---

---

# UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549

# FORM 20-F

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 For the transition period from ___ to ____

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

# Commission file
number: 0-29360



RiT TECHNOLOGIES LTD.
(Exact name of
Registrant as specified in its charter)

Israel
(Jurisdiction of
incorporation or organization)

24 Raoul Wallenberg
Street, Tel Aviv, Israel
(Address of principal
executive offices)

Simona Green, VP
FinanceRiT Technologies Ltd.24 Raoul Wallenberg
Street, Tel Aviv, IsraelTel: +972-3- 7664249Fax: +972-3- 7664249
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities
registered pursuant to Section 12(b) of the Act:

|                            |                                          
|--------------------------- | -----------------------------------------
|Title of Each Class         | Name
of Each Exchange On Which Registered
|Ordinary Shares,            | NASDAQ Capital Market                    
|NIS 0.1 par value per
share |                                          

Securities 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

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:

As of December 31, 2008, the
issuer had 20,835,420 ordinary shares outstanding (excluding 17,000 ordinary sharesheld
as treasury shares).

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

o Yes x No

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.

o Yes x  No



---

---

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:

x   U.S. GAAP

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

o Other

If
Other has been checked in response to the previous question indicate by check
mark which financial statements the registrant has elected to follow:

o Item 17   o Item 18

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).

o Yes   x No



---

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Part I

|        |                                                            |   
|------- | ---------------------------------------------------------- | --
|
|
|
|
|Item 1  | Identity of Directors, Senior Management and Advisors      | 6 
|       
|Item 2  | Offer Statistics and Expected Timetable                    | 6 
|       
|Item 3  | Key Information                                            | 6 
|A       | Selected Financial Data                                    | 6 
|B       | Capitalization and Indebtedness                            | 8 
|C       | Reasons for the Offer and Use of Proceeds                  | 8 
|D       | Risk Factors                                               | 8 
|       
|Item 4  | Information on the Company                                 | 16
|A       | History and Development of the Company                     | 16
|B       | Business Overview                                          | 17
|C       | Organizational Structure                                   | 23
|D       | Property, Plants and Equipment                             | 25
|       
|Item 4A | Unresolved Staff Comments                                  | 25
|       
|Item 5  | Operating and Financial Review and Prospects               | 25
|A       | Operating Results                                          | 25
|B       | Liquidity and Capital Resources                            | 32
|C       | Research and Development, Patents and Licenses             | 33
|D       | Trend Information                                          | 34
|E       | Off-Balance Sheet Arrangements                             | 34
|F       | Tabular Disclosure of Contractual Obligations              | 34
|       
|Item 6  | Directors, Senior Management and Employees                 | 35
|A       | Directors and Senior Management                            | 35
|B       | Compensation                                               | 37
|C       | Board Practices                                            | 47
|D       | Employees                                                  | 40
|E       | Share Ownership                                            | 41
|       
|Item 7  | Major Shareholders and Related Party Transactions          | 42
|A       | Major Shareholders                                         | 42
|B       | Related Party Transactions                                 | 43
|C       | Interests of Experts and Counsel                           | 45
|       
|Item 8  | Financial Information                                      | 45
|A       | Consolidated Statements and Other Financial Information    | 45
|B       | Significant Changes                                        | 45
|       
|Item 9  | The Offer and Listing                                      | 45
|A       | Offer and Listing details                                  | 45
|B       | Plan of Distribution                                       | 46
|C       | Markets                                                    | 46
|D       | Selling Shareholders                                       | 46
|E       | Dilution                                                   | 46
|F       | Expenses of the Issue                                      | 46
|       
|Item 10 | Additional Information                                     | 46
|A       | Share Capital                                              | 46
|B       | Memorandum and Articles of Association                     | 46
|C       | Material Contracts                                         | 51
|D       | Exchange Controls                                          | 51
|E       | Taxation                                                   | 51
|F       | Dividends and Paying Agents                                | 58
|G       | Statements by Experts                                      | 58
|H       | Documents on Display                                       | 58
|I       | Subsidiary Information                                     | 58
|       
|Item 11 | Quantitative and Qualitative Disclosures about Market Risk | 58
|       
|Item 12 | Description of Securities Other Than Equity Securities     | 59



---

---

Part II

|         |                                                                              |   
|-------- | ---------------------------------------------------------------------------- | --
|
|
|
|
|Item 13  | Defaults, Dividend Averages and Delinquencies                                | 59
|        
|Item 14  | Material Modifications to the Rights of Security Holders and Use of Proceeds | 59
|        
|Item 15  | Controls and Procedures                                                      | 59
|        
|Item 16A | Audit Committee Financial Expert                                             | 60
|        
|Item 16B | Code of Ethics                                                               | 60
|        
|Item 16C | Principal Accountant Fees and Services                                       | 60
|        
|Item 16D | Exemptions from Listing Requirements and Standards for Audit Committee       | 60
|        
|Item 16E | Purchases of Equity Securities by the Issuer and Affiliated Purchasers       | 60
|        
|Item 16F | Change in Registrant's Certifying Accountant                                 | 60
|        
|Item 16G | Corporate Governance                                                         | 61

Part III

|        |                      |   
|------- | -------------------- | --
|
|
|
|
|Item 17 | Financial Statements | 61
|       
|Item 18 | Financial Statements | 61
|       
|Item 19 | Exhibits             | 62



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# INTRODUCTION

Unless the context otherwise
requires, all references in this annual report to:

| |  | we, us, our, RiT, the Registrant
or the Company refer to RiT Technologies Ltd. and its wholly-
owned subsidiaries;
| | - | ------------------------------------------------------------------------------------------------------------------------------

| |  | dollars
or $ are to United States Dollars
| | - | ---------------------------------------------

| |  | NIS
are to New Israeli Shekels, the currency of the State of Israel;
| | - | ----------------------------------------------------------------------

| |  | Companies
Law or the Israeli Companies Law are to the Israeli Companies Law,
5759-1999;
| | - | -------------------------------------------------------------------------------------------

| |  | SEC
are to the United States Securities and Exchange Commission;
| | - | ------------------------------------------------------------------

| |  | STINS
or STINS COMAN are to STINS COMAN Incorporated, a Russian corporation
headquartered in Moscow, Russia, and which is our largest shareholder; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | enterprise
and carrier relate to the sectors we formerly identified as
datacom and telecom.
| | - | ----------------------------------------------------------------------------------------------------

Statements made in this annual report
concerning the contents of any contract, agreement or other document are summaries of such
contracts, agreements or documents and are not complete descriptions of all of their
terms. If we filed any of these documents as an exhibit to this annual report or to any
registration statement or annual report that we previously filed, you may read the
document itself for a complete description of its terms,and the summary included
herein is qualified by reference to the full text of the document which is incorporated by
reference into this annual report.

# Trademarks

Unless indicated otherwise by the
context, trade names, trademarks and/or service marks appearing throughout this annual
report are trademarks of RiT, its subsidiaries and/or its affiliates and may be registered
in certain jurisdictions.

# Cautionary Statement
Concerning Forward-Looking Statements

Statements in this annual report
that are not statements of historical or current fact constitute forward-looking
statements within the meaning of the United States Private Securities Litigation
Reform Act of 1995. We have based these forward-looking statements on our current
expectations and projections about future events. These statements include but are not
limited to:

| | expectations
as to the timing of profitability, and the adequacy of our cash balances and cash flow
from operations to support our operations for specified periods of time;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | expectations
as to the timing of raising additional financing;
|- | --------------------------------------------------------------

| | statements
as to expected sales, operating results and certain expenses, including research and
development and sales and marketing expenses;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | expectations
as to the development of our products and technology, and the timing of enhancements
to our products and new product launches;
|- | -------------------------------------------------------------------------------------------------------------------------------------------

| | expectations
that we will not lose a significant customer or customers or experience increased
fluctuations of demand or rescheduling of purchase orders;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | estimates
of the impact of changes in currency exchange rates on our operating results;
|- | ---------------------------------------------------------------------------------------

| | expectations
as to the adequacy of our inventory of critical components and finished products;
|- | ----------------------------------------------------------------------------------------------

| | expectations
that our markets will grow;
|- | ----------------------------------------

| | expectations
that our products will remain accepted within their respective markets and will not be
replaced by new technology;
|- | -------------------------------------------------------------------------------------------------------------------------------

| | expectations
that competitive conditions within our markets will not change materially or adversely;
|- | ----------------------------------------------------------------------------------------------------

| | expectations
that we will retain key technical and management personnel;
|- | ------------------------------------------------------------------------

| | expectations
that our recent change in control and changes in management will not be disruptive
to our business;
|- | ----------------------------------------------------------------------------------------------------------------

| | expectations
that our forecasts will accurately anticipate market demand;
|- | -------------------------------------------------------------------------

5

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| | expectations
as to the adequacy of our manufacturing facilities and the timing of any expansion;
|- | ------------------------------------------------------------------------------------------------

| | our
inability to satisfy Nasdaq's requirements for continued listing; and
|- | -------------------------------------------------------------------------

| | statements
as to our expected treatment under Israeli and U.S. federal tax legislation and the
impact that new Israeli tax and corporate legislation may have on our operations.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, statements that use
the terms believe, expect, plan, intend,
estimate, anticipate and similar expressions are intended to
identify forward-looking statements. We desire to take advantage of the safe harbor
provisions of the United States Private Securities Litigation Reform Act of 1995 and we
are including this cautionary statement in connection with this safe harbor legislation.
All forward-looking statements in this Form 20-F and any other written or oral statements
made by us or on our behalf reflect our current views about future events and are based on
assumptions and are subject to risks and uncertainties, including, but not limited to, the
risks and uncertainties described in Item 3.D.  Risk Factors, that could
cause our actual results to differ materially from future results expressed or implied by
the forward-looking statements. Many of these factors are beyond our ability to control or
predict. You should not put undue reliance on any forward-looking statements. Unless we
are required to do so under U.S. federal securities laws or other applicable laws, we do
not intend to update or revise any forward-looking statements.

# PART I

|ITEM 1. |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
|------- |  | -----------------------------------------------------

Not applicable.

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

Not applicable.

|ITEM 3. |  | KEY INFORMATION
|------- |  | ---------------

|3.A. | Selected
Financial Data
|---- | -----------------------

We have derived the following
selected consolidated balance sheet data as of December 31, 2007 and 2008, and the
selected consolidated operating data for the years ended December 31, 2006, 2007, and
2008 from our audited consolidated financial statements and notes included elsewhere in
this annual report, which have been prepared in accordance with generally accepted
accounting principles in the United States, or U.S. GAAP. We have derived the selected
consolidated balance sheet data as of December 31, 2004, 2005, and 2006 and the selected
consolidated operating data for the years ended December 31, 2004, and 2005 from our
audited consolidated financial statements not included in this annual report, which have
been prepared in accordance with U.S. GAAP.

Effective January 1, 2006, our
financial results have been reported in accordance with Financial Accounting Standards
Board (FASB) Statement No. 123 (Revised), Share-Based Payment. The total
compensation expense recorded in accordance with SFAS 123R for the year ended December
31, 2008 was approximately $271,000 ($408,000 for the year ended December 31, 2007). See
Note 6 to our Consolidated Financial Statements included elsewhere in this annual report.

You should read the following
selected consolidated financial data together with Item 5.  Operating and
Financial Review and Prospects and our consolidated financial statements and notes
thereto and the other financial information appearing elsewhere in this annual report.

6

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# Operating Data

|                                     | Year Ended December 31,
|------------------------------------ | -----------------------
|
|
|
|
|Sales                                |                        
|                                     |                        
|Cost of sales                        |                        
|                                     |                        
|Gross profit                         |                        
|                                     |                        
|Operating expenses:                  |                        
|Research and development, gross      |                        
|Less - royalty-bearing participation |                        
|                                     |                        
|Research and development, net        |                        
|Sales and marketing                  |                        
|General and administrative           |                        
|                                     |                        
|Total operating expenses             |                        
|                                     |                        
|                                     |                        
|Operating income (loss)              |                        
|                                     |                        
|Financial income, net                |                        
|                                     |                        
|Net income (loss) for the year       |                        
|                                     |                        
|                                     |                        
|Net Income (Loss) Per Share          |                        
|                                     |                        
|Basic net income (loss) per          |                        
|ordinary share                       |                        
|                                     |                        
|Diluted net income (loss) per        |                        
|ordinary share                       |                        
|                                     |                        
|                                     |                        
|Weighted average number of           |                        
|ordinary shares used to compute      |                        
|basic net income (loss) per          |                        
|ordinary share                       |                        
|                                     |                        
|                                     |                        
|Weighted average number of           |                        
|ordinary shares used to compute      |                        
|diluted net income (loss) per        |                        
|ordinary share                       |                        
|                                     |                        

# Balance Sheet Data

|                                | Year Ended December 31,
|------------------------------- | -----------------------
|
|
|
|
|Working capital                 |                        
|Total assets                    |                        
|Share  capital  and  additional |                        
|paid-in capital                 |                        
|Shareholders' equity            |                        

7

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|3.B. | Capitalization
and Indebtedness
|---- | -------------------------------

Not applicable.

|3.C. | Reasons
for the Offer and Use of Proceeds
|---- | -----------------------------------------

Not applicable.

|3.D. | Risk
Factors
|---- | ------------

Investing in our ordinary shares
involves a high degree of risk and uncertainty. You should carefully consider the risks
and uncertainties described below before investing in our ordinary shares. If any of the
following risks actually occurs, our business, prospects, financial condition and results
of operations could be harmed. In that case, the value of our ordinary shares could
decline, and you could lose all or part of your investment.

# Risks Related to Our
Business

We have a history of operating and
net losses. We may not achieve or sustain profitability in the future.

Although we reported a profit in
2005, we incurred operating and net losses from fiscal year 2002 through 2004 and in 2006,
2007 and 2008, and we may incur losses in the future. As of December 31, 2008, our
accumulated deficit was $27.8 million. We will need to generate revenues as well as manage
our costs to obtain profitability. Our revenues may not grow or continue at their current
level. In addition, in order to meet expanding sales and operations requirements, our
expenses may increase. As a result, net cash outflows may continue for the near term, and
we may again incur net operating losses. If our revenues do not increase, or if our
expenses increase at a greater pace than our revenues, profitability may not be achieved
or sustained. We may not be able to sustain or increase profitability on a quarterly or
annual basis. Even if we maintain profitability, we cannot assure that future net income
will offset our cumulative losses.

Severe global economic conditions
may materially adversely affect our business.

The economic outlook for 2009 has
worsened significantly, including in our largest market, Europe, and the global economic
recession appears set to continue for some time. During the current global economic
slowdown, many companies have reduced expenditures, and adverse economic conditions may
cause our customers to reduce or postpone their technology spending significantly, which
could result in reductions in sales of our products, longer sales cycles, slower adoption
of new technologies and increased price competition, which would have a material adverse
effect on our business, operating results and financial condition. We are currently unable
to predict how long the recession will last or the full extent of its effects on our
operating results and financial condition.

We may need to raise additional
financing in the future. If adequate funds are not available on terms favorable to us, our
operations and growth strategy will be materially adversely affected.

On December 31, 2008, we had
cash and cash equivalents of approximately $6.1 million. Our working capital requirements
and the cash flow provided by our operating activities are likely to vary greatly from
quarter to quarter depending on the timing of orders and deliveries, and the payment terms
offered to our customers. Although we anticipate that our existing capital resources will
be adequate to satisfy our working capital and capital expenditure requirements until at
least March 2010, we may need to raise additional funds in the future in order to satisfy
our working capital, capital expenditure requirements and growth strategy. If we are
unable to raise additional financing when needed on terms favorable to us, our operations
and growth strategy will be materially adversely affected. If additional funds are raised
through the issuance of equity securities, the percentage ownership of then current
shareholders would be diluted.

We have experienced in the past,
and may experience in the future, a decrease in our sales.

The sales of our enterprise sales
solutions decreased in 2008 by more than 5% compared with year 2007 and by more than 19%
compared with year 2006. There is no assurance that we will be able to return and achieve
the same or higher levels of enterprise sales in the future. The sales of our carrier
business solutions increased in 2008 by 8% compared with year 2007. Although the carrier
sales improved in 2008, there is no assurance that we will be able to return and achieve
the same levels of carrier sales in the future.

We may experience significant
fluctuations in our quarterly financial performance.

Our quarterly results of operations
may be subject to significant fluctuations due to several factors, including the size,
timing and shipment of orders; customer budget cycles and budgetary freezes; the timing of
introductions of new products or product upgrades by us and our competitors; customer
order deferrals in anticipation of new products or product upgrades; the mix of product
sales; software and hardware development problems; product quality problems; product
pricing; our effective provision of customer support; the relatively low level of general
business activity during the summer months in the European market; and other factors.

Moreover, because end-users of our
enterprise solutions typically request delivery within two weeks of placement of their
orders (which generally follows extensive sales efforts over an extended period of time),
a majority of our sales in each quarter have resulted from orders placed in that quarter.
The deferral of any large order from one quarter to another could materially adversely
affect our results of operations for the previous quarter. Similarly, carrier sales are
relatively large orders, and their postponement from one quarter to another could
materially adversely affect our results of operations for the previous quarter.

For the foregoing reasons, we believe
that quarter-to-quarter comparisons of our results of operations are not necessarily
meaningful and that our results of operations in any particular quarter should not be
relied upon as indications of future performance. Furthermore, fluctuations in our
operating results may cause volatility in the price of our ordinary shares.

8

---

---

We have a very limited order
backlog. As a result, if revenue levels for any quarter fall below our expectations, our
earnings will decrease.

We have a very limited order backlog,
which makes revenues in any quarter dependent primarily on orders received and delivered
in that quarter. A delay in the recognition of revenue, even from one customer, may have a
significant negative impact on our results of operations for a given period. We base our
decisions regarding our operating expenses on anticipated revenue trends, and our expense
levels are relatively fixed, or require some time for adjustment. Because only a small
portion of our expenses varies with our revenues, if revenue levels fall below our
expectations, our earnings will decrease.

We depend upon independent
distributors, representatives and strategic alliance partners to sell our products to
customers. If our distributors, representatives and strategic alliance partners do not
sell our products, our revenues will suffer.

Our sales strategy includes direct
sales to end-users as well as sales through independent distributors, for resale to
integrators or through strategic alliance partnerships with original equipment
manufacturers, commonly referred to as OEM. We are highly dependent upon acceptance of our
products and solutions by such distributors, strategic alliance partners and integrators
and their active marketing and sales efforts relating to our products and solutions.
Moreover, a substantial majority of our distributors are neither obligated to deal with us
exclusively nor contractually subject to minimum purchase requirements with respect to our
products and solutions. Increasing competition among providers of products or solutions
competitive with ours has strengthened the position of our distributors and other
customers to negotiate favorable terms of sale. Under such conditions, our operating
results could be materially adversely affected.

Certain of our distributors are
permitted to sell competing products or solutions, and there can be no assurance that any
of them will continue, or prioritize, marketing and supporting our products or solutions.
Certain of our distributors are the only entities engaged in the distribution of our
products or solutions in their respective geographical areas. In addition to the
independent distributors mentioned above, we also have strategic alliances and
relationships with four major cabling companies: Panduit, Brand-Rex (acquired by The Gores
Group LLC), Belden/CDT (previously known as Nordx) and ADC (previously known as Krone). We
are highly dependent upon their acceptance of, and active marketing and sales efforts
relating to, our products and solutions.

Our results of operations could be
materially adversely affected by changes in the financial condition of a distributor,
representative or strategic alliance partner, which could occur rapidly, or by changes in
the business or marketing strategies of the distributor, representative or strategic
alliance partner. There can be no assurance that we will retain our current distributors,
representatives or strategic alliance partners, or that, if we terminate or lose any of
such distributors, representatives or strategic alliance partners, we will be successful
in replacing them on a timely basis or at all with another suitable distributor,
representative or strategic alliance partner. Any such changes in our distribution
channels, and particularly the loss of a major distributor, representative or strategic
alliance partner, could materially adversely affect our business, financial condition and
operating results.

Our carrier products generally
have long sales cycles, which increase our costs in obtaining orders and reduce the
predictability of our earnings.

The market for our carrier solutions
consists of telephone companies, commonly referred to as telcos. Because of the large size
and institutional nature of most telcos and the degree of governmental regulation to which
they are often subject, companies (such as ourselves) which seek to market their products
and services to telcos must often engage in sales efforts over an extended period of time,
sometimes years, and provide a significant level of education to prospective telco
customers regarding the use and benefits of such products or services. As a result, sales
of carrier solutions to telcos require a lengthy sales cycle from the commencement of
marketing efforts to the consummation of an actual transaction and may involve significant
expenditures which may not be offset (on a timely basis or at any time) by revenues.
Delays in the sales cycle of our products could also result in significant fluctuations in
our quarterly operating results and reduce the predictability of our earnings.

We must develop new products and
enhancements to existing products on a timely and cost-effective basis to remain
competitive.

The markets for our products are
characterized by rapidly changing technology, changing customer requirements, relatively
short product lifecycles, evolving industry standards and frequent new product
introductions. Changes in technologies, customer requirements and industry standards and
new product introductions by our existing competitors or by new market entrants could
reduce the markets for our products or require us to develop new products. In addition,
new or enhanced products developed by other companies could be incompatible with our
products. Therefore, our timely access to information concerning, and our ability to
anticipate, changes in technology and customer requirements and the emergence of new
industry standards, as well as our ability to develop, manufacture and market new and
enhanced products successfully and on a timely basis, will be significant factors in our
ability to remain competitive. We are currently evaluating a number of potential products,
some of which will endeavor to address emerging technologies. There can be no assurance
that we will be successful in identifying new technologies, that our potential products
will be successful or profitable, or that we will not encounter technical or other
difficulties that could delay the introduction of these or other new or enhanced products
in the future.

As a result of the need to develop
new and enhanced products, we expect to continue making substantial investments in
research and development. Some of our research and development activities may relate to
long-term projects, and revenues from products resulting from these activities may not be
received for a substantial time, or at all. Products as complex as certain of our products
sometimes contain undetected errors or bugs, which can cause delays in product
introductions or require design modifications. In addition, it often takes several months
before the manufacturing costs of new products stabilize, which may adversely affect
operating results during such period. If we are unable to introduce new or enhanced
products on a timely and cost-effective basis and to gain market acceptance for such
products, our business, financial condition and results of operations may be materially
adversely affected.

9

---

---

If new products we recently
introduced or expect to introduce in the near future fail to generate the level of demand
we originally anticipated, we will realize a lower than expected return from our
investment in research and development with respect to those products, and our results of
operations may suffer.

Our success is dependent, in part, on
the willingness of our customers to transition or migrate to new products, such as the
SiteWiz solution we introduced in 2008 and the Paladin product we introduced
in 2009. We are involved in a continuous process of evaluating changing market demands
and customer requirements in order to develop and introduce new products, features and
applications to meet changing demands and requirements. We need to be able to interpret
market trends and the advancement of technology in order to successfully develop and
introduce new products, features and applications. If potential customers defer transition
or migration to new products, our return on our investment in research and development
with respect to products recently introduced or expected to be introduced in the near
future will be lower than we originally anticipated and our results of our operations may
suffer. For example, we have recently launched a strategic new product family,
Paladin, which offer solutions for real-time, active environment and security
management, and marks our entrance to a new business line which we call Environment and
Security Management. There is no assurance that the market or demand for Paladin
will develop as rapidly as we expect or at all, or even if such market develops, that we
will be successful in marketing and selling Paladin and growing revenues to justify
our investments.

Some of our competitors have
greater resources than us, which may limit our ability to effectively compete with them.

The markets for our products and
solutions are very competitive and we expect that competition will increase in the future.
Increased direct and indirect competition could adversely affect our revenues and
profitability through pricing pressure, loss of market share and other factors. Many of
our competitors are far larger, have substantially greater resources (including financial,
technological, manufacturing and marketing and distribution capabilities) and are much
more widely recognized than we are. These characteristics may provide a substantial
advantage to our competitors in the eyes of end-users of enterprise and carrier solutions,
who typically rely upon such products and solutions to perform or support critical
functions. There can be no assurance that we will be able to compete successfully against
existing or new competitors as the market for our products and solutions evolves and the
level of competition increases. Moreover, there can be no assurance that we will be able
to differentiate our products and solutions from the products and solutions of our
competitors or to develop or introduce successfully new products and solutions that are
less costly or offer better performance than those of our competitors. In addition, our
existing and prospective competitors may have established, or may establish in the future,
relationships with our existing and potential customers including our OEM customers, which
could have a material adverse effect on our ability to compete.

Our failure to manage our
corporate expansion or contraction effectively could have a material adverse effect on our
business, financial control and results of operations.

From 1989 to 2000, we expanded in
both the scope and the magnitude of our operations. However, from 2001 until 2004, we
instituted work force reductions and cost cutting measures following decreased sales. In
2005 and 2006, we increased our operational expenses as a result of a significant increase
in our revenues compared with 2004. This growth placed a significant strain on our
management, operational, financial and other resources. Following a decrease in our sales
and margins, we instituted significant work force reductions and cost cutting measures in
the third quarter of 2007. Any future growth or contraction may increase this strain.
Furthermore, all or a portion of the expenses associated with any expansion of our
operations may be incurred prior to the generation of any associated revenues, and the
savings associated with cutbacks may not be realized prior to the decrease in associated
revenues. If there is a substantial increase in demand in, or orders for, our products, we
may not have the capacity to increase production using our existing reduced staff and may
be unable to timely hire and train new employees. As a result, we could lose business to
competitors with greater capacity and flexibility. If we are unable to manage our
corporate expansion or contraction, there could be a material adverse effect on our
business, financial condition, and results of operations.

If our suppliers and
subcontractors are not able to provide us with adequate supplies of certain components
used in our products, we may not be able to deliver sufficient quantities of our products
to satisfy demand.

Certain components used in our
products and solutions are presently available from, or supplied by, only one source and
certain other components are only available from limited sources. Although we do not have
long-term supply contracts with most of our existing suppliers, we have generally been
able to obtain supplies of components in a timely manner and upon acceptable terms. There
can be no assurance that delays in key component or product deliveries will not occur in
the future due to shortages resulting from the limited number of suppliers or the
financial condition or other difficulties of such suppliers. Any inability to obtain
sufficient key components or to develop alternative sources for such components, if and as
required in the future, could result in delays, interruptions or reductions in product
shipments, which could have a material adverse effect on our customer relationships and,
in turn, on our business and results of operations.

10

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Our success depends on our ability
to attract, train and retain highly qualified sales, technical and customer support
personnel.

Our future performance depends in
large part on the continued service of our key technical, sales and management personnel.
None of our key personnel is bound by an employment agreement requiring service for any
defined period of time. If we are unable to retain members of our management and key
employees, we must successfully manage transition and replacement issues that may result
from such departures. Our future performance also depends on our ability to attract
skilled personnel in the future. There can be no assurance that we will be successful in
attracting, training, assimilating or retaining, on a timely basis and at a reasonable
cost, all the personnel that we may require, or that we will not encounter difficulties as
we integrate new personnel into our operations. Our inability to integrate such personnel
into our operations or to manage our growth effectively could have a material adverse
effect on our business, financial condition and results of operations.

Our profitability could suffer if
third parties infringe upon our proprietary technology or if our products infringe on the
intellectual property rights of others.

Our success is highly dependent upon
our proprietary technology. We rely upon a combination of patents, patent applications,
contractual rights, trade secrets, copyrights, non-disclosure agreements and technical
measures to establish and protect our proprietary rights in our products, systems and
technologies. We hold patents on our Patch-View and PairView technologies and some of our
cabling products. These patents expire in 2025, 2015 and 2024, respectively. We also have
several patents and design patents pending on our new products. In addition, we enter into
nondisclosure and confidentiality agreements with our employees and with certain suppliers
and customers with access to sensitive information. There can be no assurance that the
steps we have taken to protect our proprietary rights will be adequate to prevent
misappropriation of our technology or independent development or sale by others of our
technology or of products or solutions with features based upon, or otherwise similar to,
our own.

In addition, although we believe that
our technology has been independently developed and that none of our technology or
intellectual property infringes on the rights of others, there can be no assurance that we
do not and will not so infringe or that third parties will not assert infringement claims
against us in the future. In the case of infringement, we would, under certain
circumstances, be required to modify our products or intellectual property or obtain a
license to permit their continued use. There can be no assurance that we would be able to
do either in a timely manner or upon acceptable terms and conditions, and any failure to
do so could have a material adverse effect on our business, financial condition, and
results of operations. In addition, if future litigation were to become necessary to
protect trade secrets, know-how or other proprietary rights owned by us, to defend
ourselves against claimed infringement of the rights of others, or to determine the scope
and validity of our proprietary rights or those of others, such litigation could result in
substantial cost to us and diversion of our managements attention. Adverse
determinations in any such litigation or proceedings also could subject us to significant
liabilities to third parties and could prevent us from manufacturing, selling or using
certain of our products, any of which could have a material adverse effect on us. There
can be no assurance that we will have the resources to defend or prosecute a proprietary
rights infringement action.

In addition, the laws of foreign
jurisdictions where we sell and seek to sell our products may afford little or no
protection of our intellectual property rights. We cannot assure you that the protection
provided to our intellectual property rights by the laws and courts of foreign nations
will be substantially similar to the remedies available under U.S. law. We also cannot
assure you that third parties will not assert infringement claims against us based on
foreign intellectual property rights and laws that are different from those established in
the United States.

The conditions in the many
countries in which we sell our products could affect our ability to deliver our products
or collect payment.

We currently market our products and
solutions in numerous countries and are subject to many risks associated with
international sales, including limitations and disruptions resulting from the imposition
of government controls, national standardization and certification requirements, export
license requirements, economic or political instability, trade restrictions, changes in
tariffs, currency fluctuations and difficulties in managing international operations. Any
of these risks could have a material adverse effect on our ability to deliver our
products, solutions and services on a competitive and timely basis, or to collect payments
from customers in these countries and on our results of operations. Although we have not
yet encountered significant difficulties in connection with the sale of our products and
solutions in international markets, there is no assurance that we will not encounter such
difficulties in the future or that one or more of these factors will not have a material
adverse effect on our business, financial condition and results of operations.

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We are subject to European
regulations that require us to use components based on environmentally friendly materials
and we may become subject to other environmental laws and regulations.

We are subject to regulations
requiring the use of environmentally friendly materials in equipment,
including the 2006 European Community directive, also known as the RoHS directive, under
which producers of electrical and electronic equipment may not place new equipment
containing lead, mercury and certain other materials deemed to be hazardous, in amounts
exceeding any relevant set maximum concentration values, on the market in the European
Union. We are dependent on our suppliers for components and sub-system modules to comply
with these requirements. Specifically, our inability or failure to comply with these
regulations may restrict us from conducting certain business in the European Union or
elsewhere and could have a material adverse affect on our results of operations. To our
knowledge, compliance with environmental laws and regulations has had no material effect
on our operations to date. However, we could incur substantial costs, including cleanup
costs, fines and civil or criminal sanctions, third-party damage or personal injury
claims, if we were to breach environmental laws, if our products were found not to comply
with environmental laws or if we become subject to newly enacted environmental laws and
regulations in the markets in which we operate.

# We may be subject to
possible warranty claims from our customers.

Our product warranties permit
customers to return for repair any products deemed to be defective. It is our policy to
grant a warranty to the hardware parts of our products for periods ranging from 12 to 36
months. This policy does not apply to the SMART Cabling System, SMART GIGA Cabling System
and CLASSix Cabling Systems, which when installed by a certified cabling installer, and
registered by us, are granted 15-year and 20-year system warranties, respectively. These
warranty periods are customary in the structured cabling industry, but significantly
longer than product warranties generally offered in other industries. Although no material
warranty claims have been asserted against us in the past with respect to our structured
cabling products, we cannot assure you that such claims will not be asserted in the
future. If asserted, such claims may have a material adverse effect on our business,
financial condition and results of operation.

If we fail to maintain effective
internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, it
could have a material adverse effect on our business, operating results, investor
confidence and stock price.

The Sarbanes-Oxley Act of 2002
imposes certain duties on us. Our efforts to comply with the management assessment
requirements of Section 404, which apply to our financial statements beginning with year
2007, have resulted in increased general and administrative expenses and a devotion of
management time and attention to compliance activities, and we expect these efforts to
require the continued commitment of significant resources. If we fail to maintain the
adequacy of our internal controls, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal control over financial reporting. We may
also identify material weaknesses or significant deficiencies in our internal control over
financial reporting. In addition, our internal control over financial reporting has not
yet been audited by our independent registered public accounting firm. In the future, if
we are unable to assert that our internal controls are effective, our investors could lose
confidence in the accuracy and completeness of our financial reports, which in turn could
cause our stock price to decline. Failure to maintain effective internal control over
financial reporting could also result in investigation and/or sanctions by regulatory
authorities, and could have a material adverse effect on our business and operating
results, investor confidence in our reported financial information, and the market price
of our ordinary shares.

Changes in exchange rates between
currencies may negatively impact our costs.

Most of our revenues are denominated in
U.S. dollars or are dollar-linked. We collect a portion of our revenues in Europe in Euros
while most purchases of materials and components, and most marketing costs, are
denominated in dollars or dollar-linked. We incur a material portion of our expenses,
principally salaries and related personnel expenses, in Israel, in NIS. As a result, we
are exposed to several risks, including that either the NIS or the Euro may increase in
value relative to the dollar. If either of such events occurs, the dollar cost of our
operations in Israel or Europe will increase and our dollar-measured results of operations
will be adversely affected. For example, in 2008, on average yearly basis, there was a
decrease of approximately 13% in value of the dollar in relation to the NIS and there was
an increase of approximately 7% in the value of the dollar in relation to the Euro. This
devaluation of the dollar together with the fact that we incur a material portion of our
expenses in NIS had a material adverse effect on our results in 2008. We cannot assure you
that we will not be materially affected in the future from currency exchange rate
fluctuations or the rate of inflation in Israel. If the value of the NIS or the Euro
continues to rise in value, relative to the dollar, our business and financial condition
could continue to be negatively impacted.

Recent changes in our senior
management may cause uncertainty in, or be disruptive to, our business.

We have recently experienced
significant changes in our senior management. In June 2008, in connection with the
acquisition of our control by STINS COMAN, Messrs. Sergey Anisimov and Boris Granovsky
joined our Board of Directors, replacing Messrs. Yehuda Zisapel and Meir Barel. Mr.
Anisimov was appointed Chairman, replacing Yehuda Zisapel who served as our Chairman
since 1989. In addition, Mr. Avi Kovarsky has been appointed as our Chief Executive
Officer, replacing Mr. Doron Zinger, who served as our Chief Executive Officer since June
2005. In addition, during 2008, several other individuals joined and left our senior
management. The difficulties inherent in transitioning the Company under the leadership
of new management, particularly a new Chief Executive Officer, and assimilating new
management personnel into our corporate culture, may be disruptive to our business, and,
during the transition period, there may be uncertainty among investors, vendors,
employees and others concerning our future direction and performance.

12

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# Risks Related to our
Relationship with STINS COMAN

STINS COMAN beneficially owns
approximately 59.8% of our ordinary shares and may therefore be able to control the
outcome of matters requiring shareholder approval.

As of March 15, 2009, STINS COMAN
beneficially owned 59.8% of our outstanding ordinary shares. Accordingly, STINS COMAN
therefore has, subject to special approvals required by Israeli law for transactions
involving controlling shareholders, sufficient voting power to elect all of our directors
(subject to the provisions of the Companies Law with regard to outside directors), control
our management, and approve or reject any merger or similar transaction. This
concentration of ownership of our ordinary shares could delay or prevent proxy contests,
mergers, tender offers, open-market purchase programs or other purchases of our ordinary
shares that might otherwise give our shareholders the opportunity to realize a premium
over the then-prevailing market price for our ordinary shares. This concentration of
ownership may also adversely affect our share price. In addition, the market price of our
ordinary shares may be adversely affected by events relating to STINS COMAN that are
unrelated to us.

# We may be affected by
transactions with STINS COMAN.

We are engaged and may in the future
engage in transactions with STINS COMAN or its affiliates. In particular, STINS COMAN is
our non-exclusive distributor in the Commonwealth of Independent States market, or CIS
market, for our enterprise products since 1994 and for our carrier products since the end
of 2008. We believe that such transactions are beneficial to us and are, or will be,
conducted upon terms, which are no less favorable to us than would be available to us from
unaffiliated third parties. However, you should be aware that STINS COMAN could, subject
to compliance with provisions of Israeli law concerning related-party transactions,
exercise their influence over our affairs in their own interest. See Item 7.B.
Related Party Transactions.

Some members of our board of
directors may have conflicts of interest with us.

Two of the members of our board of
directors are executive officers of STINS COMAN. These individuals may have conflicts of
interest with respect to business opportunities and similar matters that may arise in the
ordinary course of the business of STINS COMAN and RiT and could favor STINS COMAN in
negotiations or relationships between STINS COMAN and us.

# Risks Related to Our
Ordinary Shares

Our share price has decreased
significantly and could continue to fluctuate significantly.

The market price for our ordinary
shares has been volatile. The market price for our ordinary shares had a historical
downward trend from 2000 until 2003 and during the past two years. Although prices were
relatively more stable from 2003 to 2006, there can be no assurance that the volatility
and downward trend will not continue. If revenues or earnings in any quarter fail to meet
the investment communitys expectations, there could be an immediate impact on our
share price. Our share price may also be affected by broader market trends or the economic
and political situation in the Middle East and worldwide. A substantial decrease in market
price of our ordinary shares could frustrate our efforts to raise funds through both debt
and equity, discourage potential customers and partners from doing business with us, and
could result in a material adverse effect on our business, financial condition, and
results of operations.

We may not satisfy the NASDAQ
Capital Markets requirements for continued listing. If we cannot satisfy these
requirements, NASDAQ could delist our ordinary shares.

Our ordinary shares are listed on the
NASDAQ Capital Market, or NASDAQ, under the symbol RITT. To continue to be listed on the
NASDAQ, we will need to satisfy a number of conditions, including a minimum bid price of
at least $1.00 per share, a market value of our publicly held shares, or MVPHS, of at
least $1 million and stockholders equity of at least $2.5 million. On December 6,
2007, we received a NASDAQ Staff Deficiency Letter indicating that, for the 30 consecutive
business days prior to the date of the letter, the bid price of our ordinary shares closed
below the minimum bid price requirement of $1.00 per share. In light of a general
temporary suspension by NASDAQ of the enforcement of the minimum bid price requirement, we
currently have until September 2, 2009 to regain compliance with such requirement.

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In August 2008, our shareholders
authorized our board of directors to effect a reverse share split of all of our ordinary
shares at a ratio not to exceed one-for-eight. Our board of directors currently intends to
effect a reverse share split only if it believes that a decrease in the number of shares
outstanding is likely to improve the trading price of our ordinary shares and only if it
believes it will be necessary in order to continue our listing on the NASDAQ.

We cannot assure you that we will be
able to satisfy the minimum bid, or continue to meet the MVPHS, stockholders equity
or other continued listing requirements of NASDAQ in the future. If we are delisted from
the NASDAQ , trading in our ordinary shares may be conducted, if available, on the
OTC Bulletin Board Service or, if available, another medium. In the event of
such delisting, an investor would likely find it significantly more difficult to dispose
of, or to obtain accurate quotations as to the value of our ordinary shares, and our
ability to raise future capital through the sale of our ordinary shares could be severely
limited.

In addition, if our ordinary shares
were delisted from NASDAQ, our ordinary shares could be considered a penny
stock under the U.S. federal securities laws. Additional regulatory requirements
apply to trading by broker-dealers of penny stocks that could result in the loss of an
effective trading market for our ordinary shares.

The sale of a substantial number
of our ordinary shares in the public market, or the expectation thereof, could materially
adversely affect the market price of our ordinary shares and our ability to raise capital
through an offering of securities.

As of March 10, 2009, we had
approximately 20.9 million ordinary shares issued and outstanding and approximately 3.0
million of additional ordinary shares which are issuable upon exercise of outstanding
options and warrants and an additional 1.3 million ordinary shares were reserved for
issuance pursuant to options which may be granted under our stock option plans. Sales of
the ordinary shares previously issued in private placements, sales of the ordinary shares
issuable upon exercise of the warrants or options, or even the prospect of such sales,
could materially adversely affect the market price of our ordinary shares and our ability
to raise capital through our offering of securities at acceptable prices. A substantial
decrease in the market price of our ordinary shares could also discourage potential
customers and partners from doing business with us, and could result in a material adverse
effect on our business, financial condition, and results of operations.

# We do not intend to pay
dividends.

We have never declared or paid any
cash dividends on our ordinary shares. We currently intend to retain any future earnings
to finance operations and to expand our business and, therefore, do not expect to pay any
cash dividends in the foreseeable future.

# Risks Related to
Operating In Israel

Conditions in Israel affect our
operations and may limit our ability to produce and sell our products.

We are organized under the laws of the
State of Israel and a substantial portion of our assets and our principal operations, are
located in Israel. Consequently, our operations, financial condition and results of
operations are directly influenced by economic, political and military conditions in and
affecting Israel. We could be adversely affected if major hostilities involving Israel
should occur, or if trade between Israel and its present trading partners is curtailed.

Since the establishment of the State
of Israel in 1948, a number of armed conflicts have taken place between Israel and the
Arab countries in the region. A state of hostility, varying in degree and intensity, has
led to security and economic problems for Israel. Since October 2000, there has been a
high level of violence between Israel and the Palestinians which has strained
Israels relationship with its Arab citizens, Arab countries and, to some extent,
with other countries around the world. The election in 2006 of representatives of the
Hamas movement to a majority of the seats in the Palestinian Legislative Council and its
subsequent seizure of control of the Gaza strip have created additional unrest and
uncertainty in the region. Further, in the summer of 2006, Israel engaged in a war with
Hezbollah, a Lebanese Islamist Shiite militia group, which involved thousands of missile
strikes and disrupted most day-to-day civilian activity in northern Israel. Since June
2007, thousands of missiles have been fired from Gaza at population centers in southern
Israel, leading to an armed conflict between Israel and the Hamas in January 2009. In
addition, Iran has threatened to attack Israel and is widely believed to be developing
nuclear weapons. Any future armed conflicts or political instability in the region,
including acts of terrorism or any other hostilities involving or threatening Israel,
would likely negatively affect business conditions and harm our results of operations. In
addition, several countries restrict business with Israel and Israeli companies and
additional countries may restrict doing business with Israel and Israeli companies as a
result of the increase in hostilities. These restrictive laws and policies may harm the
expansion of our business. We cannot predict whether or not a full resolution of these
problems will be achieved, the nature of any such resolution, or any consequences that any
of these factors may have on the Israeli economy or us.

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

Some of our executive officers and
employees in Israel are obligated to perform military reserve duty annually. In addition,
they may also be further subject to being called to active duty at any time under
emergency circumstances and could be required to serve in the military for extended
periods of time. This could disrupt our operations and harm our business. Prolonged loss
of the services of our key personnel due to army service could result in a material
adverse effect on our business, financial condition and results of operations.

Reduction or termination of our
tax and other benefits from government programs resulting from our failure to meet certain
conditions or otherwise could have a material adverse effect on our business, financial
condition and results of operations.

We are entitled to receive certain
tax benefits under Israeli law for investment programs in our production facilities that
are designated as Approved Enterprises. To maintain our eligibility for these
tax benefits, we must continue to meet several conditions. If we fail to comply with these
conditions in the future, the tax benefits received could be cancelled. The termination or
reduction of the tax benefits could have a material adverse effect on our business,
financial condition, and results of operations. To date, we have not utilized such
benefits. For more information about Approved Enterprises, see Item 10.E.
Israeli Tax Considerations  Law for the Encouragement of Capital Investments,
1959 below and Note 7(B) to the Consolidated Financial Statements included elsewhere
in this annual report.

Because we have received grants
from the Office of the Chief Scientist, we are subject to on-going restrictions.

We have received grants from the
Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor, known
as the Chief Scientist, for research and development programs and we may apply for further
grants in the future. In order to maintain our eligibility for these grants, we must meet
specified conditions, including paying royalties with respect to grants received. If we
fail to comply with these conditions in the future, sanctions might be imposed on us, such
as the grants could be cancelled and we could be required to refund any payments
previously received under these programs. Any products developed with these grants are
required to be manufactured in Israel, unless we obtain prior approval of a governmental
committee and pay increased royalties. In addition, the terms of the Chief
Scientists grants limit our ability to transfer know-how developed under an approved
research and development program outside of Israel. The Government of Israel has reduced
the grants available under the Chief Scientists program in recent years, and this
program may be discontinued or curtailed in the future. If we do not receive these grants
in the future, we will have to allocate other funds to product development at the expense
of other operational costs. For more information about grants from the Chief Scientist,
see Item 5.C.  Research and Development, Patents and Licenses below.

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

We are incorporated under the laws of
the State of Israel. Service of process upon us, our Israeli subsidiaries and our
directors and officers, substantially all of whom reside outside the United States, may be
difficult to obtain within the United States. Furthermore, because the majority of our
assets and investments, and substantially all of our directors and officers are located
outside the United States, any judgment obtained in the United States against us or any of
them may not be collectible within the United States.

We have been informed by our legal
counsel in Israel, Goldfarb, Levy, Eran, Meiri, Tzafrir & Co., that it may be
difficult to assert U.S. securities law claims in original actions instituted in
Israel. Israeli courts may refuse to hear a claim based on a violation of
U.S. securities laws because Israel is not the most appropriate forum to bring such a
claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that
Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to
be applicable, the content of applicable U.S. law must be proved as a fact, which can
be a time-consuming and costly process. Certain matters of procedure will also be governed
by Israeli law. There is little binding case law in Israel addressing these matters.

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

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

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

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

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

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

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

Provisions of Israeli corporate and
tax law may have the effect of delaying, preventing or making an acquisition of our
company more difficult. For example, under the Companies Law, upon the request of a
creditor of either party to a 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. These provisions could cause our ordinary shares to trade at prices below the
price for which third parties might be willing to pay to gain control of us. Third parties
who are otherwise willing to pay a premium over prevailing market prices to gain control
of us may be unable or unwilling to do so because of these provisions of Israeli law. See
Item 10B. Additional Information  Memorandum and Articles of Association
 Anti-Takeover Provisions; Mergers and Acquisitions.

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

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

# Corporate History and
Details

RiT Technologies Ltd. was
incorporated in Israel and commenced operations in 1989. We are a company limited by
shares and operate under Israeli law. The principal legislation under which we operate is
the Companies Law, which replaced most of the provisions of the Companies Ordinance
effective as of February 1, 2000. Our main offices are located at 24 Raoul Wallenberg
Street, Tel Aviv 69719, Israel, telephone number +972-3-645-5151. Our address on the
Internet is http://www.rittech.com. The information on our website is not incorporated by
reference into this annual report.

Our agent in the United States is RiT
Technologies, Inc., which was incorporated in 1993 under the laws of the State of New
Jersey and is located at 900 Corporate Drive, Mahwah, New Jersey 07430, telephone number
+1-201-512-1970. Our U.S. subsidiary is primarily engaged in the selling and marketing of
our products in the Unites States.

We became a publicly-traded company
on the NASDAQ Global Market (formerly known as the NASDAQ National Market), traded under
the symbol RITT upon our initial public offering on July 22, 1997. The listing of our
shares was transferred to the NASDAQ Capital Market (formerly knows as the NASDAQ SmallCap
Market) on January 12, 2004, and we are still traded under the symbol RITT. On December 6,
2007, we received a NASDAQ Staff Deficiency Letter indicating that, for the 30 consecutive
business days prior to the date of the letter, the bid price of our ordinary shares closed
below the minimum bid price requirement of $1.00 per share. On March 24, 2009, we were
notified by NASDAQ that, in light of a general temporary suspension of the bid rule, the
date on which must regain compliance with the bid rule was extended to September 2, 2009.

# Major Business
Developments

In June 2008, STINS COMAN acquired
5,122,521 ordinary shares held by some of our affiliates, representing approximately 34.9%
of our outstanding shares, for an aggregate purchase price of $4,405,368, or $0.86 per
share. At that time, STINS COMAN also acquired, through a partial tender offer, a total of
1,027,815 ordinary shares, representing approximately 7.0% of our outstanding shares, at
$0.86 per share, such that at such time STINS COMAN beneficially owned an aggregate of
6,150,336 shares, representing approximately 41.9% of our outstanding shares. For more
information, see Item 7A  Major Shareholders.In September 2008, we
completed a private placement transaction in which we issued to STINS COMAN 6,153,846 of
our ordinary shares at $0.65 per share, for aggregate proceeds of $4 million. For more
information, see Item 7B  Related Party Transactions. As a result of
these transactions, as of March 15, 2009, STINS COMAN owns 12,471,242 of our outstanding
ordinary shares. During 2008, we also experienced substantial changes in our management
team in connection with the aforesaid transaction and we recorded a one time expense in
the amount approximately $0.3 million. For more information, see Item 6A 
Directors and Senior Management.

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In January 2009, we launched a
strategic new product family, Paladin, which offer solutions for real-time, active
environment and security management, and marks our entrance to a new business line which
we call Environment and Security Management.The Paladin solution, which is
primarily based on technology from one of our business partners, is comprised of both
hardware and software components. The hardware includes a family of controllers that can
interface with and manage a wide variety of sensors and can be used to monitor a facility
from the environment, safety and physical security aspects. The software includes a
management system that is able to centrally manage a large number of geographically
distributed controllers and provide the user with the ability to view the output of the
different controllers, configure various thresholds and business rules and define various
actions to be taken as a result of the controllers input. The innovative Paladin
solutions are designed for active monitoring and real-time analysis of a premises
temperature, power usage, physical access and many other environmental and security
parameters. Taking a preventive rather than a reactive approach, the system consists of
both software and hardware components, and is designed to interface fully and easily with
the sensors and equipment of other vendors. Paladin can be deployed in a broad variety of
mission-critical environments, such as datacenters, communications rooms, remote unmanned
stations and other facilities and can be used by utilities, telecommunications service
providers, military/governmental installations, and other types of organizations. Its
scalable modular architecture enables Paladin to grow with the installation, if required.

For a discussion of other important
events in the development of our business, see below under Business
OverviewOverview.

# Principal Capital
Expenditure and Divestitures

During 2008, our capital expenditures
totaled approximately $0.1 million (compared to $0.3 million during 2007 and $0.5 million
during 2006), all of which was used for machinery, computers and research and development
equipment purchases. Other than future capital expenditures of the types and consistent
with the amounts described above, we have no significant capital expenditures in progress.

During 2006 and 2008, we did not make
any significant divestitures. In 2007, as a result of a change in our development
strategy, we wrote off certain redundant development property and equipment in the amount
of $0.26 million.

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

# Overview

Enterprise Solutions

More than a decade ago, we introduced
the concept of Intelligent Physical Layer Management Solutions (IPLMS) which consists of
our smart cabling system integrated with our real time management application, and today
we are the leading player in the Intelligent Infrastructure Management (IIM) market which
expands the IPLMS concept to additional infrastructure elements such as datacenter
cabinets, power infrastructure and others. Our advanced products are designed to maximize
the value of infrastructure and network investments through tools that enable effective
planning and deployment, optimized daily operation and comprehensive visibility and
control. The Companys solutions also enhance network continuity and reduce network
cost of ownership.

The increasing demand for network
bandwidth, business applications and a variety of additional services has led to a
continuing evolution in requirements and standards for business continuity, high
performance and maximal asset utilization.

Upon our inception, we responded to
this need by developing structured cabling products, specifically our SMART Cabling
SystemTM, an end-to-end network infrastructure solution which provides the
required end-to-end connectivity solutions for both copper and fiber. In 1999, we
introduced our Category 6 cabling product line, CLASSix, which supports cutting edge data
communication protocols such as Gigabit Ethernet. It enables builders of new
infrastructure to prepare for the increasing bandwidth requirements.

Building upon our foundation in
structured cabling products, we developed and introduced PatchView, our intelligent
infrastructure management solution in 1999. PatchView provides real-time
connectivity information with respect to the data networks connectivity
infrastructure and significantly enhances the control, maintainability and visibility of
the network, as well as reducing the total cost of ownership. In 1999, we introduced our
PatchView  for the Enterprise software (PV4E). PV4E leverages
our unique ability to identify infrastructure connections in real-time and extends the
capability to all network resources, from physical connectivity components to switches,
servers, PCs and other hard and soft, active and passive, network components. In 2004, we
launched PVMax, a new hardware platform for PatchView. During the course of
2005, we introduced the Category 7 STP cabling solution, Versions 4 and 4.1 of the PV4E
network management software and also a RiT private label version of a midspan Power over
Ethernet solution. In 2006, we introduced our SMARTen 10GB cabling solution, our
Management Dashboard application and additional features to the core PV4E product such as
automated provisioning. In 2007, we launched PV4E version 5.0, the 5th generation of PV4E.
With Version 5.0 of the PV4E, we have extended PV4Es technology with additional
features in the areas of automated provisioning and implementation, PDA-based field
implementation support tool (SitePro) and mass data upload tool (SiteBuilder), datacenter
oriented features such as integration with intelligent power and environment management
and physical layer security and integration. These features were designed to meet the
evolving technology needs of customers as they cope with todays most difficult IT
challenges  particularly the mobile workforce, rapidly growing datacenters,
distributed infrastructures and a provisioning workload.

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In 2008, we introduced the
SiteWiz solution. SiteWiz is a software-only solution based on the foundation
of the PatchView  software (PV4E) but does not include any hardware or cabling
components that are part of the PatchView  solution. This means that in order
to install SiteWiz the customer needs to perform only a software installation process.
SiteWiz is mainly intended to help RIT penetrate additional market segments that are
not addressed by PatchView today. The first such segment is customers with existing
infrastructure installations that would like to introduce infrastructure management but
without changing or affecting the already installed infrastructure (a change required in
order to install a management solution such as PatchView). The second segment is that
of customers that are unable to or are not interested in investing in the full PatchView
solution.

During 2008, we introduced additional
features that were incorporated into the PV4E and SiteWiz solutions, including cable
infrastructure management feature that allows the user to document the passive cabling
infrastructure in detail; additional capabilities to our automatic discovery module such
as generic IP phone support and multi-NIC device support; and extended out support for
smart power strips, cabinets and blade servers enhancing our customers ability to
effectively manage their network assets.

In January 2008, we also launched a
new product that complement PV4E and SiteWiz, the Report Center, a flexible and friendly
report management solution that allows the users to create their own reports and easily
distribute them in the organization.

Carrier Solutions

In the carrier field, our solutions
enable reliable mass verification and qualification by telcos to reduce operational costs,
increase customer satisfaction and increase revenues in order to compete with other access
providers of infrastructure and databases, such as wireless providers.  In 1996, we
introduced PairView, a comprehensive outside plant management and qualification
system. The PairView system enables the telcos to achieve greater operational
efficiencies by identifying, recording and testing of the connectivity routing of local
loop pairs  the telephone lines  and updating the telcos database,
leading to significant savings and better control over their wire line infrastructure.

In 2003, we introduced PairQ,
which addressed the requirements of the market of digital subscriber line, or DSL
services, by enabling the transfer of high bandwidth communication on plain old telephone
lines. Since not every telephone line can support these advanced services, telcos need to
pre-qualify the line. The PairQ system enables accurate, easy, and fast mass DSL
pre-qualification, which is an important component in large-scale DSL deployment. The
system can also determine the possible supported bit rate packages for the telco to
provide varying levels of service.

During 2004, we introduced
PairView Pro, the first Local Loop Mass Verification system that can identify and
map all the digital services (xDSL, ISDN, etc.) carried on a line Based on the
PairView system, the PairView Pro, like its predecessor, the PairView,
gathers information about the lines telephone number, type, connectivity status,
electrical characteristics, and routing, unintrusively from active and inactive pairs. The
result is a reliable database, which becomes a platform for more accurate billing,
efficient maintenance, and effective network management. In addition, PairViewPro provides
a 30% increase (over its predecessors) in the scanning speed and an improved Graphical
User Interface  all of which combine to provide carriers with higher technician
efficiency and an even faster return on their investment.

In 2006, we introduced the PairView
Sharp, the fourth-generation of our PairView product, which enables a single
technician to test and map a full 1,200 line cabinet in less than one hour  five
times faster than the previous generation and it is the only tool available that works
without interfering with active POTS or digital services, non-intrusively performing ANI
tests on POTS and ADSL-over-POTS lines while identifying and mapping a broad variety of
digital services (such as ISDN, ADLS, HDSL and PCM).

In addition, in 2006 we introduced
the NGPair that was designed for next generation street cabinet migration and
automatic Main Distribution Frame and Automatic Distribution Frame (MDF and ADF,
respectively) installation. It operates at the street cabinet and it enables automatic and
fast mapping of all lines in the street cabinet in less than 1 hour and without
interfering with the service. The same activity when being performed manually typically
takes 2 people to complete in one to two days. Using the NGPair, the cabinet
migration process and the ADF installation process are performed fast, efficiently and
without interfering and misconnecting customers. Furthermore, the NGPair system is
modular and can be upgraded to perform all of the advanced and enhanced PairView
Sharp verification capabilities.

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# Our Strategy

Our strategy is to utilize our
expertise, innovative products and continued research and development activities to
strengthen our position as innovators of intelligent infrastructure management and asset
management solutions for improved control, utilization and maintenance of networks and
datacenters. We continuously seek to expand our existing markets by existing product
enhancement and, new product introduction, and to expand into new markets.

We market our products in numerous
countries, including through our wholly-owned subsidiary in the United States, RiT
Technologies, Inc., our representative offices in Russia and China, our local
representatives in the United Kingdom, Italy, Germany, Latin America and the Czech
Republic, our strategic alliance partners (OEM) worldwide and other channels of
distribution, as more fully described under Marketing Channels below.

# Principal Markets

Enterprise Solutions: Intelligent
Infrastructure Management and Structured Cabling Solutions

The current trend of computer
networking devices used within enterprises has resulted in a rapid growth of computer
networking which has led to a decrease in hardware costs and has significantly increased
the amount of network-related services. Accurate network documentation of large
enterprises is vital. Organizations carry out Moves, Adds and Changes (MACs) for people
and equipment on an almost daily basis. These changes must be documented accurately,
which can sometimes prove very difficult when information is gathered manually and often
results in inaccurate information. Companies today are also increasingly relying on
mission-critical systems to keep them up and running efficiently. Disaster recovery from
faults must be fast and effective to stop potential losses to the enterprise.

We take an end-to-end approach to
infrastructure and network management. Our enterprise product line begins with an
extensive range of high-quality structured cabling components, and extends to a full suite
of software and hardware products that together comprise the industry-leading
PatchView solution. Our SMART cabling components coupled with our PVMax intelligent
hardware and sophisticated PatchView for the Enterprise (PV4E) software
applications, afford full control of network connectivity. Our asset utilization automates
many of todays laborious provisioning, network planning, implementation and
operational activities. We are also offering SiteWiz, a powerful cable and asset
management (CAM) solution, to bring intelligent infrastructure management to existing
sites. PatchView and SiteWiz are designed to be integrated seamlessly with the full range
of help desk applications, intrusion detection systems, and others.

Our principal structured cabling
solution is the SMART Cabling System that answers the needs of copper and fiber
environments. It offers an extensive range of products for enterprise cabling needs
and comprises a wide selection of patch panels, cables, patch cords and outlets, as well
as other innovative components.

Our complementary products include:
Dashboard, an online management tool that enables each user to track personalized Key
Performance Indicators, alerts and trends and perform proactive management; SitePro, a
software installed on a hand-held device (PDA), that provides the technician with detailed
information about tasks that need to be performed in the communication room or datacenter
in real time; SiteBuilder, an Excel based utility that enables upload of large amounts of
information onto the PV4E/SiteWiz database.

Our end-users of enterprise solutions
are typically medium to large-size enterprises.  Many of the recent purchases of our
solutions were for datacenters designed to ensure maximal infrastructure and asset
utilization, complete redundancy and security of information.

Carrier Solutions: Access
Network Data Integrity, Testing & Qualification

Cable and wireless networks have
intensified competition in the telecommunications industry. To remain competitive, telcos
must differentiate themselves by offering additional services, such as triple play service
(voice, video and data). Companies must also be at the forefront in up-to-date operational
efficiency while reducing cost of ownership, and ultimately keep their customers
satisfied.

This has led telcos to significantly
invest in the network and migrate to next generation networks (NGN) and triple play
services, and to focus on increasing revenues through mass deployment of high-bandwidth
services, such as digital subscriber lines (DSL), and reducing total cost of ownership
(TCO) through improved maintenance efficiency plans.

In this competitive industry, one of
the telcos most valuable assets is their access network infrastructure, or more
precisely, their copper infrastructure in the local loop  the telephone lines. The
local loop is the network of physical transmission links that connect telephone
subscribers to a local telco exchange or street cabinet. The local loop is comprised of a
huge number of wires (copper pairs), the location, identity, quality and functionality of
which must be monitored and documented by the telcos. Typically, it contains hundreds of
thousands of copper pairs spread across a large area through a number of MDFs and hundreds
to thousands of street cabinets. Some copper pairs are active telephone or data lines,
while others are inactive pairs reserved for future growth. Information with respect to
the local loop is maintained by the telcos in large databases. This information relates to
cable distribution, pair ranges on cross-connect frames, pair routings, line type (voice,
data or other), assigned service, assigned phone number and electrical characteristics of
the copper pair, all of which are of vital importance to the telcos in servicing and
planning.

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Telcos database updates are prone to
human errors since they are based mainly on field technician reports. These reports are
mostly incorrect due to repeated maintenance activities on incorrect records, which leads
to labor inefficiencies  ultimately, available and unused phone lines go undetected
and unused.

We believe that these changes create
a significant opportunity for our carrier solutions that address these industry
requirements.

PairView Sharp connects to the
copper infrastructure, at various points within the local loop, and performs three tasks:

| | Identification
and recording of the specific services provisioned on each line and the specific phone
number on active lines. It also tests inactive pairs for basic line qualification.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Identification
and recording of the connectivity routing of active and inactive pairs in the local loop.
For each pair, PairView generates an end-to-end connectivity map, from the MDF through
the various street cabinets, mapping the overall network assets and their capabilities.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | After
mapping and testing, the product imports the data from the telcos database,
compares it with the products findings and updates the database automatically or
manually.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

PairQ is our DSL mass loop
qualification product performing mass qualification on existing copper infrastructure for
DSL services provisioning. PairQ performs real wideband tests and measurements to
pre-qualify hundreds of lines at a time. PairQ uses highly sophisticated, proprietary
algorithms to predict the potential data rate package to be supported by each specific
phone line. This data enables the telco to identify the phone lines to be used for DSL
services and to guarantee a specific service level.

NGPair is a product designed
for next generation street cabinet migration and automatic MDF installation. It operates
at the street cabinet and enables an automatic and fast mapping of all lines in the street
cabinet in less than one hour without interfering with the service. The same activity when
performed manually typically takes two people to complete in one to two days. With
NGPair, the cabinet migration process and the AMDF installation process are
performed fast, efficiently and without interfering and misconnecting customers.
Furthermore, the NGPair system is modular and can be upgraded to perform all of the
advanced and enhanced PairView verification capabilities.

PairGuide is a single point of
interface to the Carrier OSS. PairGuide centrally collects the data sent from the test
systems, analyzes it and updates the Carrier database to allow optimal OSP qualification
and verification programs.  Customized management reports are produced to further
enhance the users decision making capabilities.

# Sales

The manufacturing processes for our
enterprise and carrier products are nearly identical, with slight adjustments for the
varying nature of the products, and comprise one production line. Accordingly, our
operating expenses are not segmented between the two product lines and we report the
division in revenues between enterprise and carrier solutions only with respect to sales
in geographic regions and major customers. Other financial descriptive information is
reported on a single basis of segmentation.

Our total consolidated sales in 2008,
2007 and 2006, broken down by geographical destination and major product lines, were as
follows:

| | Classification
of sales by geographical destination: 1
| | ------------------------------------------------------

| |                   | Year Ended December 31,
| | ----------------- | -----------------------
|
|
|
|
| | United States     |                        
| |                   |                        
| | Europe            |                        
| |                   |                        
| | Israel            |                        
| |                   |                        
| | Latin America     |                        
| |                   |                        
| | Asia Pacific      |                        
| |                   |                        
| | Rest of the world |                        
| |                   |                        
| |                   |                        
| |                   |                        

| | (1) Sales
are attributed to geographical areas based on           location of customers.
| | ----------------------------------------------------------------------------------------

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| | Classification
of sales by major product lines:
| | -----------------------------------------------

| |                      | Year Ended December 31,
| | -------------------- | -----------------------
|
|
|
|
| | Enterprise Solutions |                        
| | Carrier Solutions    |                        
| |                      |                        
| |                      |                        
| |                      |                        
| |                      |                        

# Seasonality

We have experienced seasonality in
the sales of our enterprise products through our direct channels. Typically, the
purchasing patterns of our direct end-customers show a decline in the first and third
quarters. These fluctuations are due to several factors, including the size, timing and
shipment of orders; customer budget cycles; customer order deferrals in anticipation of
new products or product upgrades; the relatively low level of general business activity
during the summer months in the European market; and other factors.

# Manufacturing

In general, we produce our products
through sub-contractors. Our limited manufacturing facilities, which are located in Tel
Aviv, Israel, consist primarily of final assembly, testing and quality control of
materials, subassemblies and systems. The majority of our products are manufactured,
assembled and tested by subcontractors according to our designs and specifications.

Certain components used in our
products and solutions are presently available from, or supplied by, only one source and
certain other components are available from limited sources. Although we generally do not
have long-term supply contracts with our component suppliers, we have generally been able
to obtain supplies of components and products in a timely manner. However, in the event
that certain of our suppliers or contract manufacturers were to experience financial or
other difficulties that result in a reduction or interruption in supply to us, our results
of operations would be adversely affected until such time as we established alternate
sources.

In addition, the components used in
our products may be subject to significant volatility in prices for raw materials and
components. For example, since 2006 and until June 2008, the price of copper required for
the manufacture of some of our components increased significantly. As a result we had to
increase the selling price to our customers for such components. Significant volatility in
prices for raw material and components may result in a required increase in prices that,
if we are unable or fail to apply, may adversely affect the results of our operations.

# Marketing Channels

Enterprise Solutions

In some territories, we have made a
strategic decision to encourage sales via OEM partners rather than investing in building
or maintaining a local distribution channel. In others, our enterprise solutions are sold
primarily through distributors, as well as through value added resellers (VARs), systems
integrators and installers.

Our distributors generally sign a
non-exclusive International Distributor Agreement. A small minority of our
distributorships is exclusive and, in some countries, we protect our distributors by not
selling to other distributors in the same area, although we are not required to do so. In
the United States, we sell our products through our wholly-owned subsidiary, RiT
Technologies, Inc. RiT Technologies, Inc. sells our products primarily through independent
manufacturers representatives, distributors and system integrators. A substantial
majority of our distributors are neither obligated to deal with us exclusively nor
contractually subject to minimum purchase requirements with respect to our products or
solutions. In the CIS market, we designated STINS COMAN, our principal shareholder, as our
non-exclusive distributor. For more information, see Item 7B  Related Party
Transactions.

We maintain a representative office
in Moscow, Russia, which coordinates marketing activities in the CIS market and a
representative office in Beijing, China. In addition, we retain local representatives in
London, England, Prague, Czech Republic, Milan, Italy, Brazil and Mumbai, India. Certain
risks related to international sales and dependence upon distributors and resellers are
described above in Item 3.D  Risk Factors.

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Our distributors serve as an integral
part of our marketing and service network around the world. We spend significant sales and
marketing resources on our distributors, providing them with ongoing training,
communications and support. Our employees regularly visit distributors sites.
Periodic meetings and technical seminars are organized by us to further advance our
relationships with our distributors and to familiarize them with our products.

In addition, we, in conjunction with
our distributors, prepare exhibitions of our products worldwide, place advertisements in
local publications, encourage exposure in the form of editorials in communications
journals and prepare direct mailings (both print and electronic) focusing on our products.
We have published an electronic catalog, which is available both on CD-ROM and on-line
through our Web site. In 2008, our three largest distributors accounted for approximately
9%, 7% and 6%, respectively, of our enterprise solutions sales.

The leading vendors of data
communications network infrastructure equipment have begun adding management capabilities
to their solution portfolios. Recognizing this interest, we have several strategic
alliances for joint marketing and sale of our PatchViewsystem as a means of
expanding our market exposure and our customer base and enhancing our enterprise solutions
sales prospects. Our existing strategic partnerships and relationships include Panduit
Corporation (selling PatchViewunder the brand name PanView), the Brand-Rex
(selling PatchViewunder the brand name SmartPatch), Belden/CDT (previously
known as Nordx/CDT) (selling PatchViewunder the brand name IntellimacPlus),
LS Cables (selling PatchView under the PatchView brand), Connectix (selling PatchView
under the PatchView brand) , ADC (previously known as Krone) (also known as ADC/Krone in
Europe) (selling PatchView under the brand name TrueNet) and other local strategic
partnerships. In 2008, our strategic partners together accounted for approximately 22% of
our enterprise sales, down from 33% in 2007.

Carrier Solutions

We market our carrier solutions
directly to telcos, with the aid of local agents and distributors. Completing a sale of
products such as the PairView or PairQsystems to telcos typically
requires approval processes by customers. The sales cycle usually takes 18 to 36 months.
The length of the approval process by customers is affected by a number of factors,
including the complexity of the product involved, technological priorities and budgets of
the telcos and regulatory issues affecting telcos. After completing technical evaluation
in which a new products function and performance are analyzed, a telco ordinarily
will conduct field trials simulating operations to evaluate performance and to assess ease
of installation and operation.

Commercial deployment of a new
product or system may involve greater numbers of units and locations than the marketing
trial stage. In the first phase, a telco installs the equipment in selected locations.
This phase is usually followed by general deployment, which involves greater numbers of
units and locations. Telcos typically select several suppliers for general deployment in
order to ensure that their needs can be met. Subsequent orders, if any, are placed under
single or multi-year supply agreements that are not subject to minimum volume commitments.

During the process described above,
telcos establish procedures, train employees to install and maintain the new product or
system, and obtain feedback on the product or system from operations personnel. Throughout
the customer approval process, we commit senior technical and marketing personnel to aid
in trials and to actively support the customers evaluation efforts.

# Customer Service and
Support

We believe that providing a high
level of customer service and support to our end-user customers is essential to the
success and acceptance of our products and solutions. We offer a technical support help
desk to our distributors worldwide. We also support our customers via phone, fax, e-mail
or on-site visits. We also publish application and technical notes for distributors,
integrators, manufacturers representatives and end-users to assist in using our
products more efficiently. In certain territories, we maintain local customer support
personnel.

Enterprise Solutions

In addition to our direct service and
support activities, our worldwide OEMs, distributors and representatives provide sales,
service and technical support functions (first and second level support) for our products
and solutions to end-user customers in their respective territories. They offer technical
support in the end-users language, attend to customer needs during local business
hours, translate our product and marketing literature into the local language and conduct
user programs and seminars.

We conduct periodic technical
seminars in Israel and other countries around the world to qualify and further advance the
technical knowledge of our distributors and installers in the use of our products and
solutions. We also conduct technical seminars for staff of our OEM partners in various
parts of the world.

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We provide a 12 to 36 month warranty
on our hardware, except for the SMART Cabling System, which, when installed by a Certified
Cabling Installer, and registered by us, is granted a 15 to 25 year warranty for system
performance; and the SMART GIGA Cabling System and CLASSix Cabling Systems, which, when
installed by a Certified Cabling Installer, and registered by us, are granted 20-year
warranties for system performance.

We offer second and third level
maintenance and support services to our PV4E software to OEMs and distributors and first,
second and third level maintenance and support services to our direct customers.

Carrier Solutions

We provide direct service and support
activities to our end distributors and end customers. We provide a 12 to 36 months
warranty on our carrier products. Upon termination of the warranty period for carrier
solutions, we offer a maintenance and support program to our customers.

# Dependence on Patents,
Licenses and Material Contracts

We rely upon a combination of
patents, patent applications, trademarks, copyrights, trade secret laws, contractual
restrictions and technical measures to establish and protect our proprietary rights in our
products, systems and technologies. We hold patents on our PatchView and PairView
technologies and some of our cabling products. These patents expire in 2025, 2015 and
2024, respectively. We also have several patents and design patents pending on our new
products. In addition, we enter into nondisclosure and confidentiality agreements with our
employees and with certain partners, suppliers and customers with access to sensitive
information. We cannot assure you that the steps we have taken to protect our proprietary
rights will be adequate to prevent misappropriation of our technology or independent
development and sale by others of software products with features based upon, or otherwise
similar to, those of our products and solutions.

Given the rapid pace of technological
development in the communications industries, we cannot assure you that certain aspects of
our products and solutions do not or will not infringe on existing or future proprietary
rights of others. Although we believe our technology has been independently developed and
none of our technology or intellectual property infringes on the rights of others, third
parties could assert infringement claims against us in the future. If such infringement is
found to exist, we may attempt to receive the requisite licenses or rights to use such
technology or intellectual property. However, we cannot assure you that such licenses or
rights can be obtained or obtained on terms favorable to us.

In addition, the laws of foreign
jurisdictions where we sell and seek to sell our products may afford little or no
protection of our intellectual property rights. We cannot assure you that the protection
provided to our intellectual property rights by the laws and courts of foreign nations
will be substantially similar to the remedies available under U.S. law. We also cannot
assure you that third parties will not assert infringement claims against us based on
foreign intellectual property rights and laws that are different from those established in
the United States.

There are no customers who have a
contractual obligation to order products from us. In 2008, there was no customer that
accounted for more than 10% of our total sales. In 2007 and 2006, approximately 22.8% and
27.7% of our revenues, respectively, were generated from orders placed by two major
customers. See Note 8B.1(c) to our Consolidated Financial Statements included elsewhere in
this annual report. See also Item 3.D.  Risk Factors.

# Competitive Position

We believe that the principal
competitive factors in our markets are product price-performance ratio, brand name
recognition, technical features, quality, price, and customer service and support. We
believe that we compete favorably with respect to most of these factors. However, we
cannot assure you that we will be able to compete successfully in the future with existing
or anticipated competitors. Many of our existing and potential competitors have or are
likely to have more extensive engineering, manufacturing, marketing and distribution
capabilities (including direct sales forces) and greater financial, technological and
personnel resources than us. Moreover, we cannot assure you that we will be able to
differentiate our products from the products of our competitors or to develop or
successfully introduce new products which are less costly or offer better performance than
those of our competitors. In addition, our existing and prospective competitors may have
established, or may in the future establish, relationships with our existing and potential
customers, which could have a material adverse effect on our ability to compete.

Enterprise Solutions

Competition in the structured cabling
segment of the enterprise solutions market is intense. Many companies, including, among
others, Commscope (SYSTIMAX division), Tyco/AMP, Panduit, Ortronics, and Siemon from the
United States and Canada, and Alcatel, Brand-Rex, Nexans and Siemens from Europe, develop
and sell products which directly or indirectly compete with our structured cabling
infrastructure.

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We are aware of two products
currently in the market that compete directly with our PatchView solution: the iTRACS
Infrastructure Manager system produced by the iTRACS Corporation and the iPatch System
produced by Systimax Solutions. We cannot assure you that there are currently no, or that
in the future there will not be, other products which directly or partially compete with
the PatchView system. We also have strategic arrangements with Panduit Corporation,
Brand-Rex, ADC (previously known as Krone), LS Cables, Connectix and Belden/CDT
(previously known as Nordx/CDT) for the sale of our PatchView system. Although we expect
the arrangements with these leading vendors to contribute to establishing PatchView as a
leading technology, these vendors also compete with us for intelligent infrastructure
management customers. Moreover, as the popularity of the managed infrastructure concept
increases, we expect substantial competition from established and emerging networking and
structured cabling companies.

Carrier Solutions

Since Fluke Corporations
acquisition of Harris Corporations test division, we are aware of only one global
competitor to PairView in the market, which is the DaVaR Loop Management System of Fluke .
However, there are several local solutions that compete with PairView, such as Sapla of
Inelcom in Spain and SiVar of OSP in South America, which offer local and less
comprehensive solutions.  In addition, Vierling Mobile Communications has recently
announced the release of a product called Street Cabinet Scanner. The product
competes with our NGPair product, but it seems that it cannot perform the full range of
capabilities currently performed by the PairView product. With respect to PairQ, Fluke
Corporation is marketing their NetDSL product, which incorporates capabilities similar to
PairQ, as a derivative of PairQs record verification process.  To our
knowledge, this product is limited in its capabilities of testing active lines as a
stand-alone product. Switch based testers, such as those manufactured by Teradyne, Porta
Systems and Spirent, compete indirectly with PairQ. However, we cannot assure you that no
other competitors exist. Moreover, we expect substantial competition from established and
emerging telecommunications companies, with the increased popularity of the concept of
outside plant qualification and management.

Increased competition, direct and
indirect, could have a material adverse effect on our revenues and profitability through
pricing pressure, loss of market share and other factors. We cannot assure you that we
will not be subject in the future to such factors, which could materially adversely affect
our business, financial condition and results of operations.

# Environmental Regulation

Our European activities require us to
comply with European Union Directives with respect to product quality assurance standards
and environmental standards. Directive 2002/95/ec of the European Parliament on the
Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic
Equipment, also known as the RoHS Directive, which came into effect on July 1, 2006,
provides that producers of electrical and electronic equipment may not place new equipment
containing lead, mercury and certain other materials deemed to be hazardous, in amounts
exceeding the set maximum concentration values, on the market in the European Union.
European Directive 2002/96/EC on waste, electrical and electronic equipment, known as the
WEEE Directive, makes manufacturers of electrical and electronic equipment financially
responsible for specified collection, recycling, treatment and disposal of past and future
covered products.

We are dependent on our suppliers for
components and sub-system modules to comply with these requirements and certain of our
products have been modified to meet these directives. Complying with these directives
imposes some additional costs and administrative burden on us. To our knowledge,
compliance with environmental laws and regulations has had no material effect on our
operations to date. However, we could incur substantial costs, including cleanup costs,
fines and civil or criminal sanctions, third-party damages or personal injury claims, if
we were to breach environmental laws, if our products were found not to comply with
environmental laws or if we become subject to newly enacted environmental laws and
regulations in the markets in which we operate, whether in the European Union or
otherwise.

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

Our wholly-owned subsidiary in the
United States, RiT Technologies, Inc., was incorporated in 1993 under the laws of the
State of New Jersey, and is primarily engaged in the selling and marketing in the United
States of our products.

In 1997, we incorporated a
wholly-owned subsidiary in Israel, RiT Tech (1997) Ltd., which was intended to make
various investments, including in our securities. As of December 31, 2008, RiT Tech (1997)
Ltd. held 0.08% of our outstanding shares.

Until June 2008, we were associated
with the RAD BYNET group, a group of companies which is affiliated with our
former principal shareholders, Yehuda Zisapel and Zohar Zisapel.

24

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

We do not own any real property.

We lease an aggregate of 15,758
square feet of office and manufacturing premises in Tel Aviv, Israel and we lease 6,545
square feet of warehousing premises in Rosh Haayin, Israel. Aggregate annual lease
payments in 2008 for the Tel Aviv and Rosh Haayin premises were approximately
$432,000.

We lease approximately 1,190 square
feet of office premises for our representative office in Beijing, China at an annual rent
of approximately $13,000. We lease 606 square feet of office premises for our
representative office in Moscow, Russia at an annual rent of approximately $65,000.
RiT Technologies, Inc., our U.S. subsidiary, leases approximately 2,288 square feet
in Mahwah, New Jersey, at an annual rent of approximately $30,000. See Item 7 
Major Shareholders and Related Party Transactions and Notes 5B and 9 to our
Consolidated Financial Statements included elsewhere in this annual report.

We believe that our facilities are
suitable and adequate for our operations as currently conducted and as currently foreseen.
In the event that additional facilities are required, we believe that we could obtain such
facilities at commercially reasonable rates.

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

Not applicable.

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

|5.A. | Operating
Results
|---- | -----------------

You should read the following
discussion of our financial condition and results of operations in conjunction with ourl
consolidated financial statements and the related notes included elsewhere in this annual
report. The consolidated financial statements have been prepared in accordance with U.S.
GAAP.

The following 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.Risk Factors.

# Overview

We commenced operations in 1989. We
are a leading provider of intelligent solutions for infrastructure management, asset
management, environment and security, and network utilization. Our enterprise solutions
address datacenters, communication rooms and workspace environments, ensuring maximum
utilization, reliability, decreased downtime, physical security, automated deployment,
asset tracking, and troubleshooting. Our environment and security solutions enable
companies to effectively control their datacenters, communications rooms and remote
physical sites and facilities in real-time, comprehensively and accurately. Our carrier
solutions provide carriers with the full array of network mapping, testing and bandwidth
qualification capabilities needed for access network installation and service
provisioning.

25

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# 2008 Financial Highlights

In 2008, the sales of our enterprise
sales solutions decreased by more than 5% compared with 2007 mainly due to a decrease in
our United States sales, associated mainly to a decrease in our OEM sales. The decrease in
our OEM sales is mainly related to the market crisis and to a material decrease in the OEM
demand for our products and solutions as a result of the OEMs own development of
similar products and solutions. The sales of our carrier business solutions increased in
2008 by 8% compared with year 2007, primarily due to the closing of higher number of new
and repeat purchase orders then in 2007.

In 2008, the geographical breakdown
of sales changed compared with 2007. Our sales to Europe increased significantly while our
sales to United States decreased. In 2008, the classification of sales by geographical
regions was approximately 60% of sales to Europe compared with approximately 35% in 2007
and of approximately 13% of sales to United States compared with approximately 29% in
2007.

Overall sales in 2008 were
approximately $22.6 million, a decrease of 3% compared with sales of approximately $23.4
million in 2007. This slight decrease in our 2008 sales was due mainly to the decrease in
our enterprise solutions sales in the United States during such period. See the table
under  Item 4.B  Sales by Major Product Lines..

The cost of sales as a percentage of
revenues decreased by approximately 11% compared with 2007. This decrease resulted mainly
from the mix of our enterprise sales during the year and from the significant decrease in
our inventories write-off charge in 2008 compared to 2007.

Operating expenses were approximately
$12.7 million in 2008, a decrease of 13% compared with operating expenses of approximately
$14.6 million in 2007. The decrease is due primarily to the plan that we implemented in
the third quarter of 2007, designed to reduce our expenses by nearly 25% per year,
including a decrease of more than 30% of our workforce, primarily in research and
development, operations and administration. This cost reduction plan created a positive
impact on all our operating expenses in 2008 and assisted in reducing our net loss to $1.2
million for the year 2008, compared with a net loss of approximately $5.3 million in year
2007. In addition, during 2008, the U.S. dollar was devalued relative to the NIS, which
increased the dollar cost of our operations in Israel.

Our cash and cash equivalents
increased from $3.9 million as of December 31, 2007 to approximately $6.1 million as of
December 31, 2008. The increase is mainly attributed to the $4 million private placement
transaction we completed in September 2008.

We may need to raise additional
financing in the future to support our operations and our growth strategy. There is no
assurance that we will be able to raise additional financing in the future or on what
terms, which may have a negative effect on our operations and growth strategy.

# Critical Accounting
Policies

The preparation of our financial
statements in conformity with generally accepted accounting principles requires us to make
estimates, judgments and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the
reporting period. We evaluate our estimates on a regular basis and may revise our
estimates. We base our estimates on historical experience and various other assumptions
that we believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent. Some of those judgments can be subjective and complex, and
consequently, actual results may differ from those estimates. For any given individual
estimate, judgment or assumption made by us, there may be alternative estimates, judgments
or assumptions, which are also reasonable. The following sections include references to
certain critical accounting policies that are impacted significantly by judgments,
assumptions and estimates used in the preparation of our consolidated financial
statements. These policies are discussed in Note 2 to our Consolidated Financial
Statements included in this annual report. We are also subject to risks and uncertainties
that may cause actual results to differ from our estimates, judgments and assumptions,
such as changes in the economic environment and competition. Certain of these risks and
uncertainties are described in Item 3.D.Risk Factors herein. Our
critical accounting polices include:

Revenue recognition

We follow very specific and detailed
guidelines, several of which are discussed below, in measuring revenue. However, such
guidelines may require the exercise of certain judgments, estimates and assumptions.

Contracts and customer purchase
orders are generally used to determine the existence of an arrangement. We assess whether
the fee is fixed or determinable based on the payment terms associated with the
transaction and whether the sales price is subject to refund or adjustment. We assess
collectibility based primarily on the creditworthiness of the customer as determined by
credit checks and analysis, as well as the customers payment history. When the sale
arrangement includes customer acceptance provisions, revenue is not recognized before we
have demonstrated that the criteria specified in the acceptance provisions have been
satisfied, including a written approval received from the customer.

26

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We apply the guidance in Emerging
Issues Task Force (EITF) Issue No. 00-21 to determine if the contract or
arrangement contains more than one unit of accounting, as defined in EITF 00-21, and, if
applicable, the allocation of the arrangement consideration to such units of accounting.

All of our contracts include a
warranty period and some also include training services. We have no obligation to provide
installation services or customer service and support with sales of our products.

We believe that in the future these
or enhanced training services may be sold separately, after the delivery of the systems.
In such cases, based on the objective and reliable evidence of the fair value of these
training services, we would alter our revenue recognition policy accordingly.

We sell most of our products and
solutions through distributors, strategic alliance partners, value-added resellers, system
integrators, OEMs and installers. We generally recognize revenue at the time of shipment
to such distribution channels.

Amounts received from customers prior
to product shipment are classified as advances from customers.

We generally do not grant the right
to return except for replacement of defective products, for which a warranty allowance is
recorded at the time of shipment.

Allowances for product
warranties

It is our policy to grant a warranty
for periods of 12 to 36 months, except with respect to our end-to-end cabling systems (the
SMART Cabling System, SMART GIGA Cabling System and CLASSix Cabling System) which, when
installed by a Certified Cabling Installer, and registered by us, are granted 15-year
warranties (for the SMART Cabling System and the SMART GIGA Cabling System) or 20-year
warranties (for the CLASSix Cabling System) for system performance. The balance sheet
provision for warranties for all periods through December 31, 2008 is determined based
upon our experience regarding the relationship between sales and actual warranty expenses
incurred. See Note 2L to our Consolidated Financial Statements included elsewhere in this
annual report. This determination may require the exercise of certain judgments, estimates
and assumptions.

The warranty for our products is a
basic manufacturer warranty accounted for under SFAS No. 5 and is not a portion of
multiple element revenue. Besides the warranty period, we have no obligation for
continuing customer service and support.

Our provision for warranty is
calculated for sales of carrier and enterprise systems (PairQ, PairView and our PatchView
products). The formula that we use to estimate the warranty provision for the systems
being sold for each period takes into consideration, among others, the following
variables:

| |  | number
 and nature of  systems sold;
| | - | ------------------------------------

| |  | price;
| | - | ------

| |  | remaining
warranty period; and
| | - | ------------------------------

| |  | elements
related to the customer's history and traits (e.g.  sales region, number of systems
bought, past                   warranty claims experience).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------

Our provision for warranty claims is
calculated on a quarterly basis for sales of carrier and enterprise systems. The carrier
product is comprised of two types of systems  Pair View and Pair-Q. The Enterprise
product is comprised of one type of system- Patch View. The provision for the carrier
products is calculated separately for those types of products in order to appropriately
take into consideration any differences in product or customer characteristics (.e.g.
professionalism of the customer work force, environmental conditions and working
conditions in the field). Based on past years experience, the calculation of the
enterprise products warranty provision is based on a fixed percentage from the sales of
these products.

Allowances for doubtful
accounts

Our financial statements include an
allowance that we believe reflects adequately the loss inherent in receivables for which
collection is in doubt. In determining the adequacy of the allowance, we based our
estimate on information at hand about debtors financial situations, the volume of
their operations, aging of the balance and evaluation of the security received from them
or their guarantors and the existence of credit insurance policies and the terms of
payment. If there is a major deterioration in a major customers credit worthiness or
actual defaults are higher than our historical experience, our estimates of the
recoverability of amounts due to us could be adversely affected. This would result in an
increase in our general and administrative expenses by increasing the allowance for bad
and doubtful debts and would decrease the amount of our trade receivables.

27

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The balance sheet allowance for
doubtful debts for all the periods through December 31, 2008 is determined as a specific
amount for those accounts the collection of which is uncertain.

In performing this evaluation,
significant judgments and estimates are involved based upon the factors that affect a
debtors ability to pay, all of which can change rapidly and without advance warning.

Inventories

Inventories are stated at the lower
of cost or market. In respect of work in process and finished products, the cost of raw
materials and components is determined on the moving average basis and labor costs and the
cost of overhead components is determined on the basis of actual manufacturing costs. In
determining inventory value, we make assumptions as to the market value of inventory. If
there is a sudden and significant decrease in demand for our products or there is a higher
risk of inventory obsolescence because of a rapidly changing technology and customer
requirements, we may be required to increase our inventory writedowns and our gross
margin could be adversely affected. In addition, we add the overhead from our
manufacturing process to the cost of our inventory items. The amount of overhead allocated
to cost of revenues is reviewed and updated periodically. Our write offs of
inventory in 2008 were $0.2 million compared with $1.8 million in 2007, this significant
decrease is mainly due to our level of carrier sales in 2007 and 2008 and changes in our
inventory purchasing processes.

Accounting for
Stock-based Compensation

On December 31, 2008, we had several
employee compensation plans, which are more fully described in Item 6.E.-Share
Ownership. Prior to January 1, 2006, we accounted for those plans under the
recognition and measurement provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees (APB 25), and related
interpretations as permitted by Financial Accounting Standards Board (FASB) Statement No.
123, Accounting for Stock-Based Compensation(SFAS 123). Effective
January 1, 2006, we adopted the fair value recognition method detailed in SFAS 123R,
Share-Based Payment, using the modified prospective transition method. Under that
transition method, compensation cost recognized 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 SFAS
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
SFAS 123R.

The fair value of each option grant
is estimated on the date of grant using the Black -Scholes option pricing model using the
following assumptions:

| | The
current price of the share is the fair market value of such shares at the date of
issuance.
|- | -----------------------------------------------------------------------------------------------

| | Dividend
yield of zero percent for all relevant periods.
|- | --------------------------------------------------------

| | Risk
free interest rates are as follows:
|- | ----------------------------------------

|Year ended December 31, | Interest Rate (%)
|----------------------- | -----------------
|
|
|
|
|2008                    | 2.75             
|2007                    | 4.51             
|2006                    | 4.80             

| | Expected
term of 4 years for each option granted.
|- | -------------------------------------------------

| | Expected
volatility of 81.9% for the year ended December 31, 2008 (68.7% and 79% for the years
ended December 31, 2007 and 2006, respectively).
|- | -----------------------------------------------------------------------------------------------------------------------------------------------

Most of our option awards are
generally subject to graded vesting over a service period. In those cases, we recognize
compensation cost on a straight-line basis over the requisite service period for the
entire award.

With respect to non-employees, we
apply the fair value-based method of accounting set forth in SFAS 123 and EITF Issue No.
9618, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or In Conjunction with Selling, Goods or Services, to
account for stock-based compensation to non-employees. Using the fair value method, the
total compensation expense is computed based on the fair value of the options on the date
the options are granted to the non-employees from the date in which the options are fully
vested.

28

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As a result of adopting SFAS 123R on
January 1, 2006, our net loss for the years ended December 31, 2006, 2007 and 2008 was
higher, respectively, than if we had continued to account for share-based compensation
under APB 25. We grant options at market value and therefore, under APB 25, there were no
compensation expenses.

The adoption of this standard could
adversely affect our profitability in the future. In addition, if as a result of SFAS 123R
we would stop or limit the use of stock options as an incentive and retention tool, it
could have a negative effect on our ability to recruit and retain employees.

Accounting for income
taxes

As of January 1, 2007, we adopted FIN
48, Accounting for Uncertainty in Income Taxes, which contains a two-step
approach to recognizing and measuring uncertain tax positions accounted for in accordance
with Statement 109, Accounting for Income Taxes. The first step is to evaluate
the tax position taken or expected to be taken in a tax return by determining if the
weight of available evidence indicates that it is more likely than not that, on an
evaluation of the technical merits, the tax position will be sustained on audit, including
resolution of any related appeals or litigation processes. The second step is to measure
the tax benefit as the largest amount that is more than 50% likely to be realized upon
ultimate settlement. Prior to January 1, 2007, we estimated our uncertain income tax
obligations in accordance with SFAS No. 109, Accounting for Income Taxes (SFAS
No. 109) and SFAS No. 5 Accounting for Contingencies (SFAS No. 5).

As part of the process of preparing
our consolidated financial statements, we are required to estimate our income taxes in
each of the jurisdictions in which we operate. This process requires us to estimate our
actual current tax exposure and make an assessment of temporary differences resulting from
differing treatment of items, for tax and accounting purposes. We have recorded a
valuation allowance of $9.6 million as of December 31, 2008, which relates primarily
to the value of the deferred tax asset consisting of our net operating loss
carry-forwards. This indicates our managements current determination that because we
have yet to generate taxable income, we cannot determine that it is more likely than not
that we will be able to use this asset in the future. For the year ended December 31,
2008, we did not generate any taxable income. In the event that we generate taxable income
in the future, we may be required to adjust our valuation allowance.

While we believe the resulting tax
balances as of December 31, 2008, 2007 and 2006 are appropriately accounted for in
accordance with FIN 48, SFAS No. 5 and SFAS No. 109, as applicable, the ultimate outcome
of such matters could result in favorable or unfavorable adjustments to our consolidated
financial statements. We believe that we adequately provided for any reasonably
foreseeable outcomes related to tax audits and settlement. However, our future results may
include favorable or unfavorable adjustments to our estimated tax liabilities in the
period the assessments are made or resolved, audits are closed or when statutes of
limitation on potential assessments expire. See Note 7 to our Consolidated Financial
Statements included elsewhere in this annual report.

# Financial Data

The following table sets forth, for
the periods indicated, certain financial data expressed as a percentage of total revenue:

|                                     | Year Ended December 31,
|------------------------------------ | -----------------------
|
|
|
|
|Sales                                |                        
|Cost of sales                        |                        
|                                     |                        
|Gross margin                         |                        
|                                     |                        
|Operating expenses:                  |                        
|Research and development, gross      |                        
|Less - royalty-bearing participation |                        
|                                     |                        
|Research and development, net        |                        
|Sales and marketing                  |                        
|General and administrative           |                        
|                                     |                        
|Total operating expenses             |                        
|                                     |                        
|Operating loss                       |                        
|Financial income, net                |                        
|                                     |                        
|                                     |                        
|Net loss for the year                |                        
|                                     |                        

29

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Year Ended
December 31, 2008 Compared with Year Ended December 31, 2007

Sales. Sales
consist of gross sales of products less discounts and refunds.

Sales decreased to approximately
$22.6 million in 2008 from approximately $23.4 million in 2007, primarily due to a
decrease in our enterprise solutions revenues in the United States. Our carrier business
revenues increased by more than 8% in 2008 compared to 2007, primarily due to the closing
of higher number of new and repeat purchase orders. Our enterprise business revenues
decreased by more than 5% in 2008 compared to 2007. The main reason for this decrease is
lower sales in the United States, associated mainly to a significant decrease in our OEM
sales.

Cost of Sales. Cost of sales
consists primarily of materials, sub-contractors expenses, warranty expenses, compensation
costs attributable to employees, write-down of inventory and overhead expenses related to
our manufacturing operations.

Cost of sales was approximately $11.1
million in 2008 compared with $14.2 million in 2007. Cost of sales as a percentage of
sales equaled 49.1% in 2008 compared with 60.6% in 2007. This decrease resulted mainly
from the decrease in our inventory write-down charge in 2008 and from the mix of our
enterprise sales during the year, which had a larger proportion of high margin sales
compared with year 2007. Our inventory write-down charge in 2008 was $0.2 million compared
with $1.8 million in 2007. The decrease is mainly due to our improved purchasing and sales
forecast processes. See Note 8B2 to our Consolidated Financial Statements included
elsewhere in this annual report.

Gross Margin. Gross margin
increased from 39.4% in 2007 to 50.9% in 2008, primarily due to the significant decrease
in our cost of sales.

Research and Development
Expenses. Research and development expenses consist primarily of compensation costs
attributable to employees engaged in ongoing research and development activities,
development-related raw materials and sub-contractors, and other related costs.

Gross Research and development
expenses were approximately $3.8 million in 2008 compared with $4.7 million in 2007. As a
percentage of sales, gross research and development expenses decreased to 16.8% of sales
in 2008 from 20.2% of sales in 2007, resulting mainly from the reduction program
implemented in the third quarter of 2007 which resulted in a significant decrease in our
compensation costs attributable to our research and development employees.

Grants from the Chief Scientist were
approximately $0.1 million in 2008, the same level of the amounts as in 2007.

Sales and Marketing Expenses. Sales
and marketing expenses consist primarily of costs relating to compensation attributable to
employees engaged in sales and marketing activities, promotion, advertising, trade shows
and exhibitions, sales support, travel, commissions and related expenses.

Sales and marketing expenses were
approximately $6.4 million in 2008 compared with approximately $7.6 million in 2007. The
significant decrease is mainly related to the reduction plan implemented in the third
quarter of 2007 which resulted in a significant decrease in our compensation costs
attributable to our marketing and sales employees and to lower marketing and promotion
expenses incurred by us in 2008 compared to 2007.

General and Administrative
Expenses. General and administrative expenses consist primarily of compensation costs
for administration, finance and general management personnel, office maintenance and
administrative costs and doubtful debt expenses.

General and administrative expenses
were approximately $2.7 million in 2008 compared with approximately $2.3 million in 2007.
The increase is primarily due to a one-time expense recorded in the second quarter of 2008
in connection with the changes in our principal shareholders and senior management.

Financial Income, Net. Net
financial income was approximately $0.05 million in 2008 compared with approximately $0.06
million in 2007.

Net Loss. We had net loss of
approximately $1.2 million in 2008 compared with a net loss of approximately $5.3 million
in 2007. This significant decrease is attributable mainly to the cost reduction program
implemented in the third quarter of 2007 and the decrease in our inventory write-offs
charge in 2008 compared with 2007.

Year Ended
December 31, 2007 Compared with Year Ended December 31, 2006

Sales. Sales
decreased to approximately $23.4 million in 2007 from approximately $25.1
          million in 2006, primarily due to a significant decrease in our enterprise
          solutions revenues.

30

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Our carrier business revenues
increased by more than 97% in 2007 compared to 2006. This increase was primarily due to an
exceptionally large carrier deal delivered during 2007. Our enterprise business revenues
decreased by more than 14% in 2007 compared to 2006. The main reason for this decrease is
a significant lower sales on the part of our subsidiary RiT Inc. in the United States,
caused mainly by delays in some material projects.

Cost of Sales. Cost of sales
was approximately $14.2 million in 2007 compared with $12.9 million in 2006. Cost of sales
as a percentage of sales equaled 60.6% in 2007 compared with 51.6% in 2006. This increase
resulted mainly from the mix of our enterprise sales during the year, which had an
unusually large proportion of low margin and third party equipment sales compared with
2006. Our inventory write-down charge in 2007 was $1.8 million compared with $1.0 million
in 2006. See Note 8B2 to our Consolidated Financial Statements included elsewhere in this
annual report.

Gross Margin.Gross margin
decreased from 48.4% in 2006 to 39.4% in 2007, from the mix of our enterprise sales during
the year, which had an unusually large proportion of low margin and third party equipment
sales compared with 2006.

Research and Development
Expenses. Gross research and development expenses were approximately $4.7 million in
2007 compared with $4.3 million in 2006. As a percentage of sales, gross research and
development expenses increased to 20.2% of sales in 2007 from 17.2% of sales in 2006,
resulting mainly from the lower level of revenues. Grants from the Chief Scientist were
approximately $0.1 million in 2007, the same level of the amounts as in 2006.

Sales and Marketing Expenses.
Sales and marketing expenses were approximately $7.6 million in 2007 compared with
approximately $7.7 million in 2006. The slight decrease is due mainly to lower marketing
and promotion expenses incurred by us and by our U.S. subsidiary which were partially
offset by the decrease in value of the dollar in relation to the NIS, especially with
respect to compensation paid to employees engaged in sales and marketing activities. In
addition, in the last quarter of 2007 we implemented a significant cost-cutting program
designed to reduce our expenses and to stabilize the Company at a lower level of sales.
Some of the contribution of this program is reflected in our results for the year ended
December 31,2007.

General and Administrative
Expenses. General and administrative expenses were approximately $2.3 million in 2007
compared with approximately $2.2 million in 2006.

Financial Income, Net. Net
financial income was approximately $0.1 million in 2007 compared with approximately $0.2
million in 2006.

Net Loss. We had net loss of
approximately $5.3 million in 2007 compared with a net loss of approximately $1.7 million
in 2006. The decrease is attributable mostly to the decrease in our gross profits because
of the mix of our enterprise sales during the year, which had an unusually large
proportion of low margin and third party equipment sales compared with 2006.

Government Policies Which Could
Affect Our Operations. We are entitled to receive tax benefits under the Israeli Law
for the Encouragement of Capital Investments, 1959 (the Investments Law) for
investment programs in our production facilities that are designated as Approved
Enterprises. To maintain our eligibility for these tax benefits, we must continue to
meet several conditions. If we fail to comply with these conditions in the future, the tax
benefits received could be cancelled. The termination or reduction of the tax benefits
could materially harm our business, financial condition and results of operations. For
more information about Approved Enterprises, see Item 10.E. Israeli Tax
Considerations  Law for the Encouragement of Capital Investments, 1959 below
and Note 7B to our Consolidated Financial Statements included elsewhere in this annual
report.

See Item 5.C. Research and
Development, Patents and Licenses for further discussion of government programs and
policies which may affect us.

# Market Risk

For a description of market risk,
including the impact of interest rates and foreign currency exchange rates on us, see Item
11.

# Recently Issued
Accounting Pronouncements

In December 2007, the Financial
Accounting Standards Board, or FASB, issued FASB Statement No. 141R, Business Combinations
(Statement 141R) and FASB Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment to ARB No. 51 (Statement 160). Statements 141R and
160 require most identifiable assets, liabilities, noncontrolling interests, and goodwill
acquired in a business combination to be recorded at full fair value and
require noncontrolling interests (previously referred to as minority interests) to be
reported as a component of equity, which changes the accounting for transactions with
noncontrolling interest holders. Both Statements are effective for periods beginning on or
after December 15, 2008, and earlier adoption is prohibited. Statement 141R will be
applied to business combinations occurring after the effective date. Statement 160 will be
applied prospectively to all noncontrolling interests, including any that arose before the
effective date. We believe adopting Statement 141R and Statement 160 should have no impact
on our results of operations and financial position.

31

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On January 1, 2009, we will be
required to apply the provisions of Statement 157 to fair value measurements of
nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis. We are in the process of
evaluating the impact, if any, of applying these provisions on our financial position and
results of operations.

|5.B. | Liquidity
and Capital Resources
|---- | -------------------------------

Since our initial public offering in
1997, we have met our financial requirements primarily through cash generated from
operations, research and development and marketing grants from the Government of Israel,
short-term bank borrowing and our sale of ordinary shares and warrants. We believe that
our cash and cash equivalents together with cash generated from operations will be
sufficient to finance our operations for at least the next 12 months. However, we cannot
assure you that our actual cash requirements will not be greater than we currently expect.
In addition, depending upon our future level of revenues and the strategies that we have
adopted, we may need to raise additional debt or equity capital to meet our working
capital needs in the future.

Our principal financing activities
during the past three years were:

| |  | In
September 2008, we completed a private placement transaction in which we issued 6,153,846
ordinary shares to STINS COMAN, our principal shareholder, for a total investment of $4
million, reflecting a $0.65 purchase price per share. The private placement replaced a $4
million loan we secured from STINS COMAN in June 2008. See Item 7B  Related
Party Transactions.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In
March 2008, we arranged for a $1 million line of credit from a bank. In connection with
the change of control we underwent in June 2008, the credit line expired. We were not
able to secure a new credit line since then.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Capital expenditures were
approximately $0.5 million in 2006, $0.3 million in 2007 and $0.1 million in 2008. These
expenditures were principally for machinery, computers and research and development
equipment purchases. During 2009, we expect to invest additional resources for capital
equipment at the same level as in 2008. We did not have any material commitments for
capital expenditures as of December 31, 2008.

Working Capital and Cash
Flows

On December 31, 2008, we had
cash and cash equivalents of approximately $6.1 million, compared with $3.9 million on
December 31, 2007. This increase resulted primarily from the $4.0 million of proceeds
received from the private placement transaction completed in September 2008.

Net cash used for operating
activities was $1.6 million in 2008 compared to $2.4 million in 2007 and $1.0 million in
2006. Net cash used in operating activities decreased in 2008 primarily as a result of the
reduction plan implemented in the third quarter of 2007, which decreased our expenses by
approximately 20.0% compared with 2007. Net cash use in investing activities was $0.1
million in 2008, $0.3 million in 2007 and was provided for $0.04 million in 2006. Our
principal investing activity in 2008, 2007 and 2006 was the purchase of equipment and the
sale of marketable securities in 2006.

Our contractual and contingent
obligations and commitments on December 31, 2008 primarily consisted of obligations
associated with our future operating lease obligations, our suppliers obligations and a
contingent liability to the Chief Scientist. See Note 5 to our Consolidated Financial
Statements included elsewhere in this annual report and Item 5.F.-Tabular Disclosure
of Contractual Obligations for a table of our material contractual obligations. We
expect to finance these contractual commitments with cash on hand and cash generated from
operations.

Impact of Related Party
Transactions

We have entered into a number of
agreements with our principal shareholder or its affiliates. Please see Item 7B
 Related Party Transactions below for specific details as to certain related
party transactions entered into by us. We believe that the terms of these related party
transactions are not different in any material respect than the terms we could receive
from unaffiliated third parties. The pricing and/or value of such transactions were
determined based on arms-length negotiations between the parties. Our management
reviewed the pricing and other items of such transactions and confirmed that they were not
materially different than could have been obtained from unaffiliated third parties.

Under the Companies Law and NASDAQ
rules, certain transactions and arrangements with interested parties require approval by
our board of directors and our audit committee and, in some cases, also require approval
by our shareholders.

32

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|5.C. | Research
and Development, Patents and Licenses
|---- | ----------------------------------------------

We believe that our future success will
depend upon our ability to enhance our existing products and solutions and introduce new
commercially viable products and solutions that address the demands of evolving markets
for intelligent infrastructure solutions and, more specifically, enterprise infrastructure
solutions and outside plant qualification and management products on a timely basis. As
part of the product development process, we work closely with current and potential
customers, distribution channels and leaders in certain industry segments to identify
market needs and define appropriate product specifications. Our employees also participate
in numerous industry and standards forums in order to stay informed about the latest
industry developments. As of December 31, 2008, we employed 31 persons in research and
development.

Our gross research and development
expenses were approximately $3.8 million in 2008, $4.7 million in 2007 and $4.3 million in
2006 (16.8%, 20.2% and 17.2% respectively of our total sales). To date, all research and
development expenses have been charged to operating expense as incurred. Aggregate
research and development expenses funded by the Chief Scientist were approximately $0.1
million in each of 2008, 2007 and 2006. We believe that our investment in product
development activities in 2009 will be at the same level of our expenditures in 2008.

Grants from the Office of
the Chief Scientist

The Government of Israel encourages
research and development projects through the Office of Chief Scientist of the Israeli
Ministry of Industry, Trade and Labor, or the Chief Scientist, pursuant to the Law for the
Encouragement of Industrial Research and Development, 1984, and the regulations
promulgated thereunder, or the R&D Law. Generally, grants from the Chief Scientist
constitute up to 50% of qualifying research and development expenditures for particular
approved projects. Under the terms of these Chief Scientist projects, a royalty of 3% to
5% is due on revenues from sales of products and related services that incorporate
know-how developed, in whole or in part, within the framework of projects funded by the
Chief Scientist. Royalty obligations are usually 100% of the dollar-linked amount of the
grant, plus interest. The royalty rate applicable to our programs is 3.5%.

The R&D Law generally requires
that the product developed under a program be manufactured in Israel. However, upon a
notification to the Office of the Chief Scientist a portion of up to 10% of the
manufacturing volume may be performed outside of Israel. Upon the approval of the Chief
Scientist, a greater portion of the manufacturing volume may be performed outside of
Israel. Ordinarily, any such approval will be conditioned upon acceleration of the rate of
royalties and an increase in the total amount to be repaid to up to 300% of the grants,
depending on the portion of the total manufacturing volume that is performed outside of
Israel. The R&D Law further permits the Chief Scientist, among other things, to
approve the transfer of manufacturing rights outside Israel in exchange for an import of
different manufacturing rights into Israel, in lieu of the increased royalties. The
R&D Law also allows for the approval of grants in cases in which the applicant
declares that part of the manufacturing will be performed outside of Israel or by
non-Israeli residents and the research committee is convinced that doing so is essential
for the execution of the program.

The R&D Law also provides that
know-how developed under an approved research and development program may not be
transferred to another person or entity in Israel without the approval of the research
committee. Such approval is not required for the sale or export of any products resulting
from such research or development. The R&D Law further provides that the know-how
developed under an approved research and development program may not be transferred to
another person or entity outside Israel, except in certain special circumstances and
subject to prior approval. Generally, the Chief Scientist may approve the transfer of
Chief Scientist-funded know-how outside Israel in the following circumstances: (a) the
grant recipient pays to the Chief Scientist a portion of the sale price paid in
consideration for such Chief Scientist-funded know-how (according to certain formulas);
(b) the grant recipient receives know-how from a third party in exchange for its Chief
Scientist-funded know-how; or (c) such transfer of Chief Scientist-funded know-how arises
in connection with certain cooperative in research and development activities.

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

33

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The funds available for Chief
Scientist grants under the annual budget of the State of Israel were reduced in 1998, and
the Israeli authorities have indicated that the government may further reduce or abolish
Chief Scientist grants in the future. Even if these grants are maintained, we cannot
presently predict the amounts of any future grants that we may receive. In each of the
last ten fiscal years, we have received such royalty-bearing grants from the Chief
Scientist. On December 31, 2008, our unrecognized contingent liability, including
interest to the Chief Scientist in respect of grants received, was approximately
$1.1million.

|5.D. | Trend
Information
|---- | -----------------

General. The
economic outlook for 2009 has worsened significantly, including in our           largest
market, Europe, and the global economic recession appears set to           continue for
some time. During the current global economic slowdown, many           companies have
reduced expenditures, and adverse economic conditions may cause           our customers
to reduce or postpone their technology spending significantly,           which could
result in reductions in sales of our products, longer sales cycles,           slower
adoption of new technologies and increased price competition, which would           have
a material adverse effect on our business, operating results and financial
          condition. We are currently unable to predict how long the recession will last
          or the full extent of its effects on our operating results and financial
          condition.

Our Market. Significant
marketplace trends have greatly reduced the overall profitability of pure product-based
business models. Rather, professional services backed by advanced technical expertise are
emerging as the key to long-term success. In keeping with market trends, we have
launched professional services in 2008 in an effort to broaden our solutions portfolio and
increase our revenue stream. However, at this point, we are unable to predict how our
positioning will affect future sales.

As described in Item 4.B  Competitive
Position, two enterprise products directly compete with our PatchView systems:
the iTRACS Infrastructure Manager system produced by the iTRACS Corporation and the
iPatch System produced by Systimax Solutions. The number of cabling vendors around the
world that have partnered with us or with one of the other IIM solution providers and now
offer an IIM solution in their product portfolio has increased and, consequently,
competition in this market is likely to continue to intensify in the future.

|5.E. | Off-Balance
Sheet Arrangements
|---- | ------------------------------

We do not have any off-balance
sheet arrangements which are required to be disclosed under this Item 5.E. of Form
20-F.

|5.F. | Tabular
Disclosure of Contractual Obligations
|---- | ---------------------------------------------

The following table summarizes our
contractual obligations related to our long-term debt, operating leases and accrued
severance pay, as of December 31, 2008:

|                            | Total
(Dollars in
millions) | Less than
1 year
(Dollars
in
millions) | 1-3 years
(Dollars in
millions) | 3-5 years
(Dollars in
millions) | More than 5
years
(Dollars in
millions)
|--------------------------- | --------------------------- | -------------------------------------- | ------------------------------- | ------------------------------- | ---------------------------------------
|
|
|
|
|Contractual Obligations     |                             |                                        |                                 |                                 |                                        
|Leases on Premises          |                             |                                        |                                 | 0.5                             |                                        
|Operating Lease Obligations |                             |                                        |                                 | 0.6                             |                                        
|Purchase Obligations        |                             |                                        |                                 | 3.1                             |                                        
|Accrued Severance pay*      |                             |                                        |                                 | 0.5                             |                                        
|Total                       |                             |                                        | $                               | 4.7                             |                                        

*Severance pay obligations to our
Israeli employees, as required under Israeli labor law, are payable only upon termination,
retirement or death of the respective employee.

On December 31, 2008, our
unrecognized contingent liability to the Chief Scientist in respect of grants received was
approximately $1.1 million including interest. See Note 5A to our Consolidated Financial
Statements included elsewhere in this annual report. We are only required to repay this
liability in the form of royalties based on revenues derived from products developed with
funding from these grants.

34

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

|6.A. | Directors
and Senior Management
|---- | -------------------------------

The following table sets forth, as of
the date hereof, the name, age and position of each of our directors and executive
officers:

|                             |     |                                              
|---------------------------- | --- | ---------------------------------------------
|
|
|
|
|Name                         | Age | Position                                     
|                            
|Sergey Anisimov              | 54  | Chairman of the Board of Directors           
|Avi Kovarsky                 | 51  | President and Chief Executive Officer        
|Boris Granovsky              | 41  | Director                                     
|Dr. Hagen Hultzsch (1)(2)(3) | 68  | Director                                     
|Israel Frieder (1)(2)(3)(4)  | 59  | Director                                     
|Roman Govorov (1)(3)(4)      | 31  | Director                                     
|Simona Green                 | 41  | Vice President Finance                       
|Jay Plawner                  | 52  | Senior Vice President Sales                  
|Guy Shapira                  | 39  | Vice President Research and Development      
|Ben Carmi                    | 31  | Vice President Operations                    
|Zafi Shatz                   | 49  | Vice President Human Resources               
|Oded Nachmoni                | 42  | Vice President Marketing and Product Strategy
|Julia Geva                   | 34  | AVP Marketing                                
|Ofer Herman                  | 42  | AVP Sales                                    

---

|(1) | Designated
as Independent Director under NASDAQ Marketplace Rules.
|--- | --------------------------------------------------------------------

|(2) | Outside
Director.
|--- | -----------------

|(3) | Member
of the Audit Committee.
|--- | ------------------------------

|(4) | Member
of the Compensation and Nominating Committee.
|--- | ----------------------------------------------------

Mr. Sergey
Anisimov has served as the Chairman of our Board of Directors since           June
2008. In 1992, Mr. Anisimov founded STINS COMAN Incorporated, a Russian           holding
company which is engaged, through its group companies, in IT system
          distribution, integration, training and service, and since then has served as
          its president. Mr. Anisimov has over 30 years of experience in various
positions           in the information technology business. He received an engineer
diploma from the           Moscow Institute of Aviation Technology and holds a Ph.D. in
technologies from           Moscow State Technical University N.A. N.E. Bauman.

Mr. Avi
Kovarsky has served as our Chief Executive Officer since July 2008. He
          served in various sales and marketing positions at RiT from 1997 to 2007,
          including Vice President of Sales and Marketing and Senior VP Sales. Prior to
          joining RiT, Mr. Kovarsky held several sales and marketing positions in Israeli
          hi-tech companies. Mr. Kovarsky holds a M.Sc. degree in Computer Science and
          Civil Engineering from the Technion  Haifa, Israel.

Mr. Boris
Granovsky has served as a director since June 2008. He is the Chief
          Executive Officer of STINS COMAN Incorporated since 2000. Prior thereto, Mr.
          Granovsky served as a sale manager and thereafter as Vice President of Sales in
          STINS COMAN since 1995. Mr. Granovsky received a diploma in engineering in
          automated control systems from the Moscow Institute of Radio Engineering,
          Electronics and Automation and a BBA degree in management from Business School
          of the Open University of United Kingdom.

Dr. Hagen
Hultzsch has served as a director since January 2002. Dr. Hultzsch was
          originally a nuclear physicist with computing and telecommunications background
          and has been a Member of the Board of Management of Deutsche Telekom
responsible           for the Technology and Services Division since 1993. He also served
Volkswagen           AG as Corporate Executive Director Organization and Information
Systems,           reporting to the CEO from 1988 to 1993. Prior to that, he worked for
EDS,           Electronic Data Systems as their Director of the Technical Services Group
in           Germany starting in 1985. From 1977, he was head of the Computer Center at
the           Heavy Ion Research Center in Darmstadt, Germany. He currently serves on
several           boards as a non-executive director, including the chair of the
Supervisory           Boards of Zimory and T-Systems Solutions for Research, a member of
the boards of           SCM-Microsystems, TranSwitch Corporation, and Radware Ltd. and as
a member of           the Supervisory Boards of Authentidate International AG and as well
as of the           University Clinics Bonn and Dresden. Dr. Hultzsch received his Ph.D.
in physics           from Johannes Gutenberg University in Mainz, Germany.

35

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Mr. Israel
Frieder has served as a director since January 2002. Mr. Frieder           is the
Co-Chairman of IXI Mobile Inc., and Chairman of A.A. Pearl Inv. and           serves as
director and provides management services at several           companies. Mr. Frieders
previous positions include serving           as the Chairman and CEO of Israel
Technology Acquisition Corp Inc., Chief           Executive Officer of Kardan
Communications Ltd., Corporate Vice President of           Business Development & Strategic
Planning of ECI Telecom, the President of           ECI Telecom, Inc., and the President
of Network Systems of Tadiran           Telecommunication Ltd. While at Tadiran, Mr.
Frieder served as a director of           RRSAT Ltd. , Teledata Ltd., Tadiran
Telecommunications Canada, Inc., ECI           Tadiran Synchronous System Limited
Partnership, Tadiran Telecommunications           Public Switching Ltd., Tadiran Telecom
(Kunming) Co. Ltd. (Joint Venture),           Tadiran Telecommunication UK Ltd., and TNN
 Tadiran Newbridge Networks           Ltd. Mr. Frieder also served as the President
of Elisra Tadiran, Public           Switching Ltd. and served as a director of Motorola
Tadiran Cellular Ltd.           (PelePhone). Mr. Frieder holds a B.Sc. in Electrical
Engineering from the           Technion and an M.B.A. in Operational Research from the
Hebrew University in           Jerusalem.

Mr. Roman
Govorov has served as a director since August 2008. He has served as a
          Managing Director of IBRG Capital, a private equity fund, since September 2007.
          From 2006 to 2007, he served as a senior associate and deputy head of the
          M&A department of Columbus Nova, a private equity fund. From 2004 to 2006,
          he served as an associate and analyst at Aton Capital, a Russian investment
          bank. From 2000 to 2004, he served as an analyst at United Financial Group, an
          investment bank that was acquired by Deutsche Bank in 2004. Mr. Govorov is a
          graduate (major: finance and credit) of the Plekhanov Russian Academy of
          Economics and a graduate (major: applied mathematics) of the Moscow Engineering
          Physics Institute.

Ms. Simona Greenjoined us in
April 2000 as the Company Controller. In October           2002, Ms. Green was appointed
Financial Director of RiT. In 2004, Ms. Green was           appointed Vice President
Finance. Ms. Green was appointed a director of RiT           Technologies, Inc. as of May
2004. Prior to joining us, Ms. Green worked for           seven years at Somekh Chaikin,
Certified Public Accountants (Israel), a member           firm of KPMG International. Ms.
Green holds a BBA in business           administration and accounting from the School of
Business Administration of the           College of Management.

Mr.           Jay
Plawner joined us in 2004 as Director of Sales for Asia Pacific and           Latin
America. In September 2007, Mr. Plawner was appointed Senior Vice           President
Sales. Prior to joining us, Mr. Plawner held various managerial           positions in
sales and marketing in several high tech companies in Israel. His           last position
before joining RiT was as VP International Sales at Optibase Ltd.           Mr. Plawner
holds a B.Sc. in Electronics Engineering from Tel Aviv University.

Mr. Guy
Shapira joined us in 1999 as a Project Manager in the telecommunications
          and data communications fields. In April 2000, he was appointed as Vice
          President of Research and Development. In his ten years of experience prior to
          joining us, Mr. Shapira held senior research and development positions with the
          Israeli Ministry of Defense in the field of telecommunications. Mr. Shapira
          holds a B.Sc. degree in Electrical Engineering from Tel Aviv University.

Mr. Ben
Carmi served in various positions at RiT Technologies from 2003 to
          2008, including Product Line Manager, Commercial Department Manager and
Regional           Sales Director. Mr. Carmi was promoted to Vice President Operations in
September           2008. Mr. Carmi holds a B.Sc. in Industrial Engineering and MA
in Public           Policy, both from Tel Aviv University.

Mr. Oded
Nachmoni joined us as Senior Director of Product Management in June           2005.
In 2005 Mr. Nachmoni was appointed Vice President of Marketing and Product
          Strategy. Prior to joining us, Mr. Nachmoni held positions of Director of
          Product Management, Business Development and Pre-Sales at ECtel Ltd.
Previously,           he served as Senior Vice President of Marketing and Sales at
NetEye. Prior to           that, Mr. Nachmoni filled a number of product management & system
          engineering positions at Telrad and the Israeli Ministry of Defense. Mr.
          Nachmoni holds a B.Sc. in Electrical Engineering from the Technion and an
          M.B.A., from Tel Aviv University.

Mrs. Julia
Geva joined RiT as Marketing Manager in 2005 and was promoted to           Director,
Marketing in 2006. Prior to joining us, Mrs. Geva held a position of           Marketing
Manager at Creo. Previously she served as PR Manager at CreoScitex.           Prior to
that, Mrs. Geva filled a number of marketing positions at Scitex           Corporation.
Mrs. Geva holds an MA in Linguistics from Nizhny Novgorod State           Linguistic
University and an MBA from Tel Aviv University.

Mr. Offer
Herman joined RiT as Sales Manager for Europe in 2000 and was           promoted
to Director of Sales for EMEA in 2003 and to Associate VP Sales in           2007. Prior
to joining us, Mr. Herman held various positions in sales and           marketing in
several high tech companies in Israel. His last position before           joining RiT was
Sales Director in ArelNet Ltd. Mr. Herman holds a           B.Sc. in Industrial
Engineering from University of New Haven, Connecticut.

Ms. Zafi
Shatzjoined us in June 2006 as Vice President Human Resources. Prior           to
joining us, Ms. Shatz held the position of Human Resources Director at           Airspan
Networks for four years and prior to that served as Human Resources           Director in
Flexlight Networks and Teva Pharmaceuticals. Ms. Shatz holds a           bachelors
degree in Psychology & Sociology from Tel Aviv University.

36

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# Additional Information

In June 2008, in connection with the
acquisition of our control by STINS COMAN, Messrs. Sergey Anisimov and Boris Granovsky
joined our Board of Directors, replacing Messrs. Yehuda Zisapel and Meir Barel. Mr.
Anisimov was appointed Chairman, replacing Yehuda Zisapel who served as our Chairman since
1989. In August 2008, Mr. Roman Govorov was elected to our Board and the term of Prof.
Liora Katzenstein, who served as a director since February 2003, expired. In addition, Mr.
Avi Kovarsky has been appointed as our Chief Executive Officer, replacing Mr. Doron
Zinger, who served as our Chief Executive Officer since June 2005. In addition, during
2008, several other individuals joined and left our senior management.

There are no family relationships
between any of the directors or members of senior management named above.

|6.B. | Compensation
|---- | ------------

The aggregate direct remuneration
paid to all our directors and officers as a group (consisting of 17 persons in 2008) for
the year ended December 31, 2008, was approximately $1.7 million compared with $1.3
million in 2007 (the group consisted of 15 persons in 2007). This includes amounts
expended by us for automobiles made available to our officers and other fringe benefits
commonly reimbursed or paid by companies in Israel and approximately $0.3 million which
was set aside or accrued to provide retirement annuities or similar benefits. The amount
does not include any expenses (including business travel, professional and business
association dues and expenses) reimbursed to officers.

Our non-employee directors receive,
starting March 6, 2008, amounts consistent with the regulations promulgated under the
Companies Law regarding compensation to external directors. The regulations were amended
in a manner that, among others, mandates Israeli public companies, such as us, to provide
external directors with minimum cash compensation. Consistent with the aforesaid
amendments, our Audit Committee and Board of Directors have determined to set the annual
compensation paid to our external directors at NIS 71,300 (currently equates to
approximately $17,825) and at NIS 3,470 (currently equates to approximately $870) per
board meeting or per board committee meeting, all linked to the Israeli CPI, effective
March 6, 2008. All other independent directors of the Company (namely Roman Govorov)
receive the same compensation as the external directors.

In 2008, we granted options to
purchase an aggregate amount of 482,000 ordinary shares to our officers under the 2003
Plan at exercise prices ranging between $0.37 and $0.65 per share and no options were
granted to any of our directors. The options expire on the six anniversary of the date of
grant. See also Item 6E. Directors, Senior Management and Employee  Share
Ownership  Share Option Plans.

|6.C. | Board
Practices
|---- | ---------------

We are subject to the provisions of
the Israeli Companies Law and the regulations promulgated thereunder. In addition, as a
NASDAQ-listed company, we are also subject to certain corporate governance standards
adopted by NASDAQ. For further information, see Item 16G  Corporate
Governance.

# Introduction

Our Articles of Association provide
that the board of directors shall consist of not less than 3 nor more than 7 directors.
Currently, our board of directors consists of 5 members.

According to the Israeli Companies
Law and our Articles of Association, the oversight of the management of our business is
vested in our board of directors. The board of directors may exercise all powers and may
take all actions that are not specifically granted to our shareholders. As part of its
powers, our board of directors may cause us to borrow or secure payment of any sum or sums
of money for our purposes, at times and upon terms and conditions as it determines,
including the grant of security interests in all or any part of our property.

Our directors are elected by the
shareholders, except in certain cases where directors are appointed by the board of
directors, such as filling vacancies, and their appointment is subject to ratification by
the shareholders at the next annual or extraordinary meeting of shareholders. Except for
external directors (as described below), directors elected by the shareholders hold office
until the next annual meeting of shareholders, which is required to be held at least once
during every calendar year and not more than 15 months after the last preceding meeting.
Directors may be removed earlier from office by resolution passed at a general meeting of
our shareholders.

Our Articles of Association allow for
a director to appoint another person who is not a director as an alternate for himself.
Under the Israeli Companies Law, an external director may not appoint an alternate
director, except in very limited circumstances. Unless the appointing director limits the
period or scope of such appointment, it shall be for a period that will expire upon the
expiration of the appointing directors term, and shall be for all purposes. Under
the Israeli Companies Law, a director may serve as an alternate director on any committee
of the board of directors of which he or she is not already a member.

37

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# External Directors

Under the Companies Law, companies
incorporated under the laws of Israel whose shares are listed for trade on a stock
exchange or have been offered to the public in or outside of Israel, are required to
appoint at least two external directors. The Companies Law provides that a person may not
be appointed as an external director if the person or the persons relative, partner,
employer or any entity under the persons control, has, as of the date of the
persons appointment to serve as external director, or had, during the two years
preceding that date, any affiliation with the company, any entity controlling the company
or any entity controlled by the company or by its controlling entity. The term affiliation
includes:

| |  | an
employment relationship;
| | - | ---------------------------

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

| |  | control;
and
| | - | ------------

| |  | service
as an "office holder."
| | - | ------------------------------

The Companies Law defines the term
office holder of a company to include a director, the chief executive officer,
the chief financial officer and any officer of the company who is directly subject to the
chief executive officer.

Pursuant to an amendment to the
Companies Law, effective as of April 19, 2006, (1) each external director
must have either accounting and financial expertise or
professional qualifications (as such terms are defined in regulations
promulgated under the Companies Law) and (2) at least one of the external directors must
have accounting and financial expertise. We have determined that Mr. Israel
Frieder has the requisite accounting and financial expertise and that Mr.
Hagen Hultzch has the requisite professional qualifications.

No person can serve as an external
director if the persons position or other business creates, or may create, conflict
of interests with the persons responsibilities as an external director or may
otherwise interfere with the persons ability to serve as an external director. Until
the lapse of two years from termination of office, a company may not engage an external
director to serve as an office holder and cannot employ or receive services from that
person, either directly or indirectly, including through a corporation controlled by that
person.

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

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

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

The initial term of an external
director is three years and he or she may be reelected to one additional term of three
years. Thereafter, our external directors may be reelected by our shareholders for
additional periods of up to three years each only if the audit committee and the board of
directors confirm that, in light of the external directors expertise and special
contribution to the work of the board of directors and its committees, the reelection for
such additional period is beneficial to the Company. External directors may be removed
from office only by the same percentage of shareholders as is required for their election,
or by a court, only if the external directors cease to meet the statutory qualifications
for their appointment or if they violate their duty of loyalty to the company. Each
committee of a companys board of directors is required to include at least one
external director, and the audit committee is required to include all the external
directors. Currently, Israel Frieder and Hagen Hultzsch qualify as external directors.

An external director is entitled to
consideration and to reimbursement of expenses, only as provided in regulations
promulgated under the Companies Law and is otherwise prohibited from receiving any other
compensation, directly or indirectly, in connection with his service as an external
director. Nevertheless, the grant of an exemption from liability for breach of duty of
care toward the company, an undertaking to indemnify, indemnification or insurance
pursuant to the provisions of the Companies Law shall not be deemed as compensation.

38

---

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# Independent Directors

Our ordinary shares are listed for
quotation on the NASDAQ Capital Market and we are subject to the rules of the NASDAQ
Capital Market applicable to listed companies. Under NASDAQs rules, a majority of
the members of an issuers board of directors are required to be
independent, as defined thereunder, except where the issuer is a
controlled company, a company of which more than 50% of the voting power for
the election of directors is held by an individual, a group or another company. Although
we are a controlled company by virtue of STINS COMANs shareholdings in us, we
currently satisfy this requirement as Israel Frieder, Hagen Hultzsch and Roman Govorov
were determined by our board to qualify as independent directors under NASDAQ rules.

# Committees

Audit Committee

Pursuant to applicable SEC and NASDAQ
rules, we are required to have an audit committee of at least three members, each of whom
must satisfy the independence requirements of the SEC and NASDAQ. In addition, pursuant to
NASDAQ rules, all of the members of the audit committee must be financially literate and
at least one member must possess accounting or related financial management expertise. The
audit committee must also have a written charter specifying the committees duties
and responsibilities, which include, among other things, the selection and evaluation of
our independent auditors.

Under the Companies Law, our board of
directors is required to appoint an audit committee, which must be comprised of at least
three directors and include all of the external directors, but may not include:

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

| |  | any
controlling shareholder or any relative of a controlling shareholder; and
| | - | -----------------------------------------------------------------------------

| |  | any
director employed by the company or providing services to the company on a regular basis.
| | - | ---------------------------------------------------------------------------------------------

The duty of the audit committee under
the Companies Law is to examine flaws in the business management of the company, including
in consultation with the internal auditor and to suggest remedial measures to the board.
Pursuant to NASDAQs corporate governance rules, all related party transactions must
be approved by the audit committee (or another independent body of the board of
directors). In addition, as more fully described under Item 10.B. below, the approval of
the audit committee is required under the Companies Law to effect certain actions and
transactions with office holders and interested parties. The audit committee may not
approve such actions or transactions unless at the time of such approval the two external
directors are serving as members of the audit committee and at least one of them is
present at the meeting at which such approval is granted.

Our audit committee consists of Roman
Govorov, Israel Frieder and Dr. Hagen Hultzsch and satisfies the requirements of the
Companies Law, the SEC and NASDAQ rules. Our board of directors has determined that Israel
Frieder is an audit committee financial expert, as defined by applicable SEC regulations,
and that he also has the requisite financial expertise, as defined under the NASDAQ rules.
Our audit committee adopted a written charter specifying the committees duties and
responsibilities, which include, among other things, the selection and evaluation of our
independent auditors.

Compensation and
Nominating Committee

Pursuant to applicable NASDAQ rules,
director nominees must be selected or recommended for the boards selection either by
a nominations committee composed solely of independent directors or by a majority of
independent directors, subject to certain exceptions, including where the issuer is a
controlled company. Similarly, the compensation payable to a companys chief
executive officer and other executive officers must be approved either by a majority of
the independent directors on the board or a compensation committee comprised solely of
independent directors, subject to certain exceptions, including where the issuer is a
controlled company. Although we are a controlled company by virtue of STINS COMANs
shareholdings in us, we maintain a compensation and nominating committee which consists of
Roman Govorov and Israel Frieder and satisfies the requirements of the NASDAQ rules. Our
board of directors approved a written charter specifying the committees duties and
responsibilities.

# Internal Auditor

Under the Companies Law, the board of
directors of a public company must also appoint an internal auditor proposed by the audit
committee.  The duty of the internal auditor is to examine, among other things,
whether the companys conduct complies with applicable law and orderly business
procedure.  Under the Companies Law, the internal auditor may not be an interested
party, an office holder, or an affiliate, or a relative of an interested party, an office
holder or affiliate, nor may the internal auditor be the companys independent
accountant or its representative. Our internal auditor is the accounting firm of Fahn
Kanne Control Management Ltd.

39

---

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# Directors Service
Contracts

Except as set forth in Item 6B.
Directors, Senior Management and Employees  Compensation, there are no
arrangements or understandings between us and any of our current directors for benefits
upon termination of service.

|6.D. | Employees
|---- | ---------

The
following table details certain data on the workforce (including temporary employees) of
RiT and its consolidated subsidiaries for the periods indicated:

|                                                         | As at December 31,
|-------------------------------------------------------- | ------------------
|
|
|
|
|Approximate numbers of employees by geographic location  |                   
|Israel                                                   | 79                
|Europe, Far East                                         | 11                
|United States                                            | 4                 
|Total workforce                                          | 94                
|Approximate numbers of employees by category of activity
|Research and development                                 | 31                
|Sales and marketing                                      | 39                
|Operations                                               | 15                
|Management and administrative                            | 9                 
|Total workforce                                          | 94                

The sharp decrease in our workforce,
from 128 employees in 2006 to 99 employees in 2007 and 94 employees in 2008, relates to
the work force and cost reduction plan implemented in the third quarter of 2007 and
completed in the beginning of 2008.

We consider our relations with our
employees to be excellent and have never experienced a labor dispute, strike or work
stoppage. Substantially all of our employees have employment agreements and none are
represented by a labor union. Typically, the employment agreements provide for employees
in Israel to receive an insurance policy known as managers insurance and
a savings fund for professional enrichment. We also provide employees in Israel with
long-term disability insurance.

We maintain an incentive plan for our
marketing and sales personnel, pursuant to which monthly remuneration is based, in part,
upon sales and margin quotas. In addition, marketing and sales personnel occasionally
receive bonuses for special achievements.

Our Israeli employees are not party
to any collective bargaining agreement. However, we are subject to certain provisions of
collective bargaining agreements among the Government of Israel, the Histadrut (General
Federation of Labor in Israel) and the Coordinating Bureau of Economic Organizations
(including the Industrialists Association) that are applicable to our Israeli
employees by virtue of expansion orders of the Israeli Ministry of Labor and Welfare. In
addition, Israeli labor laws are applicable to all of our employees in Israel. Those
provisions and laws principally concern the length of the workday, minimum daily
wages for workers, procedures for dismissing employees, determination of severance pay,
certain social contributions and other conditions of employment. See Note 4 to the
Consolidated Financial Statements included elsewhere in this annual report.

Pursuant to Israeli law, we are
legally required to pay severance benefits upon the retirement or death of an employee or
the termination of employment of an employee without due cause. The Company partially
funds this liability by the purchase of managers insurance policies. The current
redemption value of such insurance policies is included in the balance sheet as assets
held for severance benefits. This policy provides a combination of savings plans,
insurance and severance pay, if legally entitled, upon termination of employment. The
remaining part of this obligation is presented in our balance sheet as provision of
severance pay.

All Israeli employers, including us,
are required to provide certain increases as partial compensation for increases in the
Consumer Price Index. The specific formula for such increases varies according to
agreements reached among the Government of Israel, the Manufacturers Association and
the Histadrut. Israeli employees and employers also are required to pay pre-determined
sums (which include a contribution to national health insurance) to the Israel National
Insurance Institute, which provides a range of social security benefits.

40

---

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|6.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 15, 2009:

|Name                    | Title/Office | No. of
Ordinary
Shares | As a % of Outstanding Ordinary
Shares  
|----------------------- | ------------ | ---------------------- | ---------------------------------------
|
|
|
|
|Sergey Anisimov (1)     |              |                        | Chairman of the Board of Directors     
|                        |              |                       
|Avi Kovarsky            |              |                        | CEO and President                      
|                        |              |                       
|Simona Green            |              |                        | Vice President Finance                 
|                        |              |                       
|Jay Plawner             |              |                        | Senior Vice President Sales            
|                        |              |                       
|Guy Shapira             |              |                        | Vice President Research and Development
|                        |              |                       
|Ben Carmi               |              |                        | Vice President Operations              
|                        |              |                       
|Zafi Shatz              |              |                        | Vice President Human Resources         
|                        |              |                       
|Oded Nachmoni           |              |                        | Vice President of Marketing and Product
|                        |              |                        | Strategy                               
|                        |              |                       
|Israel Frieder          |              |                        | Director                               
|                        |              |                       
|Hagen Hultzsch          |              |                        | Director                               
|                        |              |                       
|Roman Govorov           |              |                        | Director                               
|                        |              |                       
|Boris Granovsky (1)     |              |                        | Director                               
|                        |              |                       
|All directors and       |              |                        |                                        
|executive officers as a |              |                        |                                        
|group (2)               |              |                        |                                        

| | *
Less than 1%
| | --------------

|(1) | Through
STINS COMAN. See Item 7A.
|--- | ---------------------------------

|(2) | Includes
outstanding options exercisable, within 60 days as of March 15, 2009, into 772,450
ordinary shares       at exercise prices that range between $1.05 to $3.15 per ordinary
share and with expiration dates that range       between November 2009 and May 2016.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Share Option Plans

In July 2003,  we adopted the RiT
 Technologies  Ltd.  2003 Share  Option  Plan,  or the 2003 Plan,  which is currently
administered  by our board of  directors.  The  purpose of the 2003 Plan is to  provide
 incentives  to our  employees, directors,  consultants and contractors,  or any
subsidiary  thereof,  by providing them with opportunities to purchase our ordinary
 shares..  The exercise price and vesting  schedule of options granted under the 2003
Plan are approved by the board of directors,  as specified in the grant letter issued by
us to the grantee.  Unless otherwise  determined by the board of directors,  the options
fully vest on the third anniversary  following their grant, vesting in three equal shares
 annually.  We have reserved  3,236,666  ordinary  shares for the grant of options under
the 2003 Plan, of which we have, as of March 15, 2009 outstanding  options to purchase
 1,758,134  ordinary shares at a weighted exercise price of $1.49 per ordinary share.

In addition,  in May 1999, we
adopted the RiT  Technologies,  Inc.  Employee  Stock Option Plan, or the RiT Inc.  Plan,
pursuant to which  options to purchase our ordinary  shares may be granted to the
employees of RiT  Technologies,  Inc. The RiT Inc. Plan is  administered  by the Board of
Directors  which  designates the optionees,  dates of grant and the exercise price of the
options.  We have reserved  216,000  ordinary  shares for the grant of options under the
RiT Inc. Plan, of which we have  outstanding  as of March 15, 2009,  options to purchase
 85,333  ordinary  shares at a weighted exercise price of $1.36 per ordinary share. [The
plan is scheduled to expire in May 2009.]

We still have 30,000  outstanding
 options that were granted under the RiT Directors'  Share Incentive Plan (1997),  or the
Directors' Plan, which we adopted in June 1997 and expired since then.

41

---

---

In 2008, we granted options to
purchase an aggregate  amount of 482,000  ordinary shares to our officers under the 2003
Plan at weighted  average  exercise price of $0.63 per share and no options were granted
to any of our  directors.  The options expire on the sixth anniversary of the date of
grant.

The following table summarizes
information about all stock options outstanding as of March 15, 2009:

|            | Options outstanding
|----------- | -------------------
|
|
|
|
|0.37        |                    
|0.6 - 0.65  |                    
|1.05 - 1.48 |                    
|1.6 - 1.86  |                    
|2           |                    
|2.58        |                    
|2.75 - 2.82 |                    
|3.15        |                    
|7.38        |                    
|            |                    
|            |                    
|            |                    
|            |                    

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

7.A.    
          Major Shareholders,

The following table sets forth
certain information regarding the beneficial ownership of our ordinary shares as March 15,
2009 (except as noted below) by each person who is known by us to own beneficially more
than 5% of our outstanding ordinary shares. Except as otherwise noted and pursuant to
applicable community property laws, each person or entity named in the table has sole
voting and investment power with respect to all ordinary shares listed as owned by such
person or entity. Each ordinary share is entitled to one vote per share and none of our
major shareholders has any different voting rights than any other shareholder. For
additional information regarding ownership by all officers and directors, see Item
6.E.  Share Ownership.

|Name                      | Number of Ordinary Shares
Owned Excluding Options and
Warrants | Number of Ordinary
Shares Beneficially
Owned | Number of Ordinary Shares
Beneficially Owned as Percent
of Total Shares(1)
|------------------------- | -------------------------------------------------------------- | -------------------------------------------- | --------------------------------------------------------------------------
|
|
|
|
|Sergey Anisimov, Boris    |                                                                |                                              |                                                                           
|Granovsky (2)             |                                                                |                                              |                                                                           
|                          |                                                                |                                             
|Austin W. Marxe and David |                                                                |                                             
|M. Greenhouse5            |                                                                |                                              |                                                                           

---

|(1) | Based
on 20,835,420 ordinary shares outstanding as of March 15, 2009.Beneficial
               ownership is determined in accordance with the rules of the SEC and
generally                includes voting or investment power with respect to securities.
Ordinary shares                relating to options or warrants currently exercisable or
exercisable within 60                days of the date of this table are deemed
outstanding for computing the                percentage of the person holding such
securities but are not deemed outstanding                for computing the percentage of
any other person.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Based
on a Schedule 13D filed by STINS COMAN Incorporated with the SEC on
               September 23, 2008, STINS COMAN is the holder of 12,471,242 ordinary
shares. Mr.                Anisimov is the President of, and owns a majority interest in,
STINS COMAN. Mr.                Granovsky is the CEO of, and owns a minority interest in,
STINS COMAN.                Consequently, Messrs. Anisimov and Granovsky may be deemed
the beneficial                owners, and to share the power to vote and dispose, of
these shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | As
of December 31, 2008, based on a Schedule 13G filed by Austin W. Marxe and
               David M. Greenhouse with the SEC on February 11, 2009. The Schedule 13G
               indicates that Messrs. Marxe and Greenhouse share voting and dispositive
power                as to (i) 1,115,754 ordinary shares and 276,800 warrants owned
by Special                Situations Private Equity Fund, L.P., (ii) 1,228,876
ordinary shares and                232,500 warrants owned by Special Situations
Technology Fund II, L.P. and                (iii) 228,124 ordinary shares and 44,275
warrants owned by Special                Situations Technology Fund, L.P. Messrs. Marxe
and Greenhouse are members of MG                Advisers L.L.C., the general partner of
and investment adviser to Special                Situations Private Equity Fund, L.P.,
and of SST Advisers, L.L.C., the general                partner of and investment adviser
to Special Situations Technology Fund, L.P.                and Special Situations
Technology Fund II, L.P.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

42

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# Significant Changes in
the Ownership of Major Shareholders

In June 2008, STINS COMAN completed
the purchase of 5,122,521 ordinary shares, representing approximately 34.9% of our
outstanding shares, for an aggregate purchase price of $4,405,368, or $0.86 per share,
from Yehuda Zisapel, our then Chairman of the Board of Directors and its co-founder, Zohar
Zisapel, the brother of Mr. Yehuda Zisapel, and Dr. Meir Barel, a director of the Company.
As part of the transaction, the selling shareholders granted STINS COMAN a right of first
refusal with respect to their existing warrants to purchase a total of 302,679 ordinary
shares at an exercise price of $1.75 per share. Under such right of first refusal, STINS
COMAN is entitled to purchase such warrants at the then current value Black-Scholes Value
prior to the exercise or transfer of such warrants by any of the selling shareholders.

Concurrently with the closing of the
said purchase, STINS COMAN also acquired, through a partial tender offer, a total of
1,027,815 ordinary shares, representing approximately 7.0% of our outstanding shares, at
$0.86 per share, such that, following these two transactions, STINS COMAN beneficially
owned an aggregate of 6,150,336 shares, representing approximately 41.9% of our
outstanding shares, becoming our largest shareholder.

In September 2008, we completed a
private placement transaction in which we issued to STINS COMAN 6,153,846 of our ordinary
shares at $0.65 per share, for aggregate proceeds of $4 million. Following the
transaction, STINS COMAN owns 12,471,242 ordinary shares, representing 59.9% of our
outstanding shares. For more information, see Item 7B  Related Party
Transactions.

# Record Holders

Based on a review of the information
provided to us by our transfer agent, as of March 9, 2009, there were 17 holders of record
of our ordinary shares, of which record holders, holding approximately 40.3% of our
ordinary shares, had registered addresses in the United States. These numbers are not
representative of the number of beneficial holders of our shares nor is it representative
of where such beneficial holders reside since many of these ordinary shares were held of
record by brokers or other nominees (including one U.S. nominee company, CEDE & Co.).

# Change of Control

As described above, we are controlled
by STINS COMAN. To our knowledge, we are not directly or indirectly owned or controlled by
any foreign government. We are not aware of any arrangements of the operation of which may
at a subsequent date result in a change of our control.

|7.B. | Related
Party Transactions
|---- | --------------------------

The RAD-BYNET Group

Yehuda and Zohar Zisapel are our
founders and, until June 2008, were our principal shareholders. Yehuda Zisapel was also
the Chairman of our Board of Directors.  Zohar Zisapel was a director until November
30, 2003.  One or both of Yehuda Zisapel and Zohar Zisapel are also founders,
directors and principal shareholders of several other companies which, together with us
and their respective subsidiaries and affiliates, are known as the RAD-BYNET Group.

Members of the RAD-BYNET Group, each
of which is a separate legal entity, are actively engaged in designing, manufacturing,
marketing and supporting data communications and telecommunications products, none of
which is currently the same as any product of ours.  One or both of Yehuda Zisapel
and Zohar Zisapel are also founders, directors and principal shareholders of several
other real estate, services, holdings and pharmaceutical companies. The above list does
not constitute a complete list of the investments of Yehuda and Zohar Zisapel.

| |  | Certain
companies in the RAD-BYNET Group provide mainly administrative services to us. We
reimburse each of these companies for their costs in providing such services. In 2008,
these services accounted for approximately $0.5 million. Some of these services are
obtained through tenders to suppliers for the RAD-BYNET group as a whole, allowing us to
benefit from the purchasing and bargaining power of a larger entity.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

43

---

---

| |  | We
also lease office, manufacturing and warehousing premises in Tel Aviv from an affiliate
of Yehuda and Zohar Zisapel. The aggregate annual payments in 2008 to these related
parties were approximately $384,000. A United States subsidiary of RAD-BYNET Group
provides administrative services and leases premises in Mahwah, New Jersey, to RiT
Technologies, Inc. for annual payments that totaled at approximately $30,000 in 2008.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We
also have a non-exclusive distribution arrangement with Bynet Applications for the
distribution of our enterprise solutions in Israel. In 2008, sales through this
arrangement were approximately $1.1 million.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe that the terms of the
transactions in which we have engaged and are currently engaged with other members of the
RAD-BYNET Group are beneficial to us and no less favorable to us than terms which might be
available to us from unaffiliated third parties.

All transactions and arrangements (or
modifications of existing ones) with members of the RAD-BYNET Group were approved by the
audit committee, a majority of the disinterested members of our board of directors, and,
in certain circumstances, our shareholders, as required under the Companies Law.

STINS COMAN

| | STINS
COMAN, which became our largest shareholder in June 2008, has served as our distributor
in Russia for our enterprise products since 1994 and has worked with us consistently
since that date. In May 2005, more than three years before STINS COMAN became a principal
shareholder of RiT, we have entered into an International Distributor Agreement with
STINS Corp., a subsidiary of STINS COMAN, whereby STINS Corp. was appointed as our
non-exclusive distributor of enterprise products in Russia. The term of the Distributor
Agreement has expired and, following approval of our Audit Committee, Board of Directors
and shareholders, we renewed its term until July 14, 2009.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the Distributor Agreement, STINS Corp. undertook a series of obligations, such as to
maintain an adequate and aggressive sales organization to distribute and procure sales,
to actively promote and create a demand for our products, and to assure adequate
advisory, installation and support services. We undertook a series of obligations, such
as to supply STINS Corp., at no cost, with such aids and technical assistance as we deem
necessary to aggressively pursue product sales. We also extended STINS COMAN a limited
warranty on our products. The prices at which STINS Corp. is entitled to buy our products
is, like most of our distributors, at a fifty percent (50%) discount on our recommended
price list existing at the time we accept each purchase order. In 2006, 2007 and 2008, we
generated approximately $229,000, $395,000 and $969,000, respectively, in revenues from
orders placed by STINS COMAN under the Distributor Agreement.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
June 2008, we entered into a short-term loan agreement with STINS COMAN, under which
STINS COMAN will extend us an unsecured loan of up to $4 million at an annual interest
rate of 2.47%. Under the loan agreement, we were required to repay the outstanding
principal amount and the interest accrued thereon in one payment 12 months after receipt
of the funds. In July 2008, we entered into a binding Memorandum of Understanding for a
private issuance by the Company of newly issued ordinary shares to STINS COMAN, whereby
the outstanding loan amount and the interest accrued thereon will convert, at the
closing, into ordinary shares at a conversion price of $0.65 per share. The closing was
subject, among others, to the execution of a definitive agreement and was approved by our
shareholders in the annual meeting held in August 2008. In September 2008, we completed
the private placement transaction and we issued to STINS COMAN 6,153,846 of our ordinary
shares at $0.65 per share, for aggregate proceeds of $4 million, which replaced the $4
million already committed under the loan agreement. Pursuant to the securities purchase
agreement, we also agreed to make reasonable commercial efforts to register for resale
all the newly issued ordinary shares under the Securities Act of 1933, as amended, within
six months following demand by STINS COMAN. The purchase agreement included customary
representations and warranties by STINS COMAN with respect to its status and limited
representations by us regarding the transaction and the validity of the shares.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Mr.
Sergey Anisimov is the Chairman of our Board of Directors and is the founder and
President of STINS COMAN. In July 2008, our Audit Committee and Board of Directors have
approved the employment of the son of Mr. Anisimov in the quality assurance department at
a monthly gross salary of approximately NIS 12,000 (approximately $3,000) and additional
social benefits in accordance with the Companys policy. Our Audit Committee and
Board of Directors also approved, subject to shareholder approval, a framework
arrangement, pursuant to which any modifications or amendments to be made in Mr. Anisimovs
son employment terms or position by officers of the Company in the future are approved;
provided that any such modification or amendment is conditioned upon the following: (i)
any increase in the gross salary will not exceed 20% per year, (ii) any bonus will not
exceed the equivalent of one monthly salary per year, (iii) any change in position is
permitted as long as he is not appointed an office holder of the Company; and (iv) the
further approval by the Audit Committee and the Board of Directors. Following said
approvals by the Board and Audit Committee, the shareholders approved the foregoing
compensation and framework arrangement, at the annual meeting held in August 2008.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

44

---

---

| | In
September 2008, we entered into an International Distributor Agreement with STINS Corp.,
a subsidiary of STINS COMAN, whereby STINS Corp. was appointed as our non-exclusive
distributor of carrier products in the CIS market until, initially, September 2009. We
refer to this agreement as the Carrier Distributor Agreement. The Carrier Distributor
Agreement is an umbrella agreement that provides a framework for future deals in the
carrier market, the terms of each of which would require further approval of our Audit
Committee and Board of Directors and, if required under Israeli law, our shareholders.
The prices at which STINS Corp. is entitled to buy carrier products is at the recommended
price list existing at the time we accept the purchase order, unless otherwise agreed by
the parties with respect to each deal, on a case-by-case basis which would require
further approval of our Audit Committee and Board of Directors.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe that the terms of the
transactions in which we have engaged and are currently engaged with STINS COMAN are
beneficial to us and no less favorable to us than terms which might be available to us
from unaffiliated third parties.

|7.C. | Interests
of Experts and Counsel
|---- | --------------------------------

Not applicable.

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

|8.A. | Consolidated
Statements and Other Financial Information
|---- | -------------------------------------------------------

See Item 18.

Export Sales

See Item
4.BSales.

Legal Proceedings

We are, or may be, from time to time
named as a defendant in certain routine litigation incidental to our business. However, we
are currently not, and have not been in the recent past, a party to any legal proceedings
which may have or have had in the recent past significant effects on our financial
position or profitability.

Dividend Policy

We have never declared or paid any
cash dividends on our ordinary shares and we do not anticipate paying any cash dividends
on our ordinary shares in the future. We currently intend to retain all future earnings to
finance our operations and to expand our business. Any future determination relating to
our dividend policy will be made at the discretion of our board of directors and will
depend on a number of factors, including future earnings, capital requirements, financial
condition and future prospects and other factors the board of directors may deem relevant.
See also Item 10B-Memorandum and Articles of Association-Dividends.

|8.B. | Significant
Changes
|---- | -------------------

No significant change has occurred
since the date of the annual financial statements, and/or since the date of the most
recent interim financial statements, if any, included in this document.

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

|9.A. | Share
History
|---- | -------------

The following table sets forth, for
the periods indicated, the high and low sales prices of our ordinary shares as reported on
NASDAQ (in dollars).

|                    | High | Low
|------------------- | ---- | ---
|
|
|
|
|2004 Full Year      |      |    
|2005 Full Year      |      |    
|2006 Full Year      |      |    
|2007 Full Year      |      |    
|First Quarter 2007  |      |    
|Second Quarter 2007 |      |    
|Third Quarter 2007  |      |    
|Fourth Quarter 2007 |      |    
|2008 Full Year      |      |    
|First Quarter 2008  |      |    
|Second Quarter 2008 |      |    
|Third Quarter 2008  |      |    
|Fourth Quarter 2008 |      |    
|September 2008      |      |    
|October 2008        |      |    
|November 2008       |      |    
|December 2008       |      |    
|January 2009        |      |    
|February 2009       |      |    

45

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On March 27, 2009, the last reported
sale price of our ordinary shares on the NASDAQ was $0.35 per share.

Effective January 2004, our ordinary shares
were transferred from the NASDAQ Global Market (formerly, NASDAQ National Market) to the
NASDAQ Capital Market (formerly NASDAQ SmallCap Market). Our ordinary shares are currently
traded on the NASDAQ Capital Market, under the symbol RITT.

On December 6, 2007, we received a
NASDAQ Staff Deficiency Letter indicating that, for the 30 consecutive business days prior
to the date of the letter, the bid price of our ordinary shares closed below the minimum
bid price requirement of $1.00 per share. On December 23, 2008, we were notified by NASDAQ
that, in light of a general temporary suspension of the bid rule, the date on which must
regain compliance with the bid rule was extended to September 2, 2009.

As of March 27, 2009, we had
20,852,420 ordinary shares outstanding.

|9.B. | Plan
of Distribution
|---- | --------------------

Not applicable.

|9.C. | Markets
|---- | -------

Our ordinary shares trade exclusively
on the NASDAQ Capital Market under the symbol RITT.

|9.D. | Selling
Shareholders
|---- | --------------------

Not applicable.

|9.E. | Dilution
|---- | --------

Not applicable.

|9.F. | Expenses
of the Issue
|---- | ---------------------

Not applicable.

|ITEM 10. |  | ADDITIONAL INFORMATION
|-------- |  | ----------------------

|10.A. | Share
Capital
|----- | -------------

Not applicable.

|10.B. | Memorandum
and Articles of Association
|----- | --------------------------------------

Set out below is a description of
certain provisions of our Memorandum and Articles of Association, and of the Israeli
Companies Law related to such provisions. This description is only a summary and does not
purport to be complete and is qualified by reference to the full text of the Memorandum
and Articles which are filed as exhibits hereto and are incorporated herein by reference.

46

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We were first registered under
Israeli law on July 16, 1989 as a private company. In July 1997, we became a public
company. We are registered with the Registrar of Companies in Israel under number
520043357.

# Objects and Purposes

Pursuant to Section 2 of our
Memorandum of Association, the principal object for which we are established is to
manufacture, market, sell, import, export, acquire, rent to, lease to, rent from, lease
from and engage in any manner whatsoever in computer equipment.

# Limitation on Rights to
Own Shares

Neither our Memorandum of Association
or our Articles of Association nor the laws of the State of Israel restrict in any way the
ownership or voting of ordinary shares by non-residents of Israel, except with regard to
subjects of countries which are in a state of war with Israel who may not be recognized as
owners of ordinary shares.

# Directors

The Companies Law requires that
transactions between a company and its office holders (which term includes directors) or
that benefit its office holders, including arrangements as to the compensation of office
holders, be approved as provided for in the Companies Law and the companys articles
of association. For further information as to such approval provisions, see below under
Approval of Specified Related Party Transactions under Israeli Law.

Under our Articles, in general, the
oversight of the management of our business is vested in the board of directors, which may
exercise all such powers, including the power to borrow or secure the payment of any sum
of money for our purposes, and may secure or provide for repayment of such sum, in such
manner as it thinks fit.

There is no requirement under our
Articles or Israeli law for directors to retire on attaining a specific age. Our Articles
do not require directors to hold our ordinary shares to qualify for election.

# Approval of Specified
Related Party Transactions under Israeli Law

Fiduciary Duties of
Office Holders

The Companies Law imposes a duty of
care and a duty of loyalty on all office holders (as defined under the Companies Law, see
Item 6.C.  Board Practices) of a company. Each person listed in the
table under Directors and Senior Management above is an office holder.

The duty of care requires an office
holder to act with the level of care with which a reasonable office holder in the same
position would have acted under the same circumstances. The duty of care of an office
holder includes a duty to use reasonable means to obtain:

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

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

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

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

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

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

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

Under the Companies Law,
directors compensation arrangements in public companies, such as ours, generally
require the approvals of the audit committee, the board of directors and the shareholders,
in that order.

47

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Disclosure of Personal
Interests of an Office Holder

The Companies Law requires that an
office holder of a company disclose to the company 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. The disclosure is required to be made
promptly and in any event no later than the board of directors meeting in which the
transaction is first discussed.A personal interest of an office holder includes an
interest of a company in which the office holder is, directly or indirectly, a 5% or
greater shareholder, director or general manager or in which the office holder has the
right to appoint at least one director or the general manager. In the case of an
extraordinary transaction, the office holders duty to disclose applies also to a
personal interest of the office holders relative, which term is defined in the
Companies Law as the persons spouse, siblings, parents, grandparents, descendants,
spouses descendants and the spouses of any of the foregoing.

Under the Companies Law, an
extraordinary transaction is a transaction:

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

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

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

Under the Companies Law, once an
office holder complies with the above disclosure requirement, the board of directors may
approve the transaction, unless the articles of association provide otherwise.
Nevertheless, a transaction that is adverse to the companys interest may not be
approved.

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

Duties of Shareholders

Under the Companies Law, the
disclosure requirements, which apply to an office holder, also apply to a controlling
shareholder of a public company. A controlling shareholder is a shareholder who has the
ability to direct the activities of a company, including a shareholder that holds 25% or
more of the voting rights if no other shareholder owns more than 50% of the voting rights
in the company, but excluding a shareholder whose power derives solely from his or her
position as a director of the company or any other position with the company.

Extraordinary transactions with a
controlling shareholder or in which a controlling shareholder has a personal interest, and
the engagement of a controlling shareholder as an office holder or employee, generally
require the approval of the audit committee, the board of directors and the shareholders
of the company, in that order. The shareholder approval must be by majority vote, provided
that either:

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

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

For information concerning the direct
and indirect personal interests of certain of our office holders and principal
shareholders in certain transactions with us, see Item 7  Major Shareholders
and Related Party Transactions.

In addition, under the Companies Law,
each shareholder has a duty to act in good faith in exercising his rights and fulfilling
his obligations toward the company and other shareholders and to refrain from abusing its
power in the company, such as in shareholder votes. In addition, specified shareholders
have a duty of fairness toward the company. These shareholders include any controlling
shareholder, any shareholder who knows that it possesses the power to determine the
outcome of a shareholder vote and any shareholder who, pursuant to the provisions of the
articles of association, has the power to appoint or to prevent the appointment of an
office holder or any other power toward the company. However, the Companies Law does not
define the substance of this duty of fairness.

48

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# Exculpation, Insurance
and Indemnification of Office Holders

Exculpation of Office
Holders

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

Insurance of Office
Holders

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

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

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

| |  | a
financial obligation imposed upon him or her in favor of another person.
| | - | --------------------------------------------------------------------------

Indemnification of Office
Holders

Under the Companies Law, we may
indemnify an office holder with respect to an act performed in his capacity as an office
holder, retroactively (after the liability has been incurred) or in advance, provided that
our articles of association allow us to do so, against the following:

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

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

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

| |  | Our
articles of association were amended in April 2006 to contain provisions which conform
with the aforesaid provisions.
| | - | -------------------------------------------------------------------------------------------------------------------------

Limitations on
Exculpation, Insurance and Indemnification

The Companies Law provides that a
company may not exculpate or indemnify an office holder nor enter into an insurance
contract that would provide coverage for any monetary liability incurred as a result of
any of the following:

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

| |  | a
breach by the office holder of his or her duty of care if the breach was done
intentionally or recklessly, unless the breach was done negligently;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | any
fine imposed against the office holder.
| | - | -------------------------------------------

49

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

Indemnity and Insurance

We have undertaken to indemnify our
office holders to the fullest extent permitted by law by providing them with a Letter of
Indemnification, substantially in the form approved by our shareholders in 2006 (See
Exhibit 4.6 in Item 19). We currently maintain directors and officers liability insurance
with a per claim and aggregate coverage limit of $10 million including legal costs
incurred.

# Share Capital

Our share capital is divided into two
classes of shares, par value NIS 0.10 per share: (i) ordinary shares, which entitle their
holders to notice of and to participate in and to vote one vote per ordinary share at
shareholder meetings, the right to receive dividends upon the declaration of dividends by
the board of directors and the right to participate in the distribution of our assets upon
liquidation; and (ii) deferred shares, which entitle their holders no rights other than
the right to their par value upon our liquidation. The rights attached to any class may be
modified or abrogated by a simple majority of the voting power represented at a
shareholder meeting, in person or by proxy, and voting thereon, subject to the approval of
a majority of the shares of such class present and voting at a separate class meeting.

All of our outstanding shares are
fully paid and non-assessable. The shares do not entitle their holders to preemptive
rights.

# Dividends

Dividends on our ordinary shares may
be paid only out of profits, as defined in the Companies Law, as of the end of the most
recent fiscal year or as accrued over a period of two years, whichever is higher. Our
board of directors is authorized to declare dividends, provided that there is not
reasonable concern that the dividend will prevent us from satisfying our existing and
foreseeable obligations as they become due. Notwithstanding the foregoing, dividends may
be paid with the approval of a court, provided that there is no reasonable concern that
payment of the dividend will prevent us from satisfying our existing and foreseeable
obligations as they become due. Profits, for purposes of the Israeli Companies Law, means
the greater of retained earnings or earnings accumulated during the preceding two years,
after deduction of previous distributions that were not already deducted from the
surpluses, as evidenced by financial statements prepared no more than six months prior to
the date of distribution.

# Shareholder Meetings

An annual shareholder meeting is
required to be held once every calendar year, within a period not to exceed 15 months
after the last preceding annual meeting. The board of directors, whenever it thinks fit,
may convene an extraordinary shareholder meeting and, pursuant to the Companies Law, must
convene a meeting upon the demand of two directors or one quarter of the directors in
office or upon the demand of the holder or holders of at least 5% of our outstanding
ordinary shares and 1% of the voting rights, or one or more shareholders holding in the
aggregate at least 5% of the voting rights in the company.

We are required to give prior notice
of a shareholder meeting of at least 21 days.

Two or more shareholders, present in person
or by proxy and holding at least 35% of our outstanding voting power constitute a quorum.
If there is no quorum within an hour of the time set, the meeting is postponed until the
following week, or any other time that the chairman of the board of directors and the
shareholders present agree to. At the postponed meeting, any two shareholders will
constitute a quorum.

Unless otherwise required by the
Companies Law, resolutions at shareholder meetings are deemed adopted if approved by the
holders of a majority of the voting power represented at the meeting in person or by proxy
and voting thereon.

# Anti-Takeover
Provisions; Mergers and Acquisitions

There are no specific provisions of
our Memorandum or Articles that would have an effect of delaying, deferring or preventing
a change in control of us or that would operate only with respect to a merger, acquisition
or corporate restructuring involving us. However, certain provisions of the Companies Law
may have such effect.

50

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The Companies Law includes provisions
that allow a merger transaction and requires that each company that is a party to a merger
have the transaction approved by its board of directors and a vote of the majority of its
shares. For purposes of the shareholder vote of each party, unless a court rules
otherwise, the merger will not be deemed approved if shares representing a majority of the
voting power present at the shareholders meeting and which are not held by the other party
to the merger, or by any person who holds 25% or more of the voting power or the right to
appoint 25% or more of the directors of the other party, vote against the merger. Upon the
request of a creditor of either party 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 completed unless at least (i)
50 days have passed from the time that the requisite proposals for approval of the merger
have been filed with the Israeli Registrar of Companies by each merging company and (ii)
30 days have passed since the merger was approved by the shareholders of each merging
company.

The Companies Law also 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 25% or greater shareholder of the
company and there is no existing 25% or greater shareholder of the company. 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,
unless there is already a 45% or greater shareholder of the company. These requirements do
not apply if, in general, the acquisition (1) was made in a private placement that
received shareholder approval, (2) was from a 25% or greater shareholder of the company
which resulted in the acquirer becoming a 25% or greater shareholder of the company, or
(3) was from a 45% or greater shareholder of the company which resulted in the acquirer
becoming a 45% or greater shareholder of the company. The tender offer must be extended to
all shareholders, but the offeror is not required to purchase more than 5% of the
companys outstanding shares, regardless of how many shares are tendered by
shareholders. The tender offer may be consummated only if (i) at least 5% of the
companys outstanding shares will be acquired by the offer or and (ii) the number of
shares tendered in the offer exceeds the number of shares whose holders objected to the
offer.

If, as a result of an acquisition of
shares, the acquirer will hold more than 90% of a companys outstanding shares, the
acquisition must be made by means of a tender offer for all of the outstanding shares. If
less than 5% of the outstanding shares are not tendered in the tender offer, all the
shares that the acquirer offered to purchase will be transferred to it. The Companies Law
provides for appraisal rights if any shareholder files a request in court within three
months following the consummation of a full tender offer. If more than 5% of the
outstanding shares are not tendered in the tender offer, then the acquirer may not acquire
shares in the tender offer that will cause his shareholding to exceed 90% of the
outstanding shares.

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

|10.C. | Material
Contracts
|----- | ------------------

None

|10.D. | Exchange
Controls
|----- | -----------------

Any dividends declared on our
ordinary shares, 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 the ordinary shares to an
Israeli resident may be paid in non-Israeli currency, or if paid in Israeli currency,
shall be freely repatriable in non-Israeli currency, at a rate of exchange prevailing at
the time of conversion.

|10.E. | Taxation
|----- | --------

# Israeli Tax
Considerations

The following is a summary of the
current tax structure applicable to companies in Israel, with special reference to its
effect on us and certain Israeli Government programs benefiting us. The following also
contains a discussion of the material Israeli tax consequences to persons purchasing our
ordinary shares. To the extent that the discussion is based on tax legislation, which has
not been subject to judicial or administrative interpretation, we cannot assure you that
the tax authorities or the courts will accept the views expressed in the discussion in
question.

This summary does not discuss all the
aspects of Israeli tax law that may be relevant to a particular investor in light of his
or her personal investment circumstances or to some types of investors subject to special
treatment under Israeli law. Prospective purchasers of our ordinary shares should consult
their own tax advisors as to Israeli or other tax consequences of the purchase, ownership
and disposition of ordinary shares.

51

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General Corporate Tax
Structure

Israeli companies are generally
subject to corporate tax on their taxable income at the rate of 27% for the 2008 tax year.
Following an amendment to the Israeli Income Tax Ordinance [New Version], 1961 (the
Tax Ordinance), which came into effect on January 1, 2006, the corporate tax
rate is scheduled to decrease as follows: 26% for the 2009 tax year and 25% for the 2010
tax year and thereafter. Israeli companies are generally subject to capital gains tax at a
rate of 25% for capital gains (other than gains deriving from the sale of listed
securities) derived after January 1, 2003. However, the effective tax rate payable by a
company that derives income from an approved enterprise (as defined below) may be
considerably less, as further discussed below.

Following an additional amendment to
the Tax Ordinance, which came into effect on January 1, 2009, an Israeli corporation may
elect a 5% rate of corporate tax (instead of 25%) for income from 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, which include conditions with regard to the identity of the
corporation that distributes the dividends, the source of the dividend, the nature of the
use of the dividend income, and the period during which the dividend income will be used
in Israel.

Law for the Encouragement
of Capital Investments, 1959

Our facilities currently enjoy Approved
Enterprise status under The Law for Encouragement of Capital Investments, 1959 (the
Investments Law). See discussion below regarding an amendment to the
Investments Law that came into effect in 2005.

The Investments Law provided (prior
to its amendment in 2005) that upon application to the Investment Center of the Ministry
of Industry and Trade of the State of Israel (Investment Center), a proposed
capital investment in eligible facilities may 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 by its physical characteristics, such
as the equipment to be purchased and utilized pursuant to the program. The tax benefits
derived from any such certificate of approval relate only to taxable income attributable
to the specific Approved Enterprise. If a company has more than one approval or only a
portion of its capital investments are approved, its effective tax rate is the result of a
weighted combination of the applicable rates. The benefits under the law are usually not
available with respect to income derived from products manufactured outside of Israel. The
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.

Taxable income derived from an
Approved Enterprise (including income generated by a company from the grant of a usage
right with respect to know-how developed by the Approved Enterprise, income generated from
royalties and income derived from a service which is auxiliary to such usage right or
royalties, provided that such income is generated within the Approved Enterprises
ordinary course of business) is subject to a reduced corporate tax rate of 25% rather than
the usual corporate tax rate, for the benefits period subject to compliance with the
conditions for approval as disclosed below. This period is ordinarily seven years, or ten
years for a company whose foreign investment level as defined below exceeds 25%,
commencing with the year in which the Approved Enterprise first generates taxable income,
and is limited to twelve years from the commencement of production or fourteen years from
the date of approval, whichever is earlier. That income is eligible for further reductions
in tax rates if the company qualifies as a foreign investors company. A foreign
investors company is a company in which more than 25% of its combined share capital
(in terms of shares, rights to profits, voting and appointment of directors) and loan
capital is owned by non-Israeli residents. The tax rate is reduced to 20% if the foreign
ownership of the foreign investors company is 49% or more but less than 74%; 15% if
the foreign ownership of the foreign investors company is 74% or more but less than
90%; and 10% if the foreign ownership of the foreign investors company is 90% or
more. The determination of foreign ownership is made on the basis of the lowest level of
foreign ownership during the tax year.

In the event that a company is
operating under more than one approval, or that not all of its capital investments are
approved, its effective corporate tax rate is the result of a weighted combination of the
various applicable rates. A company may elect to forego entitlement to the grants
otherwise available under the Investments Law and, in lieu thereof, participate in an
alternative benefits program, referred to as the Alternative Benefits Program, under which
the undistributed income from the Approved Enterprise is fully exempt from corporate tax
for a period of between two and ten years, depending upon the geographic location within
Israel and the type of the Approved Enterprise. Upon expiration of the exemption period,
the Approved Enterprise is eligible for beneficial tax rates under the Investments Law for
the remainder, if any, of the otherwise applicable benefits period.

Dividends paid by a company that owns
an Approved Enterprise and that are attributable to income derived from that Approved
Enterprise during the applicable benefits period, are taxed at a reduced rate of 15%, if
the dividends are paid during the benefit period or no more than twelve years thereafter;
or, if we qualify as a foreign investors company without any time limitations. This
tax must be withheld at source by the company paying the dividend. A dividend paid from
income derived from an enterprise owned by a company that has elected the Alternative
Benefits Program during the period in which it is exempt from tax is also subject to
withholding tax at a 15% rate but causes the company to be liable for corporate tax on the
gross-up amount distributed which for this purpose includes the amount of the corporate
tax at the rate that would have been applicable had the company not elected the
Alternative Benefits Program of up to 25%.

52

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Subject to certain provisions
concerning income under the alternative package of benefits, all dividends are considered
to be attributable to the entire enterprise and their effective tax rate is the result of
a weighted combination of the various applicable tax rates. We are not obliged to
distribute exempt retained profits under the alternative package of benefits, and we may
generally decide from which years profits to declare dividends.

Under the Investments Law, we are
entitled to tax benefits relating to investments in Approved Enterprises in
accordance with letters of approval we received. A major part of our production facilities
has been granted the status of an Approved Enterprise under the Investments
Law.

Income arising from our
Approved Enterprise is subject to zero tax rates under the Alternative
Benefits Program and reduced tax rates based on our level of foreign ownership for
specific period. The period of benefits in respect of most of our approved enterprise
programs will terminate by the year 2011. No new approvals have been received since 1997.
See Note 7(B) to the Consolidated Financial Statements included elsewhere in this annual
report.

Benefits available to an Approved
Enterprise are conditioned upon terms stipulated in the Investments Law and the
regulations thereunder and the criteria set forth in the applicable certificate of
approval. In the event that we do not fulfill these conditions in whole or in part, the
benefits can be canceled and we may be required to refund the amount of the benefits, with
the addition of the Israeli consumer price index linkage differences and interest. We
believe that our Approved Enterprises currently operate in compliance with all applicable
conditions and criteria, but there can be no assurance that they will continue to do so.

Amendment of the
Investments Law

On April 1, 2005, an amendment to the
Investments Law came into force. Pursuant to the amendment, a companys facility will
be granted the status of Approved Enterprise only if it is proven to be an
industrial facility (as defined in the Investments Law) that contributes to the economic
independence of the Israeli economy and is a competitive facility that contributes to the
Israeli gross domestic product. The amendment provides that the Israeli Tax Authority and
not the Investment Center will be responsible for an Approved Enterprise under the
alternative package of benefits, referred to as a Benefited Enterprise. A company wishing
to receive the tax benefits afforded to a Benefited Enterprise is required to select the
tax year from which the period of benefits under the Investment Law are to commence by
simply notifying the Israeli Tax Authority within 12 months of the end of that year. In
order to be recognized as owning a Benefited Enterprise, a company is required to meet a
number of conditions set forth in the amendment, including making a minimal investment in
manufacturing assets for the Benefited Enterprise.

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

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

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

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

53

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

The amendment applies to approved
enterprise programs in which the year of election under the Investments Law is 2004 or
later, unless such programs received approval from the Investment Center on or prior to
December 31, 2004 in which case the amendment provides that terms and benefits included in
any certificate of approval already granted will remain subject to the provisions of the
law as they were on the date of such approval.

Law for the Encouragement
of Industry (Taxes), 1969

We believe that we currently qualify
as an Industrial Company within the meaning of the Law for the Encouragement
of Industry (Taxes), 1969, or the Industry Encouragement Law. According to the Industry
Encouragement Law, an Industrial Company is a company resident in Israel, 90%
or more of the income of which in any tax year, other than of income from defense 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.

The following corporate tax benefits
are available to Industrial Companies, among others:

| | deduction
of the cost of purchased know-how and patents over an eight-year period for tax purposes;
|- | ---------------------------------------------------------------------------------------------------

| | accelerated
depreciation rates on equipment and buildings;
|- | ----------------------------------------------------------

| | under
specified  conditions,  an election to file  consolidated  tax returns with  additional
 related Israeli          Industrial Companies; and
|- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | deduction
over a three-year period of expenses involved with the issuance and listing of shares on
a recognized stock market.
|- | -----------------------------------------------------------------------------------------------------------------------------

Eligibility for the benefits under
the Industry Encouragement Law is not subject to receipt of prior approval from any
governmental authority. No assurance can be given that we qualify or will continue to
qualify as an Industrial Company or that the benefits described above will be
available in the future.

Israeli Transfer Pricing
Regulations

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

Capital Gains Tax

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

The tax rate generally applicable to
capital gains derived from the sale of shares, whether listed on a stock market or not, is
20% for Israeli individuals, unless such shareholder claims a deduction for financing
expenses in connection with such shares, in which case the gain will generally be taxed at
a rate of 25%. Additionally, if such shareholder is considered a significant
shareholder at any time during the 12-month period preceding such sale (i.e. such
shareholder holds directly or indirectly, including jointly with others, at least 10% of
any means of control in the company), the tax rate will be 25%. Israeli companies are
subject to the corporate tax rate on capital gains derived from the sale of listed shares,
unless such companies were not subject to the Income Tax Law (Inflationary Adjustments),
1985, generally referred to as the Inflationary Adjustments Law (or certain regulations)
as of August 10, 2005, in which case the applicable tax rate is 25%. However, the
different tax rates will not apply to dealers in securities and shareholders who acquired
their shares prior to an initial public offering (that may be subject to a different tax
arrangement).

54

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The tax basis of shares acquired by
individuals prior to January 1, 2003, will be determined in accordance with the average
closing share price in the three trading days preceding January 1, 2003. However, a
request may be made to the tax authorities to consider the actual adjusted cost of the
shares as the tax basis if it is higher than such average price.

Non-Israeli residents are generally
exempt from Israeli capital gains tax on any gains derived from the sale of shares of
Israeli companies publicly traded on a recognized stock market outside of Israel (such as
the NASDAQ), provided however that such capital gains are not derived from a permanent
establishment in Israel that such shareholders did not acquire their shares prior to the
issuers initial public offering and that such shareholders are not subject to the
Inflationary Adjustments Law. In addition, non-Israeli corporations will not be entitled
to such exemption if Israeli residents (i) have a controlling interest of 25% or more in
such non-Israeli corporation, or (ii) are the beneficiaries of or are 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.

Application of the
U.S.-Israel Income Tax Treaty to Capital Gains Tax

Pursuant to the Convention between
the Government of the United States of America and the Government of Israel with Respect
to Taxes on income, as amended (the the U.S.-Israel Tax Treaty), the sale of
shares by a person who qualifies as a resident of the United States within the meaning of
the treaty and who is entitled to claim the benefits afforded to a resident by the treaty
will not be subject to Israeli capital gains tax. This exemption does not apply if (i) the
person holds, directly or indirectly, shares representing 10% or more of our voting power
during any part of the 12-month period preceding the applicable sale; or (ii) the capital
gains from such sale can be allocated to a permanent establishment in Israel. A sale,
exchange or disposition of our ordinary shares by a Treaty U.S. Resident who held,
directly or indirectly, shares representing 10% or more of our voting power at any time
during the 12-month period preceding the sale, exchange or disposition will be subject to
Israeli capital gains tax, to the extent applicable. However, the person would be
permitted to claim a credit for the capital gains tax paid in Israel against the U.S.
federal income tax imposed with respect to the applicable sale, subject to the limitations
in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate
to state or local taxes.

Tax on Dividends

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. On distributions of dividends other than bonus
shares, or stock dividends, income tax is applicable at the following rates: (i) 20%, or
25% for a shareholder that is considered a significant shareholder at any time during the
12-month period preceding such distribution; (ii) 15%, if the income out of which the
dividend is being paid is attributable to an Approved Enterprise (or Benefiting
Enterprise). A different rate may be provided in a treaty between Israel and the
shareholders country of residence. Under the U.S.-Israel tax treaty, the maximum tax
on dividends paid to a holder of our ordinary shares who is a U.S. resident is 25% or 15%
if the dividends are from income generated by an Approved Enterprise (or Benefiting
Enterprise); however if the income out of which the dividend is being paid is not
attributable to an Approved Enterprise, and not more than 25% of our gross income consists
of interest or dividends, then the maximum tax is 12.5% for a shareholder who is a U.S.
corporation holding at least 10% of our issued voting power during the part of the taxable
year preceding the date of payment of the dividend and during the whole of the prior
taxable year.

# U.S. Federal Income Tax
Considerations

The following summary describes the
material U.S. federal income tax considerations relating to an investment in the ordinary
shares. This summary deals only with ordinary shares held as capital assets within the
meaning of section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the
Code), and does not deal with special situations, such as those of dealers or
traders in securities or currencies, financial institutions, tax-exempt organizations,
life insurance companies, individual retirement and tax-deferred accounts, persons holding
the ordinary shares as part of a hedging or conversion transaction or a straddle, persons
subject to the alternative minimum tax, or persons who have a functional currency other
than the U.S. dollar. In particular , this discussion does not address the tax treatment
of U.S. holders who own , directly , indirectly or constructively , 10% or more of our
outstanding voting stock. Furthermore, the discussion below is based upon the Code,
existing and proposed Treasury regulations promulgated thereunder, and applicable
administrative rulings and judicial decisions now in effect, all of which are subject to
change, possibly on a retroactive basis, so as to result in U.S. federal income tax
consequences different from those discussed below.

55

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The following discussion describes
the material U.S. federal income tax consequences to a holder of ordinary shares that is:
(1) an individual citizen or resident of the United States, (2) a corporation created or
organized in or under the laws of the United States or any political subdivision thereof,
(3) an estate the income of which is subject to U.S. federal income taxation regardless of
its source, or (4) a trust if either (a) a court within the United States is able to
exercise primary supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the trust or (b) the
trust has a valid election in effect under applicable treasury regulations to be treated
as a United States person (a U.S. holder). Except to the limited extent
discussed below, this summary does not consider the U.S. tax consequences to a person that
is not a U.S. holder (a non-U.S. holder). In addition, the tax treatment of
persons who hold ordinary shares through a partnership or other pass-through entity are
not considered, nor are the possible application of U.S. federal gift or estate taxes or
any aspect of state, local or non-U.S. tax laws.

This summary does not discuss all
aspects of U.S. federal income taxation that may be relevant to a particular shareholder
in light of its personal circumstances. Each shareholder is therefore advised to consult
such persons own tax advisor with respect to the specific U.S. federal income tax
consequences to such person of purchasing, holding or disposing of the ordinary shares, as
well as the effect of any state, local or other tax laws.

To comply with Internal Revenue
Service Circular 230, readers are hereby notified that any discussion of federal tax
issues in this report is not intended or written by the Company to be used, and cannot be
used by any person or entity (A) for the purpose of avoiding penalties that may be imposed
on any taxpayer under the Internal Revenue Code or (B) in connection with the promotion or
marketing to another party any transactions or matters addressed herein.

Distributions on Ordinary
Shares

Subject to the discussion under the
headings Passive Foreign Investment Companies, U.S. holders are required to
include in gross income as ordinary income the amount of any distribution paid on ordinary
shares to the extent of our current and accumulated earnings and profits attributable to
the distribution, as determined for U.S. federal income tax purposes. A non-corporate U.S.
Holder that meets certain eligibility requirements may qualify for a 15% or lower rate of
U.S. federal income taxation on dividends paid in taxable years beginning on or before
December 31, 2010 if we are a qualified foreign corporation for U.S. federal
income tax purposes. We generally will be treated as a qualified foreign corporation if we
are not a passive foreign investment company (please see discussion below) and (i) we are
eligible for benefits under the United States-Israel income tax treaty or (ii) the
ordinary shares are listed on an established securities market in the United States (which
includes the NASDAQ Capital Market). We believe that we currently are treated as a
qualified foreign corporation, and we generally expect to be a qualified foreign
corporation during all taxable years before 2009. However, no assurance can be given that
a change in circumstances will not affect our treatment as a qualified foreign corporation
for U.S. federal income tax purposes in any taxable year. In addition, a non-corporate
U.S. Holder will not be eligible for the reduced rate if (a) such U.S. Holder has not held
the ordinary shares for at least 61 days during the 121-day period starting on the date
which is 60 days before, and ending 60 days after the ex-dividend date, (b) to the extent
the U.S. Holder is under an obligation to make related payments on substantially similar
or related property or (c) with respect to any portion of a dividend that is taken into
account by the U.S. Holder as investment income under Section 163(d)(4)(B) of the Code.
Any days during which the U.S. Holder has diminished its risk of loss with respect to the
ordinary shares (for example, by holding an option to sell the ordinary shares) are not
counted towards meeting the 61-day holding period. Non-corporate U.S. Holders should
consult their own tax advisors concerning whether dividends received by them qualify for
the reduced rate of tax.

The amount of a distribution which
exceeds our earnings and profits will be treated first as a non-taxable return of capital,
reducing the U.S. holders tax basis for the ordinary shares to the extent thereof,
and then as capital gain. Preferential tax rates for long-term capital gains are
applicable for U.S. holders that are individuals, estates or trusts. Corporate holders
generally will not be allowed a deduction for dividends received from us.

The amount of a distribution with
respect to our ordinary shares equals the amount of cash and the fair market value of any
property distributed plus the amount of any Israeli taxes withheld therefrom. The amount
of any cash distributions paid in NIS equals the U.S. dollar value of the NIS on the date
of distribution based upon the exchange rate in effect on such date, and U.S. holders will
have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S.
dollar value.

Pursuant to the United States-Israel
income tax treaty, the maximum rate of Israeli withholding tax on dividends paid to a U.S.
holder is 25 percent. U.S. holders may generally be entitled to a foreign tax credit or
deduction in an amount equal to the Israeli tax withheld on distributions on the ordinary
shares. Distributions paid by us will generally be foreign source passive income for U.S.
foreign tax credit purposes. The Code applies various limitations on the amount of foreign
tax credits that may be available to a U.S. holder. Because of the complexity of these
limitations, U.S. holders should consult their own tax advisors to determine whether and
to what extent they would be entitled to such credit.

56

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Disposition of Shares

Subject to the discussion under the
heading Passive Foreign Investment Companies, upon the sale, exchange or other
disposition of ordinary shares, a U.S. holder generally will recognize capital gain or
loss in an amount equal to the difference between the amount realized on the disposition
and such U.S. holders adjusted tax basis in the ordinary shares. The gain or loss
realized on the sale, exchange or other disposition of ordinary shares will be long-term
capital gain or loss if the U.S. holder held the shares for more than one year as of the
time of disposition. Any gain or loss realized by a U.S. holder on the sale, exchange or
other disposition of ordinary shares generally will be treated as from sources within the
United States for U.S. foreign tax credit purposes, except for losses treated as foreign
source to the extent certain dividends were received by the U.S holder within the 24-month
period preceding the date on which the U.S holder recognized the loss.

Passive Foreign
Investment Companies

We will be a passive foreign
investment company (PFIC) if: (1) 75% or more of our gross income in a taxable
year is passive income or (2) at least 50% of our assets (averaged over the year and
generally determined based upon value) in a taxable year are held for the production of
passive income. Certain look-through rules apply in making this determination.
Passive income generally consists of dividends, interest, rents, royalties, annuities, and
income from certain commodities transactions and from notional principal contracts. If we
are a PFIC, each U.S. holder who has not elected to treat us as a qualified electing
fund (the QEF election) would, upon receipt of certain distributions by
us and upon disposition of the ordinary shares at a gain, be liable to pay tax at the then
prevailing highest tax rates on ordinary income plus interest on the tax, as if the
distribution or gain had been recognized ratably over the U.S. holders holding
period for the ordinary shares.

A U.S. holder of PFIC stock which is
publicly traded could elect to mark the stock to market annually, recognizing as ordinary
income or loss each year an amount equal to the difference as of the close of the taxable
year between the fair market value of the PFIC stock and the U.S. holders adjusted
tax basis in the PFIC stock. Losses would be allowed only to the extent of net
mark-to-market gain previously included by the U.S. holder under the election for prior
taxable years. If the mark-to-market election were made, then the rules set forth above
would not apply for periods covered by the election.

We were not a PFIC for the fiscal
year ended December 31, 2008. The tests for determining PFIC status, however, are applied
annually, and it is difficult to make accurate predictions of future income and assets
which are relevant to this determination. Accordingly, there can be no assurance that we
will not become a PFIC. U.S. holders who hold ordinary shares during a period when we are
a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to
certain exceptions for U.S. holders who made a mark-to-market or QEF election. U.S.
holders are strongly urged to consult their tax advisors about the PFIC rules, including
the eligibility, manner and consequences to them of making a mark-to-market or QEF
election with respect to our ordinary shares in the event that we qualify as a PFIC.

Information Reporting and
Backup Withholding

A U.S. holder may be subject to
backup withholding with respect to cash dividend payments and proceeds from a disposition
of ordinary shares. In general, backup withholding will apply only if a U.S. holder fails
to comply with certain identification procedures. Information reporting and backup
withholding will not apply with respect to payments made to certain exempt recipients,
such as corporations and tax-exempt organizations. Backup withholding is not an additional
tax and may be claimed as a credit against the U.S. federal income tax liability of a U.S.
holder, provided that the required information is furnished to the Internal Revenue
Service.

Non-U.S. Holders of
Ordinary Shares

Except as  provided  below,  a
non-U.S.  holder of  ordinary  shares  generally  will not be subject to U.S.  income or
withholding tax on the payment of dividends on, and the proceeds from the disposition of
ordinary shares.

A non-U.S. holder may be subject to
U.S. income tax on income from the disposition of ordinary shares if (1) such income is
effectively connected with the conduct by the non-U.S. holder of a trade or business in
the United States and, in the case of a resident of a country which has an income tax
treaty with the United States, such item is attributable to a permanent establishment or a
fixed place of business in the United States; (2) the individual non-U.S. holder is
present in the United States for 183 days or more in the taxable year of the sale and
certain other conditions are met; or (3) the non-U.S. holder is subject to tax pursuant to
the provisions of the U.S. tax law applicable to U.S. expatriates.

Non-U.S.           holders generally
may be subject to backup withholding on the payment of           dividends on ordinary
shares, or the proceeds from the disposition of ordinary           shares made in the
United States or by a U.S. related person, unless the           non-U.S. holder provides
a taxpayer identification number, certifies to its           foreign status, or otherwise
establishes an exemption. A U.S. related person for           these purposes is a person
with one or more specified relationships with the           United States. In general,
non-U.S. holders will not be subject to backup           withholding with respect to the
payment of proceeds from the disposition of           ordinary shares by a foreign office
of a broker.

57

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The amount of any backup withholding
from a payment to a non-U.S. holder will be allowed as a credit against such holders
U.S. federal income tax liability, provided that the required information is furnished to
the Internal Revenue Service.

|10.F. | Dividends
and Paying Agents
|----- | ---------------------------

Not applicable.

|10.G | Statement
by Experts
|---- | --------------------

Not applicable.

|10.H. | Documents
on Display
|----- | --------------------

We are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended, applicable to foreign private issuers
and fulfill the obligations with respect to such requirements by filing reports with the
SEC. You may read and copy any document we file with the SEC without charge at the
SECs public reference room at 100 F Street, N.E., Washington, D.C. 20549. Certain of
our SEC filings are also available to the public at the SECs website at
http://www.sec.gov. Copies of such material may be obtained by mail from the Public
Reference Branch of the SEC at such address, at prescribed rates. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. In addition, all
corporate documents are available for review at our headquarters, 24 Raoul Wallenberg
Street, Tel Aviv 69719, Israel.

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.

|10.I. | Subsidiary
Information
|----- | ----------------------

Not applicable.

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

We are exposed to market risk,
including movements in interest rates and foreign currency exchange rates. Our primary
market risk exposure occurs because we generate most of our revenues in U.S. dollars and
Euros and incur a portion of our expenses in NIS. To date, we are not engaged in any
hedging transactions and/or derivative financial instruments. If we were to determine that
it was in our best interests to enter into any hedging transactions in the future, there
can be no assurance that we will be able to do so or that such transactions, if entered
into, will materially reduce the effect of fluctuations in foreign currency exchange rates
on our results of operations.

Impact of Inflation and
Currency Fluctuations

Most of our revenues are denominated
in U.S. dollars or are U.S. dollar-linked. We collect a portion of our revenues in Europe
in Euros while most purchases of materials and components, and most marketing costs, are
denominated in U.S. dollars or U.S. dollar-linked. The currency of the primary economic
environment in which our operations are conducted is, therefore, the U.S. dollar, which is
our functional currency.

Since we pay the salaries of our
Israeli employees in NIS, the U.S. dollar cost of our operations is influenced mainly by
the extent to which inflation in Israel is (or is not) offset (or is offset on a lagging
basis) by a devaluation of the NIS in relation to the U.S. dollar. Inflation in Israel
will have a negative effect on our profits from contracts under which we are to receive
payment in U.S. dollars or are U.S. dollar-linked NIS while incurring expenses in NIS,
unless such inflation is offset on a timely basis by a devaluation of the NIS in relation
to the U.S. dollar.

For some time, until 1997, inflation
in Israel exceeded the devaluation of the NIS against the U.S. dollar and we experienced
increases in the U.S. dollar cost of our operations in Israel. This trend was reversed in
1997 and has continued in reverse for every year thereafter until the present. In 2008, on
average yearly basis, there was a decrease of approximately 13% in value of the dollar in
relation to the NIS and there was an increase of approximately 7% in the value of the
dollar in relation to the Euro. This devaluation of the dollar together with the fact that
we incur a material portion of our expenses in NIS had a material adverse effect on our
results in 2008. We cannot assure you that we will not be materially affected in the
future from currency exchange rate fluctuations or the rate of inflation in Israel. If the
value of the NIS or the Euro continues to rise in value relative to the U.S dollar, our
business and financial condition could be negatively impacted.

58

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The effects of foreign currency
re-measurements are reported in our financial statements as financial income or expense.

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

Not applicable.

# PART II

|ITEM 13. |  | DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES
|-------- |  | ------------------------------------------------

Not applicable.

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

Not applicable.

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

# Disclosure controls and
procedures

Our management, including our chief
executive officer, or CEO, and our principal financial officer, our VP Finance, are
responsible for establishing and maintaining our disclosure controls and procedures
(within the meaning of Rule 13a-15(e) of the Exchange Act). These controls and
procedures were designed to ensure that information required to be disclosed in the
reports that we file or submit under the Exchange Act, is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the SEC and that
such information was accumulated and communicated to our management, including our CEO and
VP Finance, as appropriate to allow timely decisions regarding required disclosure. We
evaluated these disclosure controls and procedures under the supervision of our CEO and VP
Finance as of December 31, 2008. Based upon that evaluation, our management, including our
CEO and VP Finance, concluded that our disclosure controls and procedures are effective.

# Internal control over
financial reporting

Our management is responsible for
establishing and maintaining adequate internal control over financial reporting for us. We
performed an evaluation of the effectiveness of our internal control over financial
reporting that is designed by, or under the supervision of, our principal executive and
principal financial officers, and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance
with GAAP and includes those policies and procedures that:

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

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

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

Our management recognizes that there
are inherent limitations in the effectiveness of any system of internal control over
financial reporting, including the possibility of human error and the circumvention or
override of internal control. Accordingly, even effective internal control over financial
reporting can provide only reasonable assurance with respect to financial statement
preparation, and may not prevent or detect all misstatements. Further, because of changes
in conditions, the effectiveness of internal control over financial reporting may vary
over time.

Under the supervision and with the
participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting as of December 31, 2008 based on the framework for Internal
Control-Integrated Framework set forth by the Committee of Sponsoring Organizations of the
Treadway Commission.

59

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Based on such evaluation, our
management, including the CEO and VP Finance, has concluded that our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities
Exchange Act of 1934, as amended) as of December 31, 2008 is effective. Notwithstanding
the foregoing, there can be no assurance that our internal control over financial
reporting will detect or uncover all failures of persons within RiT to comply with these
procedures.

This annual report does not
include an attestation report of our registered public accounting firm regarding internal
control over financial reporting. Managements report was not subject to attestation
by our registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only managements report in this annual report.

There were no changes in our internal
control over financial reporting that occurred during the year ended December 31,
2008 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

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

Our board of directors has determined
that Israel Frieder is an audit committee financial expert, as defined by applicable SEC
regulations. Mr. Frieder is independent, as that term is defined under
NASDAQs rules.

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

We have adopted a code of ethics
applicable to our directors, officers and all other employees. Our code of ethics is
publicly available on our website at www.rittech.com. Any waivers from or
amendments to our code of ethics will be posted on our website.

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

In the annual meeting held on August
26, 2008 our shareholders re-appointed Somekh Chaikin, Certified Public Accountants
(Isr.), a member of KPMG International, or KPMG, to serve as our independent registered
accounting firm until the next annual meeting. The following table sets forth, for each of
the years indicated, the fees paid or payable to KPMG for the period indicated.

|               | 2008 | 2007
|-------------- | ---- | ----
|
|
|
|
|Audit Fees (1) |      |     
|Tax Fees (2)   |      |     
|All Other Fees |      |     
|               |      |     
|Total          |      |     
|               |      |     

|(1) | Audit
fees consist of services that have been provided in connection with
               statutory and regulatory filings or engagements, including services that
               generally only the independent accountant can reasonably provide.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Tax
fees relate to services performed by the tax division for tax compliance and
          advice.
|--- | --------------------------------------------------------------------------------------------------

The audit committee of our board of
directors approves all audit, audit-related, tax and other services to be provided by KPMG
prior to any engagement.

|ITEM 16D. |  | EXEMPTIONS FROM LISTING REQUIREMENTS AND STANDARDS FOR AUDIT COMMITTEE
|--------- |  | ----------------------------------------------------------------------

Not applicable.

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

Not applicable.

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

Not applicable.

60

---

---

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

We are a foreign private issuer whose
ordinary shares are listed on the NASDAQ Capital Market. As such, we are required to
comply with U.S. federal securities laws, including the Sarbanes-Oxley Act, and the NASDAQ
rules, including the NASDAQ corporate governance requirements. The NASDAQ rules provide
that foreign private issuers may follow home country practice in lieu of certain
qualitative listing requirements subject to certain exceptions and except to the extent
that such exemptions would be contrary to U.S. federal securities laws, so long as the
foreign issuer discloses that it does not follow such listing requirement and describes
the home country practice followed in its reports filed with the SEC. Below is a concise
summary of the significant ways in which our corporate governance practices differ from
the corporate governance requirements of NASDAQ applicable to domestic U.S. listed
companies:

The
NASDAQ rules require that an issuer have a quorum requirement for shareholders meetings of
at least one-third of the outstanding shares of the issuers common voting stock. We
have chosen to follow home country practice with respect to the quorum requirements of an
adjourned shareholders meeting. Our articles of association, as permitted under the
Israeli Companies Law and Israeli practice, provide that the quorum requirements for an
adjourned meeting are the presence of a minimum of two shareholders present in person. In
addition, we have chosen to follow our home country practice in lieu of the requirements
of NASDAQ Rule 4350(b)(1)(A), relating to an issuers furnishing of its annual report
to shareholders. However, we post our Annual Report on Form 20-F on our web site (www.
rittech.com) as soon as practicable following the filing of the Annual Report on Form 20-F
with the SEC.

# PART III

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

The Company has elected to furnish
financial statements and related information specified in Item 18.

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

# Index to Financial
Statements

|                                                                | Page 
|--------------------------------------------------------------- | -----
|
|
|
|
|Report of Independent Registered Public Accounting Firm         | F - 2
|                                                               
|Consolidated Balance Sheets as of December 31, 2007 and 2008    | F - 3
|                                                               
|Consolidated Statements of Operations for the Years            
|ended December 31, 2006, 2007 and 2008                          | F - 4
|                                                               
|Statements of Changes in Shareholders' Equity and Comprehensive
|Loss for the Years ended December 31, 2006, 2007 and 2008       | F - 5
|                                                               
|Consolidated Statements of Cash Flows for the Years            
|ended December 31, 2006, 2007 and 2008                          | F - 6
|                                                               
|Notes to the Consolidated Financial Statements                  | F - 7

61

---

---

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

|(b) | List
of Exhibits
|--- | ----------------

| | 1.1 | Memorandum
of Association. (1)
| | --- | ------------------------------

| | 1.2 | Articles
of Association. (2)
| | --- | ----------------------------

| | 2.1 | Form
of Share Certificate Representing Ordinary Shares. (3)
| | --- | -----------------------------------------------------------

| | 4.1 | Lease
agreements with related parties and executive summaries thereof. (4)
| | --- | --------------------------------------------------------------------------

| | 4.2 | RiT
Technologies Ltd. 2003 Share Option Plan (5) and Amendment No. 1 (6) and Amendment No. 2
thereto.
| | --- | -----------------------------------------------------------------------------------------------------

| | 4.3 | Form
of Letter of Indemnification. (7)
| | --- | --------------------------------------

| | 8.1 | List
of Subsidiaries. (8)
| | --- | -------------------------

| | 12.1 | Certification
of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.
| | ---- | -------------------------------------------------------------------------------------------------------------------------

| | 12.2 | Certification
of the Vice President Finance pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.
| | ---- | ------------------------------------------------------------------------------------------------------------------------

| | 13.1 | Certification
of the 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
of the Vice President Finance pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                  to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 15.1 | Consent
of Somekh, Chaikin, Independent Registered Public Accounting Firm.
| | ---- | --------------------------------------------------------------------------

---

|(1)
Incorporated by reference to the Annual Report on Form 20-F for the year ended December
31, 2002, filed          with the SEC on June 30, 2003.
|---------------------------------------------------------------------------------------------------------------------------------------------------

(2) Incorporated by reference to
Annex A to the Registrant's Proxy Statement filed on the Registrant's          Report of
Foreign Private Issuer on Form 6-K filed with the SEC on March 8, 2006.

(3) Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form 8-A filed          with
the SEC on July 26, 1997.

(4) Incorporated by reference to the
Annual Report on Form 20-F for the year ended December 31, 2001, filed          with the
SEC on June 24, 2004.          . (File No. 0-29360).

(5) Incorporated by reference to
Exhibit 99.1 to the Registrant's Registration Statement on Form S-8 filed          on
with the SEC July 26, 2004.

(6) Incorporated by reference to the
Annual Report on Form 20-F for the year ended December 31, 2006, filed          with the
SEC on March 29, 2007.

(7) Incorporated by reference to
Annex B to the Registrant's Proxy Statement filed on the Registrant's          Report of
Foreign Private Issuer on Form 6-K filed with the SEC on March 8, 2006.

(8) Incorporated by reference to
Exhibit 8.1 to the Annual Report on Form 20-F for the           Year ended December 31,
2004, filed with the SEC on March 30, 2004.

62

---

---

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.

| |  | RiT TECHNOLOGIES LTD.By: /s/ Avi Kovarsky
Avi KovarskyPresident and Chief Executive Officer
| |  | ---------------------------------------------------------------------------------------------------------

March 30, 2009

63

---

---

# RiT Technologies Ltd.and Subsidiaries

Consolidated Financial Statements

# December 31, 2008



---

---

|RiT Technologies Ltd.and Subsidiaries                    
|---------------------------------------------------------
|                                                         
|Consolidated Financial
Statements as of December 31, 2008
|                                                         

# Contents

|                                                                       | Page
|---------------------------------------------------------------------- | ----
|
|
|
|
|Report of Independent Registered Public Accounting Firm                | F-2 
|                                                                      
|Consolidated Balance Sheets as of December 31, 2008 and 2007           | F-3 
|                                                                      
|Consolidated Statements of Operations for the years                   
|ended December 31, 2008, 2007 and 2006                                 | F-4 
|                                                                      
|Consolidated Statements of Shareholders' Equity and Comprehensive Loss
|for the years ended December 31, 2008, 2007 and 2006                   | F-5 
|                                                                      
|Consolidated Statements of Cash Flows for the years                   
|ended December 31, 2008, 2007 and 2006                                 | F-6 
|                                                                      
|Notes to the Consolidated Financial Statements                         | F-7 



---

---

# Report of Independent
Registered Public Accounting Firm

The Board of Directors
and ShareholdersRiT Technologies Ltd.

We have audited the accompanying
consolidated balance sheets of RiT Technologies Ltd. and subsidiaries (the
Company) as of December 31, 2008 and 2007 and the related consolidated
statements of operations, shareholders equity and comprehensive loss and cash flows
for each of the years in the three-year period ended December 31, 2008. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based
on our audits.

We 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audits provide a reasonable basis for our
opinion.

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

Somekh ChaikinCertified Public Accountants (Isr.)Member firm of KPMG International

Tel-Aviv, Israel,
March 29, 2009

F - 2

---

---

|RiT Technologies Ltd.and Subsidiaries
|-------------------------------------
|                                     
|Consolidated Balance
Sheets          
|                                     

|                                                               | December 31
|-------------------------------------------------------------- | -----------
|
|
|
|
|Assets                                                         |            
|Current Assets (Note 8A)                                       |            
|Cash and cash equivalents                                      |            
|Trade receivables, net *                                       |            
|Other current assets                                           |            
|Inventories                                                    |            
|                                                               |            
|Total Current Assets                                           |            
|                                                               |            
|                                                               |            
|Other Assets                                                   |            
|Long-term trade receivable                                     |            
|Assets held for severance benefits (Note 4)                    |            
|                                                               |            
|                                                               |            
|                                                               |            
|                                                               |            
|Property and Equipment, net (Note 3)                           |            
|                                                               |            
|Total Assets                                                   |            
|                                                               |            
|                                                               |            
|Liabilities and Shareholders' Equity                           |            
|Current Liabilities                                            |            
|Trade payables**                                               |            
|Other payables and accrued liabilities (Note 8A5)              |            
|                                                               |            
|Total Current Liabilities                                      |            
|                                                               |            
|                                                               |            
|Liability in respect of employees' severance benefits (Note 4) |            
|                                                               |            
|Total Liabilities                                              |            
|                                                               |            
|Commitments and Contingencies (Note 5)                         |            
|                                                               |            
|Shareholders' Equity (Note 6)                                  |            
|Share capital                                                  |            
|Treasury stock                                                 |            
|Additional paid-in capital                                     |            
|Accumulated deficit                                            |            
|                                                               |            
|Total Shareholders' Equity                                     |            
|                                                               |            
|Total Liabilities and Shareholders' Equity                     |            
|                                                               |            

|* | Includes
balances in the amounts of $315 thousand and $485 thousand with related parties as of
December 31, 2008 and 2007, respectively (see also note 9A).
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Includes
balance in the amount of $56 thousand with related parties as of December 31, 2007 (see
also Note 9A).
|-- | ---------------------------------------------------------------------------------------------------------------

|         |                                      
|-------- | -------------------------------------
|
|
|
|
|         |                                      
|Director | President and Chief Executive Officer

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

F - 3

---

---

|RiT Technologies Ltd.and Subsidiaries
|-------------------------------------
|                                     
|Consolidated Statements
of Operations
|                                     

|                                                      | Year ended December 31
|----------------------------------------------------- | ----------------------
|
|
|
|
|Sales (Notes 8B1) *                                   |                       
|Cost of sales (Notes 5A and 8B2) *                    |                       
|                                                      |                       
|                                                      |                       
|Gross profit                                          |                       
|                                                      |                       
|                                                      |                       
|Operating expenses: *                                 |                       
|                                                      |                       
|Research and development, gross                       |                       
|Less - royalty-bearing participation (Note 5A)        |                       
|                                                      |                       
|Research and development, net                         |                       
|                                                      |                       
|Sales and marketing                                   |                       
|                                                      |                       
|General and administrative                            |                       
|                                                      |                       
|                                                      |                       
|Total operating expenses                              |                       
|                                                      |                       
|                                                      |                       
|Operating loss                                        |                       
|                                                      |                       
|Financing income, net (Note 8B3) *                    |                       
|                                                      |                       
|                                                      |                       
|Loss before income tax expense                        |                       
|                                                      |                       
|Taxes on income (Note 7)                              |                       
|                                                      |                       
|                                                      |                       
|Net loss for the year                                 |                       
|                                                      |                       
|                                                      |                       
|Net loss per share (Note 2Q):                         |                       
|Basic and diluted net loss per ordinary share (US$)   |                       
|                                                      |                       
|                                                      |                       
|Weighted average number of ordinary shares used to    |                       
|compute basic and diluted net loss per ordinary share |                       
|                                                      |                       

|* | See
Note 9B for transactions with related parties.
|- | --------------------------------------------------

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

F - 4

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Consolidated Statements
of Shareholders Equity and Comprehensive Loss
|                                                                      

|                                                       | Share capital |  |  |       
|------------------------------------------------------ | ------------- |  |  | ------
|
|
|
|
|Balance as of January 1, 2006                          |               |  |  | 17,030
|                                                       |               | 
|Changes during 2006                                    |               | 
|Exercise of options                                    |               |  |  | -     
|                                                       |               |  |  |       
|Stock compensation expense                             |               |  |  | -     
|                                                       |               |  |  |       
|Net loss for the year                                  |               |  |  | -     
|Net realized change on available for sale securities   |               |  |  | -     
|                                                       |               |  |  |       
|Total comprehensive loss                               |               |  |  | -     
|                                                       |               |  |  |       
|                                                       |               | 
|Balance as of December 31, 2006                        |               |  |  | 17,030
|                                                       |               |  |  |       
|                                                       |               | 
|Changes during 2007                                    |               | 
|Exercise of options                                    |               |  |  | -     
|                                                       |               |  |  |       
|Stock compensation expense                             |               |  |  | -     
|                                                       |               |  |  |       
|Net loss for the year and total comprehensive loss     |               |  |  | -     
|                                                       |               |  |  |       
|Balance as of December 31, 2007                        |               |  |  | 17,030
|                                                       |               | 
|Changes during 2008                                    |               | 
|Issuance of shares to a principle shareholder (Note 9) |               |  |  |       
|                                                       |               |  |  |       
|Stock compensation expense                             |               |  |  | -     
|                                                       |               |  |  |       
|Net loss for the year and total comprehensive loss     |               |  |  | -     
|                                                       |               |  |  |       
|Balance as of December 31, 2008                        |               |  |  | 17,030
|                                                       |               |  |  |       

|* | Ordinary
Shares NIS 0.1 par value
|- | ----------------------------------

| | Authorized
shares: 39,979,990 as of December 31, 2008 and 2007; issued 20,852,420 and 14,698,574 as
of December 31, 2008 and 2007, respectively (including 17,000 of which are held by a
subsidiary) and outstanding 20,835,420 and 14,681,574 as of December 31, 2008 and
2007, respectively. Deferred Shares  NIS 0.1 par value Authorized shares: 20,230,
issued and outstanding 17,030 shares as of December 31, 2008 and 2007.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F - 5

---

---

|RiT Technologies Ltd.and Subsidiaries
|-------------------------------------
|                                     
|Consolidated Statements of Cash Flows
|                                     

|                                                       | Year ended December 31
|------------------------------------------------------ | ----------------------
|
|
|
|
|Net loss for the year                                  |                       
|Adjustments to reconcile net loss to net cash          |                       
|used in operating activities:                          |                       
|Severance pay benefits, net                            |                       
|Net realized loss on marketable securities             |                       
|Depreciation and write off of property and equipment   |                       
|Stock compensation expense                             |                       
|                                                       |                       
|Changes in operating assets and liabilities:           |                       
|Decrease (increase) in trade receivables, net          |                       
|Increases in long-term trade receivable                |                       
|Decrease (increase) in other current assets            |                       
|Decrease (increase) in inventories                     |                       
|Increase (decrease) in accounts payable and accruals:  |                       
|Trade                                                  |                       
|Other                                                  |                       
|                                                       |                       
|Net cash used in operating activities                  |                       
|                                                       |                       
|Investing                                              |                       
|Proceeds from sale of marketable securities            |                       
|Purchase of property and equipment                     |                       
|                                                       |                       
|Net cash provided by (used in) investing activities    |                       
|                                                       |                       
|Financing                                              |                       
|Proceeds from principle shareholder loan (Note 9)      |                       
|Repayment of principle shareholder loan (Note 9)       |                       
|Issuance of shares to a principle shareholder (Note 9) |                       
|Proceeds from exercise of options                      |                       
|                                                       |                       
|Net cash provided by  financing activities             |                       
|                                                       |                       
|Net increase (decrease) in cash and cash equivalents   |                       
|Cash and cash equivalents, beginning of year           |                       
|                                                       |                       
|                                                       |                       
|Cash and cash equivalents, end of year                 |                       
|                                                       |                       
|                                                       |                       
|Non cash investing activities:                         |                       
|Purchase of property and equipment                     |                       
|                                                       |                       
|                                                       |                       
|Cash paid during the year for:                         |                       
|Interest                                               |                       
|                                                       |                       

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

F - 6

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 1 |  | General
|------ | - | -------

| | RiT
Technologies Ltd. (the Company or RiT), an Israeli company, which
was incorporated and commenced operations in 1989, pioneered the development of
intelligent physical layer solutions, designed to provide superior control, utilization
and maintenance of networks. In the enterprise market, RiTs solutions are designed
to help customers to maximize control and maintenance efficiency and reduce an enterprises
network infrastructure ownership costs. In the carrier market, the Companys
solutions enable reliable mass verification and qualification by telcos.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has a wholly-owned subsidiary in the United States, RiT Technologies Inc. (the
US subsidiary), which was incorporated in 1993 under the laws of the State of
New Jersey. The US subsidiary is primarily engaged in the selling and marketing in the
United States of the Companys  products.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 1997, the Company incorporated a wholly-owned subsidiary in Israel, RiT Tech (1997)
Ltd. (the Israeli subsidiary), intended to make various investments including
in securities. As at the balance sheet date, the Israeli subsidiary holds part of the
Companys outstanding shares. As of December 31, 2008 the Israeli subsidiary is
inactive.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 2 |  | Significant Accounting Policies
|------ | - | -------------------------------

| | The
financial statements are presented in accordance with United States generally accepted
accounting principles (GAAP).
| | ------------------------------------------------------------------------------------------------------------------------

| | The
significant accounting policies followed in the preparation of the financial statements,
applied on a consistent basis, are as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------

| | A. | Financial
Statements in US dollars (dollars)
| | -- | ----------------------------------------------

| | Most
of the Companys sales are made outside Israel. Most sales outside Israel are
denominated in dollars. Most purchases of materials and components, and most marketing
costs, are denominated in dollars or dollar-linked. Therefore, the currency of the
primary economic environment in which the operations of the Company are conducted is the
dollar, which is used as the functional currency of the Company.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Transactions
and balances originally denominated in dollars are presented at their original amounts.
Transactions and balances in other currencies have been remeasured as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Monetary
items  at the current exchange rate at balance sheet date.
| | - | --------------------------------------------------------------------

| |  | Nonmonetary
items  at historical exchange rates.
| | - | --------------------------------------------------

| |  | Income
and expenditure items  at
the current exchange rate as of date of recognition of those items (excluding
depreciation and other items deriving from non-monetary items).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
exchange gains and losses from remeasurement of monetary balance sheet items denominated
in non-dollar currencies are reflected in the statements of operations when they arise.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Amounts
in the financial statements representing the dollar equivalent of balances denominated in
other currencies do not necessarily represent their real or economic value and such
amounts may not necessarily be exchangeable for dollars.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 7

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 2 |  | Significant Accounting Policies (contd)
|------ | - | ----------------------------------------

| | B. | Estimates
and assumptions in the financial statements
| | -- | -----------------------------------------------------

| | The
preparation of the financial statements in conformity with United States generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting periods. These are
managements best estimates based on experience and historical data. Actual results,
however, may vary from these estimates.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | Principles
of consolidation
| | -- | ---------------------------

| | The
consolidated financial statements include those of the RiT Technologies Ltd. and its
subsidiaries, all of which are wholly-owned. All intercompany transactions and balances
were eliminated in consolidation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | Cash
equivalents
| | -- | ----------------

| | The
Company considers all highly liquid investments with a maturity of three months or less
at the date of purchase to be cash equivalents.
| | -------------------------------------------------------------------------------------------------------------------------------------------

| | E. | Allowance
for doubtful accounts
| | -- | -------------------------------

| | Accounts
receivable are recorded at cost, less related allowance for doubtful accounts receivable.
Management considers current information and events regarding customers ability to
repay their obligations and judge accounts receivable to be impaired when it is probable
that the Company will not be able to collect all amounts due.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
balance sheet allowance for doubtful accounts for all periods through December 31, 2008
is determined as a specific amount for those accounts, the non-collection of which is
probable.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | F. | Inventories
| | -- | -----------

| | Inventories
are valued at the lower of cost or market value, except for raw materials where market is
replacement cost. Cost is determined as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | Raw
materials  on the moving average basis. Work in process and finished
products:
| | -------------------------------------------------------------------------------------

| | Costs
in inventory include direct materials, labor and overhead incurred.
| | -------------------------------------------------------------------------

| | Labor
and overhead  on the basis of actual manufacturing costs based on the normal
capacity of the production facility.
| | ------------------------------------------------------------------------------------------------------------------------

| | Inventory
write-downs are provided to cover technological obsolescence, excess inventories,
discontinued products and market prices lower than cost.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

F - 8

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 2 |  | Significant Accounting Policies (contd)
|------ | - | ----------------------------------------

| | G. | Assets
held for severance benefits
| | -- | ----------------------------------

| | Assets
held for employees severance benefits represent cash surrender of managers insurance
policies that are recorded at their current redemption value.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | H. | Property
and equipment
| | -- | ----------------------

| | Property
and equipment are stated at cost less accumulated depreciation. Maintenance and repair
expenses are charged to operations as incurred.
| | -----------------------------------------------------------------------------------------------------------------------------------------------

| | Depreciation
is recorded using the straight-line method based on the estimated useful lives of the
assets, and commences once the assets are ready for their intended use.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |                                    | %      
| | ---------------------------------- | -------
|
|
|
|
| | Research and development equipment | 25     
| | Manufacturing equipment            | 15 - 20
| | Office furniture and equipment     | 7 - 33 
| | Leasehold improvements             | *      

| | *
 Over the shorter of the relevant lease period or their useful lives (mainly at 25%)
| | --------------------------------------------------------------------------------------

| | I. | Revenue
recognition
| | -- | -------------------

| | Revenue
is recognized when persuasive evidence of an arrangement exists, delivery has occurred,
the sales price is fixed or determinable, and collection of the resulting receivable is
reasonably assured.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Most
of the Companys sales are sold through distributors, OEM partners, as well as
through value added resellers, system integrators and installers. These distribution
channels are the Companys end users and therefore sales occur when products are
sold to these channels.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company applies the guidance in Emerging Issues Task Force (EITF) 00-21 to determine if
the contract or arrangement contains more than one unit of accounting and, if applicable,
the allocation of arrangement consideration to such units of accounting.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | When
the sale arrangement includes customer acceptance provisions, revenue is not recognized
before it is demonstrated that the criteria specified in the acceptance provisions have
been satisfied.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company does not, in the normal course of business, provide a right of return to any of
its customers.
| | ----------------------------------------------------------------------------------------------------------

F - 9

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 2 |  | Significant Accounting Policies (contd)
|------ | - | ----------------------------------------

| | J. | Research
and development costs
| | -- | ------------------------------

| | Research
and development costs are charged to the statements of operations as incurred.
| | ---------------------------------------------------------------------------------------

| | K. | Government
grants
| | -- | -----------------

| | When
the Government of Israel has approved a grant for research and development (see Note 5A)
the grants are recognized as receivables as and when the related research and development
costs are incurred.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
grants are reflected as a reduction of research and development expenses. Royalty
expenses in respect of such grants are classified as part of cost of sales when the
related sales are recognized.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | L. | Allowance
for product warranty
| | -- | ------------------------------

| | It
is the Companys policy to grant a warranty for certain products. The balance sheet
provision for warranties for all periods through December 31, 2008 is determined based
upon the Companys experience regarding the relationship between sales and warranty
expenses.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following are the changes in liability for product warranty:
| | ----------------------------------------------------------------

| |                                                  | US$ (thousands)
| | ------------------------------------------------ | ---------------
|
|
|
|
| | Balance at December 31, 2006                     |                
| | Accrual for warranties issued during the year    |                
| | Warranty costs incurred (actual warranty claims) |                
| |                                                  |                
| | Balance at December 31, 2007                     |                
| | Accrual for warranties issued during the year    |                
| | Warranty costs incurred (actual warranty claims) |                
| |                                                  |                
| | Balance at December 31, 2008                     |                
| |                                                  |                

F - 10

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 2 |  | Significant Accounting Policies (contd)
|------ | - | ----------------------------------------

| | M. | Stock
option plans
| | -- | ------------------

| | At
December 31, 2008, the Company has several employee compensation plans, which are
described more fully in Note 6. Effective January 1, 2006, the Company adopted the fair
value recognition method in SFAS 123R, Share-Based Payment using the modified
prospective transition method. Under that transition method, compensation cost recognized
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 123R.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys option awards are primarily subject to graded vesting over a service
period. In those cases, the Company recognizes compensation cost on a straight-line basis
over the requisite service period for the entire award.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company applies the fair value-based method of accounting set forth in Statement 123R and
EITF Issue No. 9618, Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or In Conjunction with Selling, Goods or Services to
account for stock-based compensation to non-employees. Using the fair value method, the
total compensation expense is computed based on the fair value of the options on the date
the options are granted to the non-employees since the options are fully vested.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | 1. | The
current price of the share is the market value of such shares at the date of
          issuance.
| | -- | ----------------------------------------------------------------------------------------------------

| | 2. | Dividend
yield of zero percent for all relevant periods.
| | -- | --------------------------------------------------------

| | 3. | Risk
free interest rates are as follows:
| | -- | ----------------------------------------

| | Year ended December 31 | %
| | ---------------------- | -
|
|
|
|
| | 2008                   |  
| | 2007                   |  
| | 2006                   |  

| | 4. | Expected
term of 4 years for each option granted.
| | -- | -------------------------------------------------

| | 5. | Expected
volatility of 81.9% for the year ended December 31, 2008 (68.7% and 79%
                    for the years ended December 31, 2007 and 2006, respectively).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
exercise price for options granted to employees generally at not less than the value of
the Companys ordinary shares at the date of grant.
| | -----------------------------------------------------------------------------------------------------------------------------------------------

F - 11

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 2 |  | Significant Accounting Policies (contd)
|------ | - | ----------------------------------------

| | N. | Impairment
of Long-Lived Assets
| | -- | -------------------------------

| | The
Company accounts for the impairment of long-lived assets in accordance with the
provisions of SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment 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 an asset to undiscounted future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds 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. No impairment charges were recorded during 2006 and
2008. In 2007 as a result of change in development strategy the Company wrote off certain
redundant development property and equipment in the amount of $257 thousand.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | O. | Deferred
income taxes
| | -- | ---------------------

| | The
Company accounts for income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes. Deferred tax asset and liability account balances are
recognized for the future tax consequences attributable to differences between the
financial statements carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the consolidated statement of operations in the period that includes the
enactment date. The Company provides a valuation allowance to reduce deferred tax assets
to the amount that is more likely than not to be realized.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | P. | Income
tax uncertainties
| | -- | ------------------------

| | The
Company accounts for income tax uncertainties in accordance with Financial Accounting
Standards Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN
48). FIN 48 contains a two-step approach to recognizing and measuring
uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is
to evaluate the tax position taken or expected to be taken in a tax return by determining
if the weight of available evidence indicates that it is more likely than not that, on an
evaluation of the technical merits, the tax position will be sustained on audit,
including resolution of any related appeals or litigation processes. The second step is
to measure the tax benefit as the largest amount that is more than 50% likely to be
realized upon ultimate settlement. Interest and penalties related to unrecognized tax
benefits are classified as a component of income tax expense.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Q. | Net
loss per share
| | -- | ------------------

| | Basic
net earnings (loss) per share is computed based on the weighted average number of
Ordinary shares outstanding during each year. Diluted net earnings (loss) per share is
computed based on the weighted average number of Ordinary shares outstanding during each
year, plus dilutive potential Ordinary shares considered outstanding during the year, in
accordance with Statement of Financial Accounting Standards No. 128, Earnings Per
Share(SFAS 128).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
total number of shares related to the outstanding options excluded from the calculations
of diluted net loss per share due to their anti-dilutive effect was 1,881,000 stock
options and 1,116,031 warrants for the year ended December 31, 2008 (for the year ended
December 31, 2007  1,467,234 stock options and 1,116,031 warrants; for the year
ended December 31, 2006  1,216,233 stock options and 1,116,031 warrants).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 12

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 2 |  | Significant Accounting Policies (contd)
|------ | - | ----------------------------------------

| | R. | Information
about geographical areas
| | -- | ------------------------------------

| | Disclosure
about segments of an enterprise and related information requires the disclosure of
information about geographical areas. Company sales as reported to management are divided
into geographical areas based on the location of customers. This information is provided
in Note 8B1.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | S. | Treasury
Shares
| | -- | ---------------

| | Holdings
of the Companys shares by a consolidated subsidiary are presented as treasury
stock, and are excluded from the calculation of loss per share.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | T. | Fair
value measurements
| | -- | -----------------------

| | On
January 1, 2008, the Company adopted the provisions FASB Statement No. 157, Fair Value
Measurements, for fair value measurements of financial assets and financial liabilities
and for fair value measurements of nonfinancial items that are recognized or disclosed at
fair value in the financial statements on a recurring basis. Statement 157 defines fair
value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
Statement 157 also establishes a framework for measuring fair value and expands
disclosures about fair value measurements (Note 8A6). FASB Staff Position FAS 157-2,
Effective Date of FASB Statement No. 157, delays the effective date of
Statement 157 until fiscal years beginning after November 15, 2008 for all nonfinancial
assets and nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 1, 2009, the Company will be required to apply the provisions of Statement 157 to
fair value measurements of nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a nonrecurring
basis. The Company is in the process of evaluating the impact, if any, of applying these
provisions on its financial position and results of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
October 2008, the FASB issued FASB Staff Position FAS 157-3, Determining the Fair
Value of a Financial Asset When the Market for That Asset is Not Active, which was
effective immediately. FSP FAS 157-3 clarifies the application of Statement 157 in cases
where the market for a financial instrument is not active and provides an example to
illustrate key considerations in determining fair value in those circumstances. The
Company has considered the guidance provided by FSP FAS 157-3 in its determination of
estimated fair values during 2008.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | U. | Recently
issued Accounting Pronouncements
| | -- | -----------------------------------------

| | In
December 2007, the FASB issued FASB Statement No. 141R, Business Combinations (Statement
141R) and FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment to ARB No. 51 (Statement 160). Statements 141R and 160
require most identifiable assets, liabilities, noncontrolling interests, and goodwill
acquired in a business combination to be recorded at full fair value and
require noncontrolling interests (previously referred to as minority interests) to be
reported as a component of equity, which changes the accounting for transactions with
noncontrolling interest holders. Both Statements are effective for periods beginning on
or after December 15, 2008, and earlier adoption is prohibited. Statement 141R will be
applied to business combinations occurring after the effective date. Statement 160 will
be applied prospectively to all noncontrolling interests, including any that arose before
the effective date. The Company believes adopting Statement 141R and Statement 160 should
have no impact on its results of operations and financial position.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 13

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 3 |  | Property and Equipment
|------ | - | ----------------------

| | Property and equipment, net, consist of the following:
| | ------------------------------------------------------

| |                                    | December 31
| | ---------------------------------- | -----------
|
|
|
|
| | Cost                               |            
| | Research and development equipment |            
| | Manufacturing equipment            |            
| | Office furniture and equipment     |            
| | Leasehold improvements             |            
| |                                    |            
| |                                    |            
| |                                    |            
| |                                    |            
| |                                    |            
| | Less accumulated depreciation      |            
| | Research and development equipment |            
| | Manufacturing equipment            |            
| | Office furniture and equipment     |            
| | Leasehold improvements             |            
| |                                    |            
| |                                    |            
| |                                    |            
| |                                    |            
| |                                    |            
| |                                    |            

| | Depreciation
expense for the years ended December 31, 2008, 2007 and 2006 was $276 thousand, $396
thousand and $266 thousand, respectively. During the year ended December 31, 2007, an
amount of $222 thousand was reclassified from inventories to property and equipment.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 4 |  | Liability In Respect of Employees Severance Benefits
|------ | - | -----------------------------------------------------

| | Under
Israeli law and labor agreements, the Company is required to make severance payments to
dismissed employees and those leaving the Company in certain other circumstances. The
Companys severance pay liability to its employees, which is calculated on the basis
of the salary of each employee for the last month of the reported period multiplied by the
years of such employees employment, is reflected by the balance sheet accrual and
classified as a long-term liability. The Company partially funds this liability by the
purchase of managers insurance policies. The current redemption value of such
insurance policies is included in the balance sheet as assets held for severance benefits.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Severance
pay expense for the years ended December 31, 2008, 2007 and 2006 was $424 thousand, $580
thousand and $630 thousand, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------

F - 14

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 5 |  | Commitments and Contingencies
|------ | - | -----------------------------

| | A. | Royalty
commitments
| | -- | -------------------

| | The
Company is obligated to pay royalties to the Office of the Chief Scientist of the Israeli
Ministry of Industry and Trade (the OCS) on revenues from certain of product
sales, where the research and development in respect of these products was undertaken
with royalty bearing participations (grants) from the OCS.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys obligation to pay royalties is as follows:
| | --------------------------------------------------------

| | Projects
approved prior to January 1999: 3.5% of the net sales until the cumulative amount of
royalties paid equals 100% of the dollar-linked amount of grants received.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Projects
approved after January 1999: 3.5% of the net sales until the cumulative amount of
royalties paid equals 100% of the dollar-linked amounts of grants received, plus interest
at the LIBOR rate.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Royalties
are payable from the commencement of sales of each of these products until the cumulative
amount of the royalties paid equals 100% of the dollar-linked amounts of the grants
received, plus interest at the LIBOR rate.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2008, total commitment payable to the OCS, including interest to date at
the above rate, amounted to approximately $1.1 million. Royalties expenses to the OCS are
classified as part of cost of sales (see Note 8B2).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | B. | Lease
commitments
| | -- | -----------------

| | 1. | Premises
occupied by the Company and the US subsidiary are rented under various
                    operating leases with former related parties (see Note 9) and others.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
lease agreements in Israel for the premises in Tel-Aviv and Rosh Haayin expire in
December 2009 and June 2009, respectively. The lease agreement for the premises in New
Jersey is month-to-month and can be terminated upon 30 days notice. The lease agreement
for the representative office in Beijing, China, expires in December 2009. The lease
agreement for the representative office in Moscow expires in October 2009. Minimum future
rental payments due under the above leases (except for New Jersey), at rates in effect on
December 31, 2008, assuming no options are exercised, are as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Year ending December 31 | US$ thousands
| | ----------------------- | -------------
|
|
|
|
| | 2009                    |              
| |                         |              
| |                         |              
| |                         |              
| |                         |              

| | Part
 of the  lease  agreements  in  Israel  are  secured  by a bank  guarantee  in  the
 amount  of $25 thousand.
| | ------------------------------------------------------------------------------------------------------------------

| | Lease expense was $542 thousand, $612 thousand and $574 thousand for the years ended December 31, 2008, 2007 and
2006, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 5 |  | Commitments and Contingencies (contd)
|------ | - | --------------------------------------

| | B. | Lease
commitments (contd)
| | -- | --------------------------

| | 2. | The
Company has several operating leases in respect of motor vehicles. These
                    lease agreements expire on various dates to 2011. Minimum future
lease payments                     due under the above leases on December 31, 2008,
assuming no options are                     exercised, are as follows:
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Year ending December 31 | US$ thousands
| | ----------------------- | -------------
|
|
|
|
| | 2009                    |              
| | 2010                    |              
| | 2011                    |              
| |                         |              
| |                         |              
| |                         |              
| |                         |              

| | Lease
expense was $364 thousand, $461 thousand and $422 thousand for the years ended December
31, 2008, 2007 and 2006, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------

| | C. | Other
commitments
| | -- | -----------------

| | As
of December 31, 2008, bank guarantees in the amount of $237 thousand have been issued,
for letter of credit, performance guarantee and customs duty on importation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | Concentration
of credit risk
| | -- | ----------------------------

| | Financial
instruments that may subject the Company to significant concentrations of credit risk
consist principally of cash investments and trade accounts receivable.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
and cash equivalents are deposited with major financial institutions in Israel and in the
United States.
| | -------------------------------------------------------------------------------------------------------------

| | The
Company grants credit to customers without generally requiring collateral or security.
The Company performs ongoing credit evaluations of the financial condition of its
customers. The risk of collection associated with certain trade receivables is reduced by
The Israeli Credit Insurance Company (ICIC), the large number and geographical dispersion
of the Companys customer base.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
significant carrier sales and on sales in areas where there is a risk of collection, the
Company secures the payment by customer bank guarantee (L.C.)
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | See
also Note 8B1 for principal customers and Note 9 for related party transactions.
| | ------------------------------------------------------------------------------------

F - 16

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 5 |  | Commitments and Contingencies (contd)
|------ | - | --------------------------------------

| | E. | Concentrations
of business risk
| | -- | -------------------------------

| | Although
the Company generally uses standard parts and components for products, certain key
components used in the products are currently available from only one source, and others
are available from a limited number of sources. The Company believes that it will not
experience delays in the supply of critical components in the future. If the Company
experiences such delays and there is an insufficient inventory of critical components at
that time, the Companys operations and financial results would be adversely
affected.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | F. | Indemnification
agreement
| | -- | -------------------------

| | The
Company undertakes to enter into an indemnification agreement with each of the Companys
present and future serving directors and officers. The indemnification covers certain
events and shall be no greater than the amount of coverage available to the Companys
applicable liability insurance policy in effect at the time.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 6 |  | Shareholders Equity
|------ | - | --------------------

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

| | See
Note 9 regarding issuance of shares to a principle shareholder.
| | -------------------------------------------------------------------

| | B. | Share
options
| | -- | -------------

| | 1. | RiT
Technologies Ltd. 2003 Option Plan
| | -- | --------------------------------------

| | On
July 20, 2003, the Board of Directors of the Company adopted the RiT Technologies Ltd.
2003 Share Option Plan (The 2003 Plan), pursuant to which an aggregate of
2,736,666 Ordinary shares of the Company have been reserved for the grant of options
under the 2003 Plan together with the former Key Employee Share Incentive Plan (1996) and
the Directors Share Incentive Plan.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
October 19, 2003, the Board of Directors approved the grant of 30,000 options to a
director at an exercise price of $1.85 vesting in equal amounts over three years. The
grant of these options was ratified by the shareholders at the Annual shareholdersMeeting
on December 1, 2003. As of December 31, 2008, these options were forfeited.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 4, 2005, the Board of Directors approved the grant of 210,000 options to the
Companys directors at an exercise price of $2.82 and vested one third on February
2, 2006 and one third every year thereafter. The grant of these options was ratified by
the shareholders at the Annual Meeting in December 2005. As of December 31, 2008, 60,000
options were remaining.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 1, 2006, the Board of Directors of the Company resolved to reserve 500,000
additional shares for the grant of options under the 2003 Plan. The resolution was
ratified by the shareholders at the Annual Shareholders Meeting on April 5, 2006.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2008, the number of options granted under the 2003 Plan is 3,275,175
options and the number of options outstanding under the 2003 Plan is 1,765,667 options.
As of December 31, 2008, 1,199,265 options are available for future grant.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 17

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 6 |  | Shareholders Equity (contd)
|------ | - | -----------------------------

| | B. | Share
options (contd)
| | -- | ----------------------

| | 2. | RiT
Technologies Inc. Employee Stock Option Plan
| | -- | ------------------------------------------------

| | In
May 1999, the Board of Directors of the Company adopted RiT Technologies Inc. Employee
Stock Option Plan (the RiT Inc. Plan) pursuant to which 86,000 options to
purchase shares of nominal value of New Israeli Shekels (NIS) 0.1 of the
parent were allocated for the employee share option plan. The plan is administered by the
Board of Directors which designates the optionees, dates of grant and the exercise price
of the options.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
exercise price of each stock option is one hundred percent (100%) of the fair market
value of the underlying share on the day of grant, however the exercise price of an
incentive stock option granted to an individual who owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the Company
or the parent shall be one hundred and ten percent (110%) of the fair market value of the
share of the Company on the day of grant.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January and October 2001, the Board of Directors resolved to reserve additional options
to purchase ordinary shares in the amount of 50,000 and 80,000 respectively, for use in
the RiT Inc. Plan.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2008, the number of options granted under the RiT Inc. Plan is 355,000
options and the number of options outstanding under the RiT Inc. Plan is 85,333 options.
As of December 31, 2008, 90,666 options are available for future grant.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | RiT
Directors Share Incentive Plan (1997)
| | -- | ------------------------------------------

| | In
June 1997, the RiT Directors Share Incentive Plan (1997) (the DirectorsPlan)
was adopted by the Board.
| | -------------------------------------------------------------------------------------------------------------

| | On
October 10, 2001, the Board of Directors of the Company resolved to reserve 110,000
shares. At that date, 210,000 options were granted to certain directors at an exercise
price of $1.15 and vested in equal amounts over three years.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Commencing
with adoption of The 2003 Plan, the Company ceased to grant options under the Directors
Plan. As of December 31, 2008, the number of options outstanding under the Directors plan
is 30,000 options.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 18

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 6 |  | Shareholders Equity (contd)
|------ | - | -----------------------------

| | B. | Share
options (contd)
| | -- | ----------------------

| | 4. | Stock
Options granted under the Employees and Non-employees Share           Option
Plans are as follows:
| | -- | ----------------------------------------------------------------------------------------------------------

| |                                             | Number ofoptions | Weighted
averageexercise price | Weighted
average grant
date fair value
| | ------------------------------------------- | ---------------- | ------------------------------ | --------------------------------------
|
|
|
|
| | Options unexercised as of January 1, 2006   |                  |                                |                                       
| |                                             |                  |                               
| | Granted                                     |                  |                                |                                       
| | Exercised                                   |                  |                                |                                       
| | Expired                                     |                  |                                |                                       
| | Forfeited                                   |                  |                                |                                       
| |                                             |                  |                                |                                       
| |                                             |                  |                               
| | Options unexercised as of December 31, 2006 |                  |                                |                                       
| |                                             |                  |                               
| | Granted                                     |                  |                                |                                       
| | Exercised                                   |                  |                                |                                       
| | Expired                                     |                  |                                |                                       
| | Forfeited                                   |                  |                                |                                       
| |                                             |                  |                                |                                       
| |                                             |                  |                               
| | Options unexercised as of December 31, 2007 |                  |                                |                                       
| |                                             |                  |                               
| | Granted                                     |                  |                                |                                       
| | Exercised                                   |                  |                                |                                       
| | Expired                                     |                  |                                |                                       
| | Forfeited                                   |                  |                                |                                       
| |                                             |                  |                                |                                       
| |                                             |                  |                               
| | Options unexercised as of December 31, 2008 |                  |                                |                                       
| |                                             |                  |                                |                                       

F - 19

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 6 |  | Shareholders Equity (contd)
|------ | - | -----------------------------

| | B. | Share
options (contd)
| | -- | ----------------------

| | 4. | Stock
Options granted under the Employees and Non-employees Share
                    Option Plans are as follows:(contd)
| | -- | ----------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2008, total compensation cost related to option awards not yet recognized
amount to $348 thousand and will be recognized in the statements of operations during
fiscal years 2009  2011.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table summarizes information about stock options outstanding as of December 31,
2008:
| | ---------------------------------------------------------------------------------------------------

| | Rates of exercise prices in US$ | Options outstanding | Options exercisable
| | ------------------------------- | ------------------- | -------------------
|
|
|
|
| | 0.37                            |                     |                    
| | 0.6 - 0.65                      |                     |                    
| | 1.05 - 1.48                     |                     |                    
| | 1.6 - 1.86                      |                     |                    
| | 2                               |                     |                    
| | 2.58                            |                     |                    
| | 2.75 - 2.82                     |                     |                    
| | 3.15                            |                     |                    
| | 7.38                            |                     |                    
| |                                 |                     |                    
| |                                 |                     |                    
| |                                 |                     |                    
| |                                 |                     |                    

| | At
December 31, 2008, options with an average exercise price of $1.82 were exercisable for
1,021,310 shares (at December 31, 2007, options with an average exercise price of $2.54
were exercisable for 1,047,528 shares).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Weighted
average exercise prices for the options outstanding at December 31, 2008 and 2007 were
$1.49 and $1.86, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------

| | Weighted
average remaining contractual life of outstanding options at December 31, 2008 was 5.89
years and the intrinsic value as of December 31, 2008 is 0.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Black-Scholes assumptions used in valuing the options are presented in Note 2M.
| | -----------------------------------------------------------------------------------

F - 20

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 6 |  | Shareholders Equity (contd)
|------ | - | -----------------------------

| | B. | Share
options (contd)
| | -- | ----------------------

| | 4. | Stock
Options granted under the Employees and Non-employees Share
                    Option Plans are as follows:(contd)
| | -- | ----------------------------------------------------------------------------------------------------------------------------

| | A
summary of the status of the Company nonvested shares as of December 31, 2007 and changes
during the year ended December 31, 2008 is presented below:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | Nonvested shares               | Shares | Weighted
Average grant
Date
Fair value
| | ------------------------------ | ------ | --------------------------------------
|
|
|
|
| | Nonvested at December 31, 2007 |        |                                       
| | Granted                        |        |                                       
| | Vested                         |        |                                       
| | Forfeited                      |        |                                       
| |                                |        |                                       
| |                                |        |                                       
| | Nonvested at December 31, 2008 |        |                                       
| |                                |        |                                       

| | 5. | Options
to non-employees
| | -- | ------------------------

| | The
Company applies the fair value-based method of accounting set forth in SFAS 123R to
account for stock-based compensation to non-employees. Using the fair value method, the
total compensation expense is computed based on the fair value of the options on the date
the options are granted to the non-employees since the options are fully vested. The
Company granted a total of 249,500 options during the years 2003-2008. Such options
granted to non-employees were granted as part of The 2003 Plan.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | Warrants
to investors
| | -- | ---------------------

| | As
part of an agreement for a private placement signed on June 21, 2004, the Company issued
to the investors warrants to purchase up to 1,266,032 Ordinary shares at an exercise
price of $1.75 per share. The warrants are exercisable until June 21, 2009. As of
December 31, 2008, 150,001 of these warrants had been exercised.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys agreement with the investors calls for registration of the shares and
keeping a registration statement effective through July 2009. If sales cannot be made
pursuant to the registration statement, the Company will be required to pay liquidation
charges equal to 1.5% of the aggregate amount invested per month. There is no limitation
to the maximum potential consideration to be transferred.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company accounted for the issuance of warrants as an equity transaction, and separately
evaluated the potential for liability for liquidated damages under the free standing
registration right agreement (RRA) based on the guidance in SFAS No. 5. At
the date of issuance, the Company believed that the likelihood of achieving effectiveness
of a registration statement, and maintaining its effectiveness in accordance with the
RRA, was and would continue to be highly probable. The Company filed the registration
statement and believes it is highly probable it will maintain its effectiveness as
required under the RRA, and that no penalties for non-performance under the RRA (i.e.
liquidated damages) will arise. Accordingly, no accrual for such is recorded. The Companys
treatment is consistent with the guidance in FSP EITF 00-19-2 Accounting for
Registration Payment Arrangements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 21

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 6 |  | Shareholders Equity (contd)
|------ | - | -----------------------------

| | D. | Dividends
| | -- | ---------

| | Dividends
may be paid by the Company only out of the Israeli Companys earnings and other
surpluses as calculated in Israeli currency and as defined in the Israeli Companies Law
as at the end of the most recent fiscal year or as accrued over a period of the last two
years whichever is higher. Such dividends will be declared and paid in NIS. There are no
restrictions on the ability of the US subsidiary to transfer funds to its parent, and
there are no restrictions on the transfer of funds to foreign shareholders for the
payment of dividends.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
distribution of cash dividends out of retained earnings as of December 31, 2008, would
subject the Company to a 25% tax in respect of the income from which it was distributed,
according to the terms of the tax exemption due to its approved enterprisestatus,
as explained in Note 7B.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has decided not to distribute the said tax exempt income as dividends. In the
event of a dividend distribution as above, the tax amount would be charged as an expense
in the statement of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | See also Note 7B1(b).
| | ---------------------

|Note 7 |  | Taxes on Income
|------ | - | ---------------

| | A. | Israel
tax reform
| | -- | -----------------

| | As
of January 1, 2003, an Israeli resident taxpayer will be taxed on income produced and
derived both in and out of Israel.
| | ---------------------------------------------------------------------------------------------------------------------------

| | B. | Tax
benefits under the Law for the Encouragement of Capital Investments, 1959
                    (hereafter the Law)
| | -- | ------------------------------------------------------------------------------------------------------------------------

| | 1. | Rates
| | -- | -----

| | a. | Pursuant
to the above Law the Company is entitled to tax benefits relating to
                    investments in Approved Enterprises in accordance with
letters of                     approval received.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
major part of the production facilities of the Company has been granted the status of an
Approved Enterprise under the above Law.
| | -------------------------------------------------------------------------------------------------------------------------------------

| | Income
arising from the Companys Approved Enterprise is subject to zero tax
rates commencing in the year in which the Approved Enterprise first earns
taxable income under the Alternative Benefit Method and reduced tax rates
based on the level of direct or indirect ownership for specific period. The period of
benefits in respect of most of the Companys production facilities will terminate in
the years 2009  2011 (the period of benefits in respect of the first approval was
terminated in 2005). No new approvals have been received since 1997.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
duration of tax benefits, for each of the programs is subject to limitations of the
earlier of 12 years from commencement of investment, or 14 years from receipt of
approval, as an Approved Enterprise under the Law.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 22

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 7 |  | Taxes on Income (contd)
|------ | - | ------------------------

| | B. | Tax
benefits under the Law for the Encouragement of Capital Investments, 1959
                    (hereafter the Law) (contd)
| | -- | ---------------------------------------------------------------------------------------------------------------------------------

| | 1. | Rates
(contd)
| | -- | --------------

| | b. | In
the event of distribution by the Company of a cash dividend out of its
                    retained earnings that were taxed at a zero rate due to the Approved
                    Enterprise status, the Company would be subjected to 25%
corporate tax on                     the amount distributed, and the recipients would
have to pay 15% tax (to be                     withheld at source) on the amounts of such
distribution received by them.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has no intention to pay a dividend in the foreseeable future and, additionally,
there is a tax strategy available whereby a distribution in liquidation will not create
additional taxes for the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Should
the Company derive income from sources other than the Approved
                    Enterprise during the relevant period of benefits, such income
will be                     taxable at the regular corporate tax rate - 27% for
the tax year ended                     December 31, 2008. Due to tax loss carryforwards,
the Company does not                     anticipate any taxable income from such sources.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | On
July 25, 2005, the Israeli Parliament passed the Law for the Amendment of the
                    Income Tax Ordinance (No. 147 and Temporary Order)  2005. This
Amendment                     provides for a gradual reduction in the company tax rate in
the following                     manner: in 2006 the tax rate was 31%, in 2007 the tax
rate was 29%, in 2008 the                     tax rate is 27%, in 2009 the tax rate will
be 26% and from 2010 onward the tax                     rate will be 25%. Real capital
gains are subject to tax of 25%. These rates are                     used in the
computation of the gross deferred tax assets.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Accelerated
depreciation
| | -- | ------------------------

| | The
Company is entitled to claim accelerated depreciation for a period of five years, in
respect of property and equipment of an Approved Enterprise. The Company has
not utilized this benefit to date.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Conditions
for entitlement to the tax benefits
| | -- | ----------------------------------------------

| | Entitlement
to the tax benefits of the Companys Approved Enterprise status is
dependent upon the Company complying with the conditions stipulated by the Law and the
regulations published thereunder, as well as the criteria set forth in the approval for
the specific investment in the Companys Approved Enterprise.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the event of failure to comply with these conditions, the tax benefits may be canceled
and the Company may be required to refund the amount of the canceled benefits, with the
addition of linkage differences and interest.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of the date of these financial statements, the Company believes it is in compliance with
these conditions, although no benefits have been utilized by the Company to date.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 23

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 7 |  | Taxes on Income (contd)
|------ | - | ------------------------

| | B. | Tax
benefits under the Law for the Encouragement of Capital Investments, 1959
                    (hereafter the Law) (contd)
| | -- | ---------------------------------------------------------------------------------------------------------------------------------

| | 4. | Amendments
to the Law
| | -- | ---------------------

| | On
March 30, 2005, the Israeli Parliament approved a reform of the above Law. The primary
changes are as follows:
| | -----------------------------------------------------------------------------------------------------------------

| | a. | Companies
that meet the criteria of the Alternate Path of tax benefits will
                    receive those benefits without prior approval. In addition, there
will be no                     requirement to file reports with the Investment Center.
Companies will be                     required to notify the Israeli Tax Authorities
regarding the implementation of                     the Alternative Path of tax benefits.
Audit of such eligibility will be the                     responsibility of the Income
Tax Authorities and would occur as part of the                     income tax audit.
Request for pre-ruling is possible.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Tax
benefits of the Alternate Path include lower tax rates or no tax depending
                    on the area and the path chosen, lower tax rates on dividends and
accelerated                     depreciation.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | In
order to receive the tax benefits in the Grant Path or the Alternate Path,
                    the Industrial Company must contribute to the economic
independence                     of Israels economy in one of the following ways:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1. | Its
primary activity is in the Biotechnology or Nanotechnology fields and
               pre-approval is received from the head of research and development at the
Office                of the Chief Scientist;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Its
revenue from a specific country is not greater than 75% of its total
               revenues that year;
| | -- | -----------------------------------------------------------------------------------------------------------

| | 3. | 25%
or more of its revenues are derived from a specific foreign market of at
               least 12 million residents.
| | -- | -----------------------------------------------------------------------------------------------------------------------

| | d. | Upon
the establishment of an Approved Enterprise, an investment of
                    at least NIS 300 thousand in production machinery and equipment
within three                     years is required.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | For
an expansion, a company is required to invest within three years the higher
                    of NIS 300 thousand in production machinery and equipment or a
certain                     percentage of its existing production machinery and
equipment.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
amendments to the Law do not retroactively apply for investment programs having an Approved
Enterprise approval certificate from the Investment Center issued up to December
31, 2004. Therefore, the amendments do not impact an existing Approved Enterprise that
received prior written approval. The new tax regime shall apply for a new Approved
Enterprise and for an Approved Enterprise expansion for which the first
year of benefits is 2004 and thereafter. The Company has not applied for approvals
pursuant to the amendments to the Law.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 24

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 7 |  | Taxes on Income (contd)
|------ | - | ------------------------

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

| | Under
the Inflationary Adjustments Law, until December 31, 2007 the Companys results for
tax purposes are measured in real terms, in accordance with the changes in the Israeli
Consumer Price Index.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 26, 2008, the Israeli Income Tax Law (Inflationary Adjustments) (Amendment No.
20) (Restriction of Period of Application)  2008 (the 2008 Amendment)
was passed by the Knesset. According to the 2008 Amendment, the Inflationary Adjustments
Law will no longer be applicable subsequent to the 2007 tax year, except for certain
transitional provisions.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Further,
according to the 2008 Amendment, commencing with the 2008 tax year, the adjustment of
income for the effects of inflation for tax purposes will no longer be calculated.
Additionally, depreciation on fixed assets and tax loss carryforwards will no longer be
linked to future changes in the CPI, such that these amounts will continue to be linked
only to the CPI as of the end of the 2007 tax year and will not be linked to CPI changes
after this date.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Company believes that it currently qualifies as an Industrial Company under
the above law. As such it is entitled to certain tax benefits, mainly the right to deduct
share issuance costs over three years for tax purposes in the event of a public offering,
and to amortize know-how acquired from a third party over eight years for tax
purposes. The Company utilizes certain such provisions in its tax filings.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | E. | Tax
assessment and tax loss carryforwards
| | -- | -----------------------------------------

| | The
Company has not received final tax assessments since its incorporation. In accordance
with the provisions of the Income Tax Ordinance, tax returns submitted up to and
including the 2004 tax year can be regarded as final. The Companys Israeli tax loss
carryforwards are denominated in NIS and approximates $31,224 thousand as of December 31,
2008, and can be carried forward indefinitely against future taxable income.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
U.S. subsidiary is taxed under the U.S. Federal and State income tax rules. As of
December 31, 2008, the U.S. subsidiary has Federal tax loss carryforwards of
approximately $5,134 thousand, which will expire between 2009 and 2028. Following the
change in control which occurred in the parent company in June 2008, the U.S. subsidiary
might be exposed to an ownership change as defined in the Internal Revenue Code Section
382.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | An
ownership change occurs when the ownership percentage of 5% or greater stockholders
changes by more than 50% over a three-year period.
| | -----------------------------------------------------------------------------------------------------------------------------------------

| | As
a result, the utilization of a significant portion of the tax loss carryforwards in the
U.S. subsidiary (tax effected of $1.5 million that has been fully reserved at December
31, 2008) might be severely limited.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 25

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 7 |  | Taxes on Income (contd)
|------ | - | ------------------------

| | F. | Deferred
tax assets and liabilities
| | -- | -----------------------------------

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

| |                                 | December 31
| | ------------------------------- | -----------
|
|
|
|
| | Deferred tax assets:            |            
| | Allowance for doubtful accounts |            
| | Severance pay                   |            
| | Vacation pay                    |            
| | Research and development        |            
| | Tax loss carryforwards          |            
| |                                 |            
| | Total gross deferred tax assets |            
| |                                 |            
| | Valuation allowance             |            
| |                                 |            
| |                                 |            
| | Net deferred tax assets         |            
| |                                 |            

| | The
net change in valuation allowance for each of the years ended December 31, 2008, 2007 and
2006, were increases of $632 thousand, $2,046 thousand and $160 thousand, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred
tax assets for future benefits are included where their realization is more likely than
not. Because of history of taxable losses, management believes that it is more likely
than not that the results of future operations will not generate sufficient taxable
income to realize the deferred tax assets. As such, the Company has recorded a full
valuation allowance in regard of all its tax loss carryforwards as well as for other
deductible temporary differences at December 31, 2008 and 2007.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | G. | Loss
before income tax expense and reconciliation of the theoretical income
tax expense and the actual income tax expense
| | -- | -------------------------------------------------------------------------------------------------------------------------

| | The
components of loss before income tax expense are as follows:
| | ----------------------------------------------------------------

| |                                | Year ended December 31
| | ------------------------------ | ----------------------
|
|
|
|
| | Israel                         |                       
| | United States                  |                       
| |                                |                       
| |                                |                       
| | Loss before income tax expense |                       
| |                                |                       

F - 26

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 7 |  | Taxes on Income (contd)
|------ | - | ------------------------

| | G. | Loss
before income tax expense and reconciliation of the theoretical income
tax expense and the actual income tax expense (contd)
| | -- | ----------------------------------------------------------------------------------------------------------------------------------

| | A
reconciliation of the theoretical income tax expense, assuming all loss is taxed at the
Israeli statutory income tax rate of 27% for the year ended December 31, 2008, 29% for
the year ended December 31, 2007 and 31% for the year ended December 31, 2006, and the
actual income tax expense, is as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                      | Year ended December 31
| | ---------------------------------------------------- | ----------------------
|
|
|
|
| | Loss before income tax expense                       |                       
| |                                                      |                       
| |                                                      |                       
| | Theoretical income tax benefit at Israeli            |                       
| | statutory tax rates                                  |                       
| | Non-deductible expense                               |                       
| | Stock compensation expense                           |                       
| | Change in valuation allowance                        |                       
| | Adjustments arising from differences on the basis of |                       
| | measurement for tax purposes and for                 |                       
| | financial reporting purposes and other**             |                       
| |                                                      |                       
| | Income tax expense for the reported year             |                       
| |                                                      |                       

| | ** | Resulting
from the difference between the changes in the Israeli CPI, which forms the basis for
computation of taxable income of the Company, and the exchange rate of Israeli currency
relative to the dollar.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | H. | Accounting
for uncertainty in income taxes
| | -- | ------------------------------------------

| | The
Company and its subsidiaries adopted the provisions of FIN 48 as of January 1, 2007,
and there was no material effect on the financial statements. As a result, the Company
did not record any cumulative effect adjustment related to adopting FIN 48.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
total amount of gross unrecognized tax benefits as of January 1, 2007, was $0.6 million.
There was no change in the unrecognized tax benefits during the years ended December 31,
2007 and 2008. The entire balance of the unrecognized tax benefits, if recognized, would
not affect the effective tax rate as this amount would be offset by compensating
adjustments in the Companys deferred tax assets that would be subject to a
valuation allowance based on the conditions existing at the Companys reporting
date.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company and its subsidiaries do not expect that the amount of unrecognized tax benefits
will change significantly within the next year.
| | -------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company and its subsidiaries account for interest and penalties related to unrecognized
tax benefits as a component of income tax expense. As of January 1, 2007, and for
the years ended December 31, 2007 and 2008, no interest and penalties related to
unrecognized tax benefits had been accrued.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company and its subsidiaries file income tax returns in Israel and in the U.S. The
Israeli tax returns of the Company and its Israeli subsidiary are open to examination by
the Israeli Tax Authorities for the tax years beginning in 2005. The U.S. tax returns of
the U.S. subsidiary are open to examination by the U.S. tax authorities for tax years
beginning in 2005.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 27

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 8 |  | Supplementary Financial Statements Information
|------ | - | ----------------------------------------------

| | A. | Balance
Sheets
| | -- | --------------

| | 1. | Cash
and cash equivalents
| | -- | -------------------------

| | Comprised
of:
| | -------------

| |                     | December 31
| | ------------------- | -----------
|
|
|
|
| | Cash and deposits * |            
| |                     |            

| | * | The
deposits in 2007 are bearing an average annual interest of 3.0% per annum.
| | - | ------------------------------------------------------------------------------

| | The
deposits for December 31, 2008 are composed of:
| | ---------------------------------------------------

| | a. | $1,559
- deposit in NIS and bearing an average annual interest of 3.14%.
| | -- | ------------------------------------------------------------------------

| | As
of December 31, 2008, $69 was pledged against the Companys bank guaranties.
| | -------------------------------------------------------------------------------

| | b. | $2,795
- deposit in US Dollars and bearing an average annual interest of 2.79%
| | -- | ------------------------------------------------------------------------------

| | c. | $490
- Deposit in Euro and bearing an average annual interest of 3.88%.
| | -- | -----------------------------------------------------------------------

| | d. | $511
- Deposit in British Pound and bearing an average annual interest of 3.98%.
| | -- | --------------------------------------------------------------------------------

| | The
deposits are in thousands.
| | ------------------------------

| | 2. | Trade
receivables, net
| | -- | ----------------------

| | Trade
receivables, net, consist of the following:
| | -------------------------------------------------

| |                                          | December 31
| | ---------------------------------------- | -----------
|
|
|
|
| | Trade receivables                        |            
| | Less allowance for doubtful accounts (*) |            
| |                                          |            
| |                                          |            
| |                                          |            
| |                                          |            

| | * | The
following are the changes in the allowance for doubtful accounts:
| | - | ---------------------------------------------------------------------

F - 28

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 8 |  | Supplementary Financial Statements Information (contd)
|------ | - | -------------------------------------------------------

| | A. | Balance
Sheets (contd)
| | -- | -----------------------

| | 2. | Trade
receivables, net (contd)
| | -- | -------------------------------

| |                                           | US$ thousands
| | ----------------------------------------- | -------------
|
|
|
|
| | Balance as of January 1, 2006             |              
| | Additions                                 |              
| | Deductions                                |              
| | Write-downs charged against the allowance |              
| |                                           |              
| |                                           |              
| | Balance as of December 31, 2006           |              
| | Additions                                 |              
| | Deductions                                |              
| | Write-downs charged against the allowance |              
| |                                           |              
| |                                           |              
| | Balance as of December 31, 2007           |              
| | Additions                                 |              
| | Deductions                                |              
| | Write-downs charged against the allowance |              
| |                                           |              
| |                                           |              
| | Balance as of December 31, 2008           |              
| |                                           |              

| | 3. | Other
current assets
| | -- | --------------------

| | Other
current assets consist of the following:
| | ----------------------------------------------

| |                                            | December 31
| | ------------------------------------------ | -----------
|
|
|
|
| | Receivables from the Government of Israel: |            
| | OCS                                        |            
| | Value added tax authorities                |            
| | Prepaid expenses                           |            
| | Other                                      |            
| |                                            |            
| |                                            |            
| |                                            |            
| |                                            |            

| | 4. | Inventories
| | -- | -----------

| | Inventories
consist of the following:
| | -------------------------------------

| |                                 | December 31
| | ------------------------------- | -----------
|
|
|
|
| | Raw materials and subassemblies |            
| | Work in process                 |            
| | Finished products               |            
| |                                 |            
| |                                 |            
| |                                 |            
| |                                 |            

F - 29

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 8 |  | Supplementary Financial Statements Information (contd)
|------ | - | -------------------------------------------------------

| | A. | Balance
Sheets (contd)
| | -- | -----------------------

| | 5. | Other
payables and accrued liabilities
| | -- | --------------------------------------

| | Other
payables and accrued liabilities consist of the following:
| | ----------------------------------------------------------------

| |                                     | December 31
| | ----------------------------------- | -----------
|
|
|
|
| | Employees and employee institutions |            
| | Government of Israel:               |            
| | OCS in respect of royalty payments  |            
| | Accrued expenses                    |            
| | Provision for product warranty      |            
| | Deferred revenues                   |            
| | Other                               |            
| |                                     |            
| |                                     |            
| |                                     |            
| |                                     |            

| | 6. | Fair
Value Measurements
| | -- | -----------------------

| | The
fair value of a financial instrument is the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair values of the financial instruments as of
December 31, 2007 and 2008, represent managements best estimates of the amounts
that would be received to sell those assets or that would be paid to transfer those
liabilities in an orderly transaction between market participants at that date. Those
fair value measurements maximize the use of observable inputs. However, in situations
where there is little, if any, market activity for the asset or liability at the
measurement date, the fair value measurement reflects the Companys own judgments
about the assumptions that market participants would use in pricing the asset or
liability. Those judgments are developed by the Company based on the best information
available in the circumstances.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following methods and assumptions were used to estimate the fair value of each class of
financial instruments:
| | ------------------------------------------------------------------------------------------------------------------

| | a. | Cash
and cash equivalents, trade receivables, other current assets, other
               payables. The carrying amounts approximate fair value because of the short
               maturity of these instruments.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Long
term trade receivables: The fair value is determined as the present value
               of future contractual cash flows discounted at an interest rate that
reflects                the risks inherent in those cash flows. The difference between
the carrying                amounts and fair value is not material.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 30

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---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 8 |  | Supplementary Financial Statements Information (contd)
|------ | - | -------------------------------------------------------

| | B. | Statements
of operations
| | -- | ------------------------

| | 1. | Sales
(1)
| | -- | ---------

| | (a) | Classification
of sales by geographical destination:
| | --- | ----------------------------------------------------

| |                         | Year ended December 31
| | ----------------------- | ----------------------
|
|
|
|
| | United States           |                       
| | Europe                  |                       
| | Israel                  |                       
| | South and Latin America |                       
| | Asia Pacific            |                       
| | Rest of the world       |                       
| |                         |                       
| |                         |                       
| |                         |                       
| |                         |                       

| | (1) | Sales
are attributed to geographical areas based on location of           customers. The Companys
property and equipment is primarily located in           Israel.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Sales
by major product lines:
| | --- | -----------------------------

| |                     | Year ended December 31
| | ------------------- | ----------------------
|
|
|
|
| | Enterprise Solution |                       
| | Carrier Solution    |                       
| |                     |                       
| |                     |                       
| |                     |                       
| |                     |                       

| | (c) | Principal
customers:
| | --- | --------------------

| | During
fiscal year 2008 there were no sales to customers exceeding 10% of total sales.
| | --------------------------------------------------------------------------------------

| | During
fiscal year 2007, Companys sales to customers exceeding 10% of total sales were:
$5,328 thousand (during fiscal year 2006  $6,944 thousand).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | Customers
who accounted for over 10% of the total consolidated revenue:
| | -----------------------------------------------------------------------

| |   | Year ended December 31
| | - | ----------------------
|
|
|
|
| | A |                       
| | B |                       
| | C |                       

F - 31

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 8 |  | Supplementary Financial Statements Information (contd)
|------ | - | -------------------------------------------------------

| | 2. | Cost
of sales
| | -- | -------------

| | Cost
of sales consists of the following:
| | ----------------------------------------

| |                                    | Year ended December 31
| | ---------------------------------- | ----------------------
|
|
|
|
| | Payroll and related benefits       |                       
| | Materials purchased                |                       
| | Subcontracted work                 |                       
| | Royalties to the OCS               |                       
| | Write-down of inventories          |                       
| | Other production costs             |                       
| |                                    |                       
| |                                    |                       
| |                                    |                       
| | Decrease (increase) in inventories |                       
| |                                    |                       
| |                                    |                       
| |                                    |                       
| |                                    |                       

| | * | Following
sales weaker than originally projected, especially of the Carrier products, the Company
wrote-off excessive and slow-moving inventories.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Financing
income, net
| | -- | ---------------------

| | Financing
income, net, consists of the following:
| | -------------------------------------------------

| |                                                 | Year ended December 31
| | ----------------------------------------------- | ----------------------
|
|
|
|
| | Expenses:                                       |                       
| | Realized loss on marketable securities, net     |                       
| | Interest on short-term credits and bank charges |                       
| | Exchange translation (expenses) income, net     |                       
| |                                                 |                       
| |                                                 |                       
| | Income:                                         |                       
| | Interest from banks and others                  |                       
| |                                                 |                       
| |                                                 |                       
| | Financing income, net                           |                       
| |                                                 |                       

F - 32

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 9 |  | Related Parties Balances and Transactions
|------ | - | -----------------------------------------

| | On
June 12, 2008, the Companys then principal shareholders completed the sale of their
entire shareholdings in the Company to STINS COMAN, a Russian corporation headquartered
in Moscow, Russia, who has been the Companys distributor since 1994. Under the
agreement entered in March 2008, the selling shareholders sold to STINS all of the
5,122,521 RiT shares held by them (or their affiliates), representing approximately 34.9%
of the Companys outstanding share capital at that date. STINS acquired additional
shares of the Company through a cash tender offer also completed in June 2008. Following
the consummation of these transactions, STINS was the owner of approximately 6,150,336
RiT shares, representing approximately 41.9% of the outstanding ordinary shares of the
Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
June 13, 2008, the Companys Board of Directors approved a short-term loan agreement
with STINS, according to which, STINS will extend to the Company a loan of up to $4
million at the request of the Company. The key terms of the loan agreement were as
follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | At
any time through December 31, 2008, the Company may draw the loan from STINS, but no more
than $2 million at one draw (up to a maximum of $4 million) and at intervals of at least
30 days between each draw.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
outstanding principal amount will accrue interest at an annual rate of 2.47%.
| | - | ---------------------------------------------------------------------------------

| |  | The
 outstanding  principal  amount and the  interest  accrued  thereon  are due and  payable
in one                   payment 12 months after receipt of the funds.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
loan is unsecured
| | - | ---------------------

| | The
Company drew $2 million out of the $4 million loan.
| | -------------------------------------------------------

| | On
July 22, 2008, the Company entered into a binding Memorandum of Understanding (MOU)
with STINS, for a private issuance by the Company of newly issued ordinary shares of the
Company. Pursuant to the MOU, the outstanding loan amount and the interest accrued
thereon should have been converted at the closing into ordinary shares of the Company at
a conversion price of $0.65 per share. The conversion price represented a premium of 25%
over the closing price of the ordinary shares as reported on NASDAQ on July 18, 2008, the
last trading day before the approval of the transaction by the Audit Committee and Board
of Directors of the Company. The closing of the transaction was subject, among others
things, to the approval of the Companys shareholders, which was obtained at the
2008 Annual General Meeting held in August 2008. On September 15, 2008, the Company
completed the private placement and issued 6,153,846 ordinary shares to STINS for a total
investment of $4 million, reflecting a $0.65 purchase price per share. Rather than
converting the $4 million short term loan that STINS agreed to extend to the Company in
June 2008, the purchase agreement provided for a direct investment of $4 million. In
conjunction with the closing, the $2 million short term loan that was previously extended
to the Company was repaid in full and the loan agreement was terminated. Immediately
following the closing of the transaction, STINS held 12,304,182 of the Companys
shares, representing approximately 59.1% of the Companys outstanding shares. As of
December 31, 2008, STINS holds 12,471,242 of the Companys shares representing
approximately 59.86% of the Companys outstanding shares.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 33

---

---

|RiT Technologies Ltd.and Subsidiaries                                 
|----------------------------------------------------------------------
|                                                                      
|Notes to the Consolidated Financial Statements as of December 31, 2008
|                                                                      

|Note 9 |  | Related
Parties Balances and Transactions (contd)
|------ | - | --------------------------------------------------

| | On
November 4, 2008 the Company announced that it has appointed STINS COMAN
Corporartion, a subsidiary of STINS COMAN Incorporated, RiTs principal shareholder,
to be its non-exclusive distributor of carrier solutions in the CIS market, until,
initially, September 2009.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | STINS
COMAN has served as RiTs distributor of enterprise solutions in Russia since 1994.
| | -----------------------------------------------------------------------------------------

| | All
transactions with related parties were in the ordinary course of business and at terms
comparable to those applied to transactions with other customers or suppliers and are
mainly sales of the Companys products, purchases from related parties, human
resource and administrative services received and leasing of premises occupied by the
Company and the US subsidiary (See Note 5B).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A. | Balances
with related parties
| | -- | -----------------------------

| | The
following related parties balances are included in the balance sheets:
| | --------------------------------------------------------------------------

| |                      | December 31
| | -------------------- | -----------
|
|
|
|
| | Accounts receivable: |            
| | Trade                |            
| |                      |            
| | Accounts payable:    |            
| | Trade                |            

| | B. | Income
from or expenses to related parties
| | -- | ------------------------------------------

| | The
following related parties transactions are included in the statements of operations.
| | ----------------------------------------------------------------------------------------

| |                                              | Year ended December 31
| | -------------------------------------------- | ----------------------
|
|
|
|
| | Income:                                      |                       
| | Sales                                        |                       
| |                                              |                       
| | Costs and expenses:                          |                       
| | Purchases                                    |                       
| | Services                                     |                       
| | Research and development costs               |                       
| | Sales, marketing, general and administrative |                       
| | expenses                                     |                       
| | Financing expense                            |                       

| |    |  |  |                                     | 
| | -- |  |  | ----------------------------------- | 
|
|
|
|
| | C. |  |  | Purchases of property and equipment | 

F - 34

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