**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**








**FORM
      10-Q**





(Mark
      One)




ý
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




**For
      the quarterly period ended June 30, 2008**




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




For
      the
      transition period from ________ to ________





**Commission
      File Number 000-50954**







**NESS
      TECHNOLOGIES, INC.**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            
            **98-0346908**(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                Number)





**Ness
      Tower**


**Atidim
      High-Tech Industrial Park**


**Building
      4**


**Tel
      Aviv 61580, Israel**


**Telephone:
      +972 (3) 766-6800**


(Address
      of registrant’s principal executive offices and registrant’s telephone number,
      including area code)








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. ý Yes  ̈ No




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See
      the definition of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.




Large
      accelerated filer  ̈ Accelerated
      filer ý Non-accelerated
      filer  ̈ Smaller
      reporting company  ̈




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  ̈ Yes ý No




As
      of
      July 31, 2008, 39,243,175 shares of common stock, $0.01 par value per share,
      were outstanding.










**NESS
      TECHNOLOGIES, INC. AND SUBSIDIARIES**





**INDEX**




PART
                  I – FINANCIAL INFORMATION
              3Item
                  1. Financial Statements
              3Consolidated
                  Balance Sheets – December 31, 2007 and June 30, 2008
                  (Unaudited)
              3Consolidated
                  Statements of Income – Three and six months ended June 30, 2007 and 2008
                  (Unaudited)
              5Consolidated
                  Statements of Cash Flows – Six months ended June 30, 2007 and 2008
                  (Unaudited)
              6Notes
                  to Interim Consolidated Financial Statements – June 30, 2008
                  (Unaudited)
              8Item
                  2. Management’s Discussion and Analysis of Financial Condition and Results
                  of Operations
              17Overview
              17Recent
                  Developments
              18Consolidated
                  Results of Operations
              19Three
                  Months Ended June 30, 2008 Compared to the Three Months Ended June
                  30,
                  2007
              19Six
                  Months Ended June 30, 2008 Compared to the Six Months Ended June
                  30,
                  2007
              21Results
                  by Business Segment
              23Liquidity
                  and Capital Resources
              25Forward-Looking
                  Statements and Risk Factors
              27Item
                  3. Quantitative and Qualitative Disclosure about Market
                  Risk
              27Item
                  4. Controls and Procedures
              28Evaluation
                  of Disclosure Controls and Procedures
              28Changes
                  in Internal Control
              28PART
                  II – OTHER INFORMATION
              29Item
                  1. Legal Proceedings
              29Item
                  1A. Risk Factors
              29Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds
              29Item
                  3. Defaults upon Senior Securities.
              29Item
                  4. Submission of Matters to a Vote of Security Holders
              29Item
                  5. Other Information
              29Item
                  6. Exhibits
              30SIGNATURES
              31EXHIBIT
                  INDEX
              32


-
          2
          -


**PART
      I – FINANCIAL INFORMATION**




***Item
      1. Financial Statements***




**NESS
      TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**


**Interim
      Consolidated Balance Sheets**


**U.S.
      dollars in thousands**





**December 31,**
            
            **June 30,****2007**
            
            **2008****(Unaudited)**ASSETSCURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            43,097
            
            $
            64,467Restricted
                cash
            
            
            602
            
            
            —Short-term
                bank deposits
            
            
            2,361
            
            
            206Trade
                receivables (net of allowance for doubtful accounts of $3,145 and
                $3,270
                at December 31, 2007 and June 30, 2008, respectively)
            
            
            182,281
            
            
            196,527Unbilled
                receivables
            
            
            37,634
            
            
            46,825Other
                accounts receivable and prepaid expenses
            
            
            31,249
            
            
            33,105Work-in-progress
            
            
            2,563
            
            
            5,065Total
                current assets
            
            
            299,787
            
            
            346,195LONG-TERM
                ASSETS:Long-term
                prepaid expenses and other assets
            
            
            8,014
            
            
            8,230Investments
                at cost
            
            
            564
            
            
            655Unbilled
                receivables
            
            
            8,919
            
            
            11,860Deferred
                income taxes, net
            
            
            7,806
            
            
            12,949Severance
                pay fund
            
            
            49,731
            
            
            56,573Property
                and equipment, net
            
            
            34,072
            
            
            37,442Intangible
                assets, net
            
            
            17,011
            
            
            15,147Goodwill
            
            
            263,444
            
            
            284,643Total
                long-term assets
            
            
            389,561
            
            
            427,499Total
                assets
            
            $
            689,348
            
            $
            773,694




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


-
          3
          -


**NESS
      TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**


**Interim
      Consolidated Balance Sheets**


**U.S.
      dollars in thousands (except share and par value data)**





**December 31,**
            
            **June 30,****2007**
            
            **2008****(Unaudited)**LIABILITIES
                AND STOCKHOLDERS’ EQUITYCURRENT
                LIABILITIES:Short-term
                bank credit
            
            $
            2,819
            
            $
            8,026Current
                maturities of long-term debt
            
            
            1,662
            
            
            3,084Trade
                payables
            
            
            54,536
            
            
            60,757Advances
                from customers and deferred revenues
            
            
            27,297
            
            
            39,122Other
                accounts payable and accrued expenses
            
            
            120,113
            
            
            111,055Total
                current liabilities
            
            
            206,427
            
            
            222,044LONG-TERM
                LIABILITIES:Long-term
                debt, net of current maturities
            
            
            47,191
            
            
            72,024Other
                long-term liabilities
            
            
            4,864
            
            
            5,808Deferred
                income taxes
            
            
            2,228
            
            
            1,855Accrued
                severance pay
            
            
            57,465
            
            
            63,377Total
                long-term liabilities
            
            
            111,748
            
            
            143,064COMMITMENTS
                AND CONTINGENT LIABILITIESSTOCKHOLDERS’
                EQUITY:Common
                Stock of $0.01 par value –
              Authorized:
                76,500,000 shares at December 31, 2007 and at June 30, 2008;Issued and outstanding: 39,196,908 shares at December 31, 2007 and
                39,217,128 shares at June 30, 2008
            
            
            392
            
            
            392Additional
                paid-in capital
            
            
            322,716
            
            
            324,304Accumulated
                other comprehensive income
            
            
            24,594
            
            
            45,435Retained
                earnings
            
            
            23,471
            
            
            38,455Total
                stockholders’ equity
            
            
            371,173
            
            
            408,586Total
                liabilities and stockholders’ equity
            
            $
            689,348
            
            $
            773,694




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


-
          4
          -


**NESS
      TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**


**Interim
      Consolidated Statements of Income**


**U.S.
      dollars in thousands (except per share data)**





**Three months ended**
              **June 30,**
            
            **Six months ended**
              **June 30,****2007**
            
            **2008**
            
            **2007**
            
            **2008****(Unaudited)**
            
            **(Unaudited)**Revenues
            
            $
            125,762
            
            $
            170,586
            
            $
            251,540
            
            $
            330,318Cost of revenues
                (*)
            
            
            89,677
            
            
            117,995
            
            
            179,353
            
            
            232,385Gross
                profit
            
            
            36,085
            
            
            52,591
            
            
            72,187
            
            
            97,933Operating
                expenses:Selling
                and marketing (*)
            
            
            9,293
            
            
            14,538
            
            
            18,765
            
            
            27,746General
                and administrative (*)
            
            
            21,367
            
            
            26,817
            
            
            41,281
            
            
            48,922Total
                operating expenses
            
            
            30,660
            
            
            41,355
            
            
            60,046
            
            
            76,668Operating
                income
            
            
            5,425
            
            
            11,236
            
            
            12,141
            
            
            21,265Financial
                income (expenses), net
            
            
            (74
            )
            
            (1,032
            )
            
            315
            
            
            (2,448
            )Other
                expenses, net
            
            
            (62
            )
            
            —
            
            
            (56
            )
            
            —Income
                before taxes on income
            
            
            5,289
            
            
            10,204
            
            
            12,400
            
            
            18,817Taxes
                on income
            
            
            1,126
            
            
            2,114
            
            
            2,522
            
            
            3,833Net
                income
            
            $
            4,163
            
            $
            8,090
            
            $
            9,878
            
            $
            14,984Basic
                net earnings per share
            
            $
            0.11
            
            $
            0.21
            
            $
            0.25
            
            $
            0.38Diluted
                net earnings per share
            
            $
            0.11
            
            $
            0.21
            
            $
            0.25
            
            $
            0.38





(*)  Includes
      stock-based compensation, as follows:




**Three months ended**
              **June 30,**
            
            **Six months ended**
              **June 30,****2007**
            
            **2008**
            
            **2007**
            
            **2008****(Unaudited)**
            
            **(Unaudited)**Cost
                of revenues.
            
            $
            —
            
            $
            63
            
            $
            85
            
            $
            145Selling
                and marketing
            
            
            17
            
            
            58
            
            
            39
            
            
            114General
                and administrative
            
            
            211
            
            
            527
            
            
            480
            
            
            1,280




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




-
          5
          -


**NESS
      TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**


**Interim
      Consolidated Statements of Cash Flows**


**U.S.
      dollars in thousands**





**Six months ended**
              **June 30,****2007**
            
            **2008****(Unaudited)**Cash
                flows from operating activities:Net
                income
            
            $
            9,878
            
            $
            14,984Adjustments
                required to reconcile net income to net cash provided by (used in)
                operating activities:Stock-based
                compensation-related expenses
            
            
            604
            
            
            1,539Currency
                fluctuation of long-term debt
            
            
            24
            
            
            5Depreciation
                and amortization
            
            
            5,853
            
            
            8,426Arbitration
                settlement
            
            
            —
            
            
            (9,452
            )Loss
                on sale of property and equipment
            
            
            101
            
            
            6Excess
                tax benefits related to exercise of options
            
            
            (308
            )
            
            —Decrease
                in trade receivables, net
            
            
            1,153
            
            
            4,364Increase
                in unbilled receivables
            
            
            (7,930
            )
            
            (4,916
            )Increase
                in other accounts receivable and prepaid expenses
            
            
            (9,188
            )
            
            (971
            )Increase
                in work-in-progress
            
            
            (883
            )
            
            (2,094
            )Decrease
                (increase) in long-term prepaid expenses
            
            
            (771
            )
            
            159Deferred
                income taxes, net
            
            
            454
            
            
            3,674Increase
                (decrease) in trade payables
            
            
            (7,072
            )
            
            268Increase
                in advances from customers and deferred revenues
            
            
            2,625
            
            
            7,118Increase
                in other long-term liabilities
            
            
            —
            
            
            341Increase
                (decrease) in other accounts payable and accrued expenses
            
            
            10
            
            
            (6,811
            )Decrease
                in accrued severance pay, net
            
            
            (500
            )
            
            (1,748
            )Net
                cash provided by (used in) operating activities
            
            
            (5,950
            )
            
            14,892Cash
                flows from investing activities:Net
                cash paid for acquisition of a consolidated subsidiary
            
            
            (2,495
            )
            
            —Proceeds
                from sale of cost investment
            
            
            1,866
            
            
            —Additional
                payments in connection with acquisitions of subsidiaries in prior
                periods
            
            
            (10,241
            )
            
            (5,973
            )Proceeds
                from maturity of short-term bank deposits
            
            
            1,036
            
            
            2,655Proceeds
                from sale of property and equipment
            
            
            222
            
            
            102Purchase
                of property and equipment and capitalization of software developed
                for
                internal use
            
            
            (4,980
            )
            
            (6,539
            )Net
                cash used in investing activities
            
            
            (14,592
            )
            
            (9,755
            )




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


-
          6
          -


**NESS
      TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**


**Interim
      Consolidated Statements of Cash Flows**


**U.S.
      dollars in thousands**





**Six months ended**
              **June 30,****2007**
            
            **2008****(Unaudited)**Cash
                flows from financing activities:Exercise
                of options
            
            $
            2,273
            
            $
            165Dividend
                to former shareholders of an acquired subsidiary
            
            
            —
            
            
            (10,048
            )Excess
                tax benefits related to exercise of options
            
            
            308
            
            
            —Short-term
                bank loans and credit, net
            
            
            3,979
            
            
            4,523Proceeds
                from long-term debt
            
            
            —
            
            
            25,090Principal
                payments of long-term debt
            
            
            (2,069
            )
            
            (1,972
            )Net
                cash provided by financing activities
            
            
            4,491
            
            
            17,758Effect
                of exchange rate changes on cash and cash equivalents
            
            
            2,100
            
            
            (1,525
            )Increase
                (decrease) in cash and cash equivalents
            
            
            (13,951
            )
            
            21,370Cash
                and cash equivalents at the beginning of the period
            
            
            46,675
            
            
            43,097Cash
                and cash equivalents at the end of the period
            
            $
            32,724
            
            $
            64,467





*Non-cash
                activity*Mark-to-market
                of foreign exchange forward contracts and interest rate
                swap
            
            $
            —
            
            $
            4,457





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


-
          7
          -


**NESS
      TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**


**Notes
      to Interim Consolidated Financial Statements**


**U.S.
      dollars in thousands (except share and per share data)
      (Unaudited)**




***Note
      1: General***




Ness
      Technologies, Inc. was incorporated under the laws of the State of Delaware
      in
      March 1999. We operate through our subsidiaries in Israel, North America, Europe
      and Asia.




We
      are a
      global provider of information technology (“IT”) services and solutions designed
      to help clients improve their competitiveness and effectiveness. Our portfolio
      of solutions and services consists of software product development, including
      both offshore and near-shore outsourcing; system integration, application
      development and consulting; and software distribution. The primary verticals
      we
      serve include high-tech companies and independent software vendors; financial
      services; defense, homeland security and government; life sciences and
      healthcare; and telecommunications and utilities.




***Note
      2: Significant Accounting Policies***




a.
            Unaudited
                Interim Financial Information




The
      accompanying consolidated balance sheet as of June 30, 2008, the consolidated
      statements of income for the three and six months ended June 30, 2007 and 2008,
      and the consolidated statements of cash flows for the six months ended June
      30,
      2007 and 2008 are unaudited. These unaudited interim consolidated financial
      statements have been prepared in accordance with U.S. generally accepted
      accounting principles for interim financial information. In the opinion of
      management, the unaudited interim consolidated financial statements include
      all
      adjustments of a normal recurring nature necessary for a fair presentation
      of
      our consolidated financial position as of June 30, 2008, our consolidated
      results of operations for the three and six months ended June 30, 2007 and
      2008
      and our consolidated cash flows for the six months ended June 30, 2007 and
      2008.




The
      balance sheet at December 31, 2007 has been derived from the audited
      consolidated financial statements at that date but does not include all of
      the
      information and footnotes required by U.S. generally accepted accounting
      principles for complete financial statements.




These
      consolidated financial statements should be read in conjunction with the audited
      consolidated financial statements and accompanying notes for the year ended
      December 31, 2007 included in our Annual Report on Form 10-K filed with the
      U.S.
      Securities and Exchange Commission (“SEC”) on March 17, 2008.




Results
      for the three and six months ended June 30, 2008 are not necessarily indicative
      of results that may be expected for the year ending December 31,
      2008.




Unless
      otherwise noted, all references to “dollars” or “$” are to United States
      dollars.




b.
            Reclassification




Certain
      prior period amounts have been reclassified to conform to the current period
      presentation.




c.
            Use
                of estimates




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the amounts reported in the financial statements and accompanying notes.
      Actual results could differ from those estimates.


-
          8
          -


**NESS
        TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**
 **Notes
        to Interim Consolidated Financial Statements**
 **U.S.
        dollars in thousands (except share and per share data)
        (Unaudited)**


d.
            Principles
                of consolidation




Our
      consolidated financial statements include the accounts of the company and its
      wholly and majority owned subsidiaries, or the group. Inter-company transactions
      and balances, including profit from inter-company sales not yet realized outside
      the group, have been eliminated in consolidation.




e.
            Fair
                value




Effective
      January 1, 2008, we adopted Statement of Financial Accounting Standard No.
      157,
“Fair Value Measurements” (“SFAS 157”), which establishes a framework for
      measuring fair value and which requires enhanced disclosures about fair value
      measurements. SFAS 157 clarifies that fair value is an exit price, representing
      the amount that would be received to sell an asset or paid to transfer a
      liability in an orderly transaction between market participants. SFAS 157
      requires disclosure about how fair value is determined for assets and
      liabilities and establishes a hierarchy into which these assets and liabilities
      must be grouped, based on significant levels of inputs, as follows:




Level
      1  Quoted
      prices in active markets for identical assets or liabilities;




Level
      2  Quoted
      prices in active markets for similar assets and liabilities and inputs that
      are
      observable for the asset or liability; or




Level
      3  Unobservable
      inputs, such as discounted cash flow models or valuations.




f.
            Impact
                of recently issued accounting
                pronouncements




In
      December 2007, the SEC issued Staff Accounting Bulletin No. 110, which expresses
      the views of the SEC staff regarding the use of a “simplified” method, as
      discussed in the previously issued Staff Accounting Bulletin No. 107 (“SAB
      107”), in developing an estimate of the expected term of “plain vanilla” share
      options in accordance with Statement of Financial Accounting Standards (“SFAS”)
      No. 123(R), “Share-Based Payment” (“SFAS 123(R)”). In particular, the SEC staff
      indicated in SAB 107 that it will accept a company’s election to use the
      simplified method, regardless of whether the company has sufficient information
      to make more refined estimates of expected term. At the time SAB 107 was issued,
      the SEC staff believed that more detailed external information about employee
      exercise behavior (e.g., employee exercise patterns by industry and/or other
      categories of companies) would, over time, become readily available to
      companies. Therefore, the SEC staff stated in SAB 107 that it would not expect
      a
      company to use the simplified method for share option grants after December
      31,
      2007. The SEC staff understands that such detailed information about employee
      exercise behavior may not be widely available by December 31, 2007. Accordingly,
      the SEC staff will continue to accept, under certain circumstances, the use
      of
      the simplified method beyond December 31, 2007. Upon our adoption of SFAS
      123(R), we elected to use the simplified method to estimate our expected term.
      We continue to use the simplified method as we have determined that sufficient
      data is not available to develop an estimate of the expected term based upon
      historical participant behavior.




In
      May
      2008, the Financial Accounting Standards Board issued SFAS No. 162, “The
      Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162
      identifies the sources of accounting principles and the framework for selecting
      the principles used in the preparation of financial statements of
      nongovernmental entities that are presented in conformity with U.S. generally
      accepted accounting principles. This statement shall be effective 60 days
      following the SEC’s approval of the Public Company Accounting Oversight Board’s
      amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With
      Generally Accepted Accounting Principles.” We do not expect the adoption of SFAS
      162 to have a material impact on our interim unaudited consolidated financial
      statements.


-
          9
          -




**NESS
      TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**


**Notes
      to Interim Consolidated Financial Statements**


**U.S.
      dollars in thousands (except share and per share data)
      (Unaudited)**




***Note
      3: Acquisitions***




a.
            Goodwill




In
      the
      six month period ended June 30, 2008, we recorded additional goodwill of
      $21,199 consisting of translation adjustments of $20,822 and
      adjustments with respect to prior-year acquisitions of $377. The $377 is
      primarily related to a dividend paid to former shareholders of an acquired
      subsidiary and to deferred tax assets recorded in connection with net operating
      losses carried forward from periods prior to the acquisitions.




b.
            Restructuring-Related
                Provision




In
      connection with the acquisition of NessPRO Italy in September 2007, we recorded
      restructuring-related provisions of $2,554, using the exchange rate prevailing
      on the acquisition date, related to a restructuring plan undertaken by NessPRO
      Italy prior to the acquisition. The restructuring cost consists of severance
      expense. Through June 30, 2008, payments in the aggregate amount of $1,282
      were
      made in connection with the plan. As of June 30, 2008, the remaining accruals
      amounted to $1,578, after adjusting for changes in foreign exchange
      rates.




Additionally,
      in December 2007, we initiated a plan to exit certain activities at NessPRO
      Italy’s locations, and to involuntarily terminate certain of NessPRO Italy’s
      employees to improve efficiencies in operations, resulting in restructuring
      costs. These costs were recognized as assumed liabilities in the allocation
      of
      the purchase price and have resulted in an increase to goodwill. The
      restructuring costs consisted of severance expense in the amount of $3,367
      and
      termination of leased facilities in the amount of $170, using the exchange
      rate
      prevailing on the acquisition date. Through June 30, 2008, payments in the
      aggregate amount of $3,008 were made in connection with the plan. As of June
      30,
      2008, the remaining accruals amounted to $832, after adjusting for changes
      in
      foreign exchange rates. The restructuring charges recorded are based on a
      restructuring plan that has been committed to by management. The restructuring
      costs may change as management executes the plan.




c.
            Pro
                Forma Financial Information




The
      following table presents certain combined unaudited statements of income data
      for the three and six months ended June 30, 2007 as if the 2007 acquisitions
      of
      NessPRO Thailand, NessPRO Italy, MS9 and FMC had occurred on January 1, 2007,
      after giving effect to purchase accounting adjustments, including amortization
      of identifiable intangible assets:




**Three months ended**
              **June 30, 2007**
            
            **Six months ended**
              **June 30, 2007****(unaudited)**
            
            **(unaudited)**Revenues
            
            $
            139,199
            
            $
            278,845Net
                income
            
            $
            4,080
            
            $
            9,542Earnings
                per share:Basic
            
            $
            0.10
            
            $
            0.24Diluted
            
            $
            0.10
            
            $
            0.24




***Note
      4: Accounting for stock-based compensation***




During
      the six months ended June 30, 2008, we granted options to purchase 435,000
      shares of our Common Stock under our 2007 Stock Incentive Plan at an exercise
      price of $12.00 per share and a weighted average fair value of $1.69 per share.
      The options vest over the requisite service period of the
      award.


-
          10
          -




**NESS
        TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**
 **Notes
        to Interim Consolidated Financial Statements**
 **U.S.
        dollars in thousands (except share and per share data)
        (Unaudited)**


During
      the six months ended June 30, 2008, we extended the term of 170,709 options
      previously granted to our Chairman of the Board to August 31, 2008. Our results
      of operations include expenses of $90 related to this modification.




We
      estimate the fair value of stock options granted using the Black-Scholes-Merton
      option pricing model for service options and the Monte Carlo option pricing
      model for performance condition options. The option-pricing models require
      a
      number of assumptions, of which the most significant are the expected stock
      price volatility and the expected option term. Expected volatility was
      calculated based upon actual historical stock price movements. The expected
      term
      of options granted represents the period of time that options granted are
      expected to be outstanding. The risk-free interest rate is based on the yield
      from U.S. treasury bonds with an equivalent term. We have historically not
      paid
      dividends and have no foreseeable plans to pay dividends. The fair value was
      estimated at the date of grant using the following weighted average assumptions
      for the Black-Scholes model and the following assumptions for the Monte Carlo
      model:




**Black-Scholes**
            
            **Monte Carlo****Three months**
              **ended June 30,**
            
            **Six months**
              **ended June 30,**
            
            **Three and six months**
              **ended June 30,****2007**
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007****(unaudited)**
            
            **(unaudited)**
            
            **(unaudited)**Dividend yield
            
            
            0%
            
            
            0%
            
            
            0%
            
            
            0%
            
            
            0%Expected
                volatility
            
            
            31.3%
            
            
            31.5%
            
            
            31.28%
            
            
            31.33%
            
            
            29
                - 31%Risk-free
                interest
            
            
            5.10%
            
            
            2.82%
            
            
            5.07%
            
            
            2.38%
            
            
            4.61
                - 4.95%Expected
                life (in years)
            
            
            3.5
            
            
            3.50
            
            
            3.40
            
            
            3.17
            
            
            N/A




As
      of
      June 30, 2008, options to purchase 5,275,715 shares were outstanding with a
      weighted average exercise price of $11.89 per share and options to purchase
      2,763,731 shares were available for future grants.




As
      of
      June 30, 2008, $4,691 of total unrecognized compensation cost related to
      stock-based compensation was expected to be recognized over a period of three
      years. The total unrecognized stock-based compensation cost to be recognized
      in
      future periods as of June 30, 2008 does not consider the effect of stock options
      that may be issued in subsequent periods.




***Note
      5: Derivatives***




During
      the six months ended June 30, 2008 we entered into an interest rate swap
      derivative to convert a certain floating-rate debt to fixed-rate debt, which
      qualifies as a cash flow hedge in accordance with Statement of Financial
      Accounting Standard No. 133, “Accounting for Derivative Instruments and Hedging
      Activities” (“SFAS 133”). Our interest rate swap derivative involves an
      agreement to pay a fixed-rate interest and receive a floating-rate interest,
      at
      specified intervals, calculated on an agreed notional amount that matches the
      amount of the original loan and paid on the same installments and maturity
      dates. At June 30, 2008, the notional amount of interest rate swap we entered
      into was $12,000. The fair value of the interest rate swap at June 30, 2008
      was
      a liability of $133. There was no ineffectiveness related to this derivative
      for
      the six months ended June 30, 2008, with all unrealized losses, representing
      $133, being deferred in accumulated other comprehensive income. The liability
      is
      presented within other long-term liabilities on the balance sheet at June 30,
      2008 as the interest rate swap expires in November 30, 2012.




During
      the six months ended June 30, 2008 we entered into foreign exchange forward
      contracts to hedge against the effect of exchange rate fluctuations on cash
      flows denominated in Indian Rupee. These transactions are designated as cash
      flow hedges, in accordance with SFAS 133. At June 30, 2008, the notional amount
      of foreign exchange forward contracts we entered into was $58,450. The fair
      value of the foreign exchange forward contracts at June 30, 2008 was a liability
      of $4,324. There was no ineffectiveness related to these foreign exchange
      forward contracts for the six months ended June 30, 2008, with all unrealized
      losses, representing $4,324, being deferred in accumulated other comprehensive
      income.


-
          11
          -




**NESS
        TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**
 **Notes
        to Interim Consolidated Financial Statements**
 **U.S.
        dollars in thousands (except share and per share data)
        (Unaudited)**


We
      determined that foreign exchange forward contracts be considered Level 1
      measurements according to SFAS 157, as they are traded in active markets for
      identical assets or liabilities, while interest rate swaps be considered Level
      2. For Level 2 derivatives, we use observable inputs other than quoted prices
      for the asset. The Level 2 derivative positions are primarily valued using
      standard models that use as their bases readily observable market
      parameters.




***Note
      6: Long-term and Short-term Loans***




In
      March
      2008, one of our Israeli subsidiaries obtained a long-term loan of 21.0 million
      New Israeli Shekels (approximately $6.3 million at the exchange rate prevailing
      on June 30, 2008) from a commercial bank. The loan matures over five years
      and
      bears interest at a fixed rate. Principal and interest are paid quarterly.
      In
      March 2008, we also obtained a long-term loan in the amount of €12.0 million
      (approximately $18.9 million at the exchange rate prevailing on June 30, 2008)
      from a commercial bank. The loan matures over five years with principal payments
      commencing in the third year, and bears interest at a variable rate, paid
      quarterly. In addition, in March 2008, we obtained a short-term loan in the
      amount of $5.5 million from a commercial bank. The loan bore interest at a
      variable rate and matured on April 30, 2008, and interest was paid upon maturity
      of the loan. The loan was renewed at maturity for an additional six months
      on
      substantially similar terms.




***Note
      7: Commitments and Contingent Liabilities***




a.
            Litigation




We
      are
      periodically a party to routine litigation incidental to our business. We do
      not
      believe that we are a party to any pending legal proceeding that is likely
      to
      have a material adverse effect on our business, financial condition or results
      of operations.




b.
            Guarantees




Guarantees
      are contingent commitments issued by us generally to guarantee our performance
      in different projects to our customers, such as tenders. The term of a guarantee
      generally is equal to the term of the related projects, which can be as short
      as
      30 days or as long as 8 years. The maximum potential amount of future payments
      we could be required to make under our guarantees at December 31, 2007 and
      June
      30, 2008, is $41,161 and $56,666, respectively. We do not hold collateral to
      support guarantees except when deemed necessary. Subsequent to the balance
      sheet
      date, the outstanding amount of guarantees was reduced by $2.8 million as a
      result of paying back this amount to a certain client of ours.




c.
            Liens
                and charges




To
      secure
      our liabilities, we and our subsidiaries recorded fixed and floating charges
      on
      our holdings in subsidiaries, and on our and our subsidiaries’ property and
      equipment and goodwill.




***Note
      8: Stockholders’ Equity***




a.
            Total
                comprehensive income:




**Three months**
              **ended June 30,**
            
            **Six months**
              **ended June 30,****2007**
            
            **2008**
            
            **2007**
            
            **2008****(Unaudited)**
            
            **(Unaudited)**Net
                income
            
            $
            4,163
            
            $
            8,090
            
            $
            9,878
            
            $
            14,984Foreign
                currency translation adjustments, net
            
            
            (60
            )
            
            8,364
            
            
            2,793
            
            
            25,298Unrealized
                losses on foreign exchange forward contracts and interest rate
                swap
            
            
            —
            
            
            (3,733
            )
            
            —
            
            
            (4,457
            )Comprehensive
                income
            
            $
            4,103
            
            $
            12,721
            
            $
            12,671
            
            $
            35,825


-
          12
          -




**NESS
        TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**
 **Notes
        to Interim Consolidated Financial Statements**
 **U.S.
        dollars in thousands (except share and per share data)
        (Unaudited)**


b.
            Option
                exercises:




In
      the
      three and six months ended June 30, 2008, a total of 3,504 and 20,220 options,
      respectively, were exercised into common stock for aggregate consideration
      of
      $23 and $165, respectively.




***Note
      9: Segment Reporting***




Our
      segment information has been prepared in accordance with SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information.” Operating
      segments are defined as components of an enterprise engaging in business
      activities about which separate financial information is available that is
      evaluated regularly by our chief operating decision-maker in deciding how to
      allocate resources and assess performance. Our chief operating decision-maker
      is
      our chief executive officer, who evaluates our performance and allocates
      resources based on segment revenues and operating profit.




Our
      operating segments are:




1. **Ness
      North America (Ness NA)** ,
      which
      includes India-based offshore services as well as system integration and
      application development and consulting services. Verticals served by this
      segment are: high-tech, independent software vendors, life sciences and
      healthcare and others.




2. **Technologies
      & Systems Group (TSG)** ,
      which
      includes system integration and application development, real-time systems
      development, consulting and outsourcing services for the defense, government
      and
      homeland security vertical, as well as systems for the telecommunications
      vertical.




3. **Ness
      Europe** ,
      which
      includes system integration and application development, outsourcing and
      software and consulting for Eastern European and Western European customers,
      including near-shore services from Eastern Europe for Western European
      customers. Verticals served by this segment are: telecommunications and
      utilities, financial services, public sector and others.




4. **Ness
      Israel** ,
      which
      includes system integration and application development, outsourcing, software
      and consulting and quality assurance and training for customers in Israel within
      the following verticals: financial services, government, life sciences and
      healthcare, manufacturing, retail, transportation and others.




5. **Other** , which
      comprises operations representing, individually, less than 10% of our
      consolidated revenues and operating profit. These include the financial services
      component of Ness IBS; NessPRO Italy, NessPRO Spain and NessPRO Thailand; and
      our operations in Asia Pacific.




Segment
      operating profit is defined as income from operations excluding unallocated
      headquarters costs. Expenses included in segment operating profit consist
      principally of direct selling, general, administrative and delivery costs.
      Certain general and administrative expenses and a portion of depreciation and
      amortization are not specifically allocated to specific segments as management
      believes they are not directly attributable to any specific segment.
      Accordingly, these expenses are categorized as “Unallocated Expenses” and
      adjusted against our total income from operations. Additionally, our management
      has determined that it is not practical to allocate certain identifiable assets
      by segment, when such assets are used interchangeably among the
      segments.


-
          13
          -




**NESS
        TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**
 **Notes
        to Interim Consolidated Financial Statements**
 **U.S.
        dollars in thousands (except share and per share data)
        (Unaudited)**


The
      table
      below presents financial information for our five reportable
      segments:




**Three months ended June 30, 2007****Ness**
              **NA**
            
            **TSG**
            
            **Ness**
              **Europe**
            
            **Ness**
              **Israel**
            
            **Other**
            
            **Unallocated**
            
            **Total****(Unaudited)**Revenues
                from external customers
            
            $
            26,313
            
            $
            13,212
            
            $
            24,350
            
            $
            49,169
            
            $
            12,718
            
            
            —
            
            $
            125,762Operating
                income (loss)
            
            $
            2,126
            
            $
            1,404
            
            $
            1,737
            
            $
            2,557
            
            $
            815
            
            $
            (3,214
            )
            $
            5,425Financial
                expenses, net
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (74
            )Other
                expenses, net
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (62
            )Income
                before taxes on income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            5,289





**Three months ended June 30, 2008****Ness**
              **NA**
            
            **TSG**
            
            **Ness**
              **Europe**
            
            **Ness**
              **Israel**
            
            **Other**
            
            **Unallocated**
            
            **Total****(Unaudited)**Revenues
                from external customers
            
            $
            30,595
            
            $
            14,277
            
            $
            44,930
            
            $
            52,034
            
            $
            28,750
            
            
            —
            
            $
            170,586Operating
                income (loss)
            
            $
            2,021
            
            $
            894
            
            $
            4,491
            
            $
            4,962
            
            $
            2,184
            
            $
            (3,316
            )
            $
            11,236Financial
                expenses, net
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,032
            )Income
                before taxes on income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            10,204





**Six months ended June 30, 2007****Ness**
              **NA**
            
            **TSG**
            
            **Ness**
              **Europe**
            
            **Ness**
              **Israel**
            
            **Other**
            
            **Unallocated**
            
            **Total****(Unaudited)**Revenues
                from external customers
            
            $
            52,414
            
            $
            27,365
            
            $
            47,224
            
            $
            99,769
            
            $
            24,768
            
            
            —
            
            $
            251,540Operating
                income (loss)
            
            $
            4,129
            
            $
            3,774
            
            $
            3,188
            
            $
            5,646
            
            $
            1,408
            
            $
            (6,004
            )
            $
            12,141Financial
                income, net
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            315Other
                expenses, net
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (56
            )Income
                before taxes on income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            12,400





**Six months ended June 30, 2008****Ness**
              **NA**
            
            **TSG**
            
            **Ness**
              **Europe**
            
            **Ness**
              **Israel**
            
            **Other**
            
            **Unallocated**
            
            **Total****(Unaudited)**Revenues
                from external customers
            
            $
            57,662
            
            $
            30,815
            
            $
            85,090
            
            $
            103,336
            
            $
            53,415
            
            
            —
            
            $
            330,318Operating
                income (loss)
            
            $
            3,116
            
            $
            3,109
            
            $
            8,974
            
            $
            9,656
            
            $
            1,972
            
            $
            (5,562
            )
            $
            21,265Financial
                expenses, net
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,448
            )Income
                before taxes on income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            18,817




-
          14
          -




**NESS
        TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**
 **Notes
        to Interim Consolidated Financial Statements**
 **U.S.
        dollars in thousands (except share and per share data)
        (Unaudited)**


Our
      total
      revenues are attributed to geographic areas based on the location of the end
      customer.




The
      following tables present total revenues for the three and six months ended
      June
      30, 2007 and 2008, and long-lived assets as of December 31, 2007 and June 30,
      2008:




**Three months ended**
              **June 30,**
            
            **Six months ended**
              **June 30,****2007**
            
            **2008**
            
            **2007**
            
            **2008****(Unaudited)**
            
            **(Unaudited)**Revenues from sales
                to unaffiliated customers:Israel
            
            $
            63,307
            
            $
            59,979
            
            $
            123,940
            
            $
            120,502North
                America
            
            
            29,368
            
            
            45,006
            
            
            63,756
            
            
            86,920Europe
            
            
            27,407
            
            
            58,368
            
            
            52,708
            
            
            108,599Asia
                and the Far East
            
            
            5,680
            
            
            7,233
            
            
            11,136
            
            
            14,297$
            125,762
            
            $
            170,586
            
            $
            251,540
            
            $
            330,318




**December 31, 2007**
            
            **June 30, 2008****(Unaudited)**Long-lived
                assets:Israel
            
            $
            121,833
            
            $
            140,118North
                America
            
            
            97,669
            
            
            95,737Europe
            
            
            84,296
            
            
            91,695Asia
                and the Far East
            
            
            10,729
            
            
            9,683$
            314,527
            
            $
            337,233




***Note
      10: Income Taxes***




As
      of
      June 30, 2008 the total amount of unrecognized tax benefits was $2,550, which,
      if recognized, would affect the effective tax rates in future periods. Included
      in that amount are accrued interest and penalties resulting from such
      unrecognized tax benefits of $344 at June 30, 2008. During the six months ended
      June 30, 2008, we recorded $20 for interest and penalties expenses with respect
      to uncertain tax positions. A reconciliation of the beginning and ending amounts
      of unrecognized tax benefits as of June 30, 2008 was as follows:




Balance
                as of January 1, 2008
            
            $
            1,906Increases
                related to prior-year tax positions
            
            
            644Balance
                as of June 30, 2008
            
            $
            2,550




The
      amount of income taxes we pay is subject to ongoing audit by federal, state
      and
      foreign tax authorities, which often results in proposed assessments. We perform
      a comprehensive review of our global tax positions on a quarterly basis and
      accrue amounts for contingent tax liabilities. Based on these reviews, the
      result of discussions and resolutions of matters with certain tax authorities
      and the closure of tax years subject to tax audit, reserves are adjusted as
      necessary. However, future results may include favorable or unfavorable
      adjustments to our estimated tax liabilities in the period the assessments
      are
      determined or resolved. Additionally, the jurisdictions in which our earnings
      and/or deductions are realized may differ from current estimates.




The
      effective tax rate used in computing the provision for income taxes is based
      on
      our projected fiscal year income before taxes, including estimated income by
      tax
      jurisdiction. The difference between the effective tax rate and the statutory
      tax rate is due primarily to foreign tax holidays, foreign subsidiaries with
      different tax rates and non-deductible expenses.


-
          15
          -


**NESS
        TECHNOLOGIES, INC. AND ITS SUBSIDIARIES**
 **Notes
        to Interim Consolidated Financial Statements**
 **U.S.
        dollars in thousands (except share and per share data)
        (Unaudited)**




***Note
      11: Basic and Diluted Net Earnings per Share***




Basic
      net
      earnings per share are computed based on the weighted average number of shares
      of common stock outstanding during each period. Diluted net earnings per share
      are computed based on the weighted average number of shares of common stock
      outstanding during each period, plus dilutive potential shares of common stock
      considered outstanding during the period, in accordance with SFAS No. 128,
      “Earnings per Share.”




The
      following table sets forth the computation of basic and diluted net earnings
      per
      share of common stock (in thousands):




**Three months ended**
              **June 30,**
            
            **Six months ended**
              **June 30,****2007**
            
            **2008**
            
            **2007**
            
            **2008****(Unaudited)**
            
            **(Unaudited)**Numerator:Net
                income, numerator for basic and diluted per share
            
            $
            4,163
            
            $
            8,090
            
            $
            9,878
            
            $
            14,984Denominator:Weighted
                average number of shares of common stock
            
            
            39,041
            
            
            39,214
            
            
            38,957
            
            
            39,208Effect
                of dilutive securities:Employee
                stock options and warrants
            
            
            273
            
            
            212
            
            
            368
            
            
            255Denominator
                for diluted net earnings per share - weighted average assuming exercise
                of
                options
            
            
            39,314
            
            
            39,426
            
            
            39,325
            
            
            39,462




The
      total
      weighted average number of shares related to the outstanding options and
      warrants excluded from the calculations of diluted net earnings per share,
      as
      they would have been anti-dilutive for all periods presented, was 1,081,955
      and
      4,670,562 for the three months ended June 30, 2007 and 2008, respectively,
      and
      896,455 and 4,731,431 for the six months ended June 30, 2007 and 2008,
      respectively.




***Note
      12: Subsequent Events***




On
      July
      9, 2008, we signed a definitive agreement to sell our SAP sales and distribution
      division in Israel to SAP AG. Under the terms of the agreement, SAP AG will
      acquire from us selected assets related to the distribution, support and
      maintenance of SAP technology and solutions. The purchase price for these assets
      is €19.0 million (approximately $30 million), of which €13.0 million
      (approximately $20.5 million) is to be paid at closing and up to €6.0 million
      (approximately $9.5 million) is to be paid over the next two years, subject
      to
      the satisfaction of certain performance criteria for 2008 and 2009. The
      transaction is expected to close in the third quarter of 2008.




On
      July
      30, 2008, we signed a share purchase agreement to acquire 100% of the shares
      of
      Logos a.s., a privately-held, Czech-based leading IT services and consulting
      company. The purchase price for these shares is 1,030,700,000 Czech Crowns
      (approximately $68 million). At closing, we will pay 502,800,000 Czech Crowns
      (approximately $33 million), and up to 527,900,000 Czech Crowns (approximately
      $35 million) over the next three years, subject to the satisfaction of certain
      revenue performance conditions for 2008, 2009 and 2010. The acquisition, which
      is subject to customary closing conditions, including the approval by the Czech
      Office for the Protection of Competition, is expected to close in the fourth
      quarter of 2008.




-
          16
          -




***Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations***




*You
      should read the following discussion and analysis together with our unaudited
      consolidated financial statements and the accompanying notes. This discussion
      contains forward-looking statements, within the meaning of Section 27A of
      Securities Act of 1933, as amended, Section 21E of the Securities Exchange
      Act
      of 1934, as amended, and the Private Securities Litigation Reform Act of 1995,
      including statements regarding our expected financial position, business and
      financing plans. These statements involve risks and uncertainties. Our actual
      results could differ materially from the results described in or implied by
      these forward-looking statements as a result of various factors, including
      those
      discussed below and elsewhere in our Annual Report on Form 10-K filed with
      the
      SEC on March 17, 2008, particularly under the headings “Disclosure Statement”
and “Risk Factors.”*




**Overview**




We
      are a
      global provider of information technology, or IT, services and end-to-end
      business solutions designed to help clients improve their competitiveness and
      effectiveness. End-to-end business solutions encompass all stages of a client’s
      business process and incorporate all technologies and IT services related to
      that process. Our portfolio of solutions and services consists of software
      product development, including both offshore and near-shore outsourcing; system
      integration, application development and consulting; and software distribution.
      The primary industries, or verticals, we serve include high-tech companies
      and
      independent software vendors, or ISVs; financial services; defense, homeland
      security and government; life sciences and healthcare; and telecommunications
      and utilities.




We
      have
      operations in 18 countries across North America, Europe and Asia. We combine
      our
      deep vertical expertise and strong technical capabilities to provide a complete
      range of high quality services on a global scale. By integrating our local
      and
      international personnel in focused business and project teams, we leverage
      our
      corporate knowledge and experience, intellectual property and global
      infrastructure to develop innovative solutions for clients across the
      geographies and verticals we serve. We complement these teams with our global
      delivery model, including both offshore and near-shore delivery capabilities,
      to
      achieve meaningful cost reductions or other benefits for our
      clients.




Our
      revenues increased to $170.6 million and $330.3 million for the three and six
      months ended June 30, 2008, from $125.8 million and $251.5 million for the
      three
      and six months ended June 30, 2007, respectively. Net income increased to $8.1
      million and $15.0 million for the three and six months ended June 30, 2008
      from
      $4.2 million and $9.9 million for the three and six months ended June 30, 2007,
      respectively.




The
      dollar weakened by an average of 16% and 15% against the New Israeli Shekel
      and
      by an average of 12% and 11% against the Euro and other relevant European
      currencies in the three and six months ended June 30, 2008 compared to the
      three
      and six months ended June 30, 2007, respectively. We estimate that our revenues
      were $20.0 million and $33.9 million higher in the three and six months ended
      June 30, 2008, and our operating income was $0.1 million and $2.4 million lower
      as a result of changes in foreign currency exchange rates versus their average
      rates for the three and six months ended June 30, 2007, respectively, with
      a
      corresponding lowering of our operating margin.




Our
      revenue growth is attributable to a number of factors, including acquisitions
      we
      made, increases in the number and size of projects for existing clients, and
      the
      addition of new clients. Our client base is diverse, and we are not dependent
      on
      any single client. In the three and six months ended June 30, 2008, no client
      accounted for more than 5% of our revenues and our largest twenty clients
      together accounted for approximately 32% and 30% of our revenues, respectively.
      For the three and six months ended June 30, 2008, the percentage of our revenues
      derived in aggregate from agencies of the government of Israel was 5% and 6%,
      respectively. Existing clients from prior years generated more than 85% of
      our
      revenues in the three and six months ended June 30, 2008.




Our
      backlog as of June 30, 2008 was $799 million compared to $650 million as of
      June
      30, 2007. This $148 million increase in our backlog was due primarily to new
      bookings. We achieve backlog through new signings of IT services projects and
      outsourcing contracts, including for new and repeat customers. We recognize
      backlog as revenue when we perform the services related to backlog.




-
            17
            -





For
      the
      three and six months ended June 30, 2008, the percentage of our revenues derived
      from clients in Israel was 35% and 36%, respectively; in Europe, 34% and 33%,
      respectively; in North America, 26% and 26%, respectively; and in Asia and
      the
      Far East, 4% and 4%, respectively.




As
      of
      June 30, 2008, we had approximately 7,840 employees, including approximately
      6,825 IT professionals. Of the 7,840 employees, approximately 2,770 were in
      India, 2,715 were in Israel, 1,390 were in Europe, 585 were in North America
      and
      380 were in the Asia Pacific region.




**Recent
      Developments**




On
      July
      9, 2008, we signed a definitive agreement to sell our SAP sales and distribution
      division in Israel to SAP AG. Under the terms of the agreement, SAP AG will
      acquire from us selected assets related to the distribution, support and
      maintenance of SAP technology and solutions. The purchase price for these assets
      is €19.0 million (approximately $30 million), of which €13.0 million
      (approximately $20.5 million) is to be paid at closing and up to €6.0 million
      (approximately $9.5 million) is to be paid over the next two years, subject
      to
      the satisfaction of certain performance criteria for 2008 and 2009. The
      transaction is expected to close in the third quarter of 2008.




On
      July
      30, 2008, we signed a share purchase agreement to acquire 100% of the shares
      of
      Logos a.s., a privately-held, Czech-based leading IT services and consulting
      company. For the fiscal year ended March 31, 2008, Logos generated revenues
      of
€29.7 million and was profitable. The purchase price for these shares is
      1,030,700,000 Czech Crowns (approximately $68 million). At closing, we will
      pay
      502,800,000 Czech Crowns (approximately $33 million), and up to 527,900,000
      Czech Crowns (approximately $35 million) over the next three years, subject
      to
      the satisfaction of certain revenue performance conditions for 2008, 2009 and
      2010. The acquisition, which is subject to customary closing conditions,
      including the approval by the Czech Office for the Protection of Competition,
      is
      expected to close in the fourth quarter of 2008. The acquisition of Logos
      strengthens our already significant leadership position in Central and Eastern
      Europe, one of our fastest growing and most profitable geographies,
      and
      complements our strong position in the utilities, manufacturing and public
      sectors with a strong presence in the financial and telecom
      industries.




-
            18
            -





**Consolidated
      Results of Operations**




The
      following table sets forth the items in our consolidated statements of income
      as
      a percentage of revenues for the periods presented.




**Three
                months ended**
              **June
                30,**
            
            **Six
                months ended**
              **June
                30,****2007**
            
            **2008**
            
            **2007**
            
            **2008**Revenues
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Cost
                of revenues
            
            
            71.3
            
            
            69.2
            
            
            71.3
            
            
            70.4Gross
                profit
            
            
            28.7
            
            
            30.8
            
            
            28.7
            
            
            29.6Operating
                expenses:Selling
                and marketing
            
            
            7.4
            
            
            8.5
            
            
            7.5
            
            
            8.4General
                and administrative
            
            
            17.0
            
            
            15.7
            
            
            16.4
            
            
            14.8Total
                operating expenses
            
            
            24.4
            
            
            24.2
            
            
            23.9
            
            
            23.2Operating
                income
            
            
            4.3
            
            
            6.6
            
            
            4.8
            
            
            6.4Financial
                income (expenses), net
            
            
            (0.1
            )
            
            (0.6
            )
            
            0.1
            
            
            (0.7
            )Other
                expenses, net
            
            
            0.0
            
            
            —
            
            
            0.0
            
            
            —Income
                before taxes on income
            
            
            4.2
            
            
            6.0
            
            
            4.9
            
            
            5.7Taxes
                on income
            
            
            0.9
            
            
            1.2
            
            
            1.0
            
            
            1.2Net
                income
            
            
            3.3
            
            
            4.7
            
            
            3.9
            
            
            4.5




**Three
      Months Ended June 30, 2008 Compared to the Three Months Ended June 30,
      2007**




The
      following table summarizes certain line items from our consolidated statements
      of income (dollars in thousands):




**Three months ended**
              **June 30,**
            
            **Increase****2007**
            
            **2008**
            
            **$**
            
            **%**Revenues
            
            $
            125,762
            
            $
            170,586
            
            
            44,824
            
            
            35.6Cost
                of revenues
            
            
            89,677
            
            
            117,995
            
            
            28,318
            
            
            31.6Gross
                profit
            
            $
            36,085
            
            $
            52,591
            
            
            16,506
            
            
            45.7Gross
                margin
            
            
            28.7
            %
            
            30.8
            %




***Revenues***




Our
      revenues increased from $125.8 million in the three months ended June 30, 2007
      to $170.6 million in the three months ended June 30, 2008, representing an
      increase of $44.8 million, or 35.6%. Approximately $21.4 million of the increase
      was attributable to acquisitions. Of the remaining $23.4 million, $12.3 million
      represents growth in our Ness Europe operating segment, $9.4 million represents
      growth in our Ness Israel operating segment and $8.3 million represents growth
      in our Ness North America, TSG and “Other” operating segments, offset by the
      divestiture in January 2008 of our staff supplementation business in Israel,
      representing $6.6 million.




***Cost
      of revenues***




Our
      cost
      of revenues, including salaries, wages and other direct and indirect costs,
      increased from $89.7 million in the three months ended June 30, 2007 to $118.0
      million in the three months ended June 30, 2008, representing an increase of
      $28.3 million, or 31.6%. Approximately $10.9 million of this increase was
      attributable to acquisitions, and $17.4 million was due to normal growth in
      our
      delivery staff needed to support our increased revenues.





-
            19
            -




**Gross
      Profit**




Our
      gross
      profit (revenues less cost of revenues) increased from $36.1 million in the
      three months ended June 30, 2007 to $52.6 million in the three months ended
      June
      30, 2008, representing an increase of $16.5 million, or 45.7%. Approximately
      $10.4 million of the increase was attributable to acquisitions, and $6.1 million
      was related to our other revenue growth. Gross margin for the three months
      ended
      June 30, 2008 was 30.8%, compared to 28.7% in the three months ended June 30,
      2007. This
      increase in gross margin was primarily due to the expansion of our NessPRO
      Global software product distribution business and the divestiture in January
      2008 of our low-margin staff supplementation business in Israel.




The
      following table summarizes certain line items from our consolidated statements
      of income (dollars in thousands):




**Three
                months ended**
              **June
                30,**
            
            **Increase****2007**
            
            **2008**
            
            **$**
            
            **%**Selling
                and marketing
            
            $
            9,293
            
            $
            14,538
            
            
            5,245
            
            
            56.4General
                and administrative
            
            
            21,367
            
            
            26,817
            
            
            5,450
            
            
            25.5Total
                operating expenses
            
            
            30,660
            
            
            41,355
            
            
            10,695
            
            
            34.9Operating
                income
            
            $
            5,425
            
            $
            11,236
            
            
            5,811
            
            
            107.1




***Selling
      and marketing***




Selling
      and marketing expenses increased from $9.3 million in the three months ended
      June 30, 2007 to $14.5 million in the three months ended June 30, 2008,
      representing an increase of $5.2 million, or 56.4%. This increase was due
      primarily to the inclusion of marketing and sales expenses from our
      acquisitions, representing $2.7 million, and special marketing events and
      campaigns in Israel and Europe, representing $1.0 million.




***General
      and administrative***




General
      and administrative expenses increased from $21.4 million in the three months
      ended June 30, 2007 to $26.8 million in the three months ended June 30, 2008,
      representing an increase of $5.5 million, or 25.5%. This increase was due
      primarily to acquisitions, representing $3.1 million, offset by management
      transition expenses in the three months ended June 30, 2007 for which there
      was
      no corresponding expense in the three months ended June 30, 2008, representing
      $0.8 million.




***Operating
      Income***




Operating
      income increased from $5.4 million in the three months ended June 30, 2007
      to
      $11.2 million in the three months ended June 30, 2008, representing an increase
      of $5.8 million, or 107.1%. The major factors contributing to this increase
      were
      the growth in operating income of our Ness Europe, Ness Israel and our “Other”
operating segments, representing $2.8 million, $2.4 million and $1.4 million,
      respectively, offset by a decrease in operating income of our Ness North America
      and TSG operating segments, together representing $0.6 million. See also
“—Results by Business Segment.”




The
      following table summarizes certain line items from our consolidated statements
      of income (dollars in thousands):




**Three
                months ended**
              **June
                30,**
            
            **Increase**
              **(Decrease)****2007**
            
            **2008**
            
            **$**
            
            **%**Operating
                income
            
            $
            5,425
            
            $
            11,236
            
            
            5,811
            
            
            107.1Financial
                expenses, net
            
            
            (74
            )
            
            (1,032
            )
            
            (958
            )
            
            1,294.6Other
                expenses, net
            
            
            (62
            )
            
            —
            
            
            62
            
            
            (100.0
            )Income
                before taxes on income
            
            
            5,289
            
            
            10,204
            
            
            4,915
            
            
            92.9Taxes
                on income
            
            
            1,126
            
            
            2,114
            
            
            988
            
            
            87.7Net
                income
            
            $
            4,163
            
            $
            8,090
            
            
            3,927
            
            
            94.3





-
            20
            -




***Financial
      expenses, net***




Financial
      expenses, net, increased from $0.1 million in the three months ended June 30,
      2007 to $1.0 million in the three months ended June 30, 2008, representing
      an
      increase of $1.0 million, or 1,294.6%. The increase resulted primarily from
      higher interest expense related to new debt obtained for the purpose of
      financing acquisitions, representing $1.1 million, offset by increase in
      interest income on short-term bank deposits, representing $0.2 million. Our
      average net cash changed from $13.8 million in the three months ended June
      30,
      2007 to average net debt of $22.5 million in the three months ended June 30,
      2008 due to long-term loans related to our 2007 acquisitions and long-term
      loans
      obtained during the three months ended March 31, 2008.




***Other
      expenses, net***




Other
      expenses, net decreased from $0.1 million in the three months ended June 30,
      2007 to zero in the three months ended June 30, 2008. This change was not
      significant.




***Taxes
      on income***




Our
      taxes
      on income increased from $1.1 million in the three months ended June 30, 2007
      to
      $2.1 million in the three months ended June 30, 2008, representing an increase
      of $1.0 million, or 87.7%. This increase
      was due primarily to the increase in our taxable income. Our effective tax
      rate
      in the three months ended June 30, 2008 was 20.7%, compared to 21.3% in the
      three months ended June 30, 2007.




***Net
      Income***




Net
      income increased from $4.2 million in the three months ended June 30, 2007
      to
      $8.1 million in the three months ended June 30, 2008, representing an increase
      of $3.9 million, or 94.3%. The increase in net income was due primarily to
      our
      increase in operating income of $5.8 million, partially offset by our increase
      in financial expenses, representing $1.0 million, and our increase in taxes,
      representing $1.0 million.




**Six
      Months Ended June 30, 2008 Compared to the Six Months Ended June 30,
      2007**




The
      following table summarizes certain line items from our consolidated statements
      of income (dollars in thousands):




**Six months ended**
              **June 30,**
            
            **Increase****2007**
            
            **2008**
            
            **$**
            
            **%**Revenues
            
            $
            251,540
            
            $
            330,318
            
            
            78,778
            
            
            31.3Cost
                of revenues
            
            
            179,353
            
            
            232,385
            
            
            53,032
            
            
            29.6Gross
                profit
            
            $
            72,187
            
            $
            97,933
            
            
            25,746
            
            
            35.7Gross
                margin
            
            
            28.7
            %
            
            29.6
            %




***R*** **evenues**




Our
      revenues increased from $251.5 million in the six months ended June 30, 2007
      to
      $330.3 million in the six months ended June 30, 2008, representing an increase
      of $78.8 million, or 31.3%. Approximately $36.8 million of the increase was
      attributable to acquisitions. Of the remaining $42.0 million, $23.0 million
      represents growth in our Ness Europe operating segment, $16.8 million represents
      growth in our Ness Israel operating segment and $15.4 million represents growth
      in our Ness North America, TSG and “Other” operating segments, offset by the
      divestiture in January 2008 of our staff supplementation business in Israel,
      representing $13.2 million.




***Cost
      of revenues***




Our
      cost
      of revenues, including salaries, wages and other direct and indirect costs,
      increased from $179.4 million in the six months ended June 30, 2007 to $232.4
      million in the six months ended June 30, 2008, representing an increase of
      $53.0
      million, or 29.6%. Approximately $22.0 million of this increase was attributable
      to acquisitions, and $31.0 million was due to normal growth in our delivery
      staff needed to support our increased revenues.




-
            21
            -




***Gross
      Profit***




Our
      gross
      profit (revenues less cost of revenues) increased from $72.2 million in the
      six
      months ended June 30, 2007 to $97.9 million in the six months ended June 30,
      2008, representing an increase of $25.7 million, or 35.7%. Approximately $14.8
      million of the increase was attributable to acquisitions, and $10.9 million
      was
      related to our other revenue growth. Gross margin for the six months ended
      June
      30, 2008 was 29.6%, compared to 28.7% in the six months ended June 30, 2007.
      This increase in gross margin was primarily due to the expansion of our NessPRO
      Global software product distribution business and the divestiture in January
      2008 of our low-margin staff supplementation business in Israel.




The
      following table summarizes certain line items from our consolidated statements
      of income (dollars in thousands):




**Six
                months ended**
              **June
                30,**
            
            **Increase****2007**
            
            **2008**
            
            **$**
            
            **%**Selling
                and marketing
            
            $
            18,765
            
            $
            27,746
            
            
            8,981
            
            
            47.9General
                and administrative
            
            
            41,281
            
            
            48,922
            
            
            7,641
            
            
            18.5Total
                operating expenses
            
            
            60,046
            
            
            76,668
            
            
            16,622
            
            
            27.7Operating
                income
            
            $
            12,141
            
            $
            21,265
            
            
            9,124
            
            
            75.2




***Selling
      and marketing***




Selling
      and marketing expenses increased from $18.8 million in the six months ended
      June
      30, 2007 to $27.7 million in the six months ended June 30, 2008, representing
      an
      increase of $9.0 million, or 47.9%. This increase was due primarily to the
      inclusion of marketing and sales expenses from our acquisitions, representing
      $5.1 million, and special marketing events and campaigns in Israel and Europe,
      representing $1.0 million.




***General
      and administrative***




General
      and administrative expenses increased from $41.3 million in the six months
      ended
      June 30, 2007 to $48.9 million in the six months ended June 30, 2008,
      representing an increase of $7.6 million, or 18.5%. This increase was due
      primarily to acquisitions, representing $5.3 million, offset by management
      transition expenses in the six months ended June 30, 2007 for which there was
      no
      corresponding expense in the six months ended June 30, 2008, representing $2.6
      million.




***Operating
      Income***




Operating
      income increased from $12.1 million in the six months ended June 30, 2007 to
      $21.3 million in the six months ended June 30, 2008, representing an increase
      of
      $9.1 million, or 75.2%. The major factors contributing to this increase were
      the
      growth in operating income of our Ness Europe, Ness Israel and our “Other”
operating segments, representing $5.8 million, $4.0 million and $0.6 million,
      respectively, and a decrease in unallocated expenses, representing $0.4 million,
      offset by a decrease in operating income of our Ness North America and TSG
      operating segments, together representing $1.7 million. See also “—Results by
      Business Segment.”





-
            22
            -





The
      following table summarizes certain line items from our consolidated statements
      of income (dollars in thousands):




**Six months ended**
              **June 30,**
            
            **Increase**
              **(Decrease)****2007**
            
            **2008**
            
            **$**
            
            **%**Operating
                income
            
            $
            12,141
            
            $
            21,265
            
            
            9,124
            
            
            75.2Financial
                income (expenses), net
            
            
            315
            
            
            (2,448
            )
            
            (2,763
            )
            
            N/AOther
                expenses, net
            
            
            (56
            )
            
            —
            
            
            56
            
            
            (100.0
            )Income
                before taxes on income
            
            
            12,400
            
            
            18,817
            
            
            6,417
            
            
            51.8Taxes
                on income
            
            
            2,522
            
            
            3,833
            
            
            1,311
            
            
            52.0Net
                income
            
            $
            9,878
            
            $
            14,984
            
            
            5,106
            
            
            51.7




***Financial
      income (expenses), net***




Financial
      income (expenses), net, changed from income of $0.3 million in the six months
      ended June 30, 2007 to expenses of $2.4 million in the six months ended June
      30,
      2008, representing a change of $2.8 million. The change resulted primarily
      from
      higher interest expense related to new debt obtained for the purpose of
      financing acquisitions, representing $1.9 million, and unfavorable foreign
      currency exchange effects, representing $0.7 million. Our average net cash
      changed from $21.9 million in the six months ended June 30, 2007 to average
      net
      debt of $19.1 million in the six months ended June 30, 2008 due to long-term
      loans related to our 2007 acquisitions and long-term loans obtained during
      the
      six months ended June 30, 2008.




***Other
      expenses, net***




Other
      expenses, net decreased from $0.1 million in the six months ended June 30,
      2007
      to zero in the six months ended June 30, 2008. This change was not
      significant.




***Taxes
      on income***




Our
      taxes
      on income increased from $2.5 million in the six months ended June 30, 2007
      to
      $3.8 million in the six months ended June 30, 2008, representing an increase
      of
      $1.3 million, or 52.0%. This increase was due primarily to the increase in
      our
      taxable income. Our effective tax rate in the six months ended June 30, 2008
      was
      20.4%, compared to 20.3% in the six months ended June 30, 2007.




***Net
      Income***




Net
      income increased from $9.9 million in the six months ended June 30, 2007 to
      $15.0 million in the six months ended June 30, 2008, representing an increase
      of
      $5.1 million, or 51.7%. The increase in net income was due primarily to our
      increase in operating income of $9.1 million, partially offset by our change
      from financial income to financial expenses, representing $2.8 million, and
      our
      increase in taxes, representing $1.3 million.




**Results
      by Business Segment**




Our
      segment information has been prepared in accordance with SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information.” Operating
      segments are defined as components of an enterprise engaging in business
      activities about which separate financial information is available that is
      evaluated regularly by our chief operating decision-maker in deciding how to
      allocate resources and assess performance. Our chief operating decision-maker
      is
      our chief executive officer, who evaluates our performance and allocates
      resources based on segment revenues and operating profit.




Our
      operating segments are:




1.
            **Ness
                North America**,
                which includes India-based offshore services as well as system integration
                and application development and consulting services. Verticals served
                by
                this segment are: high-tech, independent software vendors, life sciences
                and healthcare and others.







-
            23
            -





2.
            **Technologies
                & Systems Group**,
                which includes system integration and application development, real-time
                systems development, consulting and outsourcing services for the
                defense,
                government and homeland security vertical, as well as systems for
                the
                telecommunications vertical.




3.
            **Ness
                Europe**,
                which includes system integration and application development, outsourcing
                and software and consulting for Eastern European and Western European
                customers, including near-shore services from Eastern Europe for
                Western
                European customers. Verticals served by this segment are:
                telecommunications and utilities, financial services, public sector
                and
                others.




4.
            **Ness
                Israel**,
                which includes system integration and application development,
                outsourcing, software and consulting and quality assurance and training
                for customers in Israel within the following verticals: financial
                services, government, life sciences and healthcare, manufacturing,
                retail,
                transportation and others.




5.
            **Other**,
                which comprises operations representing, individually, less than
                10% of
                our consolidated revenues and operating profit. These include the
                financial services component of Ness IBS; NessPRO Italy, NessPRO
                Spain and
                NessPRO Thailand; and our operations in Asia
                Pacific.




Segment
      operating profit is defined as income from operations excluding unallocated
      headquarters costs. Expenses included in segment operating profit consist
      principally of direct selling, general, administrative and delivery costs.
      Certain general and administrative expenses and a portion of depreciation and
      amortization are not specifically allocated to specific segments as management
      believes they are not directly attributable to any specific segment.
      Accordingly, these expenses are categorized as “Unallocated Expenses” and
      adjusted against our total income from operations. Additionally, our management
      has determined that it is not practical to allocate certain identifiable assets
      by segment, when such assets are used interchangeably among the
      segments.




The
      table
      below presents financial information for our five reportable segments (dollars
      in thousands):




**Three
                months ended June 30,**
            
            **Six
                months ended June 30,****2007**
            
            **2008**
            
            **2007**
            
            **2008****Segment
                Data:**
            
            **(unaudited)**
            
            **(unaudited)****Revenues
                from external customers:**Ness
                North America
            
            $
            26,313
            
            $
            30,595
            
            $
            52,414
            
            $
            57,662Technologies
                & Systems Group (TSG)
            
            
            13,212
            
            
            14,277
            
            
            27,365
            
            
            30,815Ness
                Europe
            
            
            24,350
            
            
            44,930
            
            
            47,224
            
            
            85,090Ness
                Israel
            
            
            49,169
            
            
            52,034
            
            
            99,769
            
            
            103,336Other
            
            
            12,718
            
            
            28,750
            
            
            24,768
            
            
            53,415$
            125,762
            
            $
            170,586
            
            $
            251,540
            
            $
            330,318**Operating
                Income (Loss):**Ness
                North America
            
            $
            2,126
            
            $
            2,021
            
            $
            4,129
            
            $
            3,116Technologies
                & Systems Group (TSG)
            
            
            1,404
            
            
            894
            
            
            3,774
            
            
            3,109Ness
                Europe
            
            
            1,737
            
            
            4,491
            
            
            3,188
            
            
            8,974Ness
                Israel
            
            
            2,557
            
            
            4,962
            
            
            5,646
            
            
            9,656Other
            
            
            815
            
            
            2,184
            
            
            1,408
            
            
            1,972Unallocated
                Expenses
            
            
            (3,214
            )
            
            (3,316
            )
            
            (6,004
            )
            
            (5,562
            )$
            5,425
            
            $
            11,236
            
            $
            12,141
            
            $
            21,265


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            24
            -




**Liquidity
      and Capital Resources**




***Overview***




As
      of
      June 30, 2008, we had cash and cash equivalents, restricted cash and short-term
      bank deposits of $64.7 million compared to $46.1 million as of December 31,
      2007. The funds held at locations outside of the United States are for future
      operating expenses and capital expenditures, and we have no intention of
      repatriating those funds. We are not, however, restricted in repatriating those
      funds back to the United States, if necessary. While we expect that cash
      generated by our non-U.S. subsidiaries will be reinvested in their respective
      geographies to support expansion of our business, to the extent that funds
      were
      remitted to the United States in the form of dividend payments, those payments
      may be subject to withholding taxes in their respective countries, and would
      be
      subject to tax in the United States.




***Cash
      Flows***




The
      following table summarizes our cash flows for the periods presented (dollars
      in
      thousands):




**Six
                months ended**
              **June
                30,****2007**
            
            **2008**Net
                cash provided by (used in) operating activities
            
            $
            (5,950
            )
            $
            14,892Net
                cash used in investing activities
            
            
            (14,592
            )
            
            (9,755
            )Net
                cash provided by financing activities
            
            
            4,491
            
            
            17,758Effect
                of exchange rate changes on cash and cash equivalents
            
            
            2,100
            
            
            (1,525
            )Increase
                (decrease) in cash and cash equivalents
            
            
            (13,951
            )
            
            21,370Cash
                and cash equivalents at the beginning of the period
            
            
            46,675
            
            
            43,097Cash
                and cash equivalents at the end of the period
            
            $
            32,724
            
            $
            64,467




*Six
      months ended June 30, 2008 compared to the six months ended June 30,
      2007*




Net
      cash
      provided by operating activities was $14.9 million in the six months ended
      June
      30, 2008, compared to net cash used of $6.0 million in the six months ended
      June
      30, 2007. The major factors contributing to the increase were an improvement
      in
      our cash collection efforts reflected in a reduction in our total trade
      receivables, representing $6.2 million, a decrease in trade payables in the
      six
      months ended June 30, 2007 compared to an increase in trade payables in the
      six
      months ended June 30, 2008, representing $7.3 million, an increase in advances
      from customers and deferred revenues, representing $4.5 million, and higher
      net
      income, representing $5.1 million, offset by a $9.5 million payment made in
      the
      three months ended March 31, 2008 in respect of an arbitration settlement with
      a
      former customer provided for in the fourth quarter of 2007.




Net
      cash
      used in investing activities was $9.8 million in the six months ended June
      30,
      2008, compared with $14.6 million in the six months ended June 30, 2007. The
      major factors contributing to the decrease were lower payments in connection
      with acquisitions of subsidiaries in prior periods, representing $4.3 million,
      net cash paid for the acquisition of a consolidated subsidiary in the six months
      ended June 30, 2007 for which there was no corresponding amount in the six
      months ended June 30, 2008, representing $2.5 million, and an increase in
      proceeds from maturity of short-term bank deposits, representing $1.6 million,
      offset by an increase in purchase of property and equipment, representing $1.6
      million, and receipt of the remaining net proceeds from the sale of our interest
      in dbMotion in the three months ended March 31, 2007 for which there was no
      corresponding amount in the six months ended June 30, 2008, representing $1.9
      million.




Net
      cash
      provided by financing activities was $17.8 million in the six months ended
      June
      30, 2008, compared with $4.5 million in the six months ended June 30, 2007.
      The
      major factors contributing to the increase were proceeds from new long-term
      bank
      loans, representing $25.1 million, offset by a dividend paid to former
      shareholders of an acquired subsidiary in the six months ended June 30, 2008
      for
      which there was no corresponding amount in the six months ended June 30, 2007,
      representing $10.0 million, and a reduction in proceeds from the exercise of
      options, representing $2.1 million.





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            25
            -





The
      effect of exchange rate changes on cash and cash equivalents was ($1.5) million
      in the six months ended June 30, 2008, compared to $2.1 million in the six
      months ended June 30, 2007. The change was primarily due to the effect of
      translation adjustments on our net current assets.




***Long-term
      and Short-term Debt***




In
      March
      2008, one of our Israeli subsidiaries obtained a long-term loan of 21.0 million
      New Israeli Shekels (approximately $6.3 million at the exchange rate prevailing
      on June 30, 2008), from a commercial bank. The loan matures over five years
      and
      bears interest at a fixed rate. Principal and interest are paid quarterly.
      Long-term loans obtained by this Israeli subsidiary contain covenants, which,
      among other things, require a minimum stockholders’ equity of this Israeli
      subsidiary; and which place limitations on merging or transferring assets.
      Our
      failure to comply with the covenants could lead to an event of default under
      the
      agreements governing some or all of the indebtedness, permitting the applicable
      lender to accelerate all borrowings under the applicable agreement, and to
      foreclose on any collateral. As of June 30, 2008, we were in compliance with
      these covenants.




In
      March
      2008, we obtained a long-term loan in the amount of €12.0 million (approximately
      $18.9 million at the exchange rate prevailing on June 30, 2008) from a
      commercial bank. The loan matures over five years with principal payments
      commencing in the third year, and bears interest at a variable rate paid
      quarterly. In addition, in March 2008, we obtained a short-term loan in the
      amount of $5.5 million from a commercial bank. The loan bore interest at a
      variable rate and matured on April 30, 2008, and interest was paid upon maturity
      of the loan. The loan was renewed at maturity for an additional six months
      on
      substantially similar terms. The long-term loan and prior long-term loans
      contain covenants, which, among other things, require a certain ratio of total
      financial obligations to consolidated EBITDA and a minimum consolidated
      stockholders’ equity; and which place limitations on merging or transferring
      assets. As of June 30, 2008, we were in compliance and expect to remain in
      compliance with these covenants. Our failure to comply with the covenants could
      lead to an event of default under the agreements governing some or all of the
      indebtedness, permitting the applicable lender to accelerate all borrowings
      under the applicable agreement.




At
      June
      30, 2008, one of our non-U.S. subsidiaries had net short-term borrowings
      denominated in Euros aggregating to $2.5 million with a weighted average
      interest rate of 9.01%.




We
      anticipate funding a portion of our global growth through financing from
      commercial banks.




***Anticipated
      Needs***




We
      intend
      to fund future growth through future cash flow from operations and available
      bank borrowings. We believe the borrowings and future cash flow from operations
      will be sufficient to fund continuing operations for the foreseeable
      future.




In
      order
      to achieve our strategic business objectives, we may be required to seek
      additional financing. For example, future acquisitions may require additional
      equity and/or debt financing. In addition, we may require further capital to
      continue to enhance our infrastructure and for working capital purposes. These
      financings may not be available on acceptable terms, or at all.




***Critical
      Accounting Estimates***




Preparation
      of our financial statements requires management to make estimates and
      assumptions that affect the reported amounts of assets, liabilities, revenues
      and expenses. We believe the most complex and sensitive judgments, because
      of
      their significance to our consolidated financial statements, result primarily
      from the need to make estimates about the effects of matters that are inherently
      uncertain. Management’s Discussion and Analysis and Note 1 to the consolidated
      financial statements presented in our 2007 Annual Report on Form 10-K, filed
      with the SEC on March 17, 2008, describe the significant accounting estimates
      and policies used in preparation of our consolidated financial statements.
      Actual results in these areas could differ from management’s estimates. There
      were no significant changes in our critical accounting estimates during the
      six
      months ended June 30, 2008.





-
            26
            -




***Contractual
      Obligations***




As
      of
      June 30, 2008, except for the short-term and long-term loans obtained in March
      2008 as described in the long-term and short-term debt section above, there
      have
      been no material changes to the contractual obligations we disclosed in our
      2007
      Annual Report on Form 10-K, filed with the SEC on March 17, 2008.




**Forward-Looking
      Statements and Risk Factors**




This
      Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of
      Financial Condition and Results of Operations, contains forward-looking
      statements within the meaning of the Private Securities Litigation Reform Act
      of
      1995. Forward-looking statements often are proceeded by words such as
“believes,” “expects,” “may,” “anticipates,” “plans,” “intends,” “assumes,”
“will” or similar expressions. Forward-looking statements reflect management’s
      current expectations, as of the date of this report, and involve certain risks
      and uncertainties. Our actual results could differ materially from those
      anticipated in these forward looking statements as a result of various factors.
      Some of the factors that could cause future results to materially differ from
      the recent results or those projected in forward-looking statements include
      the
“Risk Factors” described in our 2007 Annual Report on Form 10-K filed with the
      SEC on March 17, 2008. Ness is under no obligation to, and expressly disclaims
      any obligation to, update or alter its forward-looking statements, whether
      as a
      result of such changes, new information, subsequent events or
      otherwise.




***Item
      3. Quantitative and Qualitative Disclosure about Market
      Risk***




We
      have
      direct operations in 18 different countries and commercial relationships in
      many
      other parts of the world. Our foreign operations contract with clients in their
      applicable local currencies, Euros or dollars. As a result, we are subject
      to
      adverse movements in foreign currency exchange rates in those countries where
      we
      conduct business. Our earnings are predominantly affected by fluctuations in
      the
      value of the U.S. dollar as compared to the New Israeli Shekel and to some
      extent by fluctuations in intra-European currency rates.




An
      increase of 10% in the value of the New Israeli Shekel relative to the U.S.
      dollar in the first half of 2008 would have resulted in a decrease in the U.S.
      dollar reporting value of our operating income in the first half of 2008 of
      $1.3
      million, while a decrease of 10% in the value of the New Israeli Shekel relative
      to the U.S. dollar in the first half of 2008 would have resulted in an increase
      in the U.S. dollar reporting value of our operating income in the first half
      of
      2008 of $1.2 million.




In
      order
      to reduce the effect of such movements on our earnings, we entered into certain
      foreign exchange forward contracts to hedge our exposure against the Indian
      Rupee. In the future, we may enter into additional forward foreign currency
      exchange or other derivatives contracts to further hedge our exposure to foreign
      currency exchange rates.




During
      the three months ended March 31, 2008 we entered into an interest rate swap
      derivative to convert a certain floating-rate debt to fixed-rate debt. Our
      interest rate swap derivative involves an agreement to pay a fixed-rate interest
      and receive a floating-rate interest, at specified intervals, calculated on
      an
      agreed notional amount that matches the amount of the original loan and paid
      on
      the same installments and maturity dates.




Other
      than as described above, we do not engage in trading market-risk instruments
      or
      purchase hedging or “other than trading” instruments that are likely to expose
      us to market risk, whether interest rate, commodity price or equity price risk,
      nor have we purchased options or entered into swaps or forward or futures
      contracts, nor do we use derivative financial instruments for speculative
      trading purposes.




In
      the
      future, we may be subject to interest rate risk on our investments and loans,
      which would affect their carrying value.


-
            27
            -




***Item
      4. Controls and Procedures***




**Evaluation
      of Disclosure Controls and Procedures**




As
      of the
      end of the period covered by this report, our chief executive officer and chief
      financial officer evaluated the effectiveness of our disclosure controls and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
      Exchange Act of 1934, as amended). Based on their evaluation of our disclosure
      controls and procedures, our chief executive officer and chief financial
      officer, with the participation of our management, have concluded that our
      disclosure controls and procedures are effective to ensure that information
      required to be disclosed by us in the reports that we file or submit under
      the
      Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
      and reported within the time periods specified in the Securities and Exchange
      Commission’s rules and forms and are operating in an effective
      manner.




It
      should
      be noted that any system of controls, however well designed and operated, can
      provide only reasonable, and not absolute, assurance that the objectives of
      the
      system are met. In addition, the design of any control system is based in part
      upon certain assumptions about the likelihood of future events. Given these
      and
      other inherent limitations of control systems, there is only reasonable
      assurance that our controls will succeed in achieving their stated goals under
      all potential future conditions.




**Changes
      in Internal Control**




As
      of the
      end of the period covered by this report, there were no significant changes
      in
      our internal controls over financial reporting or in other factors that could
      significantly affect these controls.





-
            28
            -





**PART
      II – OTHER INFORMATION**




***Item
      1. Legal Proceedings***




We
      are
      periodically a party to routine litigation incidental to our business. We do
      not
      believe that we are a party to any pending legal proceeding that is likely
      to
      have a material adverse effect on our business, financial condition or results
      of operations.




***Item
      1A. Risk Factors***




There
      are
      no material changes in the risk factors previously disclosed in our Annual
      Report on Form 10-K filed with the SEC on March 17, 2008.




***Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds***




Not
      applicable.




***Item
      3. Defaults upon Senior Securities.***




None.




***Item
      4. Submission of Matters to a Vote of Security
      Holders***




The
      following matters were submitted to a vote of the stockholders at our 2008
      Annual Meeting of Stockholders held on June 16, 2008 (the “Annual Meeting”): (1)
      election of directors, (2) ratification of the appointment of Kost Forer Gabbay
      & Kasierer, a member of Ernst & Young Global, as our independent
      registered public accounting firm for the year ending December 31, 2008 and
      (3)
      approval of amendments to the 2007 Stock Option Plan. The number of shares
      of
      common stock outstanding and eligible to vote as of the record date of April
      18,
      2008 was 39,213,624.




Each
      of
      these matters was approved by the requisite vote of our stockholders. Set forth
      below is the number of votes cast for, against or withheld, as well as the
      number of abstentions and broker non-votes as to the respective matters,
      including a separate tabulation with respect to each nominee for
      director:




**Nominee**
            
            **For**
            
            **Withheld**Aharon
                Fogel
            
            30,866,626
            
            839,868Sachi
                Gerlitz
            
            31,209,515
            
            496,979Morris
                Wolfson
            
            29,045,211
            
            2,661,283Dr.
                Satyam C. Cherukuri
            
            31,136,588
            
            569,906Dan
                S. Suesskind
            
            17,870,461
            
            13,836,033P.
                Howard Edelstein
            
            31,155,919
            
            550,575





**Proposal**
            
            **For**
            
            **Against**
            
            **Abstain**
            
            **Broker**
              **Non-Vote**2.
                Ratification of Auditors
            
            31,420,927
            
            276,308
            
            9,258
            
            03.
                Approval of amendments to the 2007 Stock Option Plan
            
            21,629,957
            
            4,819,157
            
            532,025
            
            4,725,355




***Item
      5. Other Information***




None.


-
            29
            -




**Item
      6. Exhibits**




The
      following is a list of exhibits filed as part of this Form 10-Q:




Exhibit Number
            
            Description10.1(1)
            
            Ness
                Technologies, Inc. Amended and Restated 2007 Stock Incentive
                Plan31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.







(1)
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, filed with
                the Commission on June 17,
                2008.


-
            30
            -





**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, as amended, the
      registrant has duly caused this report to be signed on its behalf by the
      undersigned thereunto duly authorized.





NESS
              TECHNOLOGIES, INC.(Registrant)Date:
                   August7,
                2008
            By:
            /s/ISSACHAR
                  GERLITZIssachar
                GerlitzChief
                Executive Officer, President, Director(Principal
                executive officer)Date:
                   August7,
                2008
            By:
            /s/OFER
                  SEGEVOfer
                SegevExecutive
                Vice President and Chief Financial Officer(Principal
                financial and accounting officer)





-
            31
            -





**EXHIBIT
      INDEX**




Exhibit Number
            
            Description10.1(1)
            
            Ness
                Technologies, Inc. Amended and Restated 2007 Stock Incentive
                Plan31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.





(1)
            Incorporated
                by reference to the Registrant’s Current Report on Form 8-K, filed with
                the Commission on June 17, 2008.





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            32
            -