forma information is as follows:

|                                |  |                         |        |      |   |        | 
|------------------------------- |  | ----------------------- | ------ | ---- | - | ------ | 
|                                |  | Year ended December 31, |       
|                                |  |                         |       
|                                |  | 2007                    |        | 2006 |  
|                                |  |                         |        |      |  
|                                |  | Unaudited               |       
|                                |  |                         |       
|                                |  |                         |        |      |   |        | 
|Net revenues                    |  | $                       | 62,615 |      | $ | 50,006 | 
|                                |  |                         |        |      |   |        | 
|                                |  |                         |        |      |   |        | 
|Net income                      |  | $                       | 1,876  |      | $ | 2,018  | 
|                                |  |                         |        |      |   |        | 
|                                |  |                         |        |      |   |        | 
|Basic net
 earnings per share   |  | $                       | 0.43   |      | $ | 0.64   | 
|                                |  |                         |        |      |   |        | 
|                                |  |                         |        |      |   |        | 
|Diluted net
 earnings per share |  | $                       | 0.43   |      | $ | 0.57   | 
|                                |  |                         |        |      |   |        | 

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | On February
 28, 2005, the Company announced the closing of the transaction for the
 purchase of the activities, the assets and liabilities of Shagrir Towing
 Services Ltd. and ADACH (Shagrir transaction) by the Companys subsidiary
 Shagrir Systems Ltd, formerly Shagrir Motor Vehicle Systems (Shagrir ) in
 consideration of approximately $44,000. Shagrir funded the Shagrir
 transaction through financing from Shagrir towing services (the seller), a
 group of investors led by Gandyr investment LTT (Gandyr group) and Egged
 holding LTD (Egged) and the Company (See Note 11 d1 and d2). Shagrir Towing
 Services Ltd. was engaged in the field of road side assistance and towing
 services in Israel. As of December 31, 2008 the Company holds 56.56% of
 Shagrirs shares.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | d. | In June
 2008, Shagrir, together with a Romanian citizen (Romanian Shareholder),
 established a company named Pointer Systems SRL (Pointer Romania)
 incorporated in Romania to operate in the business of road side assistance
 services. Each of the shareholders holds 50% of the issued share capital of
 Pointer Romania. Shagrir has a call option that grants it an extra 1% of
 Pointer Romanias issued share capital from the Romanian Shareholder (See
 Note 2c).                                                                                                                                                                                                                                                                                                                           

F - 10

---

---



|                                                           
|-----------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES              
|                                                           
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|         |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------- | --------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1:- | GENERAL (Cont.)
|         |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         | e.              | The Company
 holds 88% of Pointer Localization Y Asistencia SAs (formerly: Tracsat S.A.)
 (Pointer Argentina) share capital. Pointer Argentina is the operator of the
 Companys systems and products that provides stolen vehicle recovery services
 in Buenos Aires, Argentina.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                 | In March 2007, the Company executed a
 Memorandum of Understanding, or MOU, with a leading provider of road side
 assistance in Argentina, the Argentinean Provider, to cooperate in offering
 location based services and stolen vehicle retrieval services in
 Argentina. In June 2008 the Company
 allocated 5% of the shares in Pointer Argentina, to the Argentinean Provider. Both sides have an option to repurchase or
 return the 5% shares until March 1, 2010 for the higher of an agreed amount
 or a formula based on the EBITDA of Pointer Argentina. The closing of the transaction
 referenced in the MOU is subject to the success of the Argentinean Provider
 in reaching an agreement with a leading automotive manufacturer in Argentina
 and other factors. As of December 31,
 2008, the closing had not yet taken place.
|         |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         | f.              | On June 17,
 2004, the Company incorporated a local Mexican operator and service provider,
 Pointer Recuperacion de Mexico S.A. de C.V. (Pointer Mexico), jointly held
 by the Company and its Mexican local partners.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                 | As of
 December 31, 2008 the Company and its Mexican local partners hold 74% and 26%
 of Pointer Mexico, respectively. Pointer Mexico provides location, tracking
 and recovery of stolen vehicles services to its customers in Mexico.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         | g.              | On May 26,
 2006, the Company entered into a settlement with respect to a past claim
 against a Latin American customer, pursuant to which the Company received a
 net amount of approximately $1,292.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         | h.              | On January 8, 2008, the Company entered
 into a loan agreement with a Hungarian automotive service provider
 (Hungarian entity), pursuant to which the Company loaned them 290,000 Euros
 (approximately $450). According to the agreement, the Hungarian entity is
 obligated to return only 240,000 Euros. Repayment has commenced as provided
 in the agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         | i.              | In August and October
 2008, the Company established two subsidiaries. One in Brazil, Cellocator
 Comercial S.A., 60% hold by the Company and one in the United States, Pointer
 Telocation Inc., wholly hold by the Company. Currently, both subsidiaries
 have no significant operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F - 11

---

---



|                                                           
|-----------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS SUBSIDIARIES               
|                                                           
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|         |                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                         
|         |                                                                                                                                                         
|         | The
 consolidated financial statements have been prepared in accordance with accounting
 principles generally accepted in the United States (US GAAP).
|         |                                                                                                                                                         
|         | a.                                                                                                                                                       | Use of
 estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         |                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                                                                                                                                          | The
 preparation of financial statements in conformity with generally accepted
 accounting principles requires management to make estimates and assumptions
 that affect the amounts reported in the financial statements and accompanying
 notes. Actual results could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         | b.                                                                                                                                                       | Financial
 statements in U.S. dollars:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                                                                                                                                          | The majority
 of the Companys revenues is generated in or linked to U.S. dollars
 (dollar). In addition, a substantial portion of the Companys costs is
 incurred in dollars. The Companys management believes that the dollar is the
 currency of the primary economic environment in which the Company operates.
 Thus, the functional and reporting currency of the Company is the dollar.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         |                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                                                                                                                                          | For Pointer Argentina, whose functional currency has been determined
 to be its local currency, the Argentinean peso, for Pointer
 Mexico, whose functional currency has
 been determined to be its local currency, the Mexican peso, for Shagrir, whose functional currency has been
 determined to be its local currency, the new Israeli shekel (NIS), and for
 Pointer Romania, whose functional currency has been determined to be its
 local currency, the euro. Assets and liabilities are translated at year-end
 exchange rates and statement of operations items are translated at average
 exchange rates prevailing during the year. Such translation adjustments are
 recorded as a separate component, other comprehensive income (loss), in
 shareholders equity (deficiency).                                                                                                                                                                                      
|         |                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         | c.                                                                                                                                                       | Principles
 of consolidation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                                                                                                                                          | The
 consolidated financial statements include the accounts of the Company and its
 subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         |                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                                                                                                                                          | Intercompany
 transactions and balances including profits from intercompany sales not yet
 realized outside the Company, have been eliminated upon consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         |                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                                                                                                                                          | The Company
 applied FASB Interpretation No. 46 (revised December 2003 FIN 46R),
 Consolidation of Variable Interest Entities (VIE), which addresses how a
 business enterprise should evaluate whether it has a controlling financial
 interest in an entity through means other than voting rights and accordingly
 should consolidate the entity. For any VIE that must be consolidated under
 FIN 46R, the interpretation generally requires the primary beneficiary
 initially to measure the assets, liabilities and non-controlling interests of
 the newly consolidated VIE at their fair values at the date the enterprise
 first becomes the primary beneficiary. The Company has consolidated its
 Pointer Romania, subsidiary of Shagrir, based on FIN 46R guidance. Shagrir is
 in a position to absorb the majority of the VIEs expected losses and
 residual returns, thus making Shagrir the primary beneficiary and in position
 to consolidate Pointer Romania.
|        
|         |                                                                                                                                                          | The effect
 on the consolidated balance sheet including this VIE as of December 31, 2008
 is not material.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F - 12

---

---



|                                                           
|-----------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES              
|                                                           
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------- | --------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         | d.                                      | Cash
 equivalents:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                                         | Cash
 equivalents are short-term highly liquid investments that are readily
 convertible to cash with original maturities of three months or less at the
 date acquired.                                                                                                                                                                                                                                                                                                                                                                          
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         | e.                                      | Inventories:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                                         | Inventories
 are stated at the lower of cost or market value. Cost is determined using the
 moving average method. Inventory consists of raw materials, work in process
 and finished products. Inventory write-offs are provided to cover risks
 arising from slow-moving items, technological obsolescence, excess
 inventories, and for market prices lower than cost. In 2008, 2007 and 2006,
 the Company and its subsidiaries wrote off approximately $112, $150 and $127,
 respectively. The write-offs are included in cost of revenues.
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         | f.                                      | Property and
 equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                                         | Property and equipment are stated at cost, net of accumulated
 depreciation. Depreciation is calculated by the straight-line method over the
 estimated useful lives of the assets at the following annual rates:                                                                                                                                                                                                                                                                                                                                 

|                                    |  |                                                     
|----------------------------------- |  | ----------------------------------------------------
|                                    |  | %                                                   
|                                    |  |                                                     
|                                    |  |                                                     
|Installed
 products                 |  | 20-33                                               
|Computers
 and electronic equipment |  | 10 - 33 (mainly 33)                                 
|Office
 furniture and equipment     |  | 6 - 15                                              
|Motor
 vehicles                     |  | 15 - 20 (mainly 20)                                 
|Network
 installation               |  | 10 - 33                                             
|Buildings                           |  | 6.67                                                
|Leasehold
 improvements             |  | Over the term of the lease including the option term

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | g. | Goodwill and
 other intangible assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | Goodwill
 reflects the excess of the purchase price of the acquired business over the
 fair value of net assets acquired. Pursuant to SFAS 142, Goodwill and Other
 Intangible Assets, goodwill is not amortized but rather tested for
 impairment at least annually.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | The Company
 compares the fair value of each reporting unit to its carrying value,
 including goodwill. The Company estimates the fair value of each reporting
 unit by estimating the present value of the reporting units discounted cash
 flows. The discounted cash flow calculations use projections that are based on
 managements estimations. If the fair value exceeds the carrying value, no
 impairment loss is recognized. The Company evaluates the reasonableness of
 the fair value calculations of its reporting units by reconciling the total
 of the fair values of all of its reporting units to the total market
 capitalization, and adjusting for an appropriate control premium. If the
 carrying value exceeds the fair value, the goodwill of the reporting unit is
 considered potentially impaired and the second step is completed in order to
 measure the impairment loss. Under the second step goodwill is reduced to its
 implied fair value through an adjustment to the goodwill balance, resulting
 in an impairment charge.

F - 13

---

---



|                                                           
|-----------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES              
|                                                           
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------- | --------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | No
 impairment losses were identified in 2008, 2007 or 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | During 2008
 and 2007, the Company reduced the goodwill at the amount of $805 and $532,
 respectively due to the realization of tax loss carryforward of subsidiary,
 that at the date of acquisition of the subsidiary were not
 more-likely-than-not to be realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | Intangible assets
 consist of a brand name, customers related intangible, developed technology
 and acquired patents. Intangible assets are amortized over their useful life
 using a method of amortization that reflects the pattern in which the
 economic benefits of the intangible assets are consumed or otherwise used up.
 Intangible assets are stated at amortized cost.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | The brand
 names are amortized over a two to nine years period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | The
 Customers related intangibles are amortized over a five to nine years period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | The
 developed technology is amortized over a five-year period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | Patents are
 amortized over an eight-year period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | h.                                      | Impairment
 of long-lived assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | The
 Companys long-lived assets other than goodwill are reviewed for impairment
 in accordance with SFAS No. 144, Accounting for the Impairment or
 Disposal of Long-Lived Assets (SFAS No. 144) whenever events or
 changes in circumstances indicate that the carrying amount of an asset may
 not be recoverable. Recoverability of assets to be held and used is measured
 by a comparison of the carrying amount of the assets to the future
 undiscounted cash flows expected to be generated by the assets. If such
 assets are considered to be impaired, the impairment to be recognized is
 measured by the amount by which the carrying amount of the assets exceeds the
 fair value of the assets. Assets to be disposed of are reported at the lower
 of the carrying amount or fair value less costs to sell.
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | During the
 years ended December 31, 2007 and 2006, an impairment loss of $36 and $372
 respectably has been recognized (see Note 5c). No impairment loss has been
 identified as of December 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | i.                                      | Provision
 for warranty:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | The Company
 and its subsidiaries generally grant a one-year to three-year warranty for
 their products. The Company and its subsidiaries estimate the costs that may
 be incurred under its basic limited warranty and records a liability in the
 amount of such costs at the time which product revenue is recognized. Factors
 that affect the warranty liability include the number of installed units,
 historical and anticipated rates of warranty claims and cost per claim. The
 Company and its subsidiaries periodically assess the adequacy of its recorded
 warranty liabilities and adjust the amounts as necessary. Changes in the
 Companys and its subsidiaries product liabilities during 2008 and 2007 are
 as follows:                                                                                   

|                                        |  |                          |      |      |   |      |  
|--------------------------------------- |  | ------------------------ | ---- | ---- | - | ---- | -
|                                        |  | Year ended
 December 31, |     
|                                        |  |                          |     
|                                        |  | 2008                     |      | 2007 |  
|                                        |  |                          |      |      |  
|                                        |  |                          |      |      |   |      |  
|Balance, beginning of the
 year         |  | $                        | 411  |      | $ | 338  |  
|Acquisition of Cellocator activities    |  |                          |     |      |   | 85   |  
|Warranties issued during the year       |  |                          | 523  |      |   | 287  |  
|Settlements made during the year        |  |                          | (274 | )    |   | (192 | )
|Expirations                             |  |                          | (101 | )    |   | (125 | )
|Foreign currency translation adjustment |  |                          | (1   | )    |   | 18   |  
|                                        |  |                          |      |      |   |      |  
|Balance, end of year                    |  | $                        | 558  |      | $ | 411  |  
|                                        |  |                          |      |      |   |      |  

F - 14

---

---



|                                                           
|-----------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES              
|                                                           
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------- | --------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | j.                                      | Revenue recognition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | The Company
 and its subsidiaries generate revenues mainly from the provision of services,
 subscriber fees and sales of systems and products, mainly in respect of
 road-side assistance services, automobile repair and towing services, stolen
 vehicle recovery, fleet management and other value added services. To a
 lesser extent, revenues are also derived from technical support services.The Company and
 its subsidiaries sell the systems primarily through their direct sales force
 and indirectly through resellers. Sales consummated by the Companys sales
 forces and sales to resellers are considered sales to end-users.
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | Revenues
 from the sale of systems and products are recognized in accordance with Staff
 Accounting Bulletin (SAB) No. 104, Revenue Recognition (SAB No. 104),
 when delivery has occurred, persuasive evidence of an agreement exists, the
 vendors fee is fixed or determinable, no further obligation exists and
 collectibility is probable.                                                                                                                                                                                                                                                                                         
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | Service
 revenues including subscriber fees are recognized as services are performed,
 over the term of the agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | Deferred
 revenue includes amounts received under maintenance and support contracts,
 and amounts received from customers but not yet recognized as revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | In
 accordance with Issue No. 00-21, Revenue Arrangements with Multiple
 Deliverables (EITF 00-21), revenue from certain arrangements may include
 multiple elements within a single contract. The Companys accounting policy
 complies with the requirements set forth in EITF 00-21, relating to the
 separation of multiple deliverables into individual accounting units with
 determinable fair values. The Company considers the sale of products and
 subscriber fees to be separate units of accounting.                                                                                                                           
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | Revenues
 from Stolen Vehicle Recovery services are recognized upon success, when the
 related stolen vehicle is recovered, and such recovery is approved by the
 customer or ratably over the term of the agreement.                                                                                                                                                                                                                                                                                                                                                                                                                           
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | Revenues
 generated from technical support services, installation and de-installation
 are recognized when such services are rendered.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | Generally,
 the Company does not grant rights of return. The Company follows SFAS No. 48,
 Revenue Recognition When Right of Return Exists. Based on the Companys
 experience, no provision for returns was recorded.                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | k.                                      | Research and
 development costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | Research and
 development costs, are charged to expenses as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | l.                                      | Advertising
 expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         | Advertising
 expenses are charged to the statement of operations as incurred. Advertising
 expenses for the years ended December 31, 2008, 2007 and 2006 were $480, $439
 and $344, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                               

F - 15

---

---



|                                                           
|-----------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES              
|                                                           
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------- | --------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | m.                                      | Deferred
 income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |                                         | The Company
 accounts for income taxes in accordance with SFAS No. 109, Accounting for
 Income Taxes (SFAS No. 109). SFAS No. 109 prescribes the use of the
 liability method whereby deferred tax assets and liability account balances
 are determined based on differences between financial reporting and tax bases
 of assets and liabilities and are measured using the enacted tax rates and
 laws that will be in effect when the differences are expected to reverse. The
 Company and its subsidiaries provide a valuation allowance, if necessary, to
 reduce deferred tax assets to their estimated realizable value, if it is more
 likely than not that a portion or all of the deferred tax assets will not be
 realized.                                                                                                                                                                                                                  
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |                                         | In July
 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
 in Income Taxes an Interpretation of FASB Statement No. 109 (FIN 48). FIN
 48 clarifies the accounting for income taxes by prescribing the minimum
 recognition threshold a tax position is required to meet before being
 recognized in the financial statements. FIN 48 utilizes a two-step approach
 for evaluating tax positions. Recognition (step one) occurs when an
 enterprise concludes that a tax position, based solely on its technical
 merits, is more-likely-than-not to be sustained upon examination. Measurement
 (step two) is only addressed if step one has been satisfied (i.e., the
 position is more-likely-than-not to be sustained). Under step two, the tax
 benefit is measured as the largest amount of benefit, determined on a
 cumulative probability basis that is more-likely-than-not to be realized upon
 ultimate settlement.
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |                                         | FIN 48
 applies to all tax positions related to income taxes subject to the Financial
 Accounting Standard Board Statement No. 109, Accounting for Income Taxes
 (FAS 109). This includes tax positions considered to be routine as well
 as those with a high degree of uncertainty.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |                                         | The adoption
 of FIN 48 did not have a material effect on the Companys financial
 statements and no affect has been recorded on January 1, 2007. No provisions
 were recorded during 2007 and 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | n.                                      | Basic and
 diluted net earnings (loss) per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |                                         | Basic and
 diluted net earnings (loss) per share are computed based on the weighted
 average number of Ordinary shares outstanding during the year. Diluted net
 earnings (loss) per share further include the dilutive effect of stock
 options outstanding during the year, in accordance with SFAS No. 128,
 Earnings per Share (SFAS No. 128).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |                                         | Part of the
 outstanding stock options and warrants has been excluded from the calculation
 of the diluted earnings (loss) per share because such securities are
 anti-dilutive. The total weighted average number of shares related to the
 outstanding options and warrants excluded from the calculations of diluted
 earnings (loss) per share was 0, 160,000, and 0 for the years ended December
 31, 2008, 2007 and 2006, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F - 16

---

---



|                                                           
|-----------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES              
|                                                           
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                         
|-------- | --------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                         
|         | o.                                      | Accounting
 for stock-based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                         
|         |                                         | The Company
 accounts for stock-based compensation in accordance with Statement of
 Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
 (SFAS 123(R)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                         
|         |                                         | SFAS 123(R)
 requires companies to estimate the fair value of equity-based payment awards
 on the date of grant using an option-pricing model. The value of the portion
 of the award that is ultimately expected to vest is recognized as an expense
 over the requisite service periods in the Companys consolidated income
 statement. Prior to the adoption of SFAS 123(R), the Company accounted for
 equity-based awards to employees and directors using the intrinsic value
 method in accordance with APB 25 as allowed under Statement of Financial
 Accounting Standards No. 123, Accounting for Stock-Based Compensation
 (SFAS 123).                                                                                                                                           
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                         
|         |                                         | The Company
 adopted SFAS 123(R) using the modified prospective transition method, which
 requires the application of the accounting standard starting from
 January 1, 2006, the first day of the Companys fiscal year 2006. Under
 that transition method, compensation cost recognized in 2006, includes: (a)
 compensation cost for all share-based payments granted prior to, but not yet
 vested as of January 1, 2006, based on the grant date fair value estimated in
 accordance with the original provisions of Statement 123, and (b)
 compensation cost for all share-based payments granted subsequent to January
 1, 2006, based on the grant-date fair value estimated in accordance with the
 provisions of Statement 123(R). Results for prior periods have not been
 restated.
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                         
|         |                                         | The Company
 recognizes compensation expenses for the value of its awards, which have
 graded vesting, based on the accelerated attribution method over the vesting
 period, net of estimated forfeitures. Estimated forfeitures are based on
 actual historical pre-vesting forfeitures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                         
|         |                                         | During the
 years ended December 31, 2008, 2007 and 2006, the Company recognized
 stock-based compensation expenses related to employee stock options in the
 amounts of $350, $783 and $251, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                         
|         | p.                                      | Data related
 to options to purchase the Company shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                         
|         |                                         | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | The fair
 value of the Companys stock options granted to employees and directors for
 the years ended December 31, 2008, 2007 and 2006 was estimated using the
 following weighted average assumptions:

|                          |  |                          |   |      |      |      |  |      |   | 
|------------------------- |  | ------------------------ | - | ---- | ---- | ---- |  | ---- | - | 
|                          |  | Year ended
 December 31, |  
|                          |  |                          |  
|                          |  | 2008                     |   | 2007 |      | 2006 | 
|                          |  |                          |   |      |      |      | 
|                          |  |                          |   |      |      |      |  |      |   | 
|Risk
 free interest       |  | 2.99-3.10                | % |      | 4.14 | %    |  | 4.3  | % | 
|Dividend
 yields          |  | 0                        | % |      | 0    | %    |  | 0    | % | 
|Volatility                |  | 78-79                    | % |      | 81   | %    |  | 52   | % | 
|Expected
 term (in years) |  | 4-5                      |   |      | 3.75 |      |  | 2.32 |   | 

F - 17

---

---



|                                                           
|-----------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES              
|                                                           
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|         |                                         |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-------- | --------------------------------------- | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|         |                                         |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |                                         |    | The Company
 estimates the fair value of stock options granted using the
 Black-Scholes-Merton option-pricing model. The option-pricing model requires
 a number of assumptions, of which the most significant are expected stock
 price volatility and the expected option term. Expected volatility was
 calculated based upon actual historical stock price movements. The expected
 option term represents the period that the Companys stock options are
 expected to be outstanding and was determined based on the simplified method
 permitted by SAB 107 and extended by SAB 110 as the average of the vesting
 period and the contractual term.                                   
|         |                                         |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |                                         |    | The Company
 currently uses the simplified method as adequate historical experience is not
 available to provide a reasonable estimate. The Company adopted SAB 110
 effective January 1, 2008 and will continue to apply the simplified
 method until enough historical experience is available to provide a reasonable
 estimate of the expected term for stock option grants.                                                                                                                                                                                                                                                                                                             
|         |                                         |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |                                         |    | The
 risk-free interest rate is based on the yield from U.S. Treasury zero-coupon
 bonds with an equivalent term to the expected term of the options. The
 Company has historically not paid dividends and has no foreseeable plans to
 pay dividends and therefore use an expected dividend yield of zero in the
 option pricing model. The Company is required to estimate forfeitures at the
 time of grant and revise those estimates in subsequent periods if actual forfeitures
 differ from those estimates. The Company uses historical data to estimate
 pre-vesting option forfeitures and record share-based compensation expense
 only for those awards that are expected to vest
|         |                                         |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |                                         | 2. | Data related
 to options to purchase Shagrir shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |                                         |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |                                         |    | As of
 December 31, 2008, 3,383 options to purchase Shagrir shares are outstanding
 (2,538 are exercisable). Weighted average exercise price of these outstanding
 options is $165. There were no changes during 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                         |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |                                         |    | The weighted
 average fair values of options granted during the year ended
 December 31, 2006 was $200. No options were granted during 2007 and
 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                         |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |                                         |    | Those
 options vest primarily over four years. The fair value for these options was
 estimated using the Black-Scholes option-pricing model with the following
 weighted average assumptions for 2006:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                         |  |      |  
|------------------------ |  | ---- | -
|                         |  | 2006
|                         |  |     
|                         |  |      |  
|Risk free interest       |  | 5.6  | %
|Dividend yields          |  | 0    | %
|Volatility               |  | 34   | %
|Expected term (in years) |  | 4.13 |  

| |  |  |                                                                                                                                                                                                         
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | As of
 December 31, 2008, there was approximately $126 of total unrecognized
 compensation costs related to non-vested share-based compensation
 arrangements granted under Shagrir stock option plans.

F - 18

---

---



|                                                           
|-----------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES              
|                                                           
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-------- | --------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | q.                                      | Severance
 pay:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                         | The
 liability of the Company and its subsidiary in Israel for severance pay is
 calculated pursuant to Israels Severance Pay Law based on the most recent
 salary of the employees multiplied by the number of years of employment as of
 balance sheet date. Employees are entitled to one months salary for each
 year of employment, or a portion thereof. The liability for Company and its
 subsidiary in Israel is fully provided by monthly deposits with insurance
 Policies and by an accrual. The value of these policies is recorded as an
 asset in the Companys balance sheet.
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                         | The
 deposited funds include profits accumulated up to the balance sheet date. The
 deposited funds may be withdrawn only upon the fulfillment of the obligation
 pursuant to Israels Severance Pay Law or labor agreements. The value of the
 deposited funds is based on the cash surrendered value of these policies, and
 includes profits or losses.                                                                                                                                                                                                                                     
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                         | Severance
 pay expenses for the years ended December 31, 2008, 2007 and 2006 were
 $1,291,$534 and $428, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | r.                                      | Concentrations
 of credit risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                         | Financial
 instruments that potentially subject the Company and its subsidiaries to
 concentrations of credit risk consist principally of cash and cash
 equivalents, trade receivables and derivatives.                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                         | The
 Companys cash and cash equivalents as available are invested primarily in
 deposits with major banks worldwide, mainly in US and Israel, however, such
 cash and cash equivalents and short-term deposits in the United States may be
 in excess of insured limits and are not insured in other jurisdictions.
 Generally, these deposits may be redeemed upon demand and, therefore, bear
 low risk.                                                                                                                                                                                    
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                         | Trade
 receivables include amounts billed to clients located mainly in Israel and
 South America and Europe. Management periodically evaluates the
 collectibility of these trade receivables to reflect the amounts estimated to
 be collectible. An allowance is determined in respect of specific debts whose
 collection, in managements opinion, is doubtful. In 2008, 2007 and 2006, the
 Company recorded doubtful expenses in the amount of $322, $97, and $178,
 respectively. As for major customers, see Note 18d.                                                                 
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                         | The Company
 entered into foreign exchange forward contracts (derivative instruments)
 intended to protect against the revaluation in value of forecasted non-dollar
 currency cash flows. These derivative instruments are designed to effectively
 hedge the Companys non-dollar currency exposure (see Note 2(t) below).                                                                                                                                                                                                                                                                 

F - 19

---

---



|                                                           
|-----------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES              
|                                                           
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------- | --------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         | s.                                      | Fair value
 of financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                         | The
 following methods and assumptions were used by the Company and its
 subsidiaries in estimating fair value disclosures for financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                         | The carrying
 amounts reported in the balance sheet for cash and cash equivalents, trade
 receivables, other accounts receivable, short-term bank credit, trade
 payables and other accounts payable approximate their fair values due to the
 short-term maturities of such instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                         | Amounts
 recorded for long-term loans approximate fair values. The fair value was
 estimated using discounted cash flow analyses, based on the Companys
 incremental borrowing rates for similar type of borrowing arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                         | Effective January 1, 2008, the Company adopted SFAS 157, Fair Value
 Measurements and, effective October 10, 2008, adopted FSP No. SFAS 157-3,
 Determining the Fair Value of a Financial Asset When the Market for That
 Asset Is Not Active, except as it applies to the nonfinancial assets and
 nonfinancial liabilities subject to FSP 157-2. SFAS 157 clarifies that fair
 value is an exit price, representing the amount that would be received to
 sell an asset or paid to transfer a liability in an orderly transaction
 between market participants. As such, fair value is a market-based
 measurement that should be determined based on assumptions that market
 participants would use in pricing an asset or a liability. As a basis for
 considering such assumptions, SFAS 157 establishes a three-tier value
 hierarchy, which prioritizes the inputs used in the valuation methodologies
 in measuring fair value:
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                         | Level 1 - Observable inputs that reflect quoted prices (unadjusted)
 for identical assets or liabilities in active markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                         | Level 2 - Include other inputs that are directly or indirectly
 observable in the marketplace.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                         | Level 3 - Unobservable inputs which are supported by little or no
 market activity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                         | The fair value hierarchy also requires an entity to maximize the use
 of observable inputs and minimize the use of unobservable inputs when
 measuring fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F - 20

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------- | --------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|         |                                        
|         | t.                                      | Derivatives
 and hedging activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                         | SFAS No.
 133, Accounting for Derivative Instruments and Hedging Activities requires
 the Company to recognize all of its derivative instruments as either assets
 or liabilities on the balance sheet at fair value. The accounting for changes
 in the fair value (i.e., gains or losses) of a derivative instrument depends
 on whether it has been designated and qualifies as part of a hedging
 relationship and further, on the type of hedging relationship. For those
 derivative instruments that are designated and qualify as hedging
 instruments, a company must designate the hedging instrument, based upon the
 exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a
 net investment in a foreign operation.                                                                                                                                                                                                                                                               
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                         | For derivative instruments that are
 designated and qualify as a cash flow hedge (i.e., hedging the exposure to
 variability in expected future cash flows that is attributable to a
 particular risk), the effective portion of the gain or loss on the derivative
 instrument is reported as a component of accumulated other comprehensive
 income and reclassified into earnings in the line item associated with the
 hedged transaction in the period or periods during which the hedged
 transaction affects earnings. The remaining gain or loss on the derivative
 instrument in excess of the cumulative change in the present value of future
 cash flows of the hedged item, if any, is recognized in financial
 income/expense in the period of change.                                                                                                                                                                                                                                                   
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                         | The Company entered into derivative
 instrument arrangements to hedge a portion of anticipated new Israeli shekel
 (NIS) payroll payments. These derivative instruments are designated as cash
 flows hedges, as defined by SFAS No. 133, as amended, and are all highly
 effective as hedges of these expenses when the salary is recorded. The
 effective portion of the derivative instruments is included in payroll
 expenses in the statements of income. During 2008, there were no gains or
 losses recognized in earnings for hedge ineffectiveness.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                         | At December 31, 2008, the Company expects
 to reclassify $78 of net gains on derivative instruments from accumulated
 other comprehensive income to earnings during the next twelve months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         | u.                                      | Impact of
 recently issued Accounting Standards:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                         | In February
 2008, the FASB issued FASB Staff Position (FSP) FAS No. 157-2, Effective
 Date of FASB Statement No. 157 (FSP 157-2), to delay the effective date of
 FASB Statement 157 for one year for certain nonfinancial assets and
 nonfinancial liabilities, excluding those that are recognized or disclosed in
 financial statements at fair value on a recurring basis (that is, at least
 annually). For purposes of applying the FSP 157-2, nonfinancial assets and
 nonfinancial liabilities include all assets and liabilities other than those
 meeting the definition of a financial asset or a financial liability in FASB
 Statement 159. FSP 157-2 defers the effective date of Statement 157 to fiscal
 years beginning after November 15, 2008, and interim periods within those
 fiscal years for items within the scope of this FSP 157-2. The Company does
 not expect the adoption of FSP 157-2 to have a material impact on its
 financial position, results of operations or cash flows.

F - 21

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-------- | --------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                         | In
 December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
 Consolidated Financial Statements (SFAS 160). SFAS 160 amends ARB 51,
 Consolidated Financial Statements, to establish accounting and reporting
 standards for the noncontrolling interest in a subsidiary and for the
 deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest
 in a subsidiary is an ownership interest in the consolidated entity that
 should be reported as equity in the consolidated financial statements. SFAS
 160 also changes the way the consolidated income statement is presented by
 requiring consolidated net income to be reported at amounts that include the
 amounts attributable to both the parent and the noncontrolling interest. It
 also requires disclosure, on the face of the consolidated statement of
 income, of the amounts of consolidated net income attributable to the parent
 and to the noncontrolling interest. SFAS 160 requires that a parent recognize
 a gain or loss in net income when a subsidiary is deconsolidated and requires
 expanded disclosures in the consolidated financial statements that clearly
 identify and distinguish between the interests of the parent owners and the
 interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective
 for fiscal periods, and interim periods within those fiscal years, beginning
 on or after December 15, 2008.
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                         | The adoption of SFAS 160
 will result in reporting the minority interest as part of equity in the
 consolidated financial statements and will result in changing the way the
 consolidated income statement is presented by requiring consolidated net
 income to be reported at amounts that include the amounts attributable to
 both the parent and the noncontrolling interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                         | In
 December 2007, the FASB issued SFAS 141(R), Business Combinations
 (SFAS 141(R)). This Statement replaces SFAS No. 141, Business
 Combinations, and requires an acquirer to recognize the assets acquired,
 the liabilities assumed, including those arising from contractual
 contingencies, any contingent consideration and any noncontrolling interest
 in the acquiree at the acquisition date, measured at their fair values as of
 that date, with limited exceptions specified in the statement.
 SFAS 141(R) also requires the acquirer in a business combination
 achieved in stages (sometimes referred to as a step acquisition) to recognize
 the identifiable assets and liabilities, as well as the noncontrolling
 interest in the acquiree, at the full amounts of their fair values (or other
 amounts determined in accordance with SFAS 141(R)). In addition, SFAS
 141(R)s requirement to measure the noncontrolling interest in the acquiree
 at fair value will result in recognizing the goodwill attributable to the
 noncontrolling interest in addition to that attributable to the acquirer. The
 impact of SFAS 141R on the Companys consolidated results of operations
 will result an adjustment to the income tax expenses, subsequent to the
 effective date.                                                                                                                                                       
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                         | In October
 2008, the FASB issued FSP No. FAS 157-3, Determining the Fair Value of a
 Financial Asset When the Market for That Asset Is Not Active. (FSP FAS 157-3)
 This FSP clarifies the application of SFAS 157 in a market that is not active
 and provides an example to illustrate key considerations in determining the
 fair value of a financial asset when the market for that financial asset is
 not active. In particular, it provides additional guidance on (a) how the
 reporting entitys own assumptions (that is, expected cash flows and
 appropriately risk-adjusted discount rates) should be considered when
 measuring fair value when relevant observable inputs do not exist, (b) how
 available observable inputs in a market that is not active should be
 considered when measuring fair value, and (c) how the use of market quotes
 (for example, broker quotes or pricing services for the same or similar
 financial assets) should be considered when assessing the relevance of
 observable and unobservable inputs available to measure fair value. This FSP
 is effective upon issuance, including prior periods for which financial
 statements have not been issued. The Company evaluated the impact of this FSP
 and concluded that its considerations in determining the fair value of its
 financial assets when the market for them is not active are consistent with
 the FSPs guidance.                          

F - 22

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|         |                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------- | ---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)       
|         |                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                                | In April
 2008, the FASB issued FSP 142-3, Determination of the Useful Life of
 Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should be
 considered in developing renewal or extension assumptions used to determine
 the useful life of a recognized intangible asset under SFAS No. 142,
 Goodwill and Other Intangible Assets. FSP 142-3 is effective for fiscal
 years beginning after December 15, 2008. The Company does not expect the
 adoption of FSP 142-3 will have a material impact on the Companys
 consolidated financial position, results of operations and cash flows.
|         |                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|NOTE 3:- | OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

|                              |  |              |       |      |   |       | 
|----------------------------- |  | ------------ | ----- | ---- | - | ----- | 
|                              |  | December 31, |      
|                              |  |              |      
|                              |  | 2008         |       | 2007 |  
|                              |  |              |       |      |  
|                              |  |              |       |      |  
|Government
 authorities       |  | $            | 366   |      | $ | 326   | 
|Employees                     |  |              | 51    |      |   | 63    | 
|Prepaid
 expenses             |  |              | 782   |      |   | 352   | 
|Deferred
 income taxes        |  |              | 1,072 |      |   | 978   | 
|Loan to
 others (see Note 1h) |  |              | 357   |      |   |      | 
|Foreign
 currency derivatives |  |              | 78    |      |   |      | 
|Others                        |  |              | 68    |      |   | 282   | 
|                              |  |              |       |      |   |       | 
|                              |  |              |       |      |   |       | 
|                              |  | $            | 2,774 |      | $ | 2,001 | 
|                              |  |              |       |      |   |       | 

|         |            
|-------- | -----------
|NOTE 4:- | INVENTORIES

|                 |  |              |       |      |   |       | 
|---------------- |  | ------------ | ----- | ---- | - | ----- | 
|                 |  | December 31, |      
|                 |  |              |      
|                 |  | 2008         |       | 2007 |  
|                 |  |              |       |      |  
|                 |  |              |       |      |  
|Raw
 materials   |  | $            | 1,478 |      | $ | 844   | 
|Work in
 process |  |              | 120   |      |   | 322   | 
|Finished
 goods  |  |              | 2,401 |      |   | 1,491 | 
|                 |  |              |       |      |   |       | 
|                 |  |              |       |      |   |       | 
|                 |  | $            | 3,999 |      | $ | 2,657 | 
|                 |  |              |       |      |   |       | 

F - 23

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|         |                        |             
|-------- | ---------------------- | ------------
|NOTE 5:- | PROPERTY AND EQUIPMENT
|         |                        |             
|         | a.                     | Composition:

|                                   |  |              |        |      |   |        | 
|---------------------------------- |  | ------------ | ------ | ---- | - | ------ | 
|                                   |  | December 31, |       
|                                   |  |              |       
|                                   |  | 2008         |        | 2007 |  
|                                   |  |              |        |      |  
|                                   |  |              |        |      |   |        | 
|Cost:                              |  |              |        |      |   |        | 
|Installed products                 |  | $            | 2,542  |      | $ | 3,072  | 
|Computers and electronic
equipment |  |              | 4,816  |      |   | 4,468  | 
|Office furniture and equipment     |  |              | 1,037  |      |   | 860    | 
|Motor vehicles                     |  |              | 8,045  |      |   | 6,410  | 
|Network installation               |  |              | 1,510  |      |   | 1,692  | 
|Buildings                          |  |              | 481    |      |   | 476    | 
|Leasehold improvements             |  |              | 877    |      |   | 506    | 
|                                   |  |              |        |      |   |        | 
|                                   |  |              |        |      |   |        | 
|                                   |  |              | 19,308 |      |   | 17,484 | 
|                                   |  |              |        |      |   |        | 
|Accumulated
 depreciation:         |  |              |        |      |   |        | 
|Installed products                 |  |              | 1,949  |      |   | 2,268  | 
|Computers and electronic
equipment |  |              | 4,013  |      |   | 3,196  | 
|Office furniture and equipment     |  |              | 575    |      |   | 442    | 
|Motor vehicles                     |  |              | 3,380  |      |   | 2,466  | 
|Network installation               |  |              | 1,059  |      |   | 1,144  | 
|Buildings                          |  |              | 32     |      |   | 22     | 
|Leasehold improvements             |  |              | 302    |      |   | 238    | 
|                                   |  |              |        |      |   |        | 
|                                   |  |              |        |      |   |        | 
|                                   |  |              | 11,310 |      |   | 9,776  | 
|                                   |  |              |        |      |   |        | 
|                                   |  |              |        |      |   |        | 
|Depreciated
 cost                  |  | $            | 7,998  |      | $ | 7,708  | 
|                                   |  |              |        |      |   |        | 

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | Depreciation
 expenses for the years ended December 31, 2008, 2007 and 2006 were
 $2,768 $2,623 (including impairment of $36) and $2,750 (including impairment
 of $372), respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | c. | During 2006,
 due
 to the requirement of certain major potential customers in Mexico to increase
 the territorial coverage to a nationwide coverage and due to the increased costs
 of communication services with respect to the proprietary system that was
 used, Pointer Mexicos management has decided to migrate from the Companys traditional
 radio frequency (RF) system communication technology to Cellular/GPS
 technology in Mexico. Therefore, Pointer Mexicos management has
 recognized an impairment loss related to its base stations (network
 installation), which constitute the base of its former installed technology
 to provide its services, and installed products (RMUs) which are the devices
 used to locate the vehicles.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | This group
 of assets has been reduced to its fair value as determined by the management
 based on present value of future net cash flows. Impairment loss has been
 recognized in a separate caption within the statement of operations in the
 amount of $372 for the year ended December 31, 2006 and $36 for the
 year ended December 31 2007.                                                                                                                                                                                                                                                                                                                                                                                                           

F - 24

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|         |                              |                               
|-------- | ---------------------------- | ------------------------------
|NOTE 6:- | OTHER INTANGIBLE ASSETS, NET
|         |                              |                               
|         | a.                           | Other
 intangible assets, net:

|                            |  |              |        |      |   |        | 
|--------------------------- |  | ------------ | ------ | ---- | - | ------ | 
|                            |  | December 31, |       
|                            |  |              |       
|                            |  | 2008         |        | 2007 |  
|                            |  |              |        |      |  
|                            |  |              |        |      |   |        | 
|Cost:                       |  |              |        |      |   |        | 
|Patents                     |  | $            | 639    |      | $ | 639    | 
|Developed technology        |  |              | 4,890  |      |   | 4,890  | 
|Customer related intangible |  |              | 15,548 |      |   | 15,446 | 
|Brand name                  |  |              | 4,473  |      |   | 4,448  | 
|                            |  |              |        |      |   |        | 
|                            |  |              |        |      |   |        | 
|                            |  |              | 25,550 |      |   | 25,423 | 
|                            |  |              |        |      |   |        | 
|Accumulated
 amortization:  |  |              |        |      |   |        | 
|Patents                     |  |              | 638    |      |   | 636    | 
|Developed technology        |  |              | 1,255  |      |   | 277    | 
|Customer related intangible |  |              | 6,965  |      |   | 5,129  | 
|Brand name                  |  |              | 1,798  |      |   | 1,323  | 
|                            |  |              |        |      |   |        | 
|                            |  |              |        |      |   |        | 
|                            |  |              | 10,656 |      |   | 7,365  | 
|                            |  |              |        |      |   |        | 
|                            |  |              |        |      |   |        | 
|Amortized
 cost             |  | $            | 14,894 |      | $ | 18,058 | 
|                            |  |              |        |      |   |        | 

| |    |                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------
| | b. | Amortization
 expenses for the years ended December 31, 2008, 2007 and 2006 were $3,344,
 $2,118 and $1,740, respectively.
| |    |                                                                                                                           
| | c. | Estimated
 amortization expenses for the years ending:                                                                    

|              |  |   |        | 
|------------- |  | - | ------ | 
|December
 31, |  |   |        | 
|              |  |   |        | 
|              |  |   |        | 
|2009          |  | $ | 3,184  | 
|2010          |  |   | 3,135  | 
|2011          |  |   | 3,115  | 
|2012          |  |   | 2,838  | 
|2013          |  |   | 884    | 
|Thereafter    |  |   | 1,738  | 
|              |  |   |        | 
|              |  |   |        | 
|              |  | $ | 14,894 | 
|              |  |   |        | 

|         |          |                                                                                                               
|-------- | -------- | --------------------------------------------------------------------------------------------------------------
|NOTE 7:- | GOODWILL
|         |          |                                                                                                               
|         |          | The changes in the carrying amount of goodwill for the years ended
 December 31, 2008 and 2007 are as follows:

|                                                        |  |              |        |      |   |        |  
|------------------------------------------------------- |  | ------------ | ------ | ---- | - | ------ | -
|                                                        |  | December 31, |       
|                                                        |  |              |       
|                                                        |  | 2008         |        | 2007 |  
|                                                        |  |              |        |      |  
|                                                        |  |              |        |      |   |        |  
|Goodwill, beginning of the year                         |  | $            | 50,712 |      | $ | 38,707 |  
|Additions in respect of
acquisitions                    |  |              |       |      |   | 8,750  |  
|Amortization of goodwill in respect of tax
 adjustments |  |              | (805   | )    |   | (532   | )
|Foreign currency translation
adjustments                |  |              | 509    |      |   | 3,787  |  
|                                                        |  |              |        |      |   |        |  
|                                                        |  |              |        |      |   |        |  
|Goodwill, end of year                                   |  |              | 50,416 |      |   | 50,712 |  
|                                                        |  |              |        |      |   |        |  

F - 25

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|         |                                                                                                        
|-------- | -------------------------------------------------------------------------------------------------------
|NOTE 8:- | SHORT-TERM BANK CREDIT AND CURRENT MATURITIES OF LONG-TERM LOANS FROM
 BANKS, SHAREHOLDERS AND OTHERS  
|         |                                                                                                        
|         | Classified
 by currency, linkage terms and annual interest rates, the credit and loans
 are as follows:

|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|--------------------------------------------------------------------------- |  | ------------- | ---------- | ------------ |  | ------------- |  | ---- | ----- |  | - | ------ | 
|                                                                            |  | Interest rate |            | December 31, | 
|                                                                            |  |               |            |              | 
|                                                                            |  | 2008          |            | 2007         |  | 2008          |  | 2007 |      
|                                                                            |  |               |            |              |  |               |  |      |      
|                                                                            |  | %             |            |              |  |               | 
|                                                                            |  |               |            |              |  |               | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|Short-term bank loans:                                                      |  |               |            |              |  |               |  |      |       |  |   |        | 
|In NIS                                                                      |  |               | 4.5-5.8    |              |  | 5.85-6.1      |  |      | 1,644 |  |   | 2,466  | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|                                                                            |  |               |            |              |  |               |  |      | 1,644 |  |   | 2,466  | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|Short-term bank credit:                                                     |  |               |            |              |  |               |  |      |       |  |   |        | 
|In, or linked to, dollars                                                   |  |               |           |              |  | LIBOR
 +1.5   |  |      |      |  |   | 20     | 
|In NIS                                                                      |  |               |           |              |  | 6.75          |  |      |      |  |   | 42     | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|                                                                            |  |               |            |              |  |               |  |      |      |  |   | 62     | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|Current maturities of long-term loans from
 banks, shareholders and others: |  |               |            |              |  |               |  |      |       |  |   |        | 
|In, or linked to, dollars                                                   |  |               | LIBOR
 +2  |              |  | LIBOR
 +2-2.2 |  |      | 800   |  |   | 900    | 
|In NIS linked to CPI                                                        |  |               | 5.48       |              |  | 4-6.5         |  |      | 1,426 |  |   | 5,478  | 
|In NIS                                                                      |  |               | 6.681-7.39 |              |  | 6.681-7.39    |  |      | 2,980 |  |   | 1,658  | 
|In NIS                                                                      |  |               | 7.75       |              |  |              |  |      | 967   |  |   |       | 
|In NIS                                                                      |  |               | 8-16       |              |  |              |  |      | 32    |  |   |       | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|                                                                            |  |               |            |              |  |               |  |      | 6,205 |  |   | 8,036  | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|                                                                            |  |               |            |              |  |               |  | $    | 7,849 |  | $ | 10,564 | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 
|Unutilized credit lines                                                     |  |               |            |              |  |               |  | $    | 5,771 |  | $ | 4,128  | 
|                                                                            |  |               |            |              |  |               |  |      |       |  |   |        | 

|         |                                            
|-------- | -------------------------------------------
|NOTE 9:- | OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

|                                |  |              |       |      |   |       | 
|------------------------------- |  | ------------ | ----- | ---- | - | ----- | 
|                                |  | December 31, |      
|                                |  |              |      
|                                |  | 2008         |       | 2007 |  
|                                |  |              |       |      |  
|                                |  |              |       |      |   |       | 
|Employees
 and payroll accruals |  | $            | 3,583 |      | $ | 3,070 | 
|Government
 authorities         |  |              | 356   |      |   | 290   | 
|Provision
 for warranty         |  |              | 558   |      |   | 411   | 
|Accrued
 expenses               |  |              | 1,200 |      |   | 2,173 | 
|Related
 party                  |  |              | 52    |      |   | 51    | 
|Others                          |  |              | 43    |      |   | 128   | 
|                                |  |              |       |      |   |       | 
|                                |  |              |       |      |   |       | 
|                                |  | $            | 5,792 |      | $ | 6,123 | 
|                                |  |              |       |      |   |       | 

F - 26

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                            |             
|--------- | -------------------------- | ------------
|NOTE 10:- | LONG-TERM LOANS FROM BANKS
|          |                            |             
|          | a.                         | Composition:

|                                         |  |               |           |              |  |               |  |      |        |  |   |        | 
|---------------------------------------- |  | ------------- | --------- | ------------ |  | ------------- |  | ---- | ------ |  | - | ------ | 
|                                         |  | Interest rate |           | December 31, | 
|                                         |  |               |           |              | 
|                                         |  | 2008          |           | 2007         |  | 2008          |  | 2007 |       
|                                         |  |               |           |              |  |               |  |      |       
|                                         |  | %             |           |              |  |               | 
|                                         |  |               |           |              |  |               | 
|                                         |  |               |           |              |  |               |  |      |        |  |   |        | 
|In, or linked to, dollars
 (See c below) |  |               | LIBOR
 +2 |              |  | LIBOR
 +2-2.2 |  | $    | 4,600  |  | $ | 5,500  | 
|In NIS linked to CPI                     |  |               | 5.48      |              |  | 5.48          |  |      | 6,634  |  |   | 7,552  | 
|In NIS                                   |  |               | 6.68-7.39 |              |  | 6.68-7.39     |  |      | 13,836 |  |   | 9,389  | 
|In NIS                                   |  |               | 7.75      |              |  |              |  |      | 1,742  |  |   |       | 
|                                         |  |               |           |              |  |               |  |      |        |  |   |        | 
|                                         |  |               |           |              |  |               |  |      |        |  |   |        | 
|                                         |  |               |           |              |  |               |  |      | 26,812 |  |   | 22,441 | 
|Less - current maturities                |  |               |           |              |  |               |  |      | 6,173  |  |   | 3,835  | 
|Less - discount                          |  |               |           |              |  |               |  |      | 119    |  |   | 146    | 
|                                         |  |               |           |              |  |               |  |      |        |  |   |        | 
|                                         |  |               |           |              |  |               |  |      |        |  |   |        | 
|                                         |  |               |           |              |  |               |  | $    | 20,520 |  | $ | 18,460 | 
|                                         |  |               |           |              |  |               |  |      |        |  |   |        | 

| |    |                                                                                                  
| | -- | -------------------------------------------------------------------------------------------------
| | b. | As of
 December 31, 2008, the aggregate annual maturities of the long-term loans are
 as follows:

|                           |  |   |        | 
|-------------------------- |  | - | ------ | 
|2009
 (current maturities) |  | $ | 6,173  | 
|2010                       |  |   | 6,279  | 
|2011                       |  |   | 5,822  | 
|2012                       |  |   | 5,523  | 
|2013                       |  |   | 2,415  | 
|Thereafter                 |  |   | 600    | 
|                           |  |   |        | 
|                           |  |   |        | 
|                           |  | $ | 26,812 | 
|                           |  |   |        | 

| |    |                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                               
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | In respect
 of the bank loans that funded the Cellocator transaction (see Note 1b), the Company is required
 to meet certain financial covenants as follows:                                                                              
| |    |                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                               
| |    | 1.                                                                                                                                                                                                                                         | The ratio of
 the shareholders equity to the total consolidated assets will not be less
 than 20% and the shareholders equity will not be less than $20,000, starting
 December 31, 2007.                                                                     
| |    |                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                               
| |    | 2.                                                                                                                                                                                                                                         | The ratio of
 the Company and its subsidiaries debt (debt to banks, convertible debenture
 and loans from others that are not subordinated to the bank less cash) to the
 annual EBITDA will not exceed 5 in 2008, 4.5 in 2009 and 4 in 2010 and
 thereafter.
| |    |                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                               
| |    | 3.                                                                                                                                                                                                                                         | The ratio of
 Pointer Telocation Ltd.s debt (debt to banks, convertible debenture and
 loans from others was not subordinated to the bank less cash) to the annual
 EBITDA will not exceed 4 in 2008, 3.5 in 2009 and 2.5 in 2010 and thereafter.            
| |    |                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                               
| |    | As of
 December 31, 2008, the Company meets the financial covenants.                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                               
| | d. | In respect
 of the bank loans that funded the Shagrir transaction (see Note 1c), the
 Company granted to Bank Hapoalim B.M. a warrant to purchase up to 100,000
 Ordinary shares of the Company. During 2007, all of the warrants expired.
| |    |                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                               
| |    | Under the
 credit facility (in respect of the loans denominated in NIS) from Bank
 Hapoalim B.M., Shagrir is required to meet financial covenants.                                                                                        

F - 27

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                                              |                                                                  |                                                                                                                                                                      
|--------- | -------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 10:- | LONG-TERM LOANS FROM BANKS (Cont.)          
|          |                                              |                                                                  |                                                                                                                                                                      
|          |                                              | The
 financial covenants are:                                   
|          |                                              |                                                                  |                                                                                                                                                                      
|          |                                              | 1.                                                               | The ratio of
 the debt to the bank to the annual EBITDA will not exceed 5.5.                                                                                         
|          |                                              |                                                                  |                                                                                                                                                                      
|          |                                              | 2.                                                               | The ratio of
 the annual EBITDA to the current maturities (the loan principal plus
 interest) of long-term loans from the bank will not be less than 1, at any
 time.
|          |                                              |                                                                  |                                                                                                                                                                      
|          |                                              | 3.                                                               | The
 shareholders equity, including loans from shareholders, will not be less
 than NIS 50 million, at any time (updated in September 2008).                        
|          |                                              |                                                                  |                                                                                                                                                                      
|          |                                              | 4.                                                               | Shagrir will
 not decide on any distribution of dividends from Shagrir without a written
 pre-approval from the bank.                                                
|          |                                              |                                                                  |                                                                                                                                                                      
|          |                                              | As of
 December 31, 2008, Shagrir meets the financial covenants.
|          |                                              |                                                                  |                                                                                                                                                                      
|NOTE 11:- | LONG-TERM LOANS FROM SHAREHOLDERS AND OTHERS
|          |                                             
|          | a.                                           | Long-term
 loans from shareholders - composition:               

|                                     |  |               |   |              |  |       |  |      |   |  |   |     | 
|------------------------------------ |  | ------------- | - | ------------ |  | ----- |  | ---- | - |  | - | --- | 
|                                     |  | Interest rate |   | December 31, | 
|                                     |  |               |   |              | 
|                                     |  | 2008          |   | 2007         |  | 2008  |  | 2007 |  
|                                     |  |               |   |              |  |       |  |      |  
|                                     |  | %             |   |              |  |       | 
|                                     |  |               |   |              |  |       | 
|                                     |  |               |   |              |  |       |  |      |   |  |   |     | 
|In NIS linked to CPI (see
 d1 below) |  |               |  |              |  | 4-6.5 |  | $    |  |  | $ | 728 | 
|                                     |  |               |   |              |  |       |  |      |   |  |   |     | 
|                                     |  |               |   |              |  |       |  |      |   |  |   |     | 
|                                     |  |               |   |              |  |       |  |      |  |  |   | 728 | 
|                                     |  |               |   |              |  |       |  |      |   |  |   |     | 
|Less - current maturities            |  |               |   |              |  |       |  |      |  |  |   | 728 | 
|                                     |  |               |   |              |  |       |  |      |   |  |   |     | 
|                                     |  |               |   |              |  |       |  |      |   |  |   |     | 
|                                     |  |               |   |              |  |       |  | $    |  |  | $ |    | 
|                                     |  |               |   |              |  |       |  |      |   |  |   |     | 

| |    |                                            
| | -- | -------------------------------------------
| | b. | Long-term
 loans from others - composition:

|                                       |  |               |       |              |  |       |  |      |       |  |   |       | 
|-------------------------------------- |  | ------------- | ----- | ------------ |  | ----- |  | ---- | ----- |  | - | ----- | 
|                                       |  | Interest rate |       | December 31, | 
|                                       |  |               |       |              | 
|                                       |  | 2008          |       | 2007         |  | 2008  |  | 2007 |      
|                                       |  |               |       |              |  |       |  |      |      
|                                       |  | %             |       |              |  |       | 
|                                       |  |               |       |              |  |       | 
|                                       |  |               |       |              |  |       |  |      |       |  |   |       | 
|In NIS linked to CPI (see d1-d2 below) |  |               | 6.5   |              |  | 4-6.5 |  | $    | 394   |  | $ | 9,234 | 
|In Euro (see d3 below)                 |  |               | 8-16  |              |  |      |  |      | 115   |  |   |      | 
|In USD (see Note 12)                   |  |               | LIBOR |              |  |      |  |      | 2,056 |  |   |      | 
|Linked to Euro (see d4 below)          |  |               | 2     |              |  |      |  |      | 35    |  |   |      | 
|In USD (see d5 below)                  |  |               |      |              |  |      |  |      | 737   |  |   | 737   | 
|                                       |  |               |       |              |  |       |  |      |       |  |   |       | 
|                                       |  |               |       |              |  |       |  |      |       |  |   |       | 
|                                       |  |               |       |              |  |       |  |      | 3,337 |  |   | 9,971 | 
|Less - current maturities              |  |               |       |              |  |       |  |      | 32    |  |   | 3,473 | 
|Less - discount                        |  |               |       |              |  |       |  |      |      |  |   | 731   | 
|                                       |  |               |       |              |  |       |  |      |       |  |   |       | 
|                                       |  |               |       |              |  |       |  |      |       |  |   |       | 
|                                       |  |               |       |              |  |       |  | $    | 3,305 |  | $ | 5,767 | 
|                                       |  |               |       |              |  |       |  |      |       |  |   |       | 

F - 28

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                                                      |                                                                                                                              
|--------- | ---------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------
|NOTE 11:- | LONG-TERM LOANS FROM SHAREHOLDERS AND OTHERS (Cont.)
|          |                                                      |                                                                                                                              
|          | c.                                                   | As of
 December 31, 2008, the aggregate annual maturities of the long-term loans
 from shareholders and others are as follow:

|                           |  |   |       | 
|-------------------------- |  | - | ----- | 
|2009
 (current maturities) |  | $ | 32    | 
|2010                       |  |   | 2,123 | 
|2011                       |  |   | 32    | 
|2012                       |  |   | 18    | 
|Thereafter                 |  |   | 1,132 | 
|                           |  |   |       | 
|                           |  |   |       | 
|                           |  | $ | 3,337 | 
|                           |  |   |       | 

| |    |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | d. | 1. | On October
 1, 2006, Shagrir entered into an agreement to replace two long-term loans
 from Egged bearing an annual interest rate of 4% to 7.5%, at the aggregate
 amount of approximately $2,392, into two long-term loans to mature in two
 years. The new loans bear an annual interest rate of 4% to 6.5% and are
 linked to the Israeli CPI. The option granted to Egged to purchase Shagrirs
 Ordinary shares or the Companys Ordinary shares was cancelled.
| |    |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |    | On July 1,
 2008, the last payment was paid. The replacement of the loans was accounted
 for as an extinguishment in accordance with EITF Issue No. 96-19, Debtors
 Accounting for Modification or Exchange of Debt Instruments. The
 extinguishment resulted in an immaterial gain.                                                                                                                                                                             
| |    |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | 2. | Loans from
 Gandyr group to be repaid in nine quarterly installments, commencing six
 months from February 28, 2005, in accordance with the Companys financial
 ability. The loan was repaid in full on September 28, 2008.                                                                                                                                                                                                                                        
| |    |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |    | On February,
 2005, Shagrir received a loan of NIS 40,000 thousand from Shagrir Towing
 Services Ltd. In May, 2008, Shagrir made an early payment at the amount of
 NIS 27,310 thousand of the remaining Balance of the loan from Shagrir Towing
 Services Ltd. Accordingly, the remaining discount of NIS 2,493 thousand was
 recorded under financial expenses.                                                                                                   
| |    |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |    | In addition,
 the Company granted Shagrir Towing Services Ltd. and ADACH jointly a warrant
 to purchase up to 250,000 of its Ordinary shares. During 2007, all of the
 warrants expired.                                                                                                                                                                                                                                                                            
| |    |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |    | A loan of
 $393 (NIS 1.5 million) related to the Shagrir transaction was funded by
 Gandyr group and bears an annual interest of 6.5% and is linked to the
 Israeli CPI. No maturity date has been settled.                                                                                                                                                                                                                                                         
| |    |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | 3. | During
 August and October 2008, Pointer Romania signed an agreement of vehicles
 capital lease. The liability bears an annual interest rate of 8-16%. The loan
 will be repaid in 36 equal monthly payments.                                                                                                                                                                                                                                                       
| |    |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | 4. | In September
 2008, Pointer Romania received a loan of EURO 25,000 from its Romanian
 shareholder. The loan bears an annual interest rate of 2%.                                                                                                                                                                                                                                                                                                                    
| |    |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | 5. | Pointer
 Mexico received a loan of $737 from its Mexican local partner in 2005 and
 2004.                                                                                                                                                                                                                                                                                                                                                                           

F - 29

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--------- | -------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 12:- | COBVERTIBLE
 DEBENTURE                
|          |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|          |                                        | Debentures at the principal amount of
 $1,922 convertible into 160,000 Ordinary shares of the Company, nominal value
 NIS 3.00 each, as of December 31, 2008 the debenture balance was $2,056. The
 debenture bears interest at the annual LIBOR rate to accrue from the later
 of: (1) the date on which the holder provided an irrevocable written notice
 to the Company that it does not wish to convert the debenture into Ordinary
 shares of the Company, or (2) in the event that by 33 months from the date of
 issuance, the holder did not provide the Company with notice of conversion.
 The interest shall accrue until the date of repayment. During 2008 the seller
 notified the Company that he does not wish to convert the debenture into
 Ordinary shares of the Company. The debenture shall mature in September 2010.
 According to the notice, the Company classified the debenture as a long term
 loan.
|          |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|NOTE 13:- | COMMITMENTS AND CONTINGENT LIABILITIES
|          |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|          | a.                                     | Charges:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|          |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|          |                                        | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | As
 collateral for its liabilities, the Company has recorded floating charges on
 all of its assets, including the intellectual property and equipment, in
 favor of banks.                                                                                                                                                                                                                                                                                                                                                             
|          |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|          |                                        | 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Shagrir
 recorded a first priority charge on all of its assets in favor of banks, A
 second priority charge on all of the Shagrirs assets registered in the name
 of Shagrir Towing Services Ltd. and Shagrir (1985) Ltd., the sellers under
 the Shagrir Transaction was removed in September 2008. Gandyr group, under
 the Agreement dated November 15, 2004, have a third priority charge on all of
 the Shagrirs assets and third priority fixed charge over the Companys
 rights to proceeds from several customers of Shagrir.
|          |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|          | b.                                     | Collateral:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|          |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|          |                                        | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | To secure
 Shagrirs obligations for providing services to several of its customers,
 Shagrir provided a bank guarantee in the amount of about $412, in force until
 December 2009 - August 2010.                                                                                                                                                                                                                                                                                                                                       
|          |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|          |                                        | 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | The Company
 obtained bank guarantees in the amount of $92 in favor of its lessor, and
 customs.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|          |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|          | c.                                     | Royalties:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|          |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|          |                                        | The Company
 has undertaken to pay royalties to the BIRD Foundation (BIRD), at the rate
 of 5% on sales proceeds of products developed with the participation of BIRD
 up to the amount received, linked to the U.S. dollar. The contingent
 obligation as of December 31, 2008 is $2,232. No royalties were accrued or
 paid during 2008, 2007 and 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F - 30

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                                                |                                                                                                                                                                                                     
|--------- | ---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 13:- | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|          |                                                |                                                                                                                                                                                                     
|          | d.                                             | Lease
 commitments:                                                                                                                                                                                 
|          |                                                |                                                                                                                                                                                                     
|          |                                                | The Company
 and its subsidiaries have leased offices, motor vehicles and locations for
 periods through 2013. Minimum annual rental payments under non-cancelable
 operating leases are as follows:

|     |  |   |       | 
|---- |  | - | ----- | 
|2009 |  | $ | 1,035 | 
|2010 |  |   | 785   | 
|2011 |  |   | 421   | 
|2012 |  |   | 376   | 
|2013 |  |   | 49    | 
|     |  |   |       | 
|     |  |   |       | 
|     |  | $ | 2,666 | 
|     |  |   |       | 

| |    |                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | Rent
 expenses for the years ended December 31, 2008, 2007 and 2006, were $1,801,
 $1,428 and $1,328, respectively.
| |    |                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | e. | Litigation:                                                                                                        
| |    |                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | 1.                                                                                                                  | In February
 2008 the Company finalized the settlement of outstanding litigation with
 China National Electronics Import & Export Beijing Co, or CEIEC,
 regarding the alleged breach of agreements in respect of CEIECs customer
 Sino Telocation Ltd. for the purchase of a car localization system. Pursuant
 to the settlement, both parties withdrew the claims against each other and
 against Bank Hapoalim B.M., used in connection with the agreement.
| |    |                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                     | No provision
 was recorded in the financial statements in prior years in respect of the
 potential claim.                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | 2.                                                                                                                  | As of
 December 31, 2008, several
 claims were filed against Shagrir, mainly by customers. The claims are in an
 amount aggregating to approximately $314. The
 substance of the claims is the malfunction of Shagrirs products, which
 occurred during the ordinary course of business. Shagrirs management, based
 on the opinion of its legal counsel, is of the opinion that no material costs
 will arise to Shagrir in respect to these claims.         
| |    |                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | f. | Commitments:                                                                                                       
| |    |                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | 1.                                                                                                                  | The Company
 and DBSI Investment Ltd. (DBSI) (see Note 17) have entered into a
 management services agreement pursuant to which DBSI shall provide management
 services in consideration of annual management fees of $180 for a period of
 three years commencing on April 6, 2003.                                                                                                                                                                          
| |    |                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                     | This
 agreement is automatically renewed for additional periods of twelve months
 each, unless either party gives the other party a notice of termination three
 months prior to the beginning of a renewal term.                                                                                                                                                                                                                                               

F -31

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--------- | ---------------------------------------------- | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 13:- | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|          |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|          |                                                | 2. | During 1998,
 the Company entered into an agreement with Shagrir, for the supply of the
 services and equipment required to set up reception bases to be positioned
 throughout Israel. An addendum to the agreement was entered into in 2004 (the
 First Addendum). The agreement was for a period of 10 years with an option
 to extend it by an additional 10 years. During 2008, the Company and Shagrir
 entered into a second addendum to the agreement that extended the agreement
 by a period of 5 years, until 2013.                             
|          |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|          |                                                |    | In accordance
 with the First Addendum to the agreement, Shagrir committed to the Company,
 to purchase a minimum amount of products each year, until the end of 2007. In
 the event it does not purchase the minimal amount as committed, Shagrir shall
 pay the Company the difference between the minimal amount and the amount
 actually purchased.                                                                                                                                                                                                      
|          |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|          |                                                |    | As of the
 end of 2007, Shagrir met its minimal purchase commitment under the aforesaid
 agreement. In addition, Shagrir undertook to Company that until the end of
 2007 it shall not purchase from other suppliers systems whose purpose is the
 provision of locating services for prevention of vehicle theft. The Company
 undertook to Shagrir not to sell to any other entity in Israel systems for
 prevention of vehicle theft.                                                                                                                     
|          |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|          |                                                |    | The second
 addendum of the agreement, which was entered into in 2008, updated the
 product prices and does not include an undertaking to purchase a minimum
 amount of products or to exclusively purchase systems from the Company.                                                                                                                                                                                                                                                                                                                        
|          |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|          |                                                | 3. | Shagrir
 entered into a management services agreement with the Company, pursuant to
 which the Company will provide Shagrir with management services with respect
 to its business for a period of two years starting February 28, 2005, in
 consideration of management fees of $263 (NIS 1 million) per year, subject to
 certain conditions.                                                                                                                                                                                                              
|          |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|          |                                                | 4. | Shagrir
 entered into a management services agreement with Gandyr group and Egged,
 pursuant to which Gandyr group and Egged will grant management services to
 Shagrir beginning at the end of a period of 24 months from February 28, 2005,
 in consideration of approximately $263 (NIS 1 million) per year. Pursuant to
 the management services agreement, in the event that Gandyr Group or Egged
 will not exercise its entire options, the parties shall negotiate the
 management fees. On February 28, 2007 all of its unexercised options expired.
|          |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|          |                                                | 5. | Under the
 credit facility from the Bank, Shagrir and the Company are required to meet
 financial covenants (see Note 10c and 10d).                                                                                                                                                                                                                                                                                                                                                                                                                          

F - 32

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                      |                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--------- | -------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 14:- | SHAREHOLDERS EQUITY
|          |                      |                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|          | a.                   | Ordinary
 shares:                                                                                                                                                       
|          |                      |                                                                                                                                                                         
|          |                      | Ordinary
 shares confer upon their holders voting rights, the right to receive cash
 dividends and the right to share in excess assets upon liquidation of the
 Company.
|          |                      |                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|          | b.                   | Issued and
 outstanding share capital:                                                                                                                                  
|          |                      |                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|          |                      | 1.                                                                                                                                                                       | During
 February and March 2005, the Company completed a round of financing of $6,070
 ($1,000 of which was invested by DBSI Investments Ltd., a major shareholder
 of the Company), in consideration of 722,587 of the Companys Ordinary shares
 at a price per share of $8.4. Under the terms of the investment agreements,
 the investors were issued warrants to purchase up to 158,969 shares of the
 Company, with an exercise price of $8.4 per share. The warrants were
 exercisable at any time during the period, beginning on February 28, 2005 and
 until the earlier of: (i) April 6, 2006; or (ii) an M&A transaction. All
 the warrants expired.
|          |                      |                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|          |                      |                                                                                                                                                                          | Out of the
 total number of shares and warrants issued, Egged was issued 309,524 shares
 and 68,095 warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|          |                      |                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|          |                      | 2.                                                                                                                                                                       | During 2005,
 the Company issued warrants to purchase up to 508,969 shares of the Company.
 158,969 warrants were issued to investors, at an exercise price of $8.4 per
 share and have expired on April 6, 2006 250,000 warrants were issued to
 Shagrir Towing Services Ltd. and ADACH and 100,000 warrants were issued to
 Bank Hapoalim B.M., at an exercise price of $18. As of December 31, 2007,
 these warrants have expired.                                                                                                                                                                                                                           
|          |                      |                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|          |                      | 3.                                                                                                                                                                       | During 2006,
 806,918 warrants and stock options were exercised into 743,855 of the
 Companys Ordinary shares. Out of the 806,918 warrants and stock options,
 95,455 warrants were exercised by way of cashless exercise into 32,392
 Ordinary shares, and 711,463 warrants and stock options were exercised into
 Ordinary shares, for a consideration of $3,481.                                                                                                                                                                                                                                                                                            
|          |                      |                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|          |                      | 4.                                                                                                                                                                       | On December 28, 2006 the Company entered
 into a Share Purchase Agreement with a group of Israeli institutional
 investors for the purchase of 425,000 of the Companys Ordinary shares for an
 aggregate price of $4,700. The transaction was consummated on January 12,
 2007. Pursuant to the transaction, the investors were also issued warrants to
 purchase 212,500 Ordinary shares, such that for each one share purchased, the
 investors acquired a warrant to purchase half an Ordinary share. The warrants
 are exercisable into Ordinary shares, at an exercise price of $13.00 per
 share and are exercisable for a period of four years.         
|          |                      |                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|          |                      | 5.                                                                                                                                                                       | In January
 2007, the Company completed a round of financing of $4,675, out of which, an
 amount of $2,586 was received as of December 31, 2006, in consideration of
 425,000 of the Companys Ordinary shares at a price per share of $11.0. Under
 the terms of the investment agreements, the investors were issued warrants to
 purchase up to 212,500 shares of the Company, with an exercise price of $13.0
 per share. The warrants may be exercised at any time until December 31, 2010.                                                                                                                                                                

F - 33

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                              |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--------- | ---------------------------- | -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 14:- | SHAREHOLDERS EQUITY (Cont.)
|          |                              |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|          |                              | 6.       | On April 2,
 2007, the Company entered into and consummated a share purchase agreement
 with a group of United States institutional investors for the purchase of
 805,000 of the Company Ordinary shares for an aggregate price of
 approximately $8,500. Pursuant to the transaction, the investors were also
 issued warrants to purchase 402,500 of the Company Ordinary shares, such that
 for each one share purchased, the investors were entitled to a warrant to
 purchase half a share. The warrants are exercisable into Ordinary shares, at
 an exercise price per share of $12.6 and will be exercisable for a period of
 five years.
|          |                              |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|          |                              | 7.       | On
 July 18, 2008, The Company consummated a private
 placement of 140,056 of its ordinary shares to DBSI Investments Ltd., our
 principal shareholder, for an aggregate price of $1,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|          |                              |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|          | c.                           | Options:
|          |                              |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|          |                              | 1.       | The Company
 grants, under various option plans (mainly under the 2003 Employee share
 option plan), options to its employees, directors and service providers. The
 options are granted for a period of five years and usually have a vesting
 period of up to four years.                                                                                                                                                                                                                                                                                                                                                                       
|          |                              |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|          |                              | 2.       | A summary of
 employee option activity under the Companys Stock Option Plans as of
 December 31, 2008 and changes during the year ended December 31, 2008 are as
 follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                                 |  |                   |         |                                 |   |                                                          |  |                                          |      |  |   |   | 
|------------------------------------------------ |  | ----------------- | ------- | ------------------------------- | - | -------------------------------------------------------- |  | ---------------------------------------- | ---- |  | - | - | 
|                                                 |  | Number of options |         | Weighted-average exercise price |   | Weighted- average remaining contractual term (in
 years) |  | Aggregate intrinsic value (in thousands) |     
|                                                 |  |                   |         |                                 |   |                                                          |  |                                          |     
|                                                 |  |                   |         |                                 |   |                                                          |  |                                          |      |  |   |   | 
|Outstanding at January 1, 2008                   |  |                   | 256,145 |                                 | $ | 9.98                                                     |  |                                          |      |  |   |   | 
|Granted                                          |  |                   | 12,000  |                                 | $ | 6                                                        |  |                                          |      |  |   |   | 
|Exercised                                        |  |                   |        |                                 | $ |                                                         |  |                                          |      |  |   |   | 
|Forfeited                                        |  |                   | (49,900 | )                               | $ | 13.35                                                    |  |                                          |      |  |   |   | 
|                                                 |  |                   |         |                                 |   |                                                          |  |                                          |      |  |   |   | 
|                                                 |  |                   |         |                                 |   |                                                          |  |                                          |      |  |   |   | 
|Outstanding at December 31, 2008                 |  |                   | 218,245 |                                 | $ | 8.99                                                     |  |                                          | 2.96 |  |   |  | 
|                                                 |  |                   |         |                                 |   |                                                          |  |                                          |      |  |   |   | 
|                                                 |  |                   |         |                                 |   |                                                          |  |                                          |      |  |   |   | 
|Exercisable at December 31, 2008                 |  |                   | 94,183  |                                 | $ | 9.8                                                      |  |                                          | 2.32 |  | $ |  | 
|                                                 |  |                   |         |                                 |   |                                                          |  |                                          |      |  |   |   | 
|                                                 |  |                   |         |                                 |   |                                                          |  |                                          |      |  |   |   | 
|Vested and expected to vest at December 31, 2008 |  |                   | 207,120 |                                 | $ | 8.90                                                     |  |                                          | 2.97 |  | $ |  | 
|                                                 |  |                   |         |                                 |   |                                                          |  |                                          |      |  |   |   | 

F - 34

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                              |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--------- | ---------------------------- | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 14:- | SHAREHOLDERS EQUITY (Cont.)
|          |                              |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|          |                              |    | The
 weighted-average grant-date fair value of options granted during the years
 ended December 31, 2008, 2007 and 2006 was $3.81, $4.36 and $2.6,
 respectively. The aggregate intrinsic value in the table above represents the
 total intrinsic value (the difference between the Companys closing stock
 price on the last trading day of the fourth quarter of fiscal 2008 and the
 exercise price, multiplied by the number of in-the-money options) that would
 have been received by the option holders had all option holders exercised
 their options on December 31, 2008. This amount changes based on the
 fair market value of the Companys stock.
|          |                              |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|          |                              |    | As of
 December 31, 2008, there was approximately $195 of total unrecognized
 compensation costs related to non-vested share-based compensation
 arrangements granted under the Companys stock option plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |                              |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|          |                              |    | That cost is
 expected to be recognized over a weighted-average period of 1.86 years. Total
 grant-date fair value of options that vested during the year ended
 December 31, 2008 was approximately $186.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|          |                              |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|          |                              | 3. | A summary of
 the status of the Companys employee stock options as of December 31, 2008,
 2007 and 2006, and changes during the years then ended, are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                         |  |                         |         |                                    |   |                    |  |                                    |         |                    |   |                                    |  |  |          |   |   |       | 
|---------------------------------------- |  | ----------------------- | ------- | ---------------------------------- | - | ------------------ |  | ---------------------------------- | ------- | ------------------ | - | ---------------------------------- |  |  | -------- | - | - | ----- | 
|                                         |  | Year ended December 31, |        
|                                         |  |                         |        
|                                         |  | 2008                    |         | 2007                               |   | 2006               | 
|                                         |  |                         |         |                                    |   |                    | 
|                                         |  | Amount
 of options      |         | Weighted
 average
 exercise
 price |   | Amount
 of options |  | Weighted
 average
 exercise
 price |         | Amount
 of options |   | Weighted
 average
 exercise
 price | 
|                                         |  |                         |         |                                    |   |                    |  |                                    |         |                    |   |                                    | 
|                                         |  |                         |         |                                    |   |                    |  |                                    |         |                    |   |                                    |  |  |          |   |   |       | 
|Options outstanding at beginning of year |  |                         | 256,145 |                                    | $ | 9.98               |  |                                    | 165,842 |                    | $ | 14.6                               |  |  | 263,753  |   | $ | 16.3  | 
|Granted                                  |  |                         | 12,000  |                                    | $ | 6.00               |  |                                    | 155,000 |                    | $ | 8.7                                |  |  | 12,000   |   | $ | 7.6   | 
|Exercised                                |  |                         |        |                                    | $ |                   |  |                                    |        |                    | $ |                                   |  |  | (103,522 | ) | $ | 7.8   | 
|Forfeited                                |  |                         | (49,900 | )                                  | $ | 13.35              |  |                                    | (64,697 | )                  | $ | 18.91                              |  |  | (6,389   | ) | $ | 179.3 | 
|                                         |  |                         |         |                                    |   |                    |  |                                    |         |                    |   |                                    |  |  |          |   |   |       | 
|                                         |  |                         |         |                                    |   |                    |  |                                    |         |                    |   |                                    |  |  |          |   |   |       | 
|Options outstanding at end of year       |  |                         | 218,245 |                                    | $ | 8.99               |  |                                    | 256,145 |                    | $ | 9.98                               |  |  | 165,842  |   | $ | 14.6  | 
|                                         |  |                         |         |                                    |   |                    |  |                                    |         |                    |   |                                    |  |  |          |   |   |       | 
|                                         |  |                         |         |                                    |   |                    |  |                                    |         |                    |   |                                    |  |  |          |   |   |       | 
|Options exercisable at end of year       |  |                         | 94,183  |                                    | $ | 9.8                |  |                                    | 70,895  |                    | $ | 13.1                               |  |  | 81,092   |   | $ | 19.9  | 
|                                         |  |                         |         |                                    |   |                    |  |                                    |         |                    |   |                                    |  |  |          |   |   |       | 

| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 following table summarizes information relating to employees stock options
 outstanding as of December 31, 2008, according to exercise price range:

|                        |  |                                        |         |                                             |  |                                 |  |                                        |         |                                 |  |        |  |   |      | 
|----------------------- |  | -------------------------------------- | ------- | ------------------------------------------- |  | ------------------------------- |  | -------------------------------------- | ------- | ------------------------------- |  | ------ |  | - | ---- | 
|                        |  | Options outstanding                    |         | Options exercisable                         | 
|                        |  |                                        |         |                                             | 
|Range of exercise price |  | Number outstanding atDecember 31, 2008 |         | Weighted average remaining contractual life |  | Weighted average exercise price |  | Number exercisable atDecember 31, 2008 |         | Weighted average exercise price | 
|                        |  |                                        |         |                                             |  |                                 |  |                                        |         |                                 | 
|                        |  |                                        |         | Years                                       |  |                                 |  |                                        |         |                                 | 
|                        |  |                                        |         |                                             |  |                                 |  |                                        |         |                                 | 
|                        |  |                                        |         |                                             |  |                                 |  |                                        |         |                                 |  |        |  |   |      | 
|$ 5.71-6.91             |  |                                        | 12,000  |                                             |  | 4.3                             |  | $                                      | 6.00    |                                 |  | 3,000  |  | $ | 6.9  | 
|$ 7.01                  |  |                                        | 87,500  |                                             |  | 3.99                            |  | $                                      | 7.01    |                                 |  | 21,875 |  | $ | 7.0  | 
|$ 7.6                   |  |                                        | 9,000   |                                             |  | 2.05                            |  | $                                      | 7.60    |                                 |  | 6,000  |  | $ | 7.6  | 
|$ 9.5-10.6              |  |                                        | 62,750  |                                             |  | 1.57                            |  | $                                      | 10.20   |                                 |  | 47,063 |  | $ | 10.2 | 
|$ 11.24                 |  |                                        | 41,000  |                                             |  | 3.08                            |  | $                                      | 11.24   |                                 |  | 10,250 |  | $ | 11.2 | 
|$ 13.3                  |  |                                        | 5,978   |                                             |  | 0.42                            |  | $                                      | 13.30   |                                 |  | 5,978  |  | $ | 13.3 | 
|$ 1,650.0               |  |                                        | 17      |                                             |  | 0.09                            |  | $                                      | 1650.00 |                                 |  | 17     |  | $ | 1650 | 
|                        |  |                                        |         |                                             |  |                                 |  |                                        |         |                                 |  |        |  |   |      | 
|                        |  |                                        |         |                                             |  |                                 |  |                                        |         |                                 |  |        |  |   |      | 
|                        |  |                                        | 218,245 |                                             |  | 2.96                            |  | $                                      | 8.99    |                                 |  | 94,183 |  | $ | 9.8  | 
|                        |  |                                        |         |                                             |  |                                 |  |                                        |         |                                 |  |        |  |   |      | 

F - 35

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                                                                                                      |                                                                                |                                                                                                                                                                                                                                                                                                                                                                            
|--------- | ---------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 14:- | SHAREHOLDERS EQUITY (Cont.)                                                                        
|          |                                                                                                      |                                                                                |                                                                                                                                                                                                                                                                                                                                                                            
|          |                                                                                                      | 4.                                                                             | On March 5,
 2007, the Board of Directors resolved to modify the terms of the options
 granted to its former CFO on November 23, 2005, by accelerating the vesting
 of the options and extending the exercise period after his resignation until
 June 30, 2008. As a result, the company recorded an additional amortization
 of stock compensation in the amount of $100.
|          |                                                                                                      |                                                                                |                                                                                                                                                                                                                                                                                                                                                                            
|          |                                                                                                      | 5.                                                                             | On February
 25, 2009 the board of directors resolved to issue to the Companys employees
 options to purchase 15,000 of our ordinary shares, pursuant to our 2003
 Employee Share Option Plan, which will vest in four equal annual installments
 over a period of four years, commencing as of the date of the grant, at an
 exercise price of $3.14 per share.          
|          |                                                                                                      |                                                                                |                                                                                                                                                                                                                                                                                                                                                                            
|          |                                                                                                      | 6.                                                                             | On February
 25, 2009 the board of directors resolved to modify the price of 166,750
 options granted to the Companys employees between the period of May 2005 and
 December 2007 to purchase 166,750 of our ordinary shares, pursuant to our
 2003 Employee Share Option Plan, at an exercise price of $3.14 per share.                                                  
|          |                                                                                                      |                                                                                |                                                                                                                                                                                                                                                                                                                                                                            
|          | d.                                                                                                   | Dividends:                                                                    
|          |                                                                                                      |                                                                                |                                                                                                                                                                                                                                                                                                                                                                            
|          |                                                                                                      | Any dividend
 distributed by the Company will be declared and paid in dollars.
|          |                                                                                                      |                                                                                |                                                                                                                                                                                                                                                                                                                                                                            
|NOTE 15:- | NET EARNINGS (LOSS) PER SHARE                                                                       
|          |                                                                                                      |                                                                                |                                                                                                                                                                                                                                                                                                                                                                            
|          | The
 following table sets forth the computation of basic and diluted net earnings
 (loss) per share:

|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------ | ----- | ---- | - | ----- | - | - | ----- | -
|                                                                                                                         |  | Year ended December
 31, |      
|                                                                                                                         |  |                          |      
|                                                                                                                         |  | 2008                     |       | 2007 |   | 2006  |  
|                                                                                                                         |  |                          |       |      |   |       |  
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|Numerator:                                                                                                               |  |                          |       |      |   |       |   |   |       |  
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|Numerator for basic net
 earnings per share - Net income (loss)                                                          |  | $                        | 2,373 |      | $ | (338  | ) | $ | 1,169 |  
|Effect of diluting
 securities                                                                                           |  |                          | (47   | )    |   | 5     |   |   | (244  | )
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|Numerator for diluted net
 earnings per share - Net income (loss)                                                        |  | $                        | 2,326 |      | $ | (333  | ) | $ | 925   |  
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|Denominator:                                                                                                             |  |                          |       |      |   |       |   |   |       |  
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|Denominator for basic net
 earnings per share - weighted-average number of shares outstanding (in
 thousands)            |  |                          | 4,679 |      |   | 4,271 |   |   | 2,983 |  
|Effect of diluting
 securities (in thousands)                                                                            |  |                          |      |      |   | 39    |   |   | 20    |  
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|Denominator for diluted net
 earnings per share - adjusted weighted average shares and assumed exercises
 (in thousands) |  |                          | 4,679 |      |   | 4,310 |   |   | 3,003 |  
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|Basic net earnings (loss)
 per share                                                                                     |  | $                        | 0.51  |      | $ | (0.08 | ) | $ | 0.39  |  
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  
|Diluted net earnings (loss)
 per share                                                                                   |  | $                        | 0.50  |      | $ | (0.08 | ) | $ | 0.31  |  
|                                                                                                                         |  |                          |       |      |   |       |   |   |       |  

F - 36

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--------- | ------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 16:- | INCOME TAXES
|          |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|          | a.           | Measurement
 of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985
 (the Law):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|          |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |              | Under the
 Law, the Companys results for tax purposes are measured in terms of earnings
 in NIS after certain adjustments for changes in the Israeli CPI. As explained
 in Note 2b, the financial statements are measured in dollars. The difference
 between the annual change in the Israeli CPI and in the NIS/dollar exchange
 rate causes a difference between taxable income and the income before taxes
 shown in the financial statements. In accordance with paragraph 9(f) of SFAS
 No. 109, the Company has not provided deferred income taxes on the difference
 between the functional currency and the tax bases of assets and liabilities.                                                                                          
|          |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |              | In February
 2008, the Knesset (Israeli parliament) passed an amendment to the Income Tax
 (Inflationary Adjustments) Law, 1985, which limits the scope of the law
 starting 2008 and thereafter. Starting 2008, the results for tax purposes
 will be measured in nominal values, excluding certain adjustments for changes
 in the Consumer Price Index carried out in the period up to December 31,
 2007. The amended law includes, inter alia, the elimination of the
 inflationary additions and deductions and the additional deduction for
 depreciation starting 2008.                                                                                                                                                                   
|          |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|          | b.           | Tax benefits
 under the Law for the Encouragement of Industry (Taxation), 1969:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |              | The Company
 is an industrial company, as defined by this law and, as such, is entitled
 to certain tax benefits, mainly accelerated depreciation of machinery and
 equipment, as prescribed by regulations published under the Income Tax Law
 (Inflationary Adjustments), 1985, the right to claim public issuance expenses
 in three annual installments and an annual deduction of 12.5% of patents and
 other intangible property rights as deductions for tax purposes.                                                                                                                                                                                                                                                                     
|          |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|          | c.           | The Law for
 the Encouragement of Capital Investments, 1959 (the Law):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|          |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |              | According to
 the Law, the companies are entitled to various tax benefits by virtue of the
 approved enterprise and/or beneficiary enterprise status granted to part
 of their enterprises, as implied by this Law. The Tax benefits and reduced
 tax rates under the Alternative track is: the Company is tax exempt in the
 first two years and subject to tax at the reduced rate of 25% for a period of
 five years for the remaining benefit period.                                                                                                                                                                                                                                                                                       
|          |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |              | The income
 qualifying for tax benefits under the alternative track is the taxable income
 of a company that has met certain conditions as determined by the Law (a
 beneficiary company), and which is derived from an industrial enterprise. The
 Law specifies the types of qualifying income that is entitled to tax benefits
 under the alternative track both in respect of an industrial enterprise,
 whereby income from an industrial enterprise includes, among others, revenues
 from the production and development of software products and revenues from
 industrial research and development activities performed for a foreign
 resident (and approved by the Head of the Administration of Industrial
 Research and Development).
|          |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |              | The
 Companys expansion program of its plant was granted the status of an
 approved program, in accordance with the Law, under the alternative track.
 According to this track, income derived from the approved enterprise is
 subject to the benefits and related conditions, as above.                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F - 37

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--------- | -------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 16:- | INCOME TAXES (Cont.)
|          |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|          |                      | The benefit
 period starts with the first year the approved enterprise/beneficiary
 enterprise earns taxable income, provided that 14 years have not passed since
 the approval was granted and 12 years have not passed since the enterprise
 began operating. In respect of expansion programs pursuant to Amendment No.
 60 to the Law, the benefit period starts at the later of the year elected and
 the first year the Company earns taxable income provided that 12 years have
 not passed since the beginning of the year of election. The Companys benefit
 period regarding to the approved enterprise status will end in 2010.
|          |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|          |                      | If dividends
 are distributed out of tax exempt profits, as above, the Company will become
 liable for tax at the rate applicable to its profits from the approved
 enterprise in the year in which the income was earned, as if it was not under
 the alternative track (tax at the rate of 0%). The Companys policy is not to
 distribute dividends as above.                                                                                                                                                                                                                                                                           
|          |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|          | d.                   | On July 25,
 2005, the Knesset (Israeli Parliament) passed the Law for the Amendment of
 the Income Tax Ordinance (No. 147), 2005, which prescribes, among others, a
 gradual decrease in the corporate tax rate in Israel to the following tax
 rates: in 2006 - 31%, in 2007 - 29%, in 2008 - 27%, in 2009 - 26% and in 2010
 and thereafter - 25%.                                                                                                                                                                                                                                                                                      
|          |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|          | e.                   | Income
 before taxes on income:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|         |  |                         |        |      |   |        |   |   |        |  
|-------- |  | ----------------------- | ------ | ---- | - | ------ | - | - | ------ | -
|         |  | Year ended December 31, |       
|         |  |                         |       
|         |  | 2008                    |        | 2007 |   | 2006   |  
|         |  |                         |        |      |   |        |  
|         |  |                         |        |      |   |        |   |   |        |  
|Domestic |  | $                       | 6,953  |      | $ | 2,412  |   | $ | 4,188  |  
|Foreign  |  |                         | (1,692 | )    |   | (1,031 | ) |   | (1,893 | )
|         |  |                         |        |      |   |        |   |   |        |  
|         |  |                         |        |      |   |        |   |   |        |  
|         |  | $                       | 5,261  |      | $ | 1,381  |   | $ | 2,295  |  
|         |  |                         |        |      |   |        |   |   |        |  

| |    |                                                                                                                                                                                                                                                                                                                                          |                                       
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------
| | f. | Deferred
 taxes:                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                          |                                       
| |    | Deferred
 income taxes reflect the net tax effects of temporary differences between the
 carrying amounts of assets and liabilities for financial reporting purposes,
 and amounts used for income tax purposes. Significant components of the
 deferred tax liabilities and assets of the Company and its subsidiaries are
 as follows:
| |    |                                                                                                                                                                                                                                                                                                                                          |                                       
| |    | 1.                                                                                                                                                                                                                                                                                                                                       | Provided in
 respect of the following:

|                                                    |  |              |         |      |   |         |  
|--------------------------------------------------- |  | ------------ | ------- | ---- | - | ------- | -
|                                                    |  | December 31, |        
|                                                    |  |              |        
|                                                    |  | 2008         |         | 2007 |  
|                                                    |  |              |         |      |  
|                                                    |  |              |         |      |   |         |  
|Reserves and accruals                               |  | $            | 560     |      | $ | 354     |  
|Carryforward tax losses                             |  |              | 26,574  |      |   | 26,219  |  
|Other temporary
 differences, net                   |  |              | 553     |      |   | 109     |  
|Goodwill                                            |  |              | (3,491  | )    |   | (2,330  | )
|                                                    |  |              |         |      |   |         |  
|                                                    |  |              |         |      |   |         |  
|Net
 deferred tax assets before valuation allowance |  |              | 24,196  |      |   | 24,352  |  
|Valuation allowance (3)                             |  |              | (22,087 | )    |   | (22,433 | )
|                                                    |  |              |         |      |   |         |  
|                                                    |  |              |         |      |   |         |  
|Net deferred tax assets                             |  | $            | 2,109   |      | $ | 1,919   |  
|                                                    |  |              |         |      |   |         |  
|                                                    |  |              |         |      |   |         |  
|Domestic                                            |  | $            | 2,109   |      | $ | 1,919   |  
|Foreign                                             |  |              |        |      |   |        |  
|                                                    |  |              |         |      |   |         |  
|                                                    |  |              |         |      |   |         |  
|                                                    |  | $            | 2,109   |      | $ | 1,919   |  
|                                                    |  |              |         |      |   |         |  

F - 38

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                      |    |                                                                             
|--------- | -------------------- | -- | ----------------------------------------------------------------------------
|NOTE 16:- | INCOME TAXES (Cont.)
|          |                      |    |                                                                             
|          |                      | 2. | Deferred
 taxes are included in the consolidated balance sheets, as follows:

|                  |  |              |       |      |   |       | 
|----------------- |  | ------------ | ----- | ---- | - | ----- | 
|                  |  | December 31, |      
|                  |  |              |      
|                  |  | 2008         |       | 2007 |  
|                  |  |              |       |      |  
|                  |  |              |       |      |   |       | 
|Current
 assets   |  | $            | 1,072 |      | $ | 978   | 
|Long-term
 assets |  |              | 1,037 |      |   | 941   | 
|                  |  |              |       |      |   |       | 
|                  |  |              |       |      |   |       | 
|                  |  | $            | 2,109 |      | $ | 1,919 | 
|                  |  |              |       |      |   |       | 

| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 3. | The Company
 and its subsidiaries (except Shagrir) have provided valuation allowances in
 respect of deferred tax assets resulting from tax loss carryforwards and
 other temporary differences. Since the Company and its subsidiaries (except
 for Shagrir) have a history of losses, it is more likely than not that the deferred
 taxes regarding the losses carryforwards and other temporary differences will
 not be realized in the foreseeable future.
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |    | Shagrir has
 provided in 2006, for the first time, deferred tax assets relating to the tax
 losses carryforward and other temporary differences that it is more likely
 than not they will be realized in the foreseeable future. The valuation
 allowance was adjusted respectively.                                                                                                                                                                          
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | 4. | Reconciling
 items between the statutory tax rate of the Company and the effective tax
 rate:                                                                                                                                                                                                                                                                                                                                                                  

|                                                                                                                                                     |  |                         |       |      |   |       |   |   |       |  
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- | - | - | ----- | -
|                                                                                                                                                     |  | Year ended December 31, |      
|                                                                                                                                                     |  |                         |      
|                                                                                                                                                     |  | 2008                    |       | 2007 |   | 2006  |  
|                                                                                                                                                     |  |                         |       |      |   |       |  
|                                                                                                                                                     |  |                         |       |      |   |       |   |   |       |  
|Income before taxes, as
 reported in the consolidated statements of operations                                                                       |  | $                       | 5,261 |      | $ | 1,381 |   | $ | 2,295 |  
|                                                                                                                                                     |  |                         |       |      |   |       |   |   |       |  
|                                                                                                                                                     |  |                         |       |      |   |       |   |   |       |  
|Statutory tax rate                                                                                                                                   |  |                         | 27    | %    |   | 29    | % |   | 31    | %
|                                                                                                                                                     |  |                         |       |      |   |       |   |   |       |  
|                                                                                                                                                     |  |                         |       |      |   |       |   |   |       |  
|Theoretical tax expenses on the
 above amount at the Israeli statutory tax rate                                                                      |  | $                       | 1,420 |      | $ | 400   |   | $ | 711   |  
|Tax adjustment in respect of
 different tax rates                                                                                                    |  |                         |      |      |   |      |   |   | (219  | )
|Minority
 interest in earnings of subsidiary                                                                                                         |  |                         | (591  | )    |   |      |   |   |      |  
|                                                                                                                                                     |  |                         |       |      |   |       |   |   |       |  
|Realization of carryforward tax
 losses for which a valuation allowance was provided and change in valuation
 allowance in respect of deferred taxes |  |                         | (292  | )    |   | (352  | ) |   | (525  | )
|Nondeductible expenses and
 other permanent differences                                                                                              |  |                         | 103   |      |   | 305   |   |   | 115   |  
|                                                                                                                                                     |  |                         |       |      |   |       |   |   |       |  
|                                                                                                                                                     |  |                         |       |      |   |       |   |   |       |  
|                                                                                                                                                     |  | $                       | 640   |      | $ | 353   |   | $ | 82    |  
|                                                                                                                                                     |  |                         |       |      |   |       |   |   |       |  

F - 39

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                      |                                                                                                                                                                                                                        
|--------- | -------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 16:- | INCOME TAXES (Cont.)
|          |                      |                                                                                                                                                                                                                        
|          | g.                   | Carryforward
 tax losses and deductions:                                                                                                                                                                               
|          |                      |                                                                                                                                                                                                                        
|          |                      | Carryforward
 tax losses of the Company totaled approximately $77,869 (including a capital
 loss in the amount of approximately $31,541) as of December 31, 2008.
 The carryforward tax losses have no expiration date.
|          |                      |                                                                                                                                                                                                                        
|          |                      | Carryforward
 tax losses of Pointer Argentina are approximately $551 as of December 31,
 2008. The carryforward tax losses will expire from 2009 to 2010.                                                              
|          |                      |                                                                                                                                                                                                                        
|          |                      | Carryforward
 tax losses of Shagrir totaled approximately $23,146 as of December 31,
 2007. The carryforward tax losses have no expiration date.                                                                       
|          |                      |                                                                                                                                                                                                                        
|          |                      | Carryforward
 tax losses of Pointer Mexico totaled approximately $3,856 as of December 31,
 2008. The carryforward tax losses will expire from 2014 to 2018.                                                           
|          |                      |                                                                                                                                                                                                                        
|          | h.                   | Final tax
 assessments:                                                                                                                                                                                                
|          |                      |                                                                                                                                                                                                                        
|          |                      | Tax
 assessments for the Company, Shagrir and Pointer Argentina are considered
 final as of the 2003 tax year.                                                                                                         
|          |                      |                                                                                                                                                                                                                        
|          | i.                   | Taxes on
 income (tax benefit) included in the consolidated statements of operations:                                                                                                                                  

|         |  |                         |     |      |   |      |  |   |      |  
|-------- |  | ----------------------- | --- | ---- | - | ---- |  | - | ---- | -
|         |  | Year ended December 31, |    
|         |  |                         |    
|         |  | 2008                    |     | 2007 |   | 2006 | 
|         |  |                         |     |      |   |      | 
|         |  |                         |     |      |   |      |  |   |      |  
|Current  |  | $                       | 12  |      | $ |     |  | $ | 182  |  
|Deferred |  |                         | 628 |      |   | 353  |  |   | (100 | )
|         |  |                         |     |      |   |      |  |   |      |  
|         |  |                         |     |      |   |      |  |   |      |  
|         |  | $                       | 640 |      | $ | 353  |  | $ | 82   |  
|         |  |                         |     |      |   |      |  |   |      |  
|         |  |                         |     |      |   |      |  |   |      |  
|Domestic |  | $                       | 628 |      | $ | 353  |  | $ | 82   |  
|Foreign  |  |                         | 12  |      |   |     |  |   |     |  
|         |  |                         |     |      |   |      |  |   |      |  
|         |  |                         |     |      |   |      |  |   |      |  
|         |  | $                       | 640 |      | $ | 353  |  | $ | 82   |  
|         |  |                         |     |      |   |      |  |   |      |  

|          |                                                |                                
|--------- | ---------------------------------------------- | -------------------------------
|NOTE 17:- | BALANCES AND TRANSACTIONS WITH RELATED PARTIES
|          |                                                |                                
|          | a.                                             | Balances
 with related parties:

|                                               |  |              |    |      |     |     | 
|---------------------------------------------- |  | ------------ | -- | ---- | --- | --- | 
|                                               |  | December 31, |   
|                                               |  |              |   
|                                               |  | 2008         |    | 2007 |    
|                                               |  |              |    |      |    
|                                               |  |              |    |      |     |     | 
|Other
 accounts payable and accrued expenses:  |  |              |    |      |     |     | 
|DBSI (see Note 13f(1))                         |  | $            | 52 |      | $   | 51  | 
|                                               |  |              |    |      |     |     | 
|Long-term
 loans from shareholders and others: |  |              |    |      |     |     | 
|Egged Holdings Ltd. (see Note
13f(1))          |  | $            |   |      | $*) | 728 | 

F - 40

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                                                        |                                    
|--------- | ------------------------------------------------------ | -----------------------------------
|NOTE 17:- | BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)
|          |                                                        |                                    
|          | b.                                                     | Transactions
 with related parties:

|                                                       |  |                         |     |      |   |      |  |   |     | 
|------------------------------------------------------ |  | ----------------------- | --- | ---- | - | ---- |  | - | --- | 
|                                                       |  | Year ended December 31, |    
|                                                       |  |                         |    
|                                                       |  | 2008                    |     | 2007 |   | 2006 | 
|                                                       |  |                         |     |      |   |      | 
|                                                       |  |                         |     |      |   |      |  |   |     | 
|Management
 fees to DBSI (see Note 13f(1))             |  | $                       | 180 |      | $ | 180  |  | $ | 180 | 
|                                                       |  |                         |     |      |   |      |  |   |     | 
|Interest on
 long-term loans from Egged (see Note 11a) |  | $                       |    |      | $ | 94   |  | $ | 131 | 

*) During 2007, Egged Holdings Ltd. ceased to be a shareholder of the
Company.

|          |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                     
|--------- | -------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 18:- | SEGMENT, CUSTOMER AND GEOGRAPHIC INFORMATION
|          |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                     
|          | a.                                           | General:                                                                                                                                                                                                                                                                                                                                                                                                            
|          |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |                                              | Commencing
 January 2008, the Company has two reportable segments that are related to
 continuing operations. The Cellocator segment and the Pointer
 segment.                                                                                                                                                                                                                                                      
|          |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |                                              | The
 Cellocator segment develops, manufactures and markets the following
 products: Cellular/GPS and
 Radio Monitoring Units, Location Based Services systems, and fleet management
 application products. The
 Company sells its systems and products to operators (directly or through
 distributors).                                                                                                            
|          |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |                                              | The Pointer
 segment sells products and provides a range of services to
 insurance companies, and to a lesser extent to other corporate and individual
 customers. The ranges of services are composed of: Stolen vehicle retrieval services, Road-side assistance and towing and Fleet
 management services.                                                                                                       
|          |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |                                              | During
 2008, as a result of Cellocator acquisition on September 18, 2007, the Company
 started to produce discrete operating results of two business units, the Cellocator
 segment and the Pointer segment has a result of the CODMs (chief
 operating decision maker, who is the Chief Executive Officer) decision to
 control and mange the results of the Companys business by the above
 mentioned segments.
|          |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |                                              | The Company
 evaluates performance and allocates resources based on operating profit or
 loss. The accounting policies of the reportable segments are the same as
 those described in the summary of significant accounting policies.                                                                                                                                                                               
|          |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                     
|          |                                              | The Company
 applies SFAS 131, Disclosures about Segments of an Enterprise and Related
 Information.                                                                                                                                                                                                                                                                                                              

F - 41

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                                                      |                                                                                            
|--------- | ---------------------------------------------------- | -------------------------------------------------------------------------------------------
|NOTE 18:- | SEGMENT, CUSTOMER AND GEOGRAPHIC INFORMATION (Cont.)
|          |                                                      |                                                                                            
|          | b.                                                   | The
 following presents segment results of operations for the year ended December
 31, 2008

|                                        |  |                    |        |                 |   |        |  |   |         |  
|--------------------------------------- |  | ------------------ | ------ | --------------- | - | ------ |  | - | ------- | -
|                                        |  | Cellocator segment |        | Pointer segment |   | Total  | 
|                                        |  |                    |        |                 |   |        | 
|                                        |  |                    |        |                 |   |        |  |   |         |  
|Segments
 Revenues                      |  | $                  | 24,964 |                 | $ | 57,553 |  | $ | 82,517  |  
|Intersegments
 revenues                 |  |                    | (5,862 | )               |   |       |  |   | (5,862  | )
|                                        |  |                    |        |                 |   |        |  |   |         |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|Revenues
 from external customers       |  | $                  | 19,102 |                 | $ | 57,553 |  | $ | 76,655  |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|Segments
 Operating profit              |  | $                  | 3,777  |                 | $ | 6,394  |  | $ | 10,171  |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|Segments
 Assets                        |  | $                  | 24,020 |                 | $ | 81,471 |  | $ | 105,491 |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|Depreciation
 and amortization expenses |  | $                  | 1,720  |                 | $ | 4,394  |  | $ | 6,114   |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|Expenditures
 for assets                |  | $                  | 282    |                 | $ | 3,194  |  | $ | 3,476   |  

| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Pointer
 segment revenues include revenue from services in the amount of $46,010.                                                                            
| |                                                                                                                                                                  
| | The
 following reconciles segment Operating profit and Segments assets to net
 Operating profit and assets as reported in the consolidated statements of
 income:

|                                         |  |   |         |  
|---------------------------------------- |  | - | ------- | -
|Segments
 Operating profit               |  | $ | 10,171  |  
|Intercompany
 loss on intersegment sales |  | $ | (878    | )
|                                         |  |   |         |  
|Operating
 income                        |  | $ | 9,293   |  
|                                         |  |   |         |  
|                                         |  |   |         |  
|Segments
 assets                         |  | $ | 105,491 |  
|Intercompany
 elimination                |  | $ | (2,892  | )
|                                         |  |   |         |  
|Total assets                             |  | $ | 102,599 |  
|                                         |  |   |         |  

| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | The
 following presents segment results of operations for the year ended December
 31, 2007

|                                        |  |                    |        |                 |   |        |  |   |         |  
|--------------------------------------- |  | ------------------ | ------ | --------------- | - | ------ |  | - | ------- | -
|                                        |  | Cellocator segment |        | Pointer segment |   | Total  | 
|                                        |  |                    |        |                 |   |        | 
|                                        |  |                    |        |                 |   |        |  |   |         |  
|Segments
 Revenues                      |  | $                  | 10,022 |                 | $ | 45,953 |  | $ | 55,975  |  
|Intersegments
 revenues                 |  |                    | (4,348 | )               |   |       |  |   | (4,348  | )
|                                        |  |                    |        |                 |   |        |  |   |         |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|Revenues
 from external customers       |  | $                  | 5,674  |                 | $ | 45,953 |  | $ | 51,627  |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|Segments
 Operating profit(loss)        |  | $                  | (1,454 | )               | $ | 5,703  |  | $ | 4,249   |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|Segments Assets                         |  | $                  | 23,327 |                 | $ | 78,775 |  | $ | 102,102 |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|Depreciation
 and amortization expenses |  | $                  | 853    |                 | $ | 3,888  |  | $ | 4,741   |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|Expenditures
 for assets                |  | $                  | 236    |                 | $ | 2,402  |  | $ | 2,638   |  
|                                        |  |                    |        |                 |   |        |  |   |         |  
|Acquisition
 of Cellocator              |  | $                  | 16,571 |                 | $ |       |  | $ |        |  
|                                        |  |                    |        |                 |   |        |  |   |         |  

F - 42

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                                                      |                                                                                                                                                                  
|--------- | ---------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 18:- | SEGMENT, CUSTOMER AND GEOGRAPHIC INFORMATION (Cont.)
|          |                                                      |                                                                                                                                                                  
|          |                                                      | The Pointer
 segment revenues include revenue from services in the amount of $35,806.                                                                            
|          |                                                      |                                                                                                                                                                  
|          |                                                      | The
 following reconciles segment Operating profit and Segments assets to net
 Operating profit and assets as reported in the consolidated statements of
 income:

|                                         |  |   |         |  
|---------------------------------------- |  | - | ------- | -
|Segments
 Operating profit               |  | $ | 4,249   |  
|Intercompany
 loss on intersegment sales |  | $ | (42     | )
|                                         |  |   |         |  
|Operating
 income                        |  | $ | 4,207   |  
|                                         |  |   |         |  
|                                         |  |   |         |  
|Segments
 assets                         |  | $ | 102,102 |  
|Intercompany
 elimination                |  | $ | (1,866  | )
|                                         |  |   |         |  
|                                         |  |   |         |  
|Total assets                             |  | $ | 100,236 |  
|                                         |  |   |         |  

| |    |                                               
| | -- | ----------------------------------------------
| | c. | Summary information
 about geographical areas:

|   |  |  |                |  |                         |        |      |   |        |  |   |        | 
|-- |  |  | -------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------ | 
|   |  |  |                |  | Year ended December 31, |       
|   |  |  |                |  |                         |       
|   |  |  |                |  | 2008                    |        | 2007 |   | 2006   | 
|   |  |  |                |  |                         |        |      |   |        | 
|   |  |  |                |  |                         |        |      |   |        |  |   |        | 
|1. |  |  | Revenues *):   |  |                         |        |      |   |        |  |   |        | 
|   |  |  |                |  |                         |        |      |   |        |  |   |        | 
|   |  |  | Israel         |  | $                       | 54,322 |      | $ | 42,859 |  | $ | 37,346 | 
|   |  |  | Latin
 America |  |                         | 7,923  |      |   | 4,647  |  |   | 3,424  | 
|   |  |  | Europe         |  |                         | 12,826 |      |   | 3,836  |  |   | 1,077  | 
|   |  |  | Other          |  |                         | 1,584  |      |   | 285    |  |   | 65     | 
|   |  |  |                |  |                         |        |      |   |        |  |   |        | 
|   |  |  |                |  |                         |        |      |   |        |  |   |        | 
|   |  |  |                |  | $                       | 76,655 |      | $ | 51,627 |  | $ | 41,912 | 
|   |  |  |                |  |                         |        |      |   |        |  |   |        | 

| |    |                                                                                         
| | -- | ----------------------------------------------------------------------------------------
| | *) | Revenues are
 attributed to geographic areas based on the location of the end-customers.

|   |  |  |                     |  |              |        |      |   |        |  |   |        | 
|-- |  |  | ------------------- |  | ------------ | ------ | ---- | - | ------ |  | - | ------ | 
|   |  |  |                     |  | December 31, |       
|   |  |  |                     |  |              |       
|   |  |  |                     |  | 2008         |        | 2007 |   | 2006   | 
|   |  |  |                     |  |              |        |      |   |        | 
|   |  |  |                     |  |              |        |      |   |        |  |   |        | 
|2. |  |  | Long-lived
 assets: |  |              |        |      |   |        |  |   |        | 
|   |  |  |                     |  |              |        |      |   |        |  |   |        | 
|   |  |  | Israel              |  | $            | 72,189 |      | $ | 74,991 |  | $ | 53,638 | 
|   |  |  | Argentina           |  |              | 977    |      |   | 1,162  |  |   | 725    | 
|   |  |  | Mexico              |  |              | 142    |      |   | 325    |  |   | 302    | 
|   |  |  |                     |  |              |        |      |   |        |  |   |        | 
|   |  |  |                     |  |              |        |      |   |        |  |   |        | 
|   |  |  |                     |  | $            | 73,308 |      | $ | 76,478 |  | $ | 54,665 | 
|   |  |  |                     |  |              |        |      |   |        |  |   |        | 

| |    |                                                                                                                                                      
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | d. | In 2008 none
 of our customer accounted above 10% of the Companys revenues and in 2007,
 one customer accounted for 10.5% of the Companys revenues.

F - 43

---

---



|                                                            
|------------------------------------------------------------
|POINTER TELOCATION LTD. AND ITS
 SUBSIDIARIES               
|                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                            
|U.S. dollars in thousands (except share and
 per share data)

|          |                                       
|--------- | --------------------------------------
|NOTE 19:- | SELECTED STATEMENTS OF OPERATIONS DATA

|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  
|-- |  |  | ----------------------------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | ----- | -
|   |  |  |                                                             |  | Year ended December 31, |      
|   |  |  |                                                             |  |                         |      
|   |  |  |                                                             |  | 2008                    |       | 2007 |   | 2006  | 
|   |  |  |                                                             |  |                         |       |      |   |       | 
|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  
|a. |  |  | Financial expenses, net:                                    |  |                         |       |      |   |       |  |   |       |  
|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  
|   |  |  | Income:                                                     |  |                         |       |      |   |       |  |   |       |  
|   |  |  | Interest on short-term bank
deposits                        |  | $                       | 21    |      | $ | 336   |  | $ | 112   |  
|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  
|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  
|   |  |  | Expenses:                                                   |  |                         |       |      |   |       |  |   |       |  
|   |  |  | Bank charges and interest
expenses                          |  |                         | 1,948 |      |   | 1,619 |  |   | 1,763 |  
|   |  |  | Foreign currency translation
adjustments                    |  |                         | 1,283 |      |   | 529   |  |   | (40   | )
|   |  |  | Interest on long-term loans to
shareholders                 |  |                         |      |      |   |      |  |   | 131   |  
|   |  |  | Interest on long-term loans to
others                       |  |                         | (3    | )    |   | 515   |  |   | 631   |  
|   |  |  | Amortization of discount on long-term
loans                 |  |                         | 704   |      |   |      |  |   | 204   |  
|   |  |  | Interest on convertible debenture                           |  |                         | 77    |      |   | 28    |  |   |      |  
|   |  |  | Change in fair value of foreign currency
 forward contracts |  |                         |      |      |   | 111   |  |   |      |  
|   |  |  | Other                                                       |  |                         | 66    |      |   | 348   |  |   |      |  
|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  
|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  
|   |  |  |                                                             |  |                         | 4,075 |      |   | 3,150 |  |   | 2,689 |  
|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  
|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  
|   |  |  |                                                             |  | $                       | 4,054 |      | $ | 2,814 |  | $ | 2,577 |  
|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  
|b. |  |  | Other expenses (income), net:                               |  |                         |       |      |   |       |  |   |       |  
|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  
|   |  |  | Capital loss (gain)                                         |  | $                       | 36    |      | $ | 12    |  | $ | (20   | )
|   |  |  | Other                                                       |  |                         | (14   | )    |   |      |  |   | 6     |  
|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  
|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  
|   |  |  |                                                             |  | $                       | (22   | )    | $ | 12    |  | $ | (14   | )
|   |  |  |                                                             |  |                         |       |      |   |       |  |   |       |  

F - 44

---

---