20-F

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

FORM 20-F

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

OR

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

For the fiscal year ended December 31, 2007

OR

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

OR

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

Date of event requiring this shell company report __________

For the transition period from ___________ to _____________

Commission file number 001-14184

B.O.S. BETTER ONLINE SOLUTIONS LTD.

(Exact name of Registrant as specified in its charter)

ISRAEL

(Jurisdiction of incorporation or organization)

20 Freiman Street, Rishon LeZion, 75100, Israel

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act: Ordinary Shares, nominal value NIS 4.00 per share

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

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

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 10,857,554_Ordinary Shares, nominal value NIS 4.00 per share, as of December 31, 2007; and 11,357,778 Ordinary Shares, nominal value NIS 4.00 per share, as of May 31, 2008.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No x

If this report is an annual or transition report, indicate by check-mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o   No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No o

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

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

Indicate by check mark which financial statement item the registrant has elected to follow: Item 17 o      Item 18 x

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

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

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o     Item 18  o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No x

TABLE OF CONTENTS

PART I	1
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS	1
ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE	1
ITEM 3: KEY INFORMATION REGARDING B.O.S.	1
ITEM 4: INFORMATION ON THE COMPANY	16
ITEM 4A: UNRESOLVED STAFF COMMENTS	28
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS	28
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	48
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	60
ITEM 8: FINANCIAL INFORMATION	63
ITEM 9: THE OFFER AND LISTING	64
ITEM 10: ADDITIONAL INFORMATION	66
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	79
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	81
PART II	81
ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	81
ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	81
ITEM 15: CONTROLS AND PROCEDURES	81
ITEM 16: [RESERVED]	82
ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT	82
ITEM 16B: CODE OF ETHICS	82
ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES	82

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ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	83
ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	83
PART III	84
ITEM 17: FINANCIAL STATEMENTS	84
ITEM 18: FINANCIAL STATEMENTS	84
ITEM 19: EXHIBITS	84
SIGNATURES	86

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PART I

Item 1: Identity of Directors, Senior Management and Advisors

Not required.

Item 2: Offer Statistics and Expected Timetable

Not required.

Item 3: Key Information Regarding B.O.S.

Unless the context in which such terms are used would require a different meaning, all references to “BOS”, “we”, “our” or the “Company” refer to B.O.S. Better Online Solutions Ltd. and its subsidiaries.

3A. Selected Consolidated Financial Data

The consolidated statement of operations data for B.O.S. Better On-Line Solutions Ltd. set forth below with respect to the years ended December 31, 2007, 2006 and 2005, and the consolidated balance sheet data as of December 31, 2007 and 2006, have been derived from the Consolidated Financial Statements listed in Item 18, which have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States. The consolidated statement of operations data set forth below with respect to the years ended December 31, 2004 and 2003, and the consolidated balance sheet data as of December 31, 2005, 2004 and 2003, have been derived from other consolidated financial statements not included herein and have been prepared in accordance with U.S. GAAP. The financial statements for the years ended December 31, 2007, 2006, 2005, 2004 and 2003 were audited by Kost Forer Gabbay & Kasierer, an independent registered public accounting firm and a member of Ernst & Young Global. The selected consolidated financial data presented below should be read in conjunction with Item 5: “Operating and Financial Review and Prospects” and the Notes to the Financial Statements included in this Form 20-F.

Following the sale of the Communications segment in 2005, the Company has accounted for the Communications segment as a discontinued operation. As such, the results of operations, including revenues, cost of revenues, operating expenses and other income and expenses related to the Communications segment for years 2006 and 2005, have been reclassified in the 2006 statements of operations and balance sheet as discontinued operations.

On May 29, 2003, the Company effected a one-for-four reverse stock split. All share and per share numbers herein reflect adjustments resulting from this reverse stock split.

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Statement of Operations Data: (In U.S. thousands of dollars with the exception of per share data)

	Year Ended December 31,
	2003			2004			2005			2006			2007
Revenues		5,728			6,919			24,099			20,917			23,774
Cost of revenues		1,455			3,659			17,854			16,200			19,099
Gross profit		4,273			3,260			6,245			4,717			4,675
Operating expenses:
Research and development, net		1,846			669			893			486			636
In process Research and development		–			–			–			–			170
Sales and marketing		2,178			1,015			2,425			2,019			3,811
General and administrative		1,317			1,271			2,667			3,268			1,980
Restructuring and related costs		678			–			–						–
Total operating expenses		6,019			2,955			5,985			5,773			6,597
Operating income (loss):		(1,746	)		305			260			(1,056	)		(1,922	)
Financial income (expense), net		109			(158	)		(448	)		(626	)		(469	)
Other income (expenses), net		45			–			355			–			(6,233	)
Income (loss) before tax on income		(1,592	)		147			167			(1,682	)		(8,624	)
Tax benefit (taxes on income)		–			(20	)		(204	)		89			(9	)
Equity in losses of an affiliated company		(465	)		(308	)		(1,750	)		–			–
Minority interest in earnings of a subsidiary		–			(17	)		(223	)		–			–
Loss from continuing operations		(2,057	)		(198	)		(2,010	)		(1,593	)		(8,633	)
Net income (loss) related to discontinued operations		2,036			(1,855	)		(1,595	)		1,685			237
Net income (loss)		(21	)		(2,053	)		(3,605	)		92			(8,396	)
Basic and diluted net loss per share from continuing operations	$	(0.56	)	$	(0.04	)	$	(0.36	)	$	(0.24	)	$	(1.00	)
Basic and diluted net income (loss) per share from discontinued operations	$	0.55		$	0.40		$	(0.28	)	$	0.25		$	0.02
Basic and diluted net income (loss) per share	$	(0.01	)	$	(0.44	)	$	(0.64	)	$	0.01		$	(0.97	)
Weighted average number of shares used in computing basic net earning (loss) per share		3,683			4,631			5,616			6,675			8,651
Weighted average number of shares used in computing diluted net earning (loss) per share		3,683			4,631			5,616			6,793			11,783

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	As of December 31,
Balance Sheet Highlighted Data:	2003		2004		2005		2006		2007
Cash and Cash Equivalents		3,872		2,304		2,232		2,033		4,271
Working Capital (*)		5,082		5,195		4,162		3,046		10,407
Total Assets		14,023		22,485		22,646		24,529		31,132
Short-term banks loan and current maturities of long-term bank loans and convertible note		–		1,997		2,625		4,088		5,028
Long-term liabilities		951		3,380		2,517		2,686		4,450
Minority interest in a subsidiary		–		809		–		–		–
Share Capital		4,309		4,823		6,432		6,571		10,628
Additional paid in Capital		43,247		44,426		47,588		48,330		54,758
Shareholders’ equity		10,541		10,048		11,266		12,349		14,438
(*)Working capital comprises of:
Current assets		7,239		12,581		12,233		12,540		22,651
Less: current liabilities		2,157		7,386		8,071		9,494		12,244
		5,082		5,195		4,162		3,046		10,407

3B.	Capitalization and Indebtedness
Not applicable
3C.	Reasons for the Offer and Use of proceeds
Not applicable
3D.	Risk Factors

The following factors, in addition to other information contained or incorporated by reference in this Form 20-F, should be considered carefully. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. The risks described below are not the only risks facing our company. Additional risks and uncertainties that we are not aware of or that we currently believe are immaterial may also adversely affect our business, financial condition, results of operation and liquidity. The trading price of our ordinary shares could decline due to any of these risks, and you may lose all or part of your investment.

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Forward Looking Statements

This report on Form 20-F contains forward-looking statements that are intended to be, and are hereby identified as, forward looking statements for the purposes of the safe harbor provisions of the Private Securities Reform Act of 1995. These statements address, among other things: our strategy; the anticipated development of our products; the results of completed acquisitions and our ability to make future acquisitions; our projected capital expenditures and liquidity; our development of additional revenue sources; our development and expansion of relationships; the market acceptance of our products; and our technological advancement. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including all the risks discussed below and elsewhere in this report.

We urge you to consider that statements which use the terms “believe”, “do not believe”, “expect”, “plan”, “intend”, “estimate”, “anticipate”, “projections”, “forecast” and similar expressions are intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Except as required by applicable law, including the federal securities laws of the United States, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Market data and forecasts used in this report have been obtained from independent industry sources. We have not independently verified the data obtained from these sources and we cannot assure you of the accuracy or completeness of the data. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and additional uncertainties accompanying any estimates of future market size.

Risks relating to our financial results and capital structure:

We have had a history of losses and our future levels of sales and ability to achieve profitability are unpredictable.

          As of December 31, 2007, we had an accumulated deficit of $51 million. In 2007 we had a net loss of $8.4 million, of which $5.6 million was due to impairment of investment in the shares Qualmax Inc. (Pink Sheets: QMXI.PK) and its subsidiary New World Brands (OTC: NWBD.OB) (see “Section 4A. History and Development of the Company”). Our ability to maintain and improve future levels of sales and profitability depends on many factors, which include:

· successful integration of Summit Radio Corp. (“Summit”) which was acquired in November 2007 and of the assets of Dimex Systems (1988) Ltd., which were purchased in March 2008.

· financing working capital needs by debt or equity.

· continuing growth in the Aerospace industry and continued demand for our existing products.

· developing and selling new products to meet customer needs.

· penetrating into the RFID market.

· controlling costs and successfully implementing our business strategy; and

· manufacture and delivery of products in a timely manner.

          There can be no assurance that we will be able to meet our challenges and experience any growth in sales or achieve profitability in the future or that the levels of historic sales or profitability experienced during previous years will continue in the future or that our net losses will not increase in the future.

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We may be unable to maintain our gross profit margins.

          Our sales and profitability may vary in any given year, and from quarter to quarter. In order to increase sales and enter into new markets with new products we may find it necessary to decrease prices in order to be competitive. Additionally, the gross profit margin of our Supply Chain Segment, whose sales accounted for 89% of our total sales in 2007 and in 2006, tends to fluctuate. We may not be able to maintain current gross profit margins in the future, which would have a material adverse effect on our business.

We require a significant amount of cash to satisfy our debt obligations. If we fail to generate sufficient cash flow from operations, we may need to renegotiate or refinance our debt, obtain additional financing, postpone capital expenditures or sell assets. If we are forced to repay our short and long term bank loans in cash, we may not have enough cash to fund our operations.

          As of March 31, 2008 we had $6,146,000 of short term bank loans drawn under a revolving credit facility, $701,000 current maturities of long term loans and long terms loans in the amount of $3,144,100. We depend mainly on our cash generated by continuing operating activities to make payments on our debts. We cannot assure that we will generate sufficient cash flow from operations to make the scheduled payments on our debt. Our ability to meet our debt obligations will depend on whether we can successfully implement our strategy, as well as on economic, financial, competitive and technical factors.

          Some of the factors are beyond our control, such as economic conditions in the markets where we operate or intend to operate, changes in our customers’ demand for our products, and pressure from existing and new competitors. Also, because part of our loans bear interest at floating rates, we are susceptible to an increase in interest rates. (See “Section 5B. Liquidity and Capital Resources” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk”)

          If we cannot generate sufficient cash flow from operations to make scheduled payments on our debt obligations, we may need to renegotiate the terms of our debt, refinance our debt, obtain additional financing, delay planned capital expenditures or sell assets.

          If our lenders decline to renegotiate the terms of our debt in these circumstances, the lenders could declare all amounts borrowed and all amounts due to them under the agreements due and payable.

          In addition, our short and long term bank loans contain certain provisions, restrictions and financial covenants, which if violated, could result in the full principal amounts together with interest and other amounts becoming immediately due and payable in cash.

          If we do not have the cash resources to repay our indebtedness in such circumstances, our lenders could foreclose on our assets that are subject to liens and sell our assets to satisfy the debt. (See “Item 5. Operating and Financial Review and Prospects”)

Our assets are subject to security interests in favor of our lenders. Our failure to repay the bank loans, if required, could result in legal action against us, which could require the sale of all of our assets.

          The repayment of our bank debt is secured by a first priority floating charge on all of our company’s assets, present and future as they may be changing from time to time, and by a first priority fixed charge on all of the Company’s issued and unpaid-for share capital, its goodwill and its shares of Dimex Solutions Ltd. and Odem Electronic Technologies 1992 Ltd. (“Odem”). In addition, the Company and its subsidiaries entered into a series of inter company guarantees in favor of our lenders.

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          If we are unable to repay the bank loans when due, our lenders could foreclose on our assets in order to recover the amounts due. Any such action would require us to curtail or cease operations.

Our debt obligations may hinder our growth and put us at a competitive disadvantage.

          Our debt obligations require us to use a substantial portion of our operating cash flow to repay the principal and interest on our loans. This reduces funds available to grow and expand our business, limits our ability to pursue business opportunities and makes us more vulnerable to economic and industry downturns. The existence of debt obligations and covenants also limits our ability to obtain additional financing on favorable terms.

Due to restrictions in our loan agreements, we may not be able to operate our business as we desire.

Our loan agreements contain a number of conditions and limitations on the way in which we can operate our business, including limitations on our ability to raise debt, sell or acquire assets and pay dividends. Our loan agreements also contain various covenants which require that we maintain certain financial ratios related to shareholder’s equity and operating results. These limitations and covenants may force us to pursue less than optimal business strategies or forgo business arrangements which could have been financially advantageous to our shareholders and us. (See “Section 5B. Liquidity and Capital Resources”) Our failure to comply with the covenants and restrictions contained in our loan agreements could lead to a default under the terms of these agreements.

Risks related to our business:

Integration of our acquisitions requires significant financial and management resources and there is no assurance that the acquisitions may prove successful.

          Over the past years we have pursued the acquisition of businesses, products and technologies and recently we completed two major acquisitions, of the U.S. based Summit, in November 2007, and of the assets of the Israeli Dimex Systems (1988) Ltd., in March 2008.

          Our growth increases the complexity of our operations, places significant demands on our management and our operational, financial and marketing resources and involves a number of challenges, including:

· managing geographically dispersed operations;

· retaining and motivating key personnel of the acquired businesses;

· assimilating different corporate cultures;

· preserving the business relationships with existing key customers and suppliers;

· maintaining uniform standards, controls, procedures and policies; and

· introducing joint products and service offerings.

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          There can be no assurance that we will be able to successfully integrate and manage our recent acquisitions in order to maintain and grow the combined business and maximize the potential synergies.

          Further, once integrated, acquisitions may not achieve comparable levels of revenues, profitability or productivity as our existing business or otherwise perform as expected. The occurrence of any of these events could harm our business, financial condition or results of operations.

We may be unable to effectively manage our growth and expansion, and as a result, our business results may be adversely affected.

          Our goal is to grow significantly over the next few years. The management of our growth, if any, will require the continued expansion of our operational and financial control systems, as well as a significant increase in our financial resources and in our delivery and service capabilities. These factors could place a significant strain on our resources.

          Our inability to meet our delivery commitments in a timely manner (as a result of unexpected increases in orders, for example) could result in losses of sales, our exposure to contractual penalties, costs or expenses, as well as damage to our reputation in the marketplace.

          Our inability to manage growth effectively could have a material adverse effect on our business, financial condition and results of operations.

          If our efforts to raise capital do not succeed, our efforts to increase our business may be seriously jeopardized.

A significant part of the revenues of our supply chain business are from two major customers: Israel Aircraft Industries (“IAI”) and a strategic Latin American customer (the “Strategic Customer”).

          Our business relationship with IAI and the Strategic Customer accounted for 11% and 10% of our revenues in the first quarter of 2008, respectively. An interruption in our business relationship with IAI or with the Strategic Customer would result in a significant reduction in our revenues and backlog and in a write-off of inventory, and would have a material adverse effect on our business and results of operations.

          Our long term sales agreement with IAI will end by December 2008. In May 2008, we announced that we finalized a contract for the sale of components to the Strategic Customer. The contract, expected to be signed in the near future, provides for a framework for orders potentially amounting to up to $25 million during an initial five-year term (until 2012). The contract may be extended for additional five-year terms. The contract may be extended for additional five-year terms. Pursuant to the contract, we committed to a fixed components sale price through 2010. Each of our agreements with IAI and the Strategic Customer subjects us to the following risks:

· Significant appreciation in the cost price of electronic components may materially adversely impact our financial results.

          Our sales agreements provide for the supply of electronic components at a fixed sales price. Absent the flexibility to increase our prices as a result of increased costs of the components, significant increased costs may adversely impact our financial results.

· The relationship with the IAI and the Strategic Customer requires us to hold a large inventory, in order to meet short lead time and delivery requirements. If we are unable to sell this inventory on a timely basis, we could incur charges for excess and obsolete inventory, which would materially adversely affect our results of operations.

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          Under the agreements with IAI and the Strategic Customer, we are obligated to hold inventory of products necessary for three months of production. This requires us to incur the costs of purchasing inventory without having an outstanding purchase order for the products. If we are unable to sell products that are purchased to hold in inventory, we may incur write-offs and write-downs as a result of slow-moving items, technological obsolescence, excess inventories, discontinued products and products with market prices lower than cost. Such write-offs and write-downs could adversely affect our operating results and financial condition.

· If we are unable to provide certain requested components, the entire order which includes these components may be cancelled.

          Supply Chain solution programs of electronic components accommodate the preference of customers to work with a limited number of suppliers that will be able to provide a wide range of electronic components under one order. In the event we are not able to provide certain of the components ordered, the customer could elect to terminate the entire order before its delivery. This could cause us to remain with excess and obsolete inventory and would adversely affect our results of operations.

The continued growth of our Mobile and RFID Solutions segment depends on our ability to expand sales abroad.

Our Mobile and RFID Solutions revenues that were generated from sales outside of Israel amounted, in the first quarter of year 2008, to $626,000 or 35% of the entire Mobile and RFID Solutions revenues. Continued growth of this segment depends on our ability to further increase our sales abroad. There can be no assurance that we will be able to maintain and increase our revenues from these markets.

Certain customers of our Supply Chain Solutions may cancel purchase orders they placed before the delivery.

          Certain purchase orders of our Supply Chain Solutions provide that they may be canceled by the customer before delivery. In the event substantial orders are so cancelled, there is no assurance that we will be able to sell the pre-purchased inventory at a profit, or at all. This could result in excess and obsolete inventory and could have a material adverse effect on our results of operations.

The Company’s subsidiary, Summit, engages in a number of business activities governed by Federal Regulations, which if violated, could subject the Company to civil or criminal fines and penalties.

          The Company’s subsidiary, Summit, engages in a number of business activities governed by the Federal Acquisition Regulations (FAR), the Defense Federal Acquisition Regulations (DFAR) and the export control provisions of the International Traffic In Arms Regulations (ITAR) of the Department of State. The FAR and DFAR regulate business with the U.S. Department of Defense as well as other U.S. Government agencies regardless of whether the company serves in the role of a prime contractor (in direct privity of contract with the governmental agency) or as a subcontractor to a prime contractor, regardless of how many tiers down the contracting chain. Violation of the FAR or DFAR can result in civil and criminal fines and other penalties, including suspension or debarment from the ability to do business with any agency of the Federal Government, whether directly or indirectly. Much of the Summit’s business, regardless of whether with the Federal Government, involves compliance with the ITAR, the export control regulations for the export of defense articles, technology or defense services. ITAR violations are, in effect, a violation of the Arms Export Control Act. Fines and penalties can be civil or criminal. Civil fines are $250,000 per violation or twice the value of the transaction. Criminal violations include fines of $1,000,000 per violation both for individuals and the company. Violation of the ITAR can also lead to loss of export privileges for up to four years.

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The sales of the BOSâNOVA Suite Solution (one of the products of Mobile and RFID Solutions segment) in the United States depend on one key distributor. In the event that we cease working with the key distributor, we may experience an interruption in sales until an alternative source of distribution can be found, which may have a material adverse effect on our business.

          We market BOSâNOVA Suite Solutions in the United States through one key distributor. In 2007 and in 2006 our sales though this distributor accounted for 4% and 7% of our total sales, respectively, and for approximately 18% and 21% of our gross profit, respectively. In the event that we cease working with this key distributor, we may experience a reduction in our gross profit until an alternative source of distribution can be found, which may have a material adverse effect on our business

We are required to make additional payments towards the acquisition of the assets of Dimex.

          Pursuant to the Dimex Asset Purchase Agreement we are required to pay to the sellers an additional amount of approximately NIS 25 million (approximately $7.7 million, based on May 31, 2008 currency exchange rate), in four installments. The first installment of NIS 15 million is due in September 2008 and the remaining amount is payable in three semi-annual installments through March 2010.

          If we are unable to make these payments, we will be in breach of contract and our financial position, and results of operation could be adversely affected.

We rely on certain key suppliers for the supply of our products.

          Most of our sales in our Supply Chain Solution segment rely on products of certain main manufacturers, which we represent. One major manufacturer accounted for 11% of our Supply Chain Solutions segment purchases during 2007.

          In the event that any of our suppliers becomes unable to fulfill our requirements in a timely manner of if we cease our business relationship with these manufacturers we may experience an interruption in delivery until an alternative source of supply can be obtained.

Future changes in industry standards may have an adverse effect on our business.

New industry standards in the aviation and defense industry could cause a portion of our Supply Chain Solution segment’s inventory to become obsolete and unmarketable which would adversely affect our results of operations.

We depend on key personnel and need to be able to retain them and our other employees.

          Our success depends, to a significant extent, on the continued active participation of our executive officers and other key personnel. In addition, there is significant competition for employees with technical expertise in our industry. Our success will depend, in part, on:

· our ability to retain the executive officers and key technical personnel who have been involved in the development of our two divisions;

· our ability to attract and retain additional qualified personnel to provide technological depth and support to enhance existing products and develop new products; and

· our ability to attract and retain highly skilled computer operating, marketing and financial personnel.

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          We cannot make assurances that we will be successful in attracting, integrating, motivating and retaining key personnel. If we are unable to retain our key personnel and attract additional qualified personnel as and when needed, our business may be adversely affected.

In consideration of our sale of our Communication segment we received shares of Qualmax Inc. and of its subsidiary New World Brands Inc. We have already recorded a loss in respect of these holdings and may need to record additional losses if the stock price of New World Brand or Qualmax decreases.

          On December 31, 2005 we closed a transaction for the sale of our Communications segment to IP Gear Ltd. (“IP Gear”), a wholly owned subsidiary of Qualmax Inc. (“Qualmax”), in consideration for common stock of Qualmax. In September 2006 Qualmax transferred all of its assets and liabilities to World Brands Inc. (“New World”) in exchange for shares of Preferred Stock of New World.

          In December, 2006, we closed a transaction with Qualmax and its subsidiaries, New World and IP Gear, pursuant to which we converted approximately $1.5 million payable to us by Qualmax and IP Gear into approximately 16.5 million shares of New World common stock.

          In connection with the transaction, we agreed to grant New World, contingent upon the satisfaction of certain conditions, a three-year option to purchase up to 30% of the New World shares held by us, at prices ranging from $0.12 to $0.24 per share of common stock.

          In addition, we agreed to enter into a lock up agreement, restricting the transfer of our share holdings in Qualmax and in New World, for up to two years. New World has a limited operating history on which to judge whether or not this company will be successful. If New World is not successful in its business or if New World and Qualmax share price is subject to a prolonged decline, we may be required to record an impairment of the investment, which could materially adversely affect our results of operation.

          In year 2007 we recorded a $5.6 million loss due to a decrease in the share price of New World and Qualmax. In the first quarter of 2008, due to an increase in the share price of New World, the book value of our investment increased by $244,000, which was recorded against other comprehensive income (i.e. capital fund) and did not affect our statement of operations.

The recent slowdown in the financial markets and resulting expected economic slow down in the industry and in technology markets may have an adverse impact on us and on the value of our shares.

          Our Company, like other technology companies, has been and is subject to the effects of market slowdowns in the technology industry. If general economic conditions fail to improve, or if they deteriorate, our revenues, operating results and financial condition would be adversely affected.

If revenue levels for any quarter fall below our expectations, our results of operations will be adversely affected.

Our revenues in any quarter are substantially dependent on orders received and delivered in that quarter. We base our decisions regarding our operating expenses on anticipated revenue trends, and our expenses level are relatively fixed, or require some time for adjustment. Hence, revenue levels below our expectations will adversely affect our results of operations.

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Foreign currency fluctuations significantly impact on our business results.

          The vast majority of our sales are made in U.S. dollars and a significant part of our expenses is in New Israel Shekels (“NIS”). Our NIS related costs, as expressed in U.S. dollars, are influenced by the exchange rate between the U.S. dollar and the NIS. In 2007, and until May 31, 2008, the U.S. dollar depreciated against the NIS by approximately 23.5%, which resulted in a significant increase in the U.S. dollar cost of our NIS expenses. We cannot predict any future trends in the rate of devaluation or appreciation of the NIS against the U.S dollar. Further significant depreciation could have an adverse effect on our results of operation and financial condition.

The rate of inflation in Israel may negatively impact our costs if it exceeds the rate of devaluation of the NIS against the U.S. dollar. Similarly, the U.S. dollar cost of our operations in Israel will increase to the extent increases in the rate of inflation in Israel are not offset by a devaluation of the NIS in relation to the U.S. dollar.

          A substantial amount of our revenues is denominated in U.S. dollars or is U.S. dollar-linked, but we incur a significant portion of our expenses, principally the rent for our facilities in Israel and salaries and related personnel expenses in Israel, in NIS. As a result, we are exposed to the risk that the rate of inflation in Israel will exceed the rate of devaluation of the NIS in relation to the U.S. dollar or that the timing of this devaluation lags behind inflation in Israel. In that event, the U.S. dollar cost of our operations in Israel will increase and our U.S. dollar-measured results of operations will be adversely affected.

          Similarly, we are exposed to the risk that the NIS, after adjustment for inflation in Israel, will appreciate in relation to the U.S. dollar. In that event, the dollar cost of our operations in Israel will increase and our dollar-measured results of operations will be adversely affected. During 2005, 2006 and 2007, the inflation adjusted NIS appreciated against the U.S. dollar, which raised the dollar cost of our Israeli operations. We cannot predict whether in the future the NIS will appreciate against the U.S. dollar or vice versa. Any increase in the rate of inflation in Israel, unless the increase is offset on a timely basis by a devaluation of the NIS in relation to the U.S. dollar, will increase labor and other costs, which will increase the dollar cost of our operations in Israel and harm our results of operations.

          To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rate of the U.S. dollar against the NIS. Even if we perform hedging transactions, they may not adequately protect us from the effects of inflation in Israel.

          (see "Section 5A. Results of Operation - Impact of Inflation and Currency Fluctuations")

We may be unable to maintain and continue developing marketing and distribution arrangements and expand our reach into overseas markets.

          Sales outside Israel accounted for 33% of our total sales in 2007 and for 29% in 2006. If we are not able to maintain our existing distribution channels and expand to new international markets, our operating results may be materially adversely affected.

If we are unsuccessful in developing and introducing new products, we may be unable to expand our business.

          The market for some of our products is characterized by rapidly changing technology and evolving industry standards. The introduction of products embodying new technology and the emergence of new industry standards can render existing products obsolete and unmarketable and can exert price pressures on existing products.

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          Our ability to anticipate changes in technology and industry standards and successfully develop and introduce new and enhanced products as well as additional applications for existing products, in each case on a timely basis, will be critical in our ability to grow and remain competitive. Although these products are related to, and even incorporate our existing products, there can be no assurance that we will be able to successfully develop and market any such new products. If we are unable to develop products that are competitive in technology and price and responsive to customer needs, for technological or other reasons, our business will be materially adversely affected.

We have significant sales worldwide and could encounter problems if conditions change in the places where we market our products.

          We have sold and intend to continue to sell our products in North and Latin America and in Europe.

          A number of risks are inherent in engaging in international transactions, including:

· possible problems in collecting receivables;

· imposition of governmental controls, or export license requirements;

· political and economic instability in foreign countries;

· trade restrictions or changes in tariffs being imposed; and

· laws and legal issues concerning foreign countries.

          If we should encounter such difficulties in conducting our international operations, it may adversely affect our business condition and results of operations.

We may be unable to successfully defend ourselves against claims brought against us.

          We are defendants in a number of lawsuits filed against us, and from time to time in the normal course of our business, may receive written demands for payments from prospective plaintiffs. Legal proceedings can be expensive, lengthy and disruptive to normal business operations, and can require extensive management attention and resources regardless of their merit. Moreover, we cannot predict the results of all proceedings and there can be no assurance that we will be successful in defending ourselves against them. An unfavorable resolution of a lawsuit or proceeding could materially adversely affect our business, results of operations and financial condition.

We may be obligated to indemnify our directors and officers.

          The Company has agreements with its directors and senior officers which provide, subject to Israeli law, for the Company to indemnify these directors and senior officers for (a) monetary liability imposed upon them in favor of a third party by a judgment, including a settlement or an arbitral award confirmed by the court, as a result of an act or omission of such person in his capacity as a director or officer of the Company, (b) reasonable litigation expenses, including attorney’s fees, incurred by them pursuant to an investigation or a proceeding commenced against them by a competent authority and that was terminated without an indictment and without having a monetary charge imposed on them in exchange for a criminal procedure (as such terms are defined in the Israeli Companies Law), or that was terminated without an indictment but with a monetary charge imposed on them in exchange for a criminal procedure in a crime that does not require proof of criminal intent, as a result of an act or omission of such person in his capacity as a director or officer of the Company, and (c) reasonable litigation expenses, including attorney’s fees, incurred by such a director or officer or imposed on him by a court, in a proceeding brought against him by or on behalf of the Company or by a third party, or in a criminal action in which he was acquitted, or in a criminal action which does not require criminal intent in which he was convicted, in each case relating to acts or omissions of such person in his capacity as a director or officer of the Company. Such indemnification may materially adversely affect our financial condition.

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The measures we take in order to protect our intellectual property may not be effective or sufficient.

          Our success is dependent upon our proprietary rights and technology. We currently rely on a combination of trade secret, copyright and trademark law, together with non-disclosure and invention assignment agreements, to establish and protect the proprietary rights and technology used in our products. We generally enter into confidentiality agreements with our employees, consultants, customers and potential customers and limit the access to and the distribution of our proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our technology without authorization, or to develop similar technology independently. We do not believe that our products and proprietary rights infringe upon the proprietary rights of others. However, there can be no assurance that any other party will not argue otherwise. The cost of responding and adequately protecting ourselves against any such assertion may be material, whether or not the assertion is valid. Further, the laws of certain countries in which we sell our products do not protect our intellectual property rights to the same extent as do the laws of the United States. Substantial unauthorized use of our products could have a material adverse effect on our business. We cannot make assurances that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology. Additionally, there are risks that arise from the use of intranet networks and the Internet. Although we utilize firewalls and protection software, we cannot be sure that our proprietary information is secured against penetration. Such penetration, if occurs, could have an adverse effect on our business.

There can be no assurance that we will not be classified as a passive foreign investment company (a “PFIC”).

          Based upon our current and projected income, assets and activities, we do not believe that at this time BOS is a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes, but there can be no assurance that we will not be classified as such in the future. Such classification may have grave tax consequences for U.S. shareholders. One method of avoiding such tax consequences is by making a “qualified electing fund” election for the first taxable year in which the Company is a PFIC. However, such an election is conditioned upon our furnishing U.S. shareholders annually with certain tax information. We do not presently prepare or provide such information, and such information may not be available to U.S. shareholders if we are subsequently determined to be a PFIC.

Risks related to our ordinary shares:

Our share price has been and may continue to be volatile, which could result in substantial losses for individual shareholders.

          The market price of our ordinary shares has been and may continue to be highly volatile and subject to wide fluctuations. From January 2006 through May 2008, the daily closing price of our ordinary shares in NASDAQ has ranged from $1.45 to $2.97 per share and in the Tel Aviv Stock Exchange has ranged from 4.28 NIS to 14.58 NIS. We believe that these fluctuations have been in response to a number of factors including the following, some of which are beyond our control:

· the acquisition of Summit and of the assets of Dimex Systems;

· actual or anticipated variations in our quarterly operating results;

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· announcements of technological innovations, new products, services or new pricing practices by us or our competitors;

· increased market share penetration by our competitors;

· announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

· additions or departures of key personnel;

· issuance of additional shares pursuant to the exercise of warrants granted to our investors in previous private placement;

· sales of additional ordinary shares; and

· devaluation of the U.S. dollar against the NIS, which caused a corresponding decrease in the NIS-quoted share price in Tel Aviv Stock Exchange. From January 2006 through May 2008 the devaluation of the dollar against the NIS was 29.8%.

          In addition, the stock market in general, and stocks of technology companies in particular, have from time to time experienced extreme price and volume fluctuations. This volatility is often unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of our ordinary shares, regardless of our actual operating performance.

The Company’s shares may be delisted from the NASDAQ Global Market if it does not meet NASDAQ’s continued listing requirements.

          In late 2002 and early 2003 the Company received notice from the NASDAQ Stock Market that its ordinary shares were subject to delisting from the NASDAQ Global Market for failure to meet NASDAQ’s minimum bid price and shareholders’ equity requirements ($10 million) for continued listing on the Global Market. Following a hearing, during 2003, we were notified by NASDAQ that we had regained compliance.

          On August 30, 2004, we received notice from the NASDAQ Stock Market that our ordinary shares were subject to delisting from the NASDAQ Global Market for failure to meet NASDAQ’s minimum market value of publicly held shares requirement ($5 million) for continued listing on the Global Market. On November 4, 2004, we were notified by NASDAQ that we had regained compliance with this requirement.

          On January 25, 2005, we received notice from the NASDAQ Stock Market that we were not in compliance with the minimum $10 million shareholders’ equity requirement for continued listing on the Global Market. Following that notice, on January 28, 2005, we received an additional notice indicating that based on further review of our financial statements as they appeared in our filing on Form 6-K dated January 10, 2005, it was determined that the shareholders’ equity was $10,601,000 on a pro forma basis as of September 30, 2004. Therefore we were in compliance with the stockholders’ equity requirement for continued listing on the Global Market and the matter had been closed.

          On June 2, 2005, the Company again received notice from the NASDAQ Stock Market indicating that based on the results for the period ended March 31, 2005, the shareholders’ equity was $9,425,000, and accordingly not in compliance with the minimum $10,000,000 shareholders’ equity requirement for continued listing on the Global Market. In June 2005, the Company regained compliance with NASDAQ’s minimum $10,000,000 shareholders’ equity requirement for continued listing on the Global Market.

          There can be no assurance that we will be able to meet and continue to meet these or other NASDAQ requirements to maintain our NASDAQ Global Market listing, in which case we will seek to transfer the listing of our ordinary shares to the NASDAQ Capital Market, of which there can be no assurance.

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Risks related to our location in Israel:

Political, economic, and security conditions in Israel affect our operations and may limit our ability to produce and sell our products or provide our services.

          We are incorporated under the laws of the State of Israel, where we also maintain our headquarters and our principal research and development and sales and marketing facilities. Political, economic, security and military conditions in Israel directly influence us. We could be adversely affected by any major hostilities involving Israel, the interruption or curtailment of trade between Israel and its trading partners or a significant downturn in the economic or financial condition of Israel. In January 2006, Hamas, an Islamic movement responsible for many attacks against Israelis, won the majority of the seats in the Parliament of the Palestinian Authority. The election of a majority of Hamas-supported candidates is a major obstacle to relations between Israel and the Palestinian Authority, as well as to the stability in the Middle East as a whole. In addition, the future of the “peace process” with the Palestinians is uncertain and has deteriorated due to Palestinian violence, with the threat of a large-scale attack by Palestinians on Israeli civilians and key infrastructure remaining a constant concern. The past few years of renewed terrorist attacks by the Palestinians has severely affected the Israeli economy in many ways. In June 2007, there was an escalation in violence in the Gaza Strip resulting in Hamas effectively controlling the Gaza Strip and a further escalation in violence has occurred during the first few months of 2008. In July 2006, Israel became involved in a major military conflict with the Hizbullah organization in Lebanon, which subjected the north of Israel to missile attacks. Ongoing violence between Israel and the Palestinians as well as tension between Israel and the neighboring Syria and Lebanon may have a material adverse effect on our business, financial conditions and results of operations. In addition, several countries still restrict business with Israel and with companies doing business in Israel. We could be adversely affected by adverse developments in the “peace process” or by restrictive laws or policies directed towards Israel or Israeli businesses.

          Generally, all nonexempt male adult citizens and permanent residents of Israel, are obligated to perform military reserve duty annually, and are subject to being called to active duty at any time under emergency circumstances. While we have operated effectively under these requirements since our incorporation, we cannot predict the full impact of such conditions on us in the future, particularly if emergency circumstances occur. If many of our employees are called for active duty, our business may be adversely affected.

          Additionally, in recent years Israel has been going through periods of recession in economic activity, resulting in low growth rates and growing unemployment. Our operations could be adversely affected if the economic conditions in Israel deteriorate. Also, due to significant economic reforms proposed by the Israeli government, there have been several general strikes and work stoppages in 2003 and 2004, affecting all banks, airports and ports. Such strikes or work stoppages have an adverse effect on the Israeli economy and on our business. Furthermore, Israel is a party to certain trade agreements with other countries, and material changes to these agreements could have an adverse effect on our business.

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The anti-takeover effects of Israeli laws may delay or deter a change of control of the Company.

          Under the Israeli Companies Law, a merger is generally required to be approved by the shareholders and Board of Directors of each of the merging companies. Shareholder approval is not required if the company that will not survive the merger is controlled by the surviving company. Additionally, the law provides some exceptions to the shareholder approval requirement in the surviving company. Shares held by a party to the merger and certain of its affiliates are not counted towards the required approval. If the share capital of the company that will not be the surviving company is divided into different classes of shares, the approval of each class is also required. A merger may not be approved if the surviving company will not be able to satisfy its obligations. At the request of a creditor, a court may block a merger on this ground. In addition, a merger can be completed only after all approvals have been submitted to the Israeli Registrar of Companies, provided that 30 days have elapsed since shareholder approval was received and 50 days have passed from the time that a proposal for approval of the merger was filed with the Registrar.

          The Israeli Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer, if as a result of the acquisition, the purchaser would become a holder of 25% or more of the voting power at general meetings, and no other shareholder owns a 25% stake in the Company. Similarly, the Israeli Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a holder of 45% or more of the voting power at general meetings, unless someone else already holds 45% of the voting power. An acquisition from a 25% or 45% holder, which results in the purchaser becoming a 25% or 45% holder respectively, does not require a tender offer. An exception to the tender offer requirement may also apply when the additional voting power is obtained by means of a private placement approved by the general meeting of shareholders. These rules also do not apply if the acquisition is made by way of a merger.

          The Israeli Companies Law also provides specific rules and procedures for the acquisition of shares held by minority shareholders, if the majority shareholder shall hold more than 90% of the outstanding shares.

          These laws may have the effect of delaying or deterring a change in control of the Company, thereby limiting the opportunity for shareholders to receive a premium for their shares and possibly affecting the price that some investors are willing to pay for the Company’s securities.

All of our directors and most of our officers are non-U.S. residents and enforceability of civil liabilities against them is uncertain.

          All of our directors and most of our officers reside outside of the United States. Service of process upon them may be difficult to effect within the United States. Furthermore, because the majority of our assets are located in Israel, any judgment obtained in the United States against us or any of our directors and non- U.S. officers may not be collectible within the United States.

Item 4: Information on the Company

4A. History and Development of the Company

We were incorporated in Israel in 1990 and are subject to the Israeli Companies Law 1999 - 5759. Our executive offices and engineering, development, testing, shipping and service operations are located in Israel and the USA.

Our telephone number is 972-3-954-1000 and our website address is www.boscorporate.com. Our subsidiary Odem maintains a website showcasing our services in the field of RFID. The website address is www.yourfid.com. The information contained on, or linked from, our websites is not a part of this report.

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We operate our business through two segments:

· Supply Chain Solutions– conducted through two wholly owned subsidiaries: Odem Electronic Technologies 1992 Ltd. and Summit Radio Corp.

· Mobile and RFID Solutions – conducted through BOS and two wholly owned subsidiaries: Dimex Solutions Ltd. (previously named BOScom Ltd.) and its subsidiary Dimex Hagalil Projects (2008) Ltd.

On November 18, 2004, we purchased 63.8% of Odem’s issued and outstanding shares from Odem’s shareholders, in consideration of $2,740,000, comprised of cash in the amount of $1,971,000 and $769,000 by the issuance of 290,532 of the Company’s ordinary shares (subject to “lock-up” periods of 2 to 4 years). We purchased an additional 23.9% and 12.3% from the minority shareholders on September 29, 2005 and November 1, 2005, respectively, and thus Odem became our wholly-owned subsidiary. In consideration for the 12.3% of Odem’s shares purchased in November 2005 the Company paid $554,000 in cash and for the 23.9% of Odem’s shares purchased in September 2005 the Company (i) issued 232,603 of the Company’s ordinary shares (subject to “lock up” periods of 2 to 4 years) and paid $716,000 in cash.

In June 2007, the Company entered into a Development, Credit and Purchase Agreement with OptimizeIT, an Israeli partnership, pursuant to which the Company purchased the assets of OptimizeIT. The aggregate consideration for the purchase was $170,000, which was paid by issuance of 8,000 shares of the Company and by a cash payment of $150,000.

In July 2007, the Company entered into an agreement with CYMS K.M.D Ltd., to purchase the assets of CYMS for an aggregate consideration of $ 66,000, which was paid by issuance of 5,594 shares of the Company and by a cash payment of $51,000.

On November 21, 2007 the Company purchased all of the outstanding share capital of Summit, from Summit’s existing shareholders. In consideration for Summit’s shares the Company issued 360,000 of the Company’s shares (subject to “lock-up” periods of up to 2 years) and (ii) paid a cash amount of $4,472,000 (including $373,000 paid against undistributed net income for the first nine months of 2007 in Summit). In addition, Summit’s selling shareholders are entitled to receive contingent consideration of up to $500,000, based on performance in the years 2008 and 2009.

In March 2008, BOScom Ltd. (now Dimex Solutions) and its subsidiary Dimex Hagalil Projects (2008) Ltd., purchased the assets and activities of Dimex Systems (1988) Ltd., an Israeli private company and its subsidiary, Dimex Hagalil Ltd. Dimex is an integrator of AIDC (Automatic Identification and Data Collection) solutions based on RFID and barcode technology. The consideration for acquiring the business operation of Dimex was NIS 17.6 million (approximately $5,460,000 based on the May 31, 2008 exchange rate) and for the inventory, accounts receivable and fixed assets, the consideration was NIS 27 million (approximately $8,377,000 based on the May 31, 2008 exchange rate). The consideration is comprised of cash, payable over a 24-month period and of 500,224 BOS shares (equal to approximately 4.4% of the then outstanding shares of BOS).

In addition, we have an interest in two companies:

(a) Surf Communications Solutions Ltd. (“Surf”), in which as of December 31, 2007 we hold 6.94% of the issued and outstanding share capital. Established in 1996, Surf is an Israeli privately held company, with offices in the United States and in Europe. Surf develops a suite of hardware and software products that drives a wide variety of applications whose common goal is high-capacity distribution of voice and video. In November 2001, the Company invested $1,000,000 as part of a private placement in Surf, and converted a convertible loan in the amount of $1,042,000 into Preferred Shares in Surf. In March 2003, the Company purchased from Catalyst Investments L.P. (“Catalyst”) most of the Surf shares held by Catalyst as a result of which Catalyst held 16.6% of the outstanding Company shares, after the issuance. In September 2005, the Company invested $300,000 in Surf as part of a private placement.

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(b) Qualmax Inc. (Pink Sheets: QMXI.PK) (“Qualmax”), in which as of December 31, 2007 we hold 17.87% and its subsidiary New World Brands (OTC: NWBD.OB) (“New World”), in which as of December 31, 2007 we hold 3.96%. On December 31, 2005, we sold our Communications related property and equipment, goodwill, technology, trade name, existing distribution channels and related contingent liability to the Office of the Chief Scientist to IP Gear Ltd. (“IP Gear”), a wholly owned subsidiary of Qualmax.

The consideration paid to the BOS in the transaction was approximately 3.2 million Qualmax shares of common stock, plus contingent consideration based on the performance of IP Gear. On June 8, 2006, Qualmax issued to BOS, on account of the abovementioned commitment, an additional 250,000 Shares.

Qualmax also issued to the Company a five-year warrant for the purchase of up to 107,143 shares at the exercise price of $2.80 per share (“Warrants”). The Company received certain piggy-back registration rights with respect to the Qualmax shares and the shares underlying the Warrants. The Company does not have a representative on the Board of Directors of Qualmax.

The Company also granted a bridge loan to IP Gear in the amount of $1,000,000. The term of the loan was three years and it bore interest equal to the Prime rate plus 2.5%, up to a maximum of 12%. In the first 18 months, IP Gear was to pay only the interest accrued on the loan and monthly principal and interest payments were to commence thereafter.

In May 2006, Qualmax issued to the Company 244,755 shares, and the principal amount of the loan was reduced to $650,000. In June 2006, Qualmax issued to BOS an additional 174,825 shares, further reducing the principal amount of the loan, to $400,000.

On September 18, 2006, Qualmax announced that it had consummated the transfer of all of its assets and liabilities to New World in exchange for Series A Convertible Preferred Stock of New World convertible into common stock with approximately 86% of the voting power of New World. The shares of common stock of New World are quoted on the Over the Counter Bulletin Board. Immediately prior to the closing of the transaction, New World sold all of its former business operations.

On January 10, 2007, we announced that we closed a transaction with Qualmax and its subsidiaries, New World and IPGear, pursuant to which approximately $1.5 million payable to us by Qualmax and IPGear (including the outstanding balance of the aforementioned loan) was converted into 5.50652 shares of Series A Convertible Preferred Stock of New World. On April 27, 2007, New World Brands announced the conversion of all of its outstanding Series A Convertible Preferred Stock into shares of Common Stock. In connection with the transaction, we agreed to grant New World, contingent upon the satisfaction of certain conditions, a three-year option to purchase up to 30% of the New World shares held by us, at prices ranging from $0.12 to $0.24 per share of Common Stock.

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In addition, we agreed to enter into a lock up agreement, restricting the transfer of our share holdings in Qualmax and in New World, for up to two years.

On February 18, 2008 New World and Qualmax entered into an agreement and plan of merger, pursuant to which Qualmax will be merged with and into the New World. Upon completion of the merger, which is subject to certain conditions, BOS holdings in Qualmax will be converted into holdings in New World Brands.

In April 2007 the Company completed a rights offering in which it raised gross proceeds of approximately $4.4 million and issued 1,739,398 ordinary shares.

On June 21, 2007, Laurus Master Fund Ltd. converted the entire outstanding principal amount under its Convertible Notes of approximately $2,223,000 into 878,670 Ordinary Shares of the Company.

In June 2007, the Company entered into a definitive private placement agreement with a European private investor for the issuance of 226,415 Ordinary Shares at a price per share of $2.65.

In December 2007, the Company entered into a Share Purchase Agreement with Catalyst Fund L.P. (“Catalyst”) and three subsidiaries of D.S. Apex Holdings Ltd. (“Apex”), under which the Company issued 833,560 Ordinary Shares at a price of $2.40 per share (reflecting an aggregate investment of approximately $2 million), and 541,814 warrants at an exercise price of $2.76, exercisable for four years from their date of issuance. For more details see Section 5B. Liquidity and Capital Resources.

4B. Business Overview

BOS’s vision is to become a worldwide leader in the field of comprehensive Mobile & RFID solutions for enterprise logistics and organizational processes. Committed to this vision, in 2007, BOS effected a reorganization, which included replacement of its senior management, relocation to the center of Israel - closer to the business centers and the investment community, and the hiring of highly motivated skilled employees.

BOS’ continues to execute a growth strategy to strengthen its product offering and distribution channels worldwide. BOS’ technological infrastructure and future software products offering was upgraded in 2007 by workforce adjustments and through the acquisition of new software technology in connection with the acquisition of the assets of CYMS and Optimize IT.

In November 2007 we announced the acquisition of Summit, a U.S. based company, situated in New Jersey. Summit transformed BOS into a diversified supply chain company with sales to major international aviation and aerospace manufacturers, and gave its Mobile and RFID solutions a gateway to the U.S. markets.

Summit brought with it:

(i)	a well established reputation in the Aviation and Aero-Space field, built over 50 years of business;
(ii)	strong business relationship with major customers in the field;
(iii)	a proven track-record of profitability; and
(iv)	high synergy with BOS’ Supply Chain Solutions.

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Continuing this momentum of synergetic acquisitions, in January 30, 2008 we announced the acquisition of the business of Dimex Systems (1988) Ltd., in a deal that transformed BOS into the leading Israeli integrator of AIDC (Automatic Identification and Data Collection) solutions based on Mobile & RFID and Barcode technology.

Dimex has:

(i)	a well established reputation in the AIDC field;
(ii)	proven professional capabilities of offering unique, innovative solutions; and
(iii)	Top Israeli customers.

BOS product offerings:

Turn Key solution

Hardware

Middleware

SW Applications

RFID Tags/Readers
Mobile Infrastructure
Edge Equip.
Supply Chain
Electronic Components

RFID Server
Mobile Server
OptimizeIT
Safe-T
BOSaNOVA

PointAct Platform:
Supply Chain
Logistics
Process monitoring
Healthcare
Retail
Environment

Stand
Alone

Stand
Alone

Stand
Alone

BOS manages its business in two reportable segments, which consist of the Mobile and RFID Solutions segment – offered through BOS and Dimex, and the Supply Chain Solutions segment offered through Summit and Odem. These segments are complementary with strong synergy. A third segment, Communication Solutions, existed until it was sold in the fourth quarter of 2005, and is presented in the financial reports under “discontinued operations”.

Through our two business segments: Supply Chain Solutions and Mobile and RFID Solutions, BOS offers comprehensive products and solutions consisting of three essential components – Hardware, MiddleWare and Software applications. As a sales strategy, these components are also sold on a stand alone basis for the purpose of obtaining new customers, as well as expanding the relationship with existing customers.

In Hardware we offer, among others, a Mobile infrastructure, edge equipment, RFID tags and readers, supply chain components and electric components.

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Our Middleware product offering consists, among others, of: OptimizeIT, Safe-T, RFID Server, Point, BOSaNOVA, Mobile Server and Data Collection tools.

Our Software applications aim at supply chain logistics, man process control and monitoring, healthcare, retails and environment industries.

Hardware

RFID Tags and Readers

Refers to the use of an automatic identification method to remotely retrieve data using devices called RFID tags. An RFID tag is an object such as a pendant, bead, nail, label, micro wire or fiber, which can be applied to or incorporated into a product, animal, or person for the purpose of identification using radio waves.

Mobile Infrastructure

We represent worldwide leader manufactures of Automatic Identification and Data Collection equipment based on RFID and barcode technology. Among the manufacturers we represent are Symbol Technologies Inc., Intermec Technologies UK Ltd. (Mobile terminal), Zebra Technologies Europe Ltd. (barcode printers), Texas Instruments and Sokymat (RFID tags and readers). We also provide processing services for a variety of raw materials, mainly for ink ribbons, barcode printers and printing barcode labels.

Supply Chain Solutions

Our Supply Chain Solutions business offers a wide range of electronic components to customers in the aviation and aerospace industry that prefer to work with a limited number of suppliers such as BOS that are able to provide a comprehensive solution to their components-supply needs. Our Supply Chain Solutions segment operates through two subsidiaries: Odem which is located in Israel and Summit which is located in New Jersey, USA.

Electronic Components

We represent suppliers of electronic components in four main categories:

1) Active Components - semiconductors, transistors, detectors, diodes, integrated circuits, hybrid modems, cellular components, communication ICs, memories, displays, and LEDS;

2) Passive Components - capacitors, thermistors, varistos, oscillators, crystals, resistors, C-DC converters, and power supplies;

3) Electro-mechanical Components - relays, connectors, circuit breakers, filters, transformers, plugs, thermostats, switches, etc.

4) Discontinued Semiconductors- made by Intel, Fairchild, Harris, Microchip, National, Quality SMC, Texas Instruments, Vantis, Motorola, and more.

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We provide full access networks equipment for IT and telecommunications (LAN/WAN), communication servers, multi-protocol print servers, server adapters, USB products, switches, fiber optics equipment, ADSL and XDSL routers, modems, VoIP, storage equipment and ATM devices.

In the first quarter of year 2008, our Supply Chain sales to the Israel Aircraft Industries, and to a strategic Latin American customer, accounted for 11%, and 10% of revenues, respectively. An interruption in our business relationship with theses customers would materially adversely impact our financial results.

In 2007 and 2006, 94% and 90% of our sales, respectively, were attributed to sales of the Supply Chain Solutions segment.

Middleware RFID Server:

RFID refers to the use of an automatic identification method to remotely retrieve data using devices called RFID tags. An RFID tag is an object such as a pendant, bead, nail, label, micro wire or fiber, which can be applied to or incorporated into a product, animal, or person for the purpose of identification using radio waves.

Our RFID server is the middleware between the Enterprise Application system and the RFID equipments (reader and tags). This server enables customers to integrate their RFID environment directly with their Enterprise Resource Planning (“ERP”) application and receive the RFID data in either Batch mode or on-line mode, depending on their business needs.

We believe that the future years shall bring the wide spread use of RFID to tag high volume items such as consumer goods, drugs, and postal packages and that the technology will be adopted by retailers, military forces and postal authorities.

Mobile solutions:

Enabling workforce mobility solutions, allowing remote users to connect, access and interact with enterprise applications and resources anywhere and anytime.

Field agents, sales personnel, system administrators and other employees are increasingly on the go, but the access to enterprise applications and data stored at their headquarters’ computers, is not available to them. Our Mobile solutions are ideal for the remote workforce, bringing desktop functionality and corporate applications to the palm of their cell phones, PDAs and wireless terminals.

OptimizeIT

OptimizeIT is a revolutionary automatic software utilization tool giving the organization the ability to monitor the actual use of licenses by any number of stations and respond, as necessary, by the transfer of software licenses from an idle station to another that is awaiting the release of the license.

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Safe-T

Safe-T is a server based solution that provides organizations with a holistic approach to their file transfer needs. It delivers and manages secure file transfers for enterprise customers. Safe-T uses compression technology that ensures fast transmission of the data that is secured by encrypting the transmission channel or the data itself. The recipient has no need for client software, thus eliminating costly support or maintenance. Safe-T manages the file recipients and the way they are authenticated and monitors and reports on all corporate file transfer activity allowing accountability.

BOSâNOVA Suite Solution

The BOSâNOVA suite solution enables customers to extend compatibility of IBM System i Servers to other environments by implementing a variety of technologies such as Twinax to TCP/IP, WEB and Mobile connectivity.

Software Application

PointAct platform is an application development tool which was developed by BOS and is also used by BOS to develop Mobile and RFID applications.

This platform is based on Point Microsoft SharePoint Content Management portals with the following enhancements:

a.	Extended capabilities to perform critical documentation-related tasks. Streamlined administration, cutting the time needed for critical tasks from hours to minutes.
b.	Enhanced the search abilities.

Our Software applications aim at supply chain logistics, man process control and monitoring, healthcare, retails and environment industries.

Marketing, Distribution and Sales

We market our solutions primarily to medium and large sized corporations through a combination of direct sales, sales agents distributors and integrators.

Mobile and RFID Solutions

In the United States, we market our BOSâNOVA Suite solution through one key distributor, Bosanova Inc., located in Phoenix, Arizona, which coordinates the midrange connectivity-related marketing efforts of dozens of distributors and resellers, and offers technical support and after-sales service. The sales to Bosanova Inc. in the first quarter of 2008 accounted for 16% of the Mobile and RFID Solutions revenues for that quarter. In the rest of the world we market our solutions directly, through distributors and system integrators. In year 2008 we intend to increase our international sales force with new distributors, system integrators, sales representatives and direct sales persons who specialize in the Mobile and RFID solutions.

Supply Chain Solutions

We market our Supply Chain Solutions in North and Latin America through our fully owned U.S. subsidiaries Summit and Ruby-Tech Inc. In the rest of world we market our products mainly through our headquarters in Israel. Our sales force is comprised of direct sales teams and sales representatives.

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Our sales fluctuate seasonally, with the third quarter sales affected (set back) by summer vacations in Europe and new years’ holidays in Israel, and December and January sales are affected (set back) by the Christmas season.

The following table sets forth our revenues (in thousands of US$) from continuing operations, by major geographic area, for the periods indicated below:

	2007		%		2006		%		2005		%
America		5,420		23		2,848		14		3,439		14
Europe		1,511		6		1,173		6		1,171		5
Far East		964		4		2,019		10		6,083		25
Israel and others		15,879		67		14,877		70		13,406		56
Total Revenues		23,774		100		20,917		100		24,099		100

Sales by divisions:

	2007		%		2006		%		2005		%
Mobile and RFID		2,673		11		2,344		11		3,993		17
Supply Chain Solutions		21,101		89		18,573		89		20,106		83
Total Revenues		23,774		100		20,917		100		24,099		100

Manufacturing

The products of our subsidiary Dimex Solutions Ltd. and Dimex Hagalil Projects (2008) Ltd., are designed, integrated and tested at our facilities in Israel. The manufacturing is partly done by Israeli subcontractors using components and subassemblies supplied by vendors to our specifications. Certain components and subassemblies used by us in our existing products are purchased from a single supplier or a limited number of suppliers. Most of the imported components are purchased in Israel from local representatives of the manufacturers. Some of them have exclusive representative rights in Israel. In the event that these suppliers are unable to meet our requirements in a timely manner, we may experience an interruption in production until an alternative source of supply can be obtained. We generally maintain an inventory, which we believe adequately limits the exposure to such an interruption. Our current manufacturing facilities have sufficient capacity to meet and exceed current demand. The prices of raw materials used in our industry are volatile and availability may vary due to changing demand in the market.

          Our Supply Chain Solution segment products are manufactured by third party suppliers. Most of our sales in our Supply Chain segment rely on products of certain main manufacturers which we represent. One major manufacturer accounted for 11% of our Supply Chain Solution segment purchases during 2007.

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Intellectual Property

We currently rely on a combination of trade secrets, copyright and trademark law, together with non-disclosure agreements and technical measures, to establish and protect proprietary rights in our products.

We believe that the improvement of existing products and solutions, reliance upon trade secrets and proprietary know-how and the development of new products are generally as important as patent protection in establishing and maintaining a competitive advantage. We believe that the value of our products is dependent upon our proprietary software and hardware remaining “trade secrets” or subject to copyright protection.

Generally, we enter into non-disclosure and invention assignment agreements with our employees and subcontractors. However, there can be no assurance that our proprietary technology will remain a trade secret, or that others will not develop a similar technology or use such technology in products competitive with those offered by us.

While our competitive position may be affected by our inability to protect our proprietary information, we believe that because of the rapid pace of technological change in the industry, factors such as the technical expertise and the knowledge and innovative skill of our management and technical personnel, name recognition, the timeliness and quality of support services provided by us and our ability to rapidly develop, produce, enhance and market software products may be more significant in maintaining our competitive position.

As the number of software products in the industry increases and the functionality of these products further overlaps, we believe that software programs will increasingly become subject to infringement claims. The cost of responding to any such assertion may be material, whether or not the assertion is valid.

Competition

Mobile and RFID Solutions:

The Mobile and RFID Solutions market is subject to rapidly changing technology and evolving standards incorporated into mobile equipment, ERP system, computer networks and hosting computers. As the market is growing the number of competitors increases. Some of the competitors haves substantially greater financial, marketing and technological resources as well as name recognition than ours.

In Israel our main competitors in Mobile and RFID market are LogiTag system ltd, Galbital RFID solutions Ltd., Dannet Advanced Technologies Ltd., L.X Mobile Systems Ltd., Nortec AMI Ltd. and Netcode Ltd. In the global market our main competitors are Aeroscout, RF Code and Tagsys. We see our advantage over the competitors by our offering of comprehensive solutions which combine software solutions and RFID peripheral equipment such as readers and tags

In the Bosanova Suite solutions field, our main competitors include IBM, Perle, Advanced Business Link, IGEL, CLI PowerTerm, NLynx, NetManage, Attachmate, and Seagull, Adobe, Optio and Formscape.

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Supply Chain Solutions:

We hold several representation agreements with major suppliers and manufacturers such as: Texas Instruments, Sokymat SA, Amphenol, Eaton and Fenwall.

Although most of our representation agreements are not on an exclusive basis, in most cases there are no local competitors who distribute components from the same source. However, there may be competition in case of similar components made by other manufacturers.

In October 2005, our major supplier to the Far East market opened its own headquarters in China, causing a substantial decrease in our sales to the Far East. The number of instances in which territorial-based distribution agreements are challenged by large foreign distributors, who receive a special discount on large volume purchases from the suppliers and compete with the local distributor by selling directly to its customers, is increasing. Still, despite inferiority in pricing, local distributors have some advantages over such competition by providing close and continuous technical support, large inventory, a wide spectrum of products and short reaction time.

Our Israeli competitors in distribution to the electronic industry include the publicly traded Telsys Ltd., Nisco Projects Ltd. and STG International Electronics (1981) Ltd., as well as Eastronics Ltd., Chayon Group Ltd. and C.M.S. Compucenter Ltd.

In the international market, our competitors are mainly Arrow, Avnet, TTI, PEI, Marine Air, Airtechnics, Inc., Flame enterprise Inc., Norstan Electronics Inc. and Peerless Electronics Inc.

Our competitors in the supply chain solutions to the aerospace industry include: Hansair, Avial, API, Cooper, Avio.

Strategy

The Company’s vision is to become a worldwide leader in the field of comprehensive Mobile & RFID solutions for enterprise logistics and organizational processes.

          The key elements of our strategy are as follows:

· Continue to develop our range of Mobile and RFID solutions to include generic, platform independent software in order to diversify and expand our target markets.

· Increase our international sales force by new partnerships with distributors, integrators, sales representatives and direct sales persons who specialize in Mobile and RFID solutions.

· Increase representations of manufacturers by our Supply Chain Solutions segment.

· Acquire of RFID applications to be sold through our existing and future channels.

· Leverage the substantial synergy between BOS subsidiaries worldwide.

Exchange Controls

See “Section 10D. Exchange Controls”.

For other government regulations affecting the Company’s business, see “Section 5A. Results of Operations – Grants and Participation”.

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4C. Organizational Structure

The Company’s wholly owned subsidiaries include:

In Israel:

1) Dimex Solutions Ltd. (previously BOScom Ltd), which is part of the Mobile and RFID segment, and its wholly owned subsidiary, Dimex Hagalil Projects (2008) Ltd., which was incorporated in January 2008;

(2) Odem Electronic Technologies 1992 Ltd. (“Odem”), which we purchased on November 18, 2004 from Odem’s previous shareholders, and in which, by November 2005, our holdings increased to 100%. Odem, an Israeli company, is a major solution provider and distributor of RFID and electronics components and advanced technologies in the Israeli market. Odem is also a provider of RFID peripheral equipment such as RFID readers and tags for the Mobile and RFID solutions segment; and

(3) Quasar Telecom (2004) Ltd. (“Quasar Telecom”), which is inactive.

In the United States:

(1) Lynk USA Inc., a Delaware Corporation, and its subsidiaries:

a.	Summit Radio Corp. (“Summit”), part of the Supply Chain solutions segment, that was purchased in November 2007. Summit is a supply chain provider, mainly of electronic components to the aviation and aerospace industry.
b.	Pacific Information Systems, Inc. (“PacInfo”), a Delaware corporation and PacInfo’s subsidiary, Dean Tech Technologies Associates, LLC., a Texan corporation, both of which are not active.

(2) Ruby-Tech Inc., a New York corporation and a wholly owned subsidiary of Odem.

(3) BOS Delaware Inc. a Delaware corporation, whose operations ceased in 2002.

In Europe:

BOScom Ltd. had a UK subsidiary, Better On-Line Solutions Ltd., and its subsidiary, Better On-Line Solutions S.A.S in France. Since 2002 these subsidiaries are no longer active.

The voting power we (or our subsidiaries) have in all our subsidiaries, equates our shareholdings.

The Company also holds interests in:

1.	Surf Communication Systems Ltd. ("Surf"), of which we held 6.94% as of December 31, 2007. (see "Section 4A. History and Development of the Company")
2.	Qualmax Inc., (“QMXI.PK”) which as of December 31, 2007 we held 17.87% and its subsidiary New World Brands Inc. (OTC: NWBD.OB) which as of December 31, 2007 we held 3.96% The Company’s holdings in Qualmax and New World were received as the consideration for the sale of the communication segment. (see “Section 4A. History and Development of the Company”)

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4D. Property, Plants and Equipment

Following the acquisition of Summit in November 2007 and Dimex in March 2008, our executive offices and engineering, development, testing, shipping and service operations are located in Israel and in USA, as follows:

Location	Size (square meters)	End of lease period	Extension Option
Israel:
Rishon Lezion*	1,092	July 2009- through January 2012	January 31, 2016
Tel Aviv	784	October 27, 2008
Kibutz Dafna	578	December 31, 2008
Yoqneam	390	January 2009- through January 2010	January 2010- through January 2012
New Jersey, USA	678	January 31, 2010

* In addition, our subsidiary, Odem, owns 302 square meters in the same building.

Our average monthly rental fee in 2008 (up till May), for the year 2007 and for the year 2006 amounted to $14,000, $9,000 and $10,000, respectively.

We plan to concentrate all of our Israeli operation in one location, by the end of 2009.

Item 4A: Unresolved Staff Comments

Not Applicable

Item 5: Operating and Financial Review and Prospects

The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and notes thereto. Certain matters discussed below and throughout this annual report are forward-looking statements that are based on our beliefs and assumptions as well as information currently available to us. Such forward-looking statements may be identified by the use of the words “anticipate”, “believe”, “estimate”, “expect”, “plan” and similar expressions. Such statements reflect our current views with respect to future events and are subject to certain risks and uncertainties. While we believe such forward-looking statements are based on reasonable assumptions, should one or more of the underlying assumptions prove incorrect, or these risks or uncertainties materialize, our actual results may differ materially from those described herein.

The Company’s discussion and analysis of its financial condition and result of operations is based upon the Company’s consolidated financial statements which have been prepared in accordance with generally accepted accounting principles (“GAAP “) in the United States of America.

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Critical accounting policies

Use of Estimates

The preparation of our financial statements required the Company to make estimations and judgments, in accordance with U.S. GAAP, that affect the reporting amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Company evaluates its estimates, including those related to revenue recognition, bad debts, inventories, and legal contingencies on an ongoing basis. The Company based its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For a review of the accounting policies that form the basis of the above-referenced estimates and judgments that the Company made in preparing its consolidated financial statements, please see Note 2 (Significant Accounting Policies) to the Consolidated Financial Statements for the year ended December 31, 2007. The following accounting policies had the most significant impact on the Financial Statements for the year ended December 31, 2007.

Functional and Reporting Currency:

A substantial portion of the Company’s revenues is generated in U.S. dollar (“dollars”). In addition, most of the Company’s costs are incurred in dollars. Company’s management believes that the dollar is the primary currency of the economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the dollar.

Odem’s functional currency as of December 31, 2004, was New Israeli Shekels (NIS) and was translated into U.S. dollars. Beginning April 1, 2005, Odem’s functional currency became the U.S. dollar, due to the following man factors:

· Odem’s integration with BOS resulted in a transition of its budget planning and business performance measurement from NIS to U.S. dollars;

· A majority of Odem revenues and expenses became permanently linked to or paid in U.S. dollars.

In accordance with FAS 52, “Foreign Currency Translation” and since Odem’s functional currency changed to the BOS reporting currency, U.S. dollars, the pre-change translation adjustments as of March 31, 2005 have not been removed from equity and the pre-change translated amounts for non monetary assets as of March 31, 2005 became the accounting basis for those assets in the periods starting April 1, 2005.

The functional currency of Summit, which was acquired in November 21, 2007, is the U.S. dollar.

The functional currency of Dimex, which as of March 2008 consolidated into BOS results, is the NIS and its financial statements have been translated into U.S. dollars. All balance sheet accounts were translated using the exchange rates in effect at the balance sheet date. Statement of operations amounts were translated using the average exchange rate for the period. The resulting translation adjustments are reported as a component of shareholders’ equity in accumulated other comprehensive income (loss).

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Inventory

Inventories are valued at the lower of cost or market value. Cost is determined as follows: Raw and packaging materials - moving average cost method, Products in progress and finished products - moving average cost method.

Inventory write-offs are provided to cover risks arising from slow-moving items or technological obsolescence. As of December 31, 2007 and 2006, inventory is presented net of $358,000 and $100,000 respectively, for technological obsolescence and slow moving items (see also Note 4 to the Consolidated Financial Statements for the year ended December 31, 2007).

Investment in an affiliated company

An affiliate is a company in which the Company is able to exercise significant influence, but that is not a subsidiary and is accounted for by the equity method, net of write-down for decrease in fair value, which is not of a temporary nature. The Company’s investment in Surf has been included as an affiliate until September 30, 2005. In June 2006, following an investment round, the Company’s holdings in Surf decreased to 7.8% of Surf’s issued and outstanding shares. As a result, the Company ceased to have the ability to exercise significant influence over Surf and, accordingly, the adjusted carrying amount of the investment is accounted for based on the cost accounting method (see Note 5to the Consolidated Financial Statements for the year ended December 31, 2007).

The Company’s investment in this company is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable, in accordance with Accounting Principle Board Opinion 18 “The Equity Method of Accounting for Investments in Common Stock” (“APB 18”). During 2005, an impairment of $1,385,000 has been recorded in “equity in losses of an affiliate” in the statement of operations.

Investment in other companies

Investments in public companies with restrictions of less than one year are classified as available-for-sale under FAS 115 (“Readily Determined Sales Price Currently Available on a Security Exchange”), and are adjusted to their fair market value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss).

Our investment in QMX and NWB is presented, commencing December 31, 2007 at the sales price on the applicable securities market, in accordance with FAS 115 (See note 1d to the Consolidated Financial Statements for the year ended December 31, 2007).

Management evaluates investments in other companies for evidence of other than temporary declines in value. Accordingly, during 2007 and 2006, an impairment loss, due to other than temporary decline, of $5,588,000 and $39,000 has been recorded, respectively and presented in other income (loss), net in the consolidated statements of operations. During 2005, no impairment losses have been identified.

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Goodwill, Intangible Assets and Other Long-Lived Assets

Goodwill represents excess of the costs over the net assets of businesses acquired. Under SFAS 142 goodwill is not amortized but instead is tested for impairment at least annually or between annual tests in certain circumstances, and written-down when impaired. Goodwill attributable to each of the reporting units is tested for impairment by comparing the fair value of each reporting unit with its carrying value. The reporting units of the Company for purposes of the impairment test are: the Company’s Mobile and RFID operating segments and the Supply Chain Solutions segment, as these are the components of the business for which discrete financial information is available and segment management regularly reviews the operating results of those components. Fair value is determined using income and market approaches. Significant estimates used in the methodologies include estimates of future cash flows, future short-term and long-term growth rates, weighted average cost of capital and estimates of market multiples for each of the reportable units.

The Company’s long-lived assets are reviewed for impairment in accordance with Statement of Financial Accounting Standard 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During 2007, 2006 and 2005, no impairment losses have been identified.

Revenue Recognition

The Company sells its products through direct sales, distributors and resellers channels.

The Company derives its revenues from the sale of products, license fees for its products, commissions, support and services.

Revenues from product sales are recognized in accordance with Staff Accounting Bulletin 104 “Revenue Recognition in Financial Statements” (“SAB 104”) when delivery has occurred, persuasive evidence of an arrangement exists, the vendor’s fee is fixed or determinable, no further obligation exists, and collectability is reasonably assured.

Most of the Company’s revenues are generated from sale of its products directly to end-users and indirectly, mostly through independent distributors. Other than pricing terms which may differ due to the volume of purchases between distributors and end-users, there are no material differences in the terms and arrangements involving direct and indirect customers. The majority of the Company’s products sold through agreements with independent distributors are non-exchangeable, non refundable, non-returnable without any rights of price protection or stock rotation. Accordingly, the Company considers the distributors as end-users.

Revenue from license fees is recognized in accordance with Statement of Position (“SOP”) 97-2 “Software Revenue Recognition”, when persuasive evidence of an agreement exists, delivery has occurred, no significant obligations with regard to implementation remain, the fee is fixed or determinable, and collectability is probable. The Company generally does not grant a right of return to its customers. When a right of return exists, the Company defers revenue until the right of return expires, at which time revenue is recognized provided that all other revenue recognition criteria have been met.

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Revenues from maintenance and support are recognized ratably over the period of the support contract. The fair value of the support is determined based on the price charged when it is sold separately or renewed.

With regard to software arrangements involving multiple elements such as software product and maintenance and support, the Company has adopted Statement of Position No. 98-9, “Modification of SOP No. 97-2, Software Revenue Recognition with Respect to Certain Transactions” (“SOP No. 98-9”). According to SOP No. 98-9, revenues should be allocated to the different elements in the arrangement under the “residual method’’ when Vendor Specific Objective Evidence (“VSOE”) of fair value exists for all undelivered elements and no VSOE exists for the delivered elements. Under the residual method, at the outset of the arrangement with the customer, the Company defers revenue for the fair value of its undelivered elements (maintenance and support) and recognizes revenue for the remainder of the arrangement fee attributable to the elements initially delivered in the arrangement (software product) when the basic criteria in SOP No. 97-2 have been met. Any discount in the arrangement is allocated to the delivered element. Maintenance and support revenue is deferred and recognized on a straight-line basis over the term of the maintenance and support agreement. The VSOE of fair value of the undelivered elements (maintenance and support) is determined based on the price charged for the undelivered element when sold separately or for new arrangements, based upon the price that management will determine to charge.

Income taxes:

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No 109, “Accounting for Income Taxes”. This Statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company has provided valuation allowances, in respect of deferred tax assets resulting from tax loss carry forward and other reserves and allowances due to its history of operating losses and current uncertainty concerning its ability to realize these deferred tax assets in the future.

In June 2006, the Financial Accounting Standards Board (FASB) issued interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes–An interpretation of FASB Statement No. 109. The Interpretation clarifies the accounting for uncertainties in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attributes of income tax positions taken or expected to be taken on a tax return. Under FIN 48, the impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained. The Company adopted the provisions of FIN 48 as of January 1, 2007. The impact of adopting FIN 48 was insignificant to the Company’s consolidated financial statements.

Legal contingencies

The Company has been a party to various legal proceedings in the normal course of its business. The results of legal proceedings are difficult to predict and an unfavorable resolution of a lawsuit or proceeding may occur. Management believes that the prospects of these proceedings to prevail and recover a significant amount, seem remote, and a corresponding provision was recorded in this respect. For additional information see “Section 8A. Consolidated Statements and Other Financial Information – Legal Proceedings”. As additional information becomes available, management will reassess the potential liability related to these legal proceedings and may revise its estimate of the probable cost of these proceedings. Such revisions in the estimates of the probable cost could have a material adverse effect on the Company’s future results of operations and financial position.

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Stock based compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees and directors. SFAS 123(R) supersedes Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees” (“APB 25”), for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

SFAS 123(R) requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statement of operations. Prior to the adoption of SFAS 123(R), the Company accounted for equity-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards 123, “Accounting for Share-based Compensation” (“SFAS 123”).

The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the Accounting Standard starting from January 1, 2006, the first day of the Company’s fiscal year 2006. Under that transition method, compensation cost recognized in the year ended December 31, 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated.

Prior to January 1, 2006, the Company applied the intrinsic value method of accounting for stock options as prescribed by APB 25, whereby compensation expense is equal to the excess, if any, of the quoted market price of the stock over the exercise price on the date of grant of the award.

The Company recognizes compensation expenses for the value of its awards granted subsequent to January 1, 2006 based on the straight line method over the requisite service period of each of the awards, net of estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures.

The Company estimates the fair value of stock options granted using the Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the most significant are expected stock price volatility and the expected option term. Expected volatility was calculated based upon actual historical stock price movements over the most recent periods ending on the date of grant, equal to the expected option term. The expected option term represents the average of the options contractual life and the vesting period in accordance with SAB 107 guidance. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends. (see Note 2 to the Consolidated Financial Statements for the year ended December 31, 2007).

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The Company applies SFAS 123 “Accounting for stock Based Compensation” (“SFAS 123”) and EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction With, Selling, Goods or Services”, with respect to warrants issued to non-employees. SFAS 123 requires the use of option valuation models to measure the fair value of the warrants at the date of grant.

Impact of recently issued accounting pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis, and should be applied prospectively. The adoption of the provisions of SFAS 157 related to financial assets and liabilities and other assets and liabilities that are carried at fair value on a recurring basis is not anticipated to materially impact the Company’s consolidated financial position and results of operations. Subsequently, the FASB provided for a one-year deferral of the provisions of SFAS 157 for non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a non-recurring basis.

The Company is currently evaluating the impact of adopting the provisions of SFAS 157 for non-financial assets and liabilities that are recognized or disclosed on a non-recurring basis.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). Under this Standard, the Company may elect to report financial instruments and certain other items at fair value on a contract-by-contract basis with changes in value reported in earnings. This election is irrevocable. SFAS 159 provides an opportunity to mitigate volatility in reported earnings that is caused by measuring hedged assets and liabilities that were previously required to use a different accounting method than the related hedging contracts when the complex provisions of SFAS 133 hedge accounting are not met. SFAS 159 is effective for years beginning after November 15, 2007. There is no impact of adopting SFAS 159 on its financial position, cash flows, and results of operations of the Company.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (Revised 2007) (SFAS 141R), Business Combinations. SFAS 141R will change the accounting for business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change the accounting treatment and disclosure for certain specific items in a business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS 141R will have an impact on accounting for future business combinations once adopted and not on prior acquisitions. The Company is currently evaluating the impact of adopting the provisions of SFAS 141R.

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In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This standard is effective for fiscal years beginning after December 15, 2008 and should be applied prospectively. However, the presentation and disclosure requirements of the statement shall be applied retrospectively for all periods presented. The adoption of the provisions of Statement No. 160 is not anticipated to materially impact the Company’s consolidated financial position and results of operations. The Company is currently evaluating the impact of adopting the provisions of SFAS 160.

In December 2007, the U.S. Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin 110 (“SAB No. 110”) to amend the SEC’s views discussed in Staff Accounting Bulletin 107 (“SAB No. 107”) regarding the use of the simplified method in developing an estimate of expected life of share options in accordance with SFAS No. 123(R). SAB No. 110 is effective for the company beginning in the first quarter of fiscal year 2008. The Company expects to continue using the simplified method. As a result, the Company does not expect the adoption of SAB No. 110 will have a significant impact on its consolidated financial statements.

Discontinued operations

On December 31, 2005, we sold our Communications related property and equipment, goodwill, technology, trade name, existing distribution channels and related contingent liability to the Office of the Chief Scientist to IP Gear Ltd., a wholly owned subsidiary of Qualmax.

The results of operations, including revenues, cost of revenues, operating expenses, and other income and expenses of the discontinued operations have been reclassified in the statements of operations as discontinued operations. The Company’s balance sheet reflects the net assets and liabilities of the discontinued operations as assets and liabilities related to discontinued operations.

5A. Results of Operations

Comparison of 2007 and 2006

In the beginning of 2007, BOS adopted a new strategic vision of becoming a worldwide leader in the field of comprehensive Mobile & RFID solutions for enterprise logistics and organizational processes. Committed to this vision, BOS, replaced its senior management, relocated to the center of Israel – closer to the business centers and the investment community and hired highly motivated, skilled employees.

BOS’ continues to execute a growth strategy to strengthen its product offering and distribution channels worldwide. BOS’ technological infrastructure and future software products offering was upgraded in 2007 by workforce adjustments and through the acquisition of new software technology in connection with the acquisitions of the assets of CYMS and Optimize IT.

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In November 2007, we announced the acquisition of Summit, a U.S. based company, situated in New Jersey. Summit transformed BOS into a diversified supply chain company with sales to major international aviation and aerospace manufacturers, and gave BOS’ Mobile and RFID solutions a gateway to the U.S. markets. These activities had a significant impact on the revenues and operating expenses of year 2007 as compared to year 2006.

Revenues of 2007 were $23,774,000 compared to $20,917,000 in 2006. A decrease in revenues from our BOSâNOVA Suite Solution products was offset by increases in revenues from new software products and from our Supply Chain Solutions segment, including from Summit. Gross profit for 2007 was $4,675,000 (gross margin of 20%), compared to $4,717,000 (gross margin of 23%) for 2006. The decrease in the gross margin in 2007 as compared to 2006 is related mainly to two expenses we incurred in year 2007: (a) an inventory write off in the amount of $258,000 and (b) amortization of intangible assets in the amount of $89,000. Excluding these expenses, the gross margin of 20% in year 2007 would have been 21% compared to 23% in year 2006.

Research and development expenses for 2007 were $636,000 compared to $486,000 for 2006. The increase related to an upgrade of our technological infrastructure and future software products offering, which was effected through workforce adjustment and through the acquisition of new software technology in connection with the acquisition, of the assets of CYMS and OptimizeIT, that we made during the second half of year 2007. In-process research and development expenses in year 2007 amounted to $170,000 and are attributable to a one- time amortization of the purchase price of OptimizeIT.

Selling and marketing expenses for 2007 were $3,811,000 compared to $2,019,000 in 2006, an increase of $1,792,000.

General and administrative expenses for 2007 were $1,980,000 compared to $3,268,000 in the year 2006, a decrease of $1,288,000

The increase in the selling and marketing expenses and the decrease in general and administrative expenses are due to the following principal reasons: (a) commencing the second quarter of 2007, the general and administrative expenses of our subsidiaries are presented under sales and marketing expenses as compared to 2006, when an amount of $1,444,000 was presented under general and administrative expenses. The change in the classification reflects the reorganization we made in the organization of BOS during 2007; and (b) consolidation of Summit as of November 2007 contributed $363,000 to the sales and marketing expenses.

As a result of the above, operating loss in year 2007 amounted to $1,922,000 compared to operating loss of $1,056,000 in year 2006.

Financial expenses for 2007 were $469,000 compared to $626,000 in 2006. The decrease is related to the conversion of convertible notes in June 2007.

The acquisitions we consummated in 2007 and in the first quarter of 2008 will increase our use of loans in order to finance the working capital needs and partly finance the acquisitions (see “Section 5B. Liquidity and Capital Resources”). As a result, we expect our financial expenses in 2008 to be higher than in 2007.

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Other expenses in year 2007 amounted to $6,233,000 which resulted from: (a) an impairment loss in the amount of $5.6 million due to a decrease in the share price of New World Brands and Qualmax; and (b) on June 21, 2007, we entered into an agreement with the holder of our convertible note, pursuant to which the holder converted the entire outstanding principal amount of approximately $ 2,223,000 into 878,670 Ordinary Shares of the Company at a conversion price of $2.53. As a result of reducing the conversion price we recorded expenses upon conversion of $611,000 in year 2007. In the first quarter of 2008, due to an increase in the share price of New World, the book value of our investment increased by $244,000 which was recorded against other comprehensive income (i.e capital fund) and did not affect our statement of operations. (See note 1d to the Consolidated Financial Statements for the year ended December 31, 2007)Tax on income in 2007 amounted to $9,000 compared to taxes benefit of $89,000 in 2006. We may record income tax benefit in year 2008 as a result of usage of carry forward losses by our subsidiaries, Summit and Dimex.

Loss from continuing operations in 2007 amounted to $8,633,000 compared to a loss of $1,593,000 in 2006. On a per share basis, the basic and diluted loss per share from continuing operations in 2007 was $1.00, compared to $0.24 in 2006.

Income from discontinued operations is attributed to the operational results of the Communication segment that was sold in 2005. On a per share basis, the basic and diluted earning per share from discontinuing operations in 2007 was $0.02, compared to loss $0.25 in 2006.

Basic and diluted net loss per share in 2007 was $0.97, compared to net earnings of $0.01 in 2006.

Comparison of 2006 and 2005

Revenues of 2006 were $20,917,000 compared to $24,099,000 in 2005. The decrease is attributed to: (a) our strategic decision to stop offering our Supply Chain Solutions in the Far East markets due to increased competition; as a result, our 2006 revenues to the Far East were reduced by $4,100,000 as compared to year 2005; and (b) software revenues decreased from $3,926,009 in year 2005 to $2,058,000 in year 2006 as a result of continued weakness in the sales of BOSâNOVA Suite Solution to IBM System i environment and (c) year 2005 revenues included revenues of $864,000 attributed to non profitable product lines that were sold during that year.

Excluding the effect of the revenues attributed to the Far East and to the sold product lines, 2006 revenues reflected a 10% increase over the revenues of 2005.

Gross profit for 2006 was $4,717,000 (gross margin of 23%) compared to $6,245,000 (gross margin of 26%) for 2005. The decrease in gross margin results from a decrease in software revenues, which have a relatively high gross margin. Software revenues decreased from $3,926,000 (gross margin of 62%) in 2005 to $2,058,000 (gross margin of 65%) in 2006.

Research and development expenses for 2006 were $486,000 compared to $893,000 for 2005. The decrease in research and development expenses results from the sale of the Software Utilities product line during 2005, with respect to which research and development expenses in 2005 were $378,000.

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Selling and marketing expenses for 2006 were $2,019,000 compared to $2,425,000 in 2005. The decrease in selling and marketing expenses results primarily from the sale of the Software Utilities product line during 2005, with respect to which selling and marketing expenses in the year 2005 were $226,000.

General and administrative expenses for 2006 were $3,268,000 compared to $2,667,000 in the year 2005. General and administrative expenses for 2006 includes shares based compensation cost in the amount of $727,000 compared to $348,000 in 2005.

As a result of the above, operating loss in year 2006 amounted to $1,056,000 compared to operating income of $260,000 in year 2005. Financial expenses for 2006 were $626,000 compared to $448,000 in 2005. The increase is attributed mainly to the issuance of an additional convertible note in principal amount of $1,500,000 to Laurus Master Fund Ltd. (“Laurus”) in August 2006.

Tax benefit in 2006 amounted to $89,000 compared to taxes on income of $204,000 in 2005. The tax benefit and tax on income are related to the taxable income of our subsidiary, Odem.

Equity losses of an affiliated company in 2005, refers to our investment in Surf. In September 2005, Surf completed a private placement that diluted the Company’s holdings to 8.7% of Surf’s issued and outstanding share capital. As a result, the Company ceased to have the ability to exercise significant influence over Surf and, accordingly, the adjusted carrying amount of the investment is accounted for based on the cost accounting method.

In June 2006, as part of an investment round, the Company invested $300,000 in Surf, following which it holds 7.8% of Surf’s issued and outstanding share capital as of December 31, 2006.

Minority interest in earnings of a subsidiary in 2005 refers to the Company’s investment in Odem, which as of November 1, 2005, became a wholly-owned subsidiary of the Company.

Loss from continuing operations in 2006 amounted to $1,593,000 compared to a loss of $2,010,000 in 2005. On a per share basis, the basic and diluted loss per share from continuing operations in 2006 was $0.24, compared to $0.36 in 2005.

Income (loss) from discontinued operations is attributed to the operational results of the Communication segment that was sold in 2005. On a per share basis, the basic and diluted earning per share from discontinuing operations in 2006 was $0.25, compared to loss $0.28 in 2005.

Basic and diluted net earning per share in 2006 was $0.01, compared to net loss of $0.64 in 2005.

Variability of Quarterly Operating Results

Our revenues and profitability may vary in any given year, and from quarter to quarter, depending on the number of products sold. In addition, due to potential competition, uncertain market acceptance and other factors, we may be required to reduce prices for our products in the future.

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Our future results will be affected by a number of factors including our ability to:

· increase the number of products sold,

· acquire effective distribution channels and manage them,

· develop, introduce and deliver new products on a timely basis,

· anticipate accurately customer demand patterns and

· manage future inventory levels in line with anticipated demand.

These results may also be affected by currency exchange rate fluctuations and economic conditions in the geographical areas in which we operate. There can be no assurance that our historical trends will continue, or that revenues, gross profit and net income in any particular quarter will not be lower than those of the preceding quarters, including comparable quarters.

Impact of Inflation and Currency Fluctuations

The U.S. Dollar cost of our operations in Israel is influenced by the differential between the rate of inflation in Israel and any change in the value of the NIS relative to the Dollar.

A devaluation of the NIS in relation to the U.S. Dollar will have the effect of decreasing the costs in NIS and a converse effect in case of devaluation of the U.S. Dollar in relation to the NIS.

A devaluation of the NIS in relation to the U.S. Dollar will have the effect of decreasing the Dollar value of any of our assets which consist of NIS (unless such asset is linked to the Dollar). Such a devaluation would also have the effect of reducing the Dollar amount of any of our liabilities and expenses which are payable in NIS (unless such payables are linked to the Dollar). Conversely, any increase in the value of the NIS in relation to the Dollar will have the effect of increasing the Dollar value of our assets which consist of NIS (unless such asset is linked to the Dollar). Such an increase would also have the effect of increasing the Dollar amount of any of our liabilities and expenses which are payable in NIS (unless such payables are linked to the Dollar).

In the years ended December 31, 2007, 2006, 2005, 2004, 2003 the inflation rate in Israel as adjusted for the devaluation of the Israeli currency in relation to the Dollar was 8.6%, 8.1%, (4.5)% 2.8% and 5.7%, respectively. The closing representative exchange rate of the Dollar at the end of each such period, as reported by the Bank of Israel, was NIS 3.846, NIS 4.225, NIS 4.44, NIS 4.603, NIS 4.308 and NIS 4.379, respectively. As a result, the Company experienced increases in the Dollar costs of operations in Israel in 2007, 2006, 2004, 2003 and decreases in 2005.

Effective Corporate Tax Rate

          Israeli companies are generally subject to income tax at the declining corporate rate of 29% in 2007, 27% in 2008, 26% in 2009 and 25% in 2010 and thereafter. The Company and its Israeli subsidiaries have accumulated losses for Israel income tax purposes as of December 31, 2007, in the amount of approximately $36,132. These losses may be carry forward (linked to the Israeli Consumer Price Index (“CPI”)) and offset against taxable income in the future for an indefinite period.

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Grants and Participation

Under the Law for the Encouragement of Industrial Research and Development, 1984 (the “Research Law”), research and development programs approved by a research committee of the Office of the Chief Scientist (“OCS”) of Israel’s Ministry of Industry, Trade and Labor, are eligible for grants in exchange for payment to the Government of royalties from the sale of products developed in accordance with the Program. In order to be eligible, the applicant must be an Israeli company that proposes to invest in the development of industrial know-how, the development of new products, the development of new processing or manufacturing procedures or the development of significant improvements to an existing process or product. A committee of the OCS reviews the applications, evaluates the feasibility of the proposal, determines whether or not to approve a grant, and also determines the extent of Chief Scientist funding (within a range specified by the law) for approved projects. Depending on the nature of the project, the OCS grants generally amount up to 50% of the approved research expenses.

Under the Company’s research and development agreements with the OCS and pursuant to applicable laws, the Company is required to pay royalties at the rate of 3.5% of sales of products developed with funds provided by the OCS, up to an amount equal to 100% of the research and development grants (dollar-linked) received from the OCS. The obligation to pay these royalties is contingent upon actual sales of the products. Royalties payable with respect to grants received under programs approved by the OCS after January 1, 1999, are subject to interest on the U.S. dollar-linked value of the total grants received at the annual rate of LIBOR applicable to U.S. dollar deposits at the time the grants are received.

The Research Law requires that the manufacture of any product developed as a result of research and development funded by the Israeli Government take place in Israel. If any of the manufacturing is performed outside of Israel, the Company would ordinarily be required to pay royalties at an increased rate and to increase the aggregate repayment amount to between 120% and 300% of the grant amount, depending on the manufacturing volume that is performed outside Israel, except in special cases that receive the prior approval of the research committee, and subject to certain payments to be made to the Israeli Government (generally an amount no less that the aggregate grants plus interest less royalties paid).

The Research Law also provides that know-how from the research may not be transferred to third parties in Israel without prior approval of the research committee. This approval, however, is not required for the sale or export of any products resulting from such research and development. Approval of such transfer of know-how may be granted in specific circumstances, only if the recipient abides by the provisions of the Research Law and related regulations, including the restrictions on the transfer of know-how and the obligation to pay royalties in an amount that may be increased. The Research Law further provides that the know-how developed under an approved research and development program may not be transferred to any third parties outside Israel.

The Research Law imposes reporting requirements with respect to certain changes in the ownership of a grant recipient. The law requires the grant recipient and its controlling shareholders and interested parties to notify the Office of the Chief Scientist of any change in control of the recipient or a change in the holdings of the significant stockholders of the recipient that results in a non-Israeli becoming an interested party directly in the recipient and requires the new interested party to undertake to the Office of the Chief Scientist to comply with the Research Law. In addition, the rules of the Office of the Chief Scientist may require prior approval of the Office of the Chief Scientist or additional information or representations in respect of certain of such events.

The funds available for Office of the Chief Scientist grants out of the annual budget of the State of Israel have been reduced, and the Israeli authorities have indicated that the government may further reduce or abolish Office of the Chief Scientist grants in the future. Since year 2006, we have not participated in research and development programs supported by the OCS.

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As of December 31, 2007, the Company has an outstanding contingent obligation to pay royalties in respect of OCS grants, in the amount of approximately $3,462,000, compared to $3,430,000 as of December 31, 2006.

We are committed to paying royalties to the Fund for the Encouragement of Exports for its participation, by way of grants, in our marketing expenses outside of Israel. Royalties payable are 3% of the growth in exports, from the year we received the grant, up to 100% of the dollar-linked amount of the grant received at the date the grants received.

Since 1996, we have not participated in Fund for the Encouragement of Exports programs.

As of December 31, 2007, the Company has an outstanding contingent obligation to pay royalties of $83,000 with respect to these grants, compared to $89,000 on December 31, 2006.

Conditions in Israel

We are incorporated under the laws of Israel. Our offices and product development and manufacturing facilities are located in Israel. As a consequence, we are directly affected by political, economic and military conditions in Israel. Our operations would be substantially impaired if major hostilities involving Israel should occur or if trade between Israel and its present trading partners should be curtailed. See also “Section 3D. Risk Factors”.

Political and Economic Conditions

          Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility, varying from time to time in intensity and degree, has led to security and economic problems for Israel. A peace agreement between Israel and Egypt was signed in 1979. However, economic relations have been limited. A peace agreement between Israel and Jordan was signed in 1994. However, as of the date hereof, Israel has not entered into any peace agreement with Syria or Lebanon. No prediction can be made as to whether any other written agreements will be entered into between Israel and its neighboring countries, whether a final resolution of the area’s problems will be achieved, the nature of any such resolution or whether civil unrest will resume and to what extent such unrest would have an adverse impact on Israel’s economic development or on our operations in the future. There is substantial uncertainty about how or whether any peace process will develop or what effect it may have upon us. Since October 2000, there has been a substantial deterioration in the relationship between Israel and the Palestinians, which has resulted in increased violence. The future effect of this deterioration and violence on the Israeli economy and our operations is unclear.

          In January 2006, Hamas, an Islamic movement responsible for many attacks against Israelis, won the majority of the seats in the Parliament of the Palestinian Authority. The election of a majority of Hamas-supported candidates is a major obstacle to relations between Israel and the Palestinian Authority, as well as to the stability in the Middle East as a whole.

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          In addition, the future of the “peace process” with the Palestinians is uncertain and has deteriorated due to Palestinian violence, with the threat of a large-scale attack by Palestinians on Israeli civilians and key infrastructure remaining a constant concern. The past few years of renewed terrorist attacks by the Palestinians has severely affected the Israeli economy in many ways.

          In July 2006, Israel became involved in a major military conflict with the Hizbullah organization in Lebanon, which subjected the north of Israel to missile attacks.

In June 2007, there was an escalation in violence in the Gaza Strip resulting in Hamas effectively controlling the Gaza Strip and a further escalation in violence has occurred during the first few months of 2008. Ongoing violence between Israel and the Palestinians as well as tension between Israel and the neighboring Syria and Lebanon may have a material adverse effect on our business, financial conditions and results of operations. In addition, several countries still restrict business with Israel and with companies doing business in Israel. We could be adversely affected by adverse developments in the “peace process” or by restrictive laws or policies directed towards Israel or Israeli businesses. Some of our employees are obligated to perform annual reserve duty in the Israel Defense Forces and may, at any time, be called for active military duty. While we have operated effectively under those and similar requirements in the past, no assessment can be made of the full impact of such requirements on us in the future, particularly if emergency circumstances occur. If many of our employees are called for active duty, our business may be adversely affected.

In recent years Israel has been going through a period of recession in economic activity, resulting in low growth rates and growing unemployment. Our operations could be adversely affected if the economic conditions in Israel continue to deteriorate. In addition, due to significant economic measures proposed by the Israeli Government, there have been several general strikes and work stoppages in 2003 and 2004, affecting all banks, airports and ports. These strikes have had an adverse effect on the Israeli economy and on business, including our ability to deliver products to our customers. In 1998, the Israeli currency control regulations were liberalized dramatically. As a result, Israeli citizens can generally freely purchase and sell Israeli currency and assets. The Government of Israel has periodically changed its policies in these areas. There are currently no Israeli currency control restrictions on remittances of dividends on ordinary shares or proceeds from the sale of ordinary shares; however, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.

The costs of our operations in Israel are generally incurred in New Israeli Shekels (“NIS”). If the inflation rate in Israel exceeds the rate of devaluation of the NIS against the U.S. Dollar in any period, the costs of our Israeli operations, as measured in U.S. Dollars, could increase. Israel’s economy has, at various times in the past, experienced high rates of inflation.

5B. Liquidity and Capital Resources

As of December 31, 2007, the Company’s long and short term credit, amounted to $8,314,000, of which $5,864,000 is credit from Israeli banks and the remainder is from Bank Leumi New York. (See notes 9 and 11 to the Consolidated Financial Statements for the year ended December 31, 2007)

As of December 31, 2007, the Company’s short term credit, amounted to $5,028,000, long term loans amounted to $3,286,000 and cash and cash equivalents amounted to $4,271,000.

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In connection with the Dimex acquisition in March 2008, we established and used a short term revolving credit line from Bank Leumi LeIsrael, in order to fund a portion of the Dimex purchase price, in the amount of NIS 10.5 million (approximately $3.2 million based on May 31,2008 currency exchange rate). The revolving credit line bears interest at prime plus 1.75%, which is payable monthly. An additional three year loans in the amount of NIS 6.9 million (approximately $2.1 million based on May 31, 2008 currency exchange rate), will be used to make four additional semi-annual installments for payment of part of the consideration in the Dimex acquisition through March 2010. The three-year loan bears interest at prime plus 2%, which is payable monthly.

The company loans are secured by:

· first ranking fixed charges on the goodwill of BOS and its subsidiaries, on our shareholdings in the subsidiaries and on certain bank accounts of Odem; and

· floating charges on all of the assets of BOS and its subsidiaries, owned now or in the future. BOS also guarantees the liabilities of Dimex Solutions to the bank and each of Dimex Solutions and Odem technologies guarantee BOS’ liabilities to the bank.

In addition, the loan agreements contain various covenants which require, among other things, that we maintain certain financial ratios related to our shareholders’ equity. The loan terms also restrict substantial asset sales, cash dividends, certain inter-company and shareholders payments.

Pursuant to the Dimex Asset Purchase Agreement, as of May 31, 2008 we are required to pay to the sellers an additional approximately NIS 25 million (approximately $7.7 million based on May 31, 2008 currency exchange rate), in four installments. The first installment of NIS 15 million is due in September 2008 and the remaining amount is payable in three semi-annual installments through March 2010.

We finance our activities by different means, including equity financings, short and long-term loans, and income from operating activities.

Net cash used in operating activities from continuing operations in 2007 was $4,595,000 compared to $1,953,000 in 2006, an increase of $2.6 million. The increase is attributed to an increase in working capital needs as a result of growth in revenues in year 2007 as compared to year 2006, and to an increase in year 2007 losses as compared to year 2006.

During 2007, cash used in investing activities from continuing operations amounted to $4,731,000 as compared to cash provided by investing activities in the amount of $631,000 in 2006. In year 2007 we used $4.5 million in acquisitions while in year 2006 we had net proceeds of $655,000 from redemption of marketable securities. The cash provided by investing activities results mainly from redemption of marketable securities.

Net cash provided by financing activities in 2007 amounted to $11,564,000, which relates mainly to proceeds from share issuance and bank loans. Net cash provided by financing activities amounted to $1,676,000 in 2006, attributed to proceeds from bank loans and convertible notes.

Working capital requirements will vary from time-to-time and will depend on numerous factors, including but not limited to, the operating results, scope of sales, supplier and customer credit, the level of resources devoted to research and development, new product introductions, and marketing and acquisition activities.

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We have in-balance sheet financial instruments and off-balance sheet contingent commitments. Our in-balance sheet financial instruments consist of our assets and liabilities. Our cash is invested in short-term (less than 3 months) U.S. dollars and NIS interest bearing deposits with banks. As of December 31, 2007, our average trade receivables’ and trade payables’ aging days are 85 and 68 days, respectively. The fair value of our financial instruments is similar to their book value. Our off-balance sheet contingent commitments consist of: (a) royalty commitments that are directly related to our future revenues, (b) lease commitments of our premises and vehicles, (c) directors and officers’ indemnities, in excess of the proceeds received from liability insurance which we obtain, and (d) legal proceedings.

We believe that our cash resources are sufficient to meet our operating needs for at least the next 12 months. In year 2007 we raised equity of $6.6 million and $4.8 million net loans. In March 2008 we established a short term revolving credit line from Bank Leumi LeIsrael in the amount of $3.2 million. An additional three year loan in the amount of $2.1 million, will be used for payment of part of the consideration in the Dimex acquisition in four semi-annual installments through March 2010. The three year loan bears interest at prime plus 2%, which is payable monthly. It is our intention to seek to raise additional equity and debt financings, to fund additional product development, establish distribution channels in new markets and for the payment of our liabilities related to the acquisition of Dimex. There is, however, no assurance that we shall be able to obtain such financing.

Laurus Convertible Note Financings

On June 10, 2004, the Company entered into a Securities Purchase Agreement with Laurus Master Fund Ltd. under which the Company issued to the Laurus in a private placement (i) a Secured Convertible Term Note of a $2,000,000 principal amount, due June 10, 2007; and (ii) a warrant to purchase 130,000 Ordinary shares at an exercise price of $4.04 per share. The warrant is exercisable, in whole or in part, until June 10, 2011.

Pursuant to its undertaking in the Registration Rights agreement with Laurus the Company filed with the Securities and Exchange Commission a registration statement on Form F-3 covering the resale of Ordinary Shares that were issued upon conversion of the Note and that shall be issued upon exercise of the Warrants. The registration statement became effective on March 11, 2005.

On March 23, 2005, after Laurus elected to convert $308,000 of the principal sum of the convertible note, Laurus was issued 100,000 ordinary shares of the Company. On July 14, 2005, Laurus completed the conversion of the balance of the principal, which had not been previously converted or repaid, and the accrued interest, into an additional 540,293 ordinary shares, for approximately $1.58 million. On September 29, 2005, the Company entered into a Second Securities Purchase Agreement with Laurus, under which the Company issued to Laurus in a private placement (i) a Secured Convertible Term Note of a $1.5 million principal amount, due September 2008 and the conversion price into ordinary shares at was $3.08 per share. As a result of the price per share in the rights offering described below (that was completed on April 16, 2007), the conversion price of the convertible note was reduced to $2.97 per share, and (ii) a Warrant to purchase 73,052 ordinary shares at an exercise price of $4.04 per share.

The Warrant is exercisable, in whole or in part, until September 29, 2012, and payment of the exercise price may be made either in cash or in a “cashless” exercise (or in a combination of both methods). The warrant exercise price is also subject to proportional adjustment in the event of combinations, subdivisions of the ordinary shares or if dividend is paid on the ordinary shares in ordinary shares.

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Pursuant to its undertaking in the Registration Rights Agreement with Laurus, the Company filed with the Securities and Exchange Commission a registration statement on Form F-3 covering the resale of ordinary shares that are issuable upon conversion of the Note and/or exercise of the Warrants, and/or issuable in payment of principal and interest on the Note. The registration statement became effective on February 8, 2006.

On August 17, 2006 the Company entered into and closed a third financing transaction with Laurus. The financing consisted of a $1.5 million Secured Convertible Term Note with a term of three years. In addition, BOS granted to Laurus a Warrant to purchase up to 73,052 Ordinary Shares, which is exercisable, in whole or in part, until August 16, 2013 at an exercise price of $4.04 per share for the first 24,351 Ordinary Shares acquirable thereunder, and of $5.30 per share for the additional 48,701 acquirable thereunder.

The conversion rate under the Note was $3.08 per share for the first $500,000 of principal amount payable thereunder and $4.08 for any additional amount payable thereunder (subject to adjustment). As a result of the price per share in the rights offering described below (that was completed on April 16, 2007), the $3.08 conversion rate was reduced to $2.97 and the $4.08 conversion rate was reduced to $3.78. The Company also entered into a Registration Rights agreement with Laurus pursuant to which the Company agreed to prepare and file with the Securities and Exchange Commission a registration statement covering the resale of Ordinary Shares that are issuable upon conversion of the Note and/or exercise of the Warrants, and/or issuable in payment of principal and interest on the Note. The registration statement became effective on December 5, 2006.

On June 21, 2007 Laurus Master Fund Ltd. converted the entire outstanding principal amount under its Convertible Notes of approximately $2,223,000 into 878,670 Ordinary Shares of the Company, at a conversion price of $2.53.

2005 Private Placement

On May 24, 2005 the Company entered into a Share Purchase Agreement, under which the Company issued and sold to certain Israeli and European investors, in a private placement offering, 953,698 Ordinary Shares at a price of $2.30 per share for a consideration of approximately $2,040,000 (net of issuance expenses amounted to $154,000), and 572,219 warrants to purchase Ordinary Shares reflecting a 60% warrant coverage, exercisable for three years from their date of issuance. The exercise price under the warrants is $2.50 per Ordinary Share during for the first year from the issuance, and increasing to $2.75 per Ordinary Share and $3.03 per Ordinary Share, on the first and second anniversaries of the issuance, respectively. The Company filed with the Securities and Exchange Commission a registration statement covering the resale of the Ordinary Shares issued to the investors, which became effective on February 8, 2006.

Rights Offering

In April 2007 the Company completed a rights offering in which it raised gross proceeds of approximately $4.4 million by issuing 1,739,398 ordinary shares. In the rights offering, the Company offered its shareholders rights to purchase its ordinary shares at a subscription price of $2.50 per ordinary share. The rights were traded for one day on both the Nasdaq Global Market and the Tel-Aviv Stock Exchange. The offering ended on April 16, 2007.

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2007 Private Placements

On June 26, 2007, the Company entered into a definitive private placement agreement with a European private investor for the issuance of 226,415 Ordinary Shares at a price per share of $2.65. The Company also entered into a Registration Rights Agreement granting the investor certain incidental registration rights.

In December 2007, the Company entered into a Share Purchase Agreement with Catalyst Fund L.P. and three subsidiaries of D.S. Apex Holdings Ltd., under which the Company issued 833,560 Ordinary Shares at a price of $2.40 per share (reflecting an aggregate investment of approximately $2 million), and 541,814 warrants at an exercise price of $2.76, exercisable for four years from their date of issuance.

The Company has paid 3% in cash and 6% in ordinary shares as placement fees to placement entities related to the aforementioned investors. (see note 18 to the Consolidated Financial Statements for the year ended December 31, 2007). The Company also entered into a Registration Rights Agreement pursuant to which the Company shall prepare and file with the Securities and Exchange Commission a registration statement covering the resale of the Ordinary Shares issued to the investors.

5C. Research and Development

We believe that our future growth will depend upon our ability to enhance our existing products and introduce new products on a timely basis. Since we commenced operations, we have conducted extensive research and development activities.

Historically our research and development efforts related to our Communication Solutions, until sold in December 2005. Our current research and development efforts focus on our Mobile & RFID solutions for enterprise logistics and organizational processes and on our software products offering (see “Section 4B. Business Overview” for the detailed list of our software products).

We intend to finance our research and development activities with our own resources and by raising equity and debt financings.

5D. Trend Information

In the beginning of 2007, BOS adopted a new strategic vision of becoming a worldwide leader in the field of comprehensive Mobile & RFID solutions for enterprise logistics and organizational processes. In light of this vision, BOS effected a reorganization which included replacement of its senior management, relocation to the center of Israel - closer to the business centers and the investment community, and the hiring of highly motivated skilled employees.

BOS’ continues to execute a growth strategy to strengthen its product offering and distribution channels worldwide. BOS’ technological infrastructure and future software products offering was upgraded in 2007 by workforce adjustments and through the acquisition of new software technology in connection with the acquisition of the assets of CYMS and of Optimize IT.

In November 2007, we announced the acquisition of Summit, a U.S. based company, situated in New Jersey. Summit transformed BOS into a diversified supply chain company with sales to major international aviation and aerospace manufacturers, and gave its Mobile and RFID solutions a gateway to the U.S. markets.

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In January 2008, we announced the acquisition of the business of Dimex Systems (1992) Ltd. (“Dimex”), in a deal that transformed BOS into the leading Israeli integrator of AIDC (Automatic Identification and Data Collection) solutions based on Mobile & RFID and Barcode technology.

We believe that these acquisitions will increase our revenues to $55 million in year 2008, compared to $24 million in year 2007. However, we do not expect our gross profit margin to change as compared to year 2007. In addition, our 2008 revenues could be adversely affected by the recent slowdown in the financial markets and its impact on the industry and technology markets.

The year 2008 is a year of synergy and integration of our acquisitions. Hence, we expect our 2008 operating expenses to increase as compared to 2007, with the cost-reduction results of synergy and integration to be fully reflected in 2009.

The vast majority of our sales are made in U.S. dollars and significant portion of our expenses is in New Israel Shekels (“NIS”). The U.S. dollar cost of our operations in Israel is increased by the extent to which the NIS appreciates in relation to the dollar. In 2007, and until May 31, 2008, the dollar devaluated against the NIS by approximately 23.5%, which resulted in a corresponding increase in the U.S. dollar cost of our operating expenses. Further significant devaluation could have an adverse effect on our results of operation and financial condition.

Our recent acquisitions required us to increase our credit facilities in order to finance part of the acquisition and our working capital needs. As a result, we expect our financial expenses in year 2008 to be higher than in year 2007. The acquisitions also generated intangible assets that will cause an increase in the amortization of intangible assets expenses in year 2008 as compared to year 2007.

Our recently acquired subsidiaries, Summit and Dimex have carry forward losses, and a result we may record an income tax benefit in year 2008.

5E. Off-Balance Sheet Arrangements

In September 2004 Odem signed a long term sale agreement for the supply of electronic components (“components”). The agreement provides for a fixed sales price of the components during the term of the agreement thru December 2008.

In May 2008, we announced that we finalized a contract for the sale of components to the strategic Latin American customer. The contract, expected to be signed in the near future, provides for a framework for orders potentially amounting to up to $25 million during an initial five-year term (until 2012). The contract may be extended for additional five-year terms. Pursuant to the contract, we committed to a fixed components sale price through 2010, which is partly covered by manufacturers obligation for fix prices for part of the period.

Absent the flexibility to increase our prices as a result of increased costs of the components, significant increased costs may adversely impact our financial results. In addition, under the agreements, we are obligated to hold inventory of products necessary for three months of the customer’s production. This requires us to incur the costs of purchasing inventory without having an outstanding purchase order for the products. If we are unable to sell products that are purchased to hold in inventory, we may incur write offs and write downs as a result of slow moving items, technological obsolescence, excess inventories, discontinued products and products with market prices lower than cost. Such write offs and write downs could adversely affect our operating results and financial condition.

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As of December 31, 2007 we had no write down of write off of inventory that related to this agreement.

5F. Tabular Disclosure of Contractual Obligations

The following table of our material contractual obligations as of December 31, 2007, summarizes the aggregate effect that these obligations are expected to have on our cash flows in the periods indicated:

	Payment due by period
	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years
Long-term loans (1)	3,929,000	643,000	3,278,000	8,000
Accrued severance pay (2)	798,000	–	–	–	798,000
Operating lease - cars	549,592	276,545	273,047	–	–
Purchase obligation for service and inventory	5,579,407	5,579,407	–	–	–
Facilities lease	410,357	163,283	243,046	4,028
Total	11,266,356	6,662,235	3,794,093	12,028	798,000

(1)	Does not include interest.
(2)	This amount reflects our accrued severance pay liability. The time for payment of the severance cannot be predicted and, as a result, this amount is presented in the more than 5 years column.

In addition, the above table does not include (i) contingent obligations to pay royalties to the Office of the Chief Scientist and to the Overseas Marketing Fund since the total amount to be paid under the terms of those agreements is a function of future sales, and (ii) contingent legal claims (see “Section 8A. Consolidated Statements and Other Financial Information – Legal Proceedings”).

Item 6: Directors, Senior Management and Employees

6A. Directors and Senior Management

          Set forth below is information regarding our directors and senior management.

Name	Age	Position
Mr. Edouard Cukierman1	43	Chairman of the Board of Directors
Mr. Shmuel Koren	38	President and Chief Executive Officer
Mr. Eyal Cohen	39	Chief Financial Officer
Mr. Joel Adler	54	Director
Mr. Amir Ohad	44	Director
Mr. Joshua Zoller	58	Director
Mr. Dan Hoz	37	Director
Mr. Gérard Limat	67	Director
Mr. Ronen Zavlik	47	Director
Dr. Yael Ilan	59	External Director
Prof. Adi Raveh	60	External Director
Mr. Avidan Zelicovsky1	38	Head of Supply Chain Solutions, Israel and Europe
Mr. Yuval Viner	45	Head of Mobile and RFID Infrastructure
Mr. Andrew Levi	45	Head of Supply Chain Solutions, the Americas
Mr. Shai Sadeh	54	Head of Mobile and RFID Software
Ms. Sari Ellenberg	50	Vice President, Resources

          ¹Mr. Cukierman and Mr. Zelicovsky are first cousins. There are no other family relationships among the officers and directors.

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          Mr. Edouard Cukierman has been a director since May 2003, and Chairman of the Company since June 2003. Mr. Cukierman is the founder and CEO of Catalyst Investments and Chairman of Cukierman & Co. Investment House. Since 1993, Cukierman & Co., Investment House realized € 2.7 billion of Corporate Finance transactions. Mr. Cukierman is a former Board member of Orex, MTI Wireless and other technology companies. He was the President and CEO of the Astra Fund. He served as a Board member of Otto Capital, a Singapore based VC fund. He was the former President of the Supervisory Board of Citec-Environment and Services in Paris. He is currently a Board member of Lamina Technologies in Switzerland. He is also on the Board of Sar-El, an Israeli Defense Forces volunteer organization. He serves as an Officer of the IDF Spokesman Unit, and is part of the Hostage & Crisis Negotiation Team (Reserves). Mr. Cukierman holds an MBA from INSEAD, Fontainebleau, France and a B.Sc from the Technion - Israel Institute of Technology.

          Mr. Shmuel Koren has been serving as the Company’s President and CEO Since November 2006. From 1999 to 2006 Mr. Koren served as the Chief Financial Officer of Visonic Ltd. (LSE: VSC.L; TASE: VSC.TA). Prior to joining Visonic, Mr. Koren worked at Oren and Horowitz (an Israeli CPA firm), where he served for five years as a senior manager specializing in public companies and Israeli IPOs. Mr. Koren is a certified public accountant in Israel. He holds a B.A. degree in Business and Accounting from the Tel Aviv College of Business, an International M.B.A degree from the Herriot-Watt University Business School and a Masters degree in Law (LL.M.) from Bar Ilan University.

          Mr. Eyal Cohen was appointed the Company’s Chief Financial Officer on January, 2007. From 2004 through 2006 Mr. Cohen served as the Company’s controller, and prior to that held the position of Chief Financial Officer at Cellact Ltd. From 1998 to 2001, Mr. Cohen was the controller of e-SIM Ltd. (NASDAQ:ESIMF) and in the years 1995-1997 held an audit manager position in PricewaterhouseCoopers. Mr. Cohen holds a B.A. in Accounting and Business Administration from the College of Management in Tel-Aviv and is a certified public accountant in Israel and in the United States, in the state of Maine.

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          Mr. Joel Adler has been a director since June 2005. Mr. Adler is a partner in Mishcon de Reya a leading law firm in London. He specializes in mergers & acquisitions and corporate finance work, in particular international corporate transactions. Joel advises a number of major Israel based companies on their business activities in the UK and Europe and on IPO of foreign companies on the London Stock Exchange (AIM). Mr. Adler joined Mishcon de Reya as a partner in 2006, from the London law firm of Speechly Bircham, where he was a partner from 1999. Previously Mr. Adler was head of the corporate department of Rakisons (now part of U.S. law firm Steptoe & Johnson). He gained his experience with other leading law firms in London Herbert Oppenheimer Nathan & Vandyck (now Denton Wilde Sapte) and DJ Freeman. He is a member of the Israeli Bar and worked for the well-known Israeli law firm Caspi & Co. for two years. Mr. Adler holds a law degree from Bar Ilan University in Israel, and an LLM from London University. He was born and educated in Vienna.

          Mr. Ronen Zavlik has been a director since May 2003. He is a partner in the CPA firm of Grinberg-Zavlik, which he founded in 1987. His firm provides a wide range of audit, tax consultancy and CFO services to a wide variety of companies. Mr. Zavlik provides internal auditing services to a number of large companies whose shares are traded on the Tel Aviv Stock Exchange, including Ma’ariv Holdings Ltd, Extra Plastic Ltd., Rapid Vision Ltd., and Optima Management and Investments 66 Ltd. Mr. Zavlik holds a B.A. in Accountancy and Business Management from the College of Management in Tel-Aviv. Mr. Zavlik is a licensed CPA in Israel and a member of the Institute of Certified Public Accountants in Israel.

          Mr. Amir Ohad, has been the CEO and President of Kafrit Industries Ltd. in Israel and its subsidiaries in the UK and Germany, since 2005 and until January 2007. Kafrit is traded on the Tel-Aviv Stock Exchange and produces additives and master batches to the plastic industry. Previously, between the years 2000-2005, Mr. Ohad served as the CFO of Scitex Vision Ltd., that was sold to Hewlett-Packard in 2005 and as a member of the Executive Committee of a subsidiary of a corporation traded in NASDAQ. From 1997-2000, Mr. Ohad served as CFO of Giltek Telecommunications Ltd., a company traded on the Tel-Aviv Stock Exchange. Mr. Ohad holds a B.A. in Business Administration and Economics, an MBA in Finance and an M.A. in Economics (Public Economics), all from the Hebrew University in Jerusalem.

          Mr. Joshua Zoller, has been serving as Finance Manager of Federman & Sons (Holdings) Ltd., an importer and marketer of coffee and manufacturer and marketer of Liquid fertilizer for the last twenty years. Mr. Zoller currently serves as a director in Ubank Fund’s Management Ltd., Yachad Physicians and Consumer Club Ltd. Mr. Zoller holds a B.A. in Accounting and Economics from the University of Haifa.

          Mr. Dan Hoz, has been serving as the CFO of Valor Computerized System Ltd., a provider of vertically integrated manufacturing productivity solutions to the PCB industry since 2002. Previously, Mr. Hoz was the Vice President of Operations and Finance of CAM Division (Frontline), in Orbotech-Valor. Mr. Hoz is also a former Senior Auditor in the High Tech group of Deloitte Touche Tohmatsu. Mr. Hoz holds a B.A. in Accounting and Economics and an MBA (major in Finance) from Ben Gurion University of the Negev, and is a certified CPA.

          Mr. Gérard Limat has been a director of the Company since April 2008. Since 1968, Mr. Limat has held various managerial positions with the Dassault group, which operates in the civil aviation and the military sectors. Mr. Limat is also the founder and CEO of Dasnair, a business plane charter company. In addition, Mr. Limat serves as a director in Générale Immobilière Dassualt and in Cendres & Métaux SA, a company that produces semi-finished and finished products for the dental, jewellery and heavy industries. Mr. Limat is a certified public accountant.

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          Dr. Yael Ilan Dr. Yael Ilan has been an external director since November 2002. Dr. Ilan is the president of Yedatel Ltd., an economic consulting company, and serves as a director of CI Systems in the technology sector. Until 1998, she served on the board of Bezeq - Israel’s Telecommunication Company in which she headed the committee of technological policy and infrastructure and was a member of the audit committee and the committee for strategic planning and investment. From 1998 through 2000 she served as an external director of Elron Industries. In 2000-01 she founded and managed Optichrom, an optical component start-up. From 1995 through 2000 Dr. Ilan served as the head of program of the Broad Band Communication, a consortium of MAGNET – the Israeli Government hi-tech cooperation initiative. From 2002, Dr. Ilan serves as the industrial coordinator in the Electrical Engineering Department of the Technion. In addition, from 2008, she serves as Ismart, MAGNET consortium, program manager. Dr. Ilan holds a Ph.D. in industrial engineering from Stanford University, a Ph.D. in physical chemistry from the Hebrew University and a Masters degree in business administration from the Hebrew University.

          Prof. Adi Raveh has been an external director since February 2003. Prof. Raveh is a professor and head of the B.A. Program at the School of Business Administration, Hebrew University, Jerusalem. Since 1998 he serves as an external director at Clal Insurance Company Ltd. Since 2002 he serves as the Chairman of the Board of Jerusalem Capital Markets Underwriting limited. He also serves as a director of Meitav - a Mutual Funds Management company (since 1995), and as a director of Peilim – a Portfolio Management company – part of Bank Hapoalim Group (since 1996). Since 1992 he is a director who represents the Hebrew University at Hi-Tech – a Technology Entrepreneurship located at Har-Hahotzvim, Jerusalem. Prof. Raveh also serves as a director of two start-up companies: A.D.M (Advanced Dialysis Methods Ltd.) and Virtouch Ltd. Between 1994-1999 he served as a director and a member of the executive committee of the Bank of Jerusalem, Ltd. Between 1996-1998 he served as a member of an ad-hoc committee of the Council of Higher Education. In 1999 he served as a member of the Budget Committee for Research at the Israel Science Foundation. Prof. Raveh holds a Ph.D. from the Hebrew University. He is the author of about 50 professional publications, was a visiting professor at Stanford University, Columbia University and Baruch College, N.Y., and has received a number of grants and honors.

          Mr. Avidan Zelicovsky is the head of the Supply Chain Solutions Israel and Europe. Mr. Zelicovsky first joined our subsidiary Odem Electronic Technologies 1992 Ltd. in 1996. Mr. Zelicovsky holds a B.A. in Business Administration from the Tel Aviv College of Management and an LL.M. from the Ben-Gurion University.

          Mr. Yuval Viner is the head of Mobile and RFID Infrastructure. Mr. Viner joined Dimex Systems (1988) Ltd. in 1993 and was appointed as Dimex System’s CEO in 2000. Mr. Viner joined BOS as part of the Dimex acquisition. Mr. Viner is a graduate of the Practical Engineering Academy of Tel Aviv.

          Mr. Andrew Levi is the head of Supply Chain Solutions, the Americas. Mr. Levi was appointed President of Summit Radio Corp. in the year 1984. Mr. Levi joined BOS as part of the Summit acquisition. Mr. Levi holds a Bachelor of Science from the Syracuse University in New York.

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          Mr. Shai Sadeh has been Senior VP, Connectivity Segment since April 2004. Previously, from 1994 to 2004 he served in several executive capacities at Sintec/Formula Group; he was the founder and CEO of Tochna Veod, a Formula Group company; Manager of IBM iSeries (AS/400) Technical Support team; and founder of the Sintec Group Professional Services Division. Mr. Sadeh has a BA in Social Sciences from Tel Aviv University and is studying towards an M.B.A at the Hebrew University in Jerusalem.

          Ms. Sari Ellenberg joined the Company as VP Resources in February 2007. From March 2005 through February 2007, Mrs. Ellenberg held the position of the assistant to the CFO of Visonic Ltd. (LSE:VSC.L; VSC.T). Prior to joining Visonic, Mrs. Ellenberg worked for two years at Elbit Medical Imaging Ltd. (NasdaqGM: EMITF) where she held the position of Deputy Legal Counsel. Prior to joining Elbit, Mrs. Ellenberg was an attorney with the Israeli law firm of Efrati, Galili & Co. Mrs. Ellenberg holds a B.A. in English Linguistics from the Tel-Aviv University, an LL.B. from the Tel-Aviv University School of Law, and an MBA from the Ono Academic College.

6B. Board and Executive Compensation

On February 18, 2003 the shareholders approved compensation for all directors who are not employees or consultants, including directors appointed in the future, at the same rate the external directors of the Company are paid. However, on August 5, 2004 the shareholders approved an exception – that Edouard Cukierman, Chairman of the Board, will receive remuneration (retroactively from the date of his nomination in May 2003) as a Board member, under the same terms as all other directors, despite his being (indirectly) a controlling shareholder and senior executive of Cukierman & Co. Investment House Ltd. (a service provider to the Company). On November 7, 2007 the shareholders approved an Active Chairman Agreement with Mr. Edouard Cukierman. Pursuant to this Agreement, in consideration for Mr. Cukierman’s services as the Company’s Active Chairman in the years 2007-2010, he shall be granted 400,000 options in four equal annual tranches (pro-rated for any part of the Calendar year). The Options shall be in lieu of any compensation, fees or options otherwise payable by the Company to Cukierman as a director. (see “Section 7B. Related Party Transactions”).

        The current rates for all of our directors, are an annual fee of approximately $6,649 and a participation fee in meetings of approximately $344. Additionally, the Company’s directors are granted options (see “Section 6E. Share Ownership”). The Company does not have any contracts with any of its non employee/consultant directors, that would provide for benefits upon termination of service.

          The following tables present the total compensation paid to or accrued on behalf of all of our directors and officers as a group for the year ended December 31, 2007:

	Salaries, Directors’ fees, Service fees, Commissions and Bonus		Pension, Retirement and Similar benefits
All directors and officers as a group (then 16 persons)	$	1,551,790	$	108,907

          Such remuneration does not include amounts expended by the Company for expenses, including business association dues and expenses reimbursed to said officers, and other fringe benefits commonly reimbursed or paid by companies in the location in which the particular executive officer of the Company is located, as the case may be.

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          In 2005 and in 2006, we received CFO services from Mocha Global Managerial Services Ltd., with the services provided by Mr. Nehemia Kaufman. Commencing January 2007, these services are no longer provided and the Company has appointed Mr. Eyal Cohen as its CFO. In 2005 and through October 31, 2006 we received managerial/CEO services from Signum Ltd., with the services provided by Mr. Adiv Baruch. Mr. Baruch was replaced by Mr. Shmuel Koren on November 1, 2006. On May 30, 2007, Mr. Baruch resigned from the Company’s Board of Directors. Figure also includes consulting and other fees paid to Cukierman & Co. Investment House Ltd., of which Mr. Edouard Cukierman, the Company’s Chairman, is (indirectly) a controlling shareholder.

6C. Board Practices

          Our Board of Directors is currently comprised of nine directors, including two external directors. The directors are elected at the annual shareholders meeting, by a simple majority, to serve until the next annual meeting of our shareholders and until their respective successors are elected and qualified, with the exception of the external directors who, by rule of the Companies Law 1999, serve for three years. Our Articles of Association provide that the number of directors in the Company (including external directors) shall be determined from time to time by the annual general meeting of shareholders, provided that it shall not be less than four nor more than eleven. Our Articles of Association provide that the directors may appoint additional directors (whether to fill a vacancy or to expand the Board) so long as the number of directors so appointed does not exceed the number of directors authorized by shareholders at the annual general meeting, and such appointees shall serve until the next annual general meeting.

          The Company has determined that Messrs. Adler, Zavlik, Zoller, Ohad, Hoz, Raveh and Limat and Ms. Ilan, who constitute a majority of the Board of Directors, are independent directors under the applicable Nasdaq Stock Market requirements.

          Under the Companies Law and the regulations promulgated pursuant thereto, Israeli companies whose shares have been offered to the public in, or that are publicly traded outside of Israel are required to appoint at least two natural persons as “external directors”. No person may be appointed as an external director if the person, or a relative, partner or employer of the person, or any entity under the person’s control, has or had, on or within the two years preceding the date of the person’s appointment to serve as an external director, any affiliation with the company to whose board the external director is proposed to be appointed or with any entity controlling or controlled by such company or by the entity controlling such company. The term affiliation includes an employment relationship, a business or professional relationship maintained on a regular basis, control and service as an office holder (which term includes a director).

          In addition, no person may serve as an external director if the person’s position or other business activities create, or may create, a conflict of interest with the person’s responsibilities as an external director or interfere with the person’s ability to serve as an external director or if the person is an employee of the Israel Securities Authority or of an Israeli stock exchange. If, at the time of election of an external director, all other directors are of the same gender, the external director to be elected must be of the other gender. The external directors must have professional qualifications to serve as a director, and at least one of the external directors must be a financial expert.

          External directors are elected for a term of three years and may be re-elected for one additional three-year term. Each committee of a company’s Board of Directors that has the authority to exercise powers of the Board of Directors is required to include at least one external director and its audit committee must include all external directors.

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          External directors are elected at the general meeting of shareholders by a simple majority, provided that the majority includes at least one-third of the shareholders who are not controlling shareholders, who are present and voting, or that the non-controlling shareholders who vote against the election hold one percent or less of the voting power of the company.

          Under the Companies Law an external director cannot be dismissed from office unless: (i) the Board of Directors determines that the external director no longer meets the statutory requirements for holding the office, or that the external director is in breach of the external director’s fiduciary duties and the shareholders vote, by the same majority required for the appointment, to remove the external director after the external director has been given the opportunity to present his or her position; (ii) a court determines, upon a request of a director or a shareholder, that the external director no longer meets the statutory requirements of an external director or that the external director is in breach of his or her fiduciary duties to the company; or (iii) a court determines, upon a request of the company or a director, shareholder or creditor of the company, that the external director is unable to fulfill his or her duty or has been convicted of specified crimes.

          Our Articles of Association provide that a director may appoint, by written notice to us, any individual to serve as an alternate director, up to a maximum period of one month, if the alternate is not then a member of the Board. Any alternate director shall have all of the rights and obligations of the director appointing him or her and shall be subject to all of the provisions of the Articles of Association and the Companies Law. Unless the time period or scope of any such appointment is limited by the appointing director, such appointment is effective for all purposes for a period of one month, but in any event will expire upon the expiration of the appointing director’s term, removal of the alternate at an annual general meeting, the bankruptcy of the alternate, the conviction of the alternate for an offense under Section 232 of the Companies Law, the legal incapacitation of the alternate, the removal of the alternate by court order or the resignation of the alternate. Currently, no alternate directors have been appointed. A director may appoint an alternate to serve in his place as a member of a committee of the Board of Directors, even if the alternate currently serves as a director, as long as he does not already serve as a member of that committee.

          Officers serve at the discretion of the Board or until their successors are appointed.

          According to the provisions of our Articles of Association and the Companies Law, the Board of Directors convenes in accordance with the Company’s requirements, and at least once every three months. In practice, the Board of Directors convenes more often. Furthermore, our Articles of Association provide that the Board of Directors may also pass resolutions without actually convening, provided that all the directors entitled to participate in the discussion and vote on a matter that is brought for resolution agree not to convene for discussion of the matter. Resolutions passed without convening, shall be passed by an ordinary majority (just as in the case of convened meetings) and shall have the same effect as resolutions passed at a duly convened meeting.

          In accordance with the requirements of the Nasdaq Stock Market, commencing on July 31, 2005, nominees for directors will be recommended for selection by a majority of the independent directors.

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Audit Committee:

          The Companies Law requires public companies to appoint an audit committee comprised of at least three directors, including all of the external directors, and further stipulates that the chairman of the Board of Directors, any director employed by or providing other services to a company and a controlling shareholder or any relative of a controlling shareholder may not be members of the audit committee. The responsibilities of the audit committee include identifying flaws in the management of a company’s business, making recommendations to the Board of Directors as to how to correct them and deciding whether to approve actions or transactions which by law require audit committee approval. An audit committee may not approve an action or transaction with a controlling shareholder or with an office holder unless at the time of approval two external directors are serving as members of the audit committee and at least one participated in the meeting at which the action or transaction was approved.

          In order to comply with the Sarbanes-Oxley Act of 2002, the Board of Directors has expanded the role of the Company’s Audit Committee to provide assistance to the Board of Directors in fulfilling its legal and fiduciary obligations with respect to matters involving the accounting, auditing, financial reporting and internal control functions of the Company. In carrying out these duties, the Audit Committee must meet at least once in each fiscal quarter with management at which time, among other things, it reviews, and either approves or disapproves, the financial statements of the Company for the immediately preceding fiscal quarter and conveys its conclusions in this regard to the Board of Directors. The Audit Committee also monitors generally the services provided by the Company’s external auditors to ensure their independence, and reviews, and either approves or disapproves, all audit and non-audit services provided by them. The Company’s external and internal auditors must also report regularly to the Audit Committee at its meetings, and the Audit Committee discusses with the Company’s external auditors the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the Company’s financial statements, as and when it deems it appropriate to do so.

          Under the Sarbanes-Oxley Act of 2002, the Audit Committee is also responsible for the appointment, compensation, retention and oversight of the work of the Company’s external auditors. However, under Israeli law, the appointment of external auditors requires the approval of the shareholders of the Company. Accordingly, the appointment of the external auditors is approved and recommended to the shareholders by the Audit Committee and ratified by the shareholders. Furthermore, pursuant to the Company’s Articles of Association, the Board of Directors is the organ that has the authority to determine the compensation of the external auditors, however, the Board of Directors recently delegated its authority to the audit committee, so that a second discussion by the Board of Directors shall not be necessary.

          The Company has determined that the members of the audit committee meet the applicable Nasdaq Stock Market and SEC independence standards.

          In 2003 the Company adopted an Audit Committee Charter, which sets forth the responsibilities of the committee.

Remuneration Committee:

          The role of the Remuneration Committee is to provide assistance and make recommendations to the Board of Directors regarding matters related to the compensation of employees of the Company. The Remuneration Committee of the Company meets on an ad hoc basis. Under the Israeli Companies Law, generally the Remuneration Committee may only make recommendations to the Board of Directors concerning the grant of options (and in some cases, such grants may need approval of the audit committee, the Board of Directors and the shareholders as well).

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          Commencing July 31, 2005, in accordance with Nasdaq rules, the compensation of the Company’s Chief Executive Officer and other executive officers is recommended to the Board of Directors by a majority of the independent directors on the Company’s Board of Directors.

6D. Employees

          As of December 31, 2006, we employed 53 employees. As of December 31, 2007, we employed 93 employees, of which 61 are employed in Israel and the rest are employed in the United States. Of these 93 employees: 7 employees are in administration, 61 employees in marketing and sales, 9 employees in research and development, and 16 employees in manufacturing and related activities. The increase in the numbers of employees is attributed mainly to the acquisition of Summit in November 2007. In addition, as a result of the acquisition of Dimex in March 2008, we increased the number of our employees by 56 employees. We believe that our relations with our employees are satisfactory. We have not experienced a collective labor dispute or a strike.

          Israeli labor laws are applicable to all of our employees in Israel. The laws principally concern the length of the work day, minimum daily wages for professional workers, contributions to a pension fund, insurance for work-related accidents, allotment of vacation and sickness days, procedures for dismissing employees, determination of severance pay and other conditions of employment.

          All Israeli employers are required to provide a certain escalation of wages in relation to the increase in the Israeli Consumer Price Index. The specific formula of such escalation varies according to agreements reached between the Government of Israel, the Manufacturers’ Association and the Histadrut, the general labor union in Israel. All of our Israeli employees are covered by comprehensive pension insurance policies. Israeli employees and employers are required to pay predetermined sums to the Israel National Insurance Institute which amounts also include, since January 1, 1995, payments for national health insurance.

6E. Share Ownership

As of May 31, 2008, out of our directors and officers, then consisting of 16 persons, shares held by our officers and directors are as follows:

Name	Position	Shares	Warrants	Options
Mr. Edouard Cukierman1	Chairman of the Board of Directors	40,690	–	648,876
Mr. Joel Adler2	Director	140,925	65,217	7,500
Mr. Avidan Zelicovsky	Head of Supply Chain Solutions, Israel and Europe	73,000		450,100
Mr. Andrew Levi	Head of Supply Chain Solutions, the Americas	180,000	–	–
Other directors and officers				475,261

1	Mr. Edouard Cukierman held 21,666 ordinary shares directly, 6,424 ordinary shares through a wholly owned company, E.D.I European Development and Investments Ltd and an additional 12,600 ordinary shares through Cukierman & Co. Investment House & Co. that is indirectly controlled by Mr. Cukierman.
2	Brada Investments Limited is discretionary trust of which Mr. Joel Adler, a director of the Company, is one of the beneficiaries. Brada Investments Limited holds 140,925 ordinary shares and 65,217 warrants with an exercise price of $3.03 per share, which will expire by June 30, 2008. Mr. Joel Adler holds 7,500 options, which he received as a director.

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          On February 18, 2003 the Company’s shareholders approved the grant of 7,500 options to any future first-time director, who is not an employee or paid consultant of the Company. The terms and conditions of the grant, as approved by the shareholders, are as follows: the exercise price shall be $1.84; the options will vest over a three year period from the date of grant (one-third vesting every year) and be exercisable within five years from the date of grant. Due to following share fluctuation, at the recommendation of the Board of Directors, the shareholders resolved on August 5, 2004, that future issuances to new directors will have an exercise price equal to the average closing price of the shares on the Nasdaq Global Market on the 20 trading days preceding their appointment.

          The shareholders approved on August 5, 2004, that Edouard Cukierman, Chairman of the Board, will be granted 7,500 options under the same terms as all other directors, despite his being (indirectly) a controlling shareholder and senior executive of Cukierman & Co. Investment House Ltd. (a service provider to the Company), and therefore not eligible for options according to the current shareholder resolution.

          The shareholders also approved on June 29, 2005, to grant all directors of the Company (including external directors), who are not employees or consultants of the Company (or who have been granted options similar to all directors despite their employment and/or services), an additional 7,500 options to purchase ordinary shares of the Company on the third anniversary of their service as directors, under the same terms approved by the shareholders on February 18, 2003 and as amended on August 5, 2004. Following this decision Edouard Cukierman was granted 7,500 options at an exercise price of $2.695.

        On May 18, 2006 and in November 2007 the shareholders approved to grant Mr. Edouard Cukierman, the Chairman of the Board of Directors, a total of 21,666 ordinary shares (for no consideration), and 633,876 options to purchase ordinary shares of the Company, pursuant to the Company’s 2003 Israeli Share Option Plan. (see “Section 7B. Related Party Transactions”)

Share Option Plans

          The purpose of the Share Option Plans is to enable us to attract and retain qualified persons as employees, officers, directors, consultants and advisors and to motivate such persons by providing them with an equity participation in the company. The Section 102 Plan is designed to afford qualified optionees certain tax benefits under the Israel Income Tax Ordinance. The Share Option Plans will expire 10 years after their adoption, unless terminated earlier by the Board of Directors.

          The Share Option Plans are administered by the Board of Directors, which has broad discretion, subject to certain limitations, to determine the persons entitled to receive options.

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          Under the Share Option Plans, the terms and conditions under which options are granted and the number of shares subject thereto shall be determined by the Board of Directors. The Board of Directors also has discretion to determine the nature of the consideration to be paid upon the exercise of an option under the Share Option Plans. Such consideration generally may consist of cash, or, at the discretion of the Board of Directors, cash and a recourse promissory note.

          The ordinary shares acquired upon exercise of an option are subject to certain restrictions on transfer, sale or hypothecation. Options are exercisable and restrictions on disposition of shares lapse pursuant to the terms of the individual agreements under which such options were granted or shares issued.

          Due to a tax reform in Israel, after January 1, 2003 the Company may not grant options pursuant to an “old” Section 102 Plan. Therefore, the Company may not grant any more options pursuant to the 2000 and 1995 Plans described below. Previous grants under these Plans remain unaffected. In any event, after the adoption of the 2003 Plan (see below), the Board of Directors resolved that no further grants shall be made from the previously adopted plans.

          2003 Plan

          In May 2003 the Company’s shareholders approved the adoption of the 2003 Israeli Stock Option Plan, pursuant to which 625,000 ordinary shares were reserved for purchase by the employees, directors, consultants and service providers of the Company and its subsidiaries. Subsequently, the shareholders approved increases of the shares reserved for issuance under the Plan, initially to 1 million, and thereafter to 1.5 million and to 2.6 million. The Board of Directors has resolved that no further grants shall be made from the previous plans. The Company has elected the benefits available under the “capital gains” alternative. Pursuant to the election made by the Company, capital gains derived by optionees arising from the sale of shares derived from the exercise of options granted to them under Section 102, will be subject to a flat capital gains tax rate of 25% (instead of the gains being taxed as salary income at the employee’s marginal tax rate). However, as a result of this election, the Company will no longer be allowed to claim as an expense for tax purposes the amounts credited to such employees as a benefit when the related capital gains tax is payable by them, as the Company was previously entitled to do. The Company may change its election from time to time, as permitted by the Tax Ordinance. There are various conditions that must be met in order to qualify for these benefits, including registration of the options in the name of a trustee (the “Trustee”) for each of the employees who is granted options. Each option, and any ordinary shares acquired upon the exercise of the option, must be held by the Trustee for a period commencing on the date of grant and ending no earlier than 24 months after the date of grant.

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          As of May 31, 2008 we had 1,896,366 options outstanding under this plan (of which 795,622 are vested) with the exercise prices as set forth below:

Exercise Price Per Share $		Outstanding
Less than $0.01		73,000
$	1.55	7,500
$	1.68	100,000
$	1.84	30,000
$	2.00	2,929
$	2.28	7,500
$	2.40	400,000
$	2.5	7,500
$	2.52	676,700
$	2.57	22,500
$	2.58	67,261
$	2.63	7,500
$	2.68	420,976
$	2.70	15,000
$	3.00	48,000
$	3.08	10,000
Total		1,896,366

          2001 Plan

          In March 2002, the Company’s shareholders approved the adoption of the 2001 Stock Option Plan, pursuant to which 250,000 ordinary shares were reserved for purchase by the Company’s employees, directors, consultants or service providers, as determined by the Board of Directors or its authorized sub-committee. As of May 31, 2008, we had 79,408 options outstanding under this plan, 75,000 at an exercise price of 4.00 per share and 4,408 at an exercise price of $6.80 per share. All of the outstanding options had vested as of May 31, 2008.

          2000 Plan

          In April 2001, the Company’s shareholders approved our 2000 Employees Incentive Share Option Plan, pursuant to which 112,500 ordinary shares were reserved for purchase. The plan is subject to Section 102 of the Israeli Income Tax Ordinance. As of May 31, 2008, we had 1,250 options outstanding under this plan at an exercise price of 28.00 per share. All of the outstanding options had vested as of April 30, 2008.

          1995 Plans

          In December 1995, we adopted the following plans: (i) the Stock Option Plan (Incentive and Restricted Share Options) (the “ISO/RSO Plan”), which provides for the grant of incentive and restricted stock options and (ii) the Section 102 Stock Option/Stock Purchase Plan (the “Section 102 Plan” and together with the ISO/RSO Plan, the “Share Option Plans”).

          The Share Option Plans provide for the grant of options to purchase up to an aggregate of 50,000 ordinary shares. As of May 31, 2008, we had 450 options outstanding under this plan at an exercise price of 18.00. All of the outstanding options had vested as of May 31, 2008.

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Item 7: Major Shareholders and Related Party Transactions

7A. Major Shareholders

We are not directly or indirectly owned or controlled by another corporation or by any foreign government.

The following table sets forth, as of April 30, 2008, information to the best of the Company’s knowledge, as to each person known to the Company to be the beneficial owner of more than five percent (5%) of the Company’s outstanding Ordinary Shares. Except where indicated, to the best of the Company’s knowledge based on information provided by the owners, the beneficial owners of the Ordinary Shares listed below have sole investment and voting power with respect to those shares. Applicable percentage ownership in the following table is based on 11,357,778 shares outstanding as of May 31, 2008.

The voting rights of our major shareholders do not differ from the voting rights of other holders of our ordinary shares.

	Shares Beneficially Owned
Name and Address	Number		Percent		Warrants
Catalyst Fund, LP(1)		2,117,252	18.6	%		477,907
3 Daniel Frisch Street, Tel-Aviv 64731, Israel
D.S Apex Holdings Ltd. (2)		1,347,692	11.9	%		270,907
Discount Tower, 23 Yehuda Halevi st. Tel Aviv
SITA S.A.		878,670	7.7	%		–

27, RTE DE GY 1252
Meinier, Geneva
Switzerland

(1) “Catalyst Fund” refers collectively to Catalyst Fund L.P., Catalyst Fund II L.P. and Catalyst Fund III, L.P., all of which are limited partnerships organized and existing under the laws of the State of Israel, and which share the same general partner, Catalyst Investments L.P. Mr. Edouard Cukierman may be deemed to have sole voting and dispositive power with respect to the shares held by Catalyst. Mr. Cukierman disclaims beneficial ownership in such shares, except to the extent of his proportionate interest in them as an indirect shareholder in the general partner of Catalyst Fund.

(2) Refers to the holdings of D.S Apex Holdings Ltd. and its affiliates.

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The changes in holdings of the major shareholders over the last three years, are detailed to the best of our knowledge in the table below:

Holdings as of:	December 31, 2005		December 31, 2006		December 31, 2007		May 31, 2008
Catalyst Fund, LP		1,292,275		1,292,275		2,117,252		2,117,252
D.S Apex Holdings Ltd.						1,338,885		1,347,692
SITA						878,670		878,670

The shareholders’ holdings reflect their voting rights. The Company’s major shareholders do not have different voting rights than other shareholders, with respect to their shares.

As of May 31, 2008, there were 40 record holders of ordinary shares, of which 10 were registered with addresses in the United States, representing approximately 60 % of the outstanding ordinary shares. However, the number of record holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since many of the ordinary shares are held of record by brokers and other nominees.

7B. Related Party Transactions

Grant of Shares and Options and to Mr. Cukierman

The shareholders approved on August 5, 2004, that Edouard Cukierman, Chairman of the Board, will be granted 7,500 options at an exercise price of $1.84 under the same terms as all other first time directors. The shareholders also approved, on June 29, 2005, to grant all directors of the Company, an additional 7,500 options to purchase ordinary shares of the Company on the third anniversary of their service as directors. Following this decision Edouard Cukierman was granted 7,500 options at an exercise price of $2.695 (see “Section 6E. Share Ownership”).

On May 18, 2006 the shareholders approved a grant to Mr. Edouard Cukierman of 21,666 ordinary shares (for no consideration), and 233,876 options to purchase ordinary shares of the Company, pursuant to the Company’s 2003 Israeli Share Option Plan, at an exercise price of $2.68. The options’ exercise price was equal to the average closing price of the Company’s shares on the Nasdaq Global Market on the 20 trading days preceding the shareholders’ meeting date at which the grant was approved (the “Grant Date”). The options vest in three equal parts on the first, second and third anniversary of the Grant Date, and expire from May 2010 through May 2012.

On November 7, 2007 the shareholders approved an Active Chairman Agreement with Mr. Edouard Cukierman. Pursuant to this Agreement, in consideration for Mr. Cukierman’s services as the Company’s Active Chairman in the years 2007-2010, he shall be granted 400,000 options in four equal annual tranches (pro-rated for any part of the Calendar year). The Options shall be in lieu of any compensation, fees or options otherwise payable by the Company to Cukierman as a director.

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The Options shall vest on a quarterly basis. The exercise price of the Options is $2.385, which was equal to the weighted average of the closing prices of the Company’s Ordinary Shares on the Nasdaq Global Market during the thirty-day period preceding the shareholders approval. Unexercised Options shall expire after five years from their respective grant date.

Pursuant to the Agreement, if the Service is terminated by the Company for no Cause (as defined in the Agreement) then: (i) any unvested Options shall be immediately vested in full as of the date of the termination; (ii) the Company shall grant Cukierman such number of Options amounting, together with Options previously granted, to 400,000 Options, and such additional options shall be vested upon grant; and (iii) the Options shall be exercisable for a period of twenty four (24) months from termination.

If the Service is terminated by Cukierman in circumstances not involving Cause, his vested options shall be exercisable for six (6) months from the date of said termination.

In 2003, the Company’s audit committee and Board approved the engagement of Cukierman & Co. Investment House Ltd., to provide non-exclusive investment-banking services and business development services to the Company, effective April 15, 2003. Cukierman & Co. is a company indirectly controlled by Mr. Edouard Cukierman. Since June 26, 2003, he serves as Chairman of the Company’s Board, and he is also a co-manager of the Catalyst Fund, the Company’s largest shareholder. For its services, Cukierman & Co. is paid a monthly sum of $10,000 plus VAT, in addition to a success fee of 4%-6% for a consummated private placement. According to its terms, the Company may terminate the agreement at any time, by giving one month prior written notice. The agreement provided that the success fees for securing M&A transactions shall be discussed and drafted as an Addendum to the Service Agreement. Such an Addendum was approved on August 22, 2004, and it provides for a success fee of 3.5% of the proceeds exchanged in such a transaction.

For payments the Company paid and accrued pursuant to the Service Agreement in year 2007 see Note 18 to the Consolidated Financial Statements for the year ended December 31, 2007).

Management Agreement with Signum Ltd.

The Company’s audit committee, Board of Directors and shareholders had approved an agreement with Signum Ltd. to provide management services to the Company (exclusively through Adiv Baruch who served in the capacity of President and Chief Executive Officer of the Company), effective January 1, 2004. Mr. Adiv Baruch is one of the controlling shareholders of Signum.

Signum was entitled to a monthly gross management fee of NIS 79,698 and was granted options to purchase 216,282 ordinary shares of the Company (equal to five percent (5%) of the Company’s issued and outstanding share capital, on a fully diluted and as converted basis, on November 23, 2003). On June 29, 2005, the shareholders approved the grant of 20,000 options to purchase ordinary shares of the Company under the 2003 Israeli Share Option Plan, to Signum, as a bonus for year 2004, at an exercise price of $3.08 per share, vesting over 24 months from the date of grant in 24 equal parts, 1/24 per month, exercisable until June 2010.

On May 18, 2006, the shareholders approved (i) the grant to Mr. Adiv Baruch of 65,000 ordinary shares (for no consideration) and (ii) the grant to Signum of options to purchase 187,100 ordinary shares of the Company, pursuant to the Company’s 2003 Israeli Share Option Plan, at an exercise price of $2.68. On September 27, 2006, Mr. Baruch notified the Board that he shall be leaving the Company at the end of 2006 at which time the Management Agreement expired. The abovementioned options granted to Signum expired as well. On May 30, 2007 Mr. Baruch resigned from the Company’s Board of Directors.

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December 2007 Private Placement

In December 2007, the Company entered into a Share Purchase Agreement with two of its shareholders, Catalyst Fund L.P. (“Catalyst”) and three subsidiaries of D.S. Apex Holdings Ltd. (“Apex”), under which the Company issued 833,560 Ordinary Shares at a price of $2.40 per share (reflecting an aggregate investment of approximately $2 million). In addition, the Company issued to the investors an aggregate of 541,814 warrants at an exercise price of $2.76, exercisable for four years from their date of issuance.

The Company paid 3% placement fees in cash to Apex and 6% in ordinary shares to Catalyst (see note 18 to the Consolidated Financial Statements for the year ended December 31, 2007).

The Company also entered into a Registration Rights Agreement pursuant to which the Company shall prepare and file with the Securities and Exchange Commission a registration statement covering the resale of the Ordinary Shares issued to the investors.

Indemnity Undertakings by the Company to its Directors and Officers

On February 18, 2003, the Company’s shareholders approved indemnity undertakings to its directors and officers (including future directors and officers as may be appointed from time to time), in excess of any insurance proceeds, not to exceed, in the aggregate over the years, a total amount of $2,500,000 (two and a half million dollars). On May 18, 2006, at the recommendation of the audit committee and the Board of Directors, the shareholders approved amendments to the indemnity undertakings, in light of changes to the Companies Law.

7C. Interests of Experts and Counsel

Not applicable.

Item 8: Financial Information

8A. Consolidated Statements and Other Financial Information

Consolidated Financial Statements

See “Item 18. Financial Statements”.

Sales Outside of Israel

The total amount of revenues of the Company and its subsidiaries from export out of Israel has been as follows:

Year	Export revenues		% of all revenues
2007	$	6,328,000	27	%
2006	$	6,040,000	29	%
2005	$	10,693,000	44	%

Sales outside of Israel in the year 2007 do not include sales of Summit, in the amount of $1,684,000.

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Legal Proceedings

In April 2006, BOSâNOVA EURL, a French company and former distributor of the Company, served the Company with a claim filed with the French Trade Tribunal alleging breach of exclusive distributor rights in France and asserting ownership to certain intellectual property rights in the Company’s products. The plaintiff seeked an amount of approximately 3.3 million Euros and additional remedies. This claim followed a previous motion for temporary injunctive relief that was filed against the Company’s new French distributor, said motion ultimately denied by French Trade Tribunal. On September 18, 2007, the French Trade Tribunal rejected the Company’s assertion that jurisdiction is with the Israeli courts, and the Company has appealed this decision. In February 2008, the Company’s subsidiary, Boscom Ltd. (now Dimex Solutions Ltd.) filed against BOSâNOVA EURL a claim in Israel, for the recovery of a NIS 231,861 debt for purchased products.

In June 29, 2008, the parties entered into a settlement agreement, pursuant to which they waive their respective claims against each other and shall terminate the court proceedings they had initiated on the basis of these claims. In connection with such settlement, the Company agreed to pay BOSâNOVA an amount of $20,000 and offer it a rebate of $40,000 on future purchases. The Company’s financial statements include a provision in this respect.

In January 2008, Mr. Edward Forlander, a former employee of BOScom Ltd., filed a claim against the Company and BOScom in the Labor Court in Tel Aviv, requiring severance payments for the amount of NIS 306,000 and compensation for delay in payment of said severance payments as of the time of the filing of the lawsuit of approximately NIS 207,000. The Company is unable to assess the claim’s chance of success, as the case is in preliminary stages. The Company’s financial statements include a provision in this respect.

Dividend Policy

The Company does not currently have a dividend policy. The declaration and payment of any cash dividends in the future will be determined by the Board of Directors in light of the conditions existing at that time. This will include our earnings and financial condition. We may only pay cash dividends in any fiscal year, out of “profits”, as defined under Israeli law. As we cannot currently distribute dividends, no provision has been made for this additional tax in our Financial Statements.

8B. Significant Changes

Not applicable.

Item 9: The Offer and Listing

9A. Offer and Listing Details

Since April 1996, our ordinary shares were traded, and our warrants, until they expired on April 2, 2000, were traded in the over-the-counter market in the United States, and quoted on what is now called the NASDAQ Capital Market under the symbol “BOSC” and “BOSCW,” respectively. In September 2000, our shares started to be traded on what is now called the NASDAQ Global Market. In January 2002, our shares began trading also on the Tel-Aviv Stock Exchange, under the symbol “BOSC”, pursuant to the dual-listing regulations of the Israeli Securities Authority.

In April 2007 we concluded a rights offering in which we raised gross proceeds of approximately $4.4 million. The rights were traded for one day, April 12, 2007, on both the Nasdaq Global Market and the Tel-Aviv Stock Exchange.

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Exemption from Nasdaq Marketplace Rules

Nasdaq Marketplace Rule 4350(a)(1) allows foreign private issuers an exemption from certain Nasdaq requirements, if the foreign private issuer follows home country practice.

Under the Israeli Companies Law 1999, there is no requirement to send shareholders of a public company a copy of the Company’s annual financial statements. The Company’s annual financial statements are available through to the Company’s public filings both in the United States and in Israel. In reliance on this home country practice, the Company does not distribute it annual financial statements to its shareholder by mail.

In addition, under the Israeli Companies Law 1999 the Company was not required to seek shareholder approval for its 2007 rights offering. The Company has relied on this home country practice for an exemption from Nasdaq Marketplace Rule 4350(i)(1).

Prices set forth below are high and low reported closing prices for our ordinary shares as reported by NASDAQ and the TASE for the periods indicated. All share prices have been retroactively adjusted to reflect the 1:4 reverse stock split effected on May 29, 2003.

Period		NASDAQ				TASE
		High ($)		Low ($)		High (NIS)	Low (NIS)
2003	Annual		3.97		1.67	17.42	8.00
2004	Annual		4.00		1.62	14.98	8.89
2005	Annual		3.74		2.15	16.33	9.00
2006	Annual		2.97		2.11	14.58	9.64
	First Quarter		2.97		2.39	14.58	10.87
	Second Quarter		2.84		2.55	13.08	11.27
	Third Quarter		2.84		2.11	12.85	9.64
	Fourth Quarter		2.73		2.40	11.98	10.23
2007	Annual		2.90		1.90	12.48	7.01
	First Quarter		2.63		2.50	12.48	10.60
	Second Quarter		2.90		2.55	11.60	10.25
	Third Quarter		2.74		2.30	11.85	9.50
	Fourth Quarter		2.49		1.90	10.90	7.01
	December		2.27		1.90	10.50	7.01
2008	January		2.05		1.77	7.52	6.50
	February		1.92		1.78	7.75	7.43
	March		1.92		1.48	7.75	7.75
	April		1.69		1.46	6.58	6.58
	May		1.63		1.45	6.58	4.28

9B. Plan of Distribution

Not applicable.

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9C. Markets

Our securities are traded on the NASDAQ Stock Exchange (symbol “BOSC”) and the Tel-Aviv Stock Exchange (symbol “BOSC”).

9D. Selling Shareholders

Not applicable.

9E. Dilution

Not applicable.

9F. Expenses of Issue

Not applicable.

Item 10: Additional Information

10A. Share Capital

Not applicable.

10B. Memorandum and Articles of Association

In March 2002 the Company adopted new Articles of Association, in view of the Israeli Companies Law, 1999. Since then, certain articles of the Article of Association have been amended.

Set forth below is a summary of certain provisions of our Memorandum and Articles of Association. This summary is not complete and should be read together with our Memorandum and Articles of Association, previously filed.

1. Objects of the Company:

The Company’s objects and purposes are outlined in the Memorandum of Association. These objects include: the development of sophisticated interfaces for IBM mainframe computers; the export of hi-tech products to Europe and the USA; and research, development and manufacture of products in the sphere of communication networks. The Company’s Articles of Association (Article 2) allow it to engage in any legal business.

2. Provisions related to the directors of the Company:

The Board of Directors may issue shares and other securities, which are convertible or exercisable into shares, up to the limit of the Company’s authorized share capital.

(a) Approval of Certain Transactions under the Companies Law:

We are subject to the provisions of the Israeli Companies Law 1999, which became effective on February 1, 2000.

The Companies Law codifies the fiduciary duties that an Office Holder has to the Company. An “Office Holder” is defined in the Companies Law as any Director, General Manager or any other Manager directly subordinate to the General Manager and any other person with similar responsibilities.

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An Office Holder’s fiduciary duties consist of a Duty of Loyalty and a Duty of Care.

The Duty of Loyalty includes: the avoidance of any conflict of interest between the Office Holder’s position in the company and his personal affairs; the avoidance of any competition with the company; the avoidance of any exploitation of any business opportunity of the Company in order to receive personal advantage for himself or others; and a duty to reveal to the Company any documents or information relating to the Company’s affairs that the Office Holder has received due to his position.

The Duty of Care requires an Office Holder to act at a level of care that a reasonable Office Holder in the same position would employ under the same circumstances. This includes the duty to utilize reasonable means to obtain (1) information regarding the appropriateness of a given action brought for his approval or performed by him by virtue of his position and (2) all other information of importance pertaining to the foregoing actions.

Under the Companies Law, all arrangements with regard to the compensation of Office Holders who are not Directors require the approval of the Board of Directors. Arrangements regarding the compensation of Directors require Audit Committee, Board and Shareholder approval.

The Companies Law requires that an Office Holder of a company promptly disclose to the company’s Board of Directors any personal interest that he or she may have, and all related material information known to him in connection with any existing or proposed transaction by the company. This disclosure must be made by the Office Holder, whether orally or in writing, no later than the first meeting of the Company’s Board of Directors, which discusses the particular transaction. An Office Holder is deemed to have a “personal interest” if he, certain members of his family, or a corporation in which he or any one of those family members is a 5% or greater shareholder or exercises or has the right to exercise control, has an interest in a transaction with the company. An “Extraordinary Transaction” is defined as a transaction - other than in the ordinary course of business, not on market terms, or that is likely to have a material impact on the company’s profitability, assets or liabilities.

In the case of a transaction that is not an Extraordinary Transaction, after the office holder complies with the above disclosure requirements, only board approval is required. The transaction must not be adverse to the company’s interests. In the case of an Extraordinary Transaction, the company’s Audit Committee and the Board of Directors, and, under certain circumstances, the shareholders of the company must approve the transaction, in addition to any approval stipulated by the Articles of Association. An Office Holder who has a personal interest in a matter that is considered at a meeting of the Board of Directors or the Audit Committee may not be present at this meeting or vote on this matter, unless a majority of the members of the Board of Directors or Audit Committee, respectively, have a personal interest in the matter, in which case they may all be present and vote, after which the matter must be approved by the shareholders of the Company.

(b) Borrowing powers exercisable by the Directors are not specifically outlined in the Company’s Articles of Association, however, according to Article 15: “Any power of the Company which has not been vested in another organ pursuant to the Companies Law or the articles may be exercised by the Board of Directors”.

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(c) The Company’s Articles of Association do not contain provisions regarding the retirement of directors under an age limit requirement, nor do they contain a provision requiring a Director to hold any Company shares in order to qualify as a Director.

3.          With regard to the rights, preferences and restrictions attaching to the shares, the Company’s Articles of Association provide the following:

(a) Dividends, Rights to Share in the Company’s Profits and Rights to Share in any Surplus upon Liquidation

All holders of paid-up ordinary shares of the Company have an equal right to participate in the distribution of (i) dividends, whether by cash or by bonus shares; (ii) Company assets; and (iii) the Company’s surplus assets upon winding up, all pro rata to the nominal value of the shares held by them (Articles 4.2.2, 4.2.3 and 7.3).

The Board of Directors is the organ authorized to decide upon the distribution of dividends and bonus shares (Article 26). The shareholders who are entitled to a dividend are the shareholders on the date of the resolution for the dividend or on a later date if another date is specified in the resolution on the dividend’s distribution. If the Board of Directors does not otherwise determine, any dividend may be paid by way of a cheque or payment order that shall be sent by mail in accordance with the registered address of the shareholder or person entitled thereto, or in the case of registered joint shareholders to the shareholder whose name appears first in the shareholders’ register in relation to the joint shareholding. Every such cheque shall be drawn up to the order of the person to whom it is being sent. The receipt of a person who on the date of the dividend’s declaration is listed in the shareholders’ register as the holder of any share or, in the case of joint shareholders, of one of the joint shareholders shall serve as confirmation of all the payments made in connection with such share. For the purpose of implementing any resolution pursuant to the provisions of this paragraph, the Board of Directors may settle, as it deems fit, any difficulty arising in relation to the distribution of the dividend and/or bonus shares, including determine the value for the purpose of the said distribution of certain assets and resolve that payments in cash shall be made to members in reliance upon the value thus determined, determine regulations in relation to fractions of shares or in relation to non-payment of amounts less than NIS 200.

(b) Voting Rights

All holders of paid-up ordinary shares of the Company have an equal right to participate in and vote at the Company’s general meetings, whether ordinary or special, and each of the shares in the Company shall entitle its holder, present at the meeting and participating in the vote, himself, by proxy or through a voting instrument, to one vote (Article 4.2.1). Such voting rights may be affected in the future by the grant of any special voting rights to the holders of a class of shares with preferential rights. Shareholders may vote either in person or through a proxy or voting instrument, unless the Board of Directors prohibited voting through a voting instrument on a certain matter and stated so in the notice of the meeting (Articles 14.1 and 14.6). A resolution at the general meeting shall be passed by an ordinary majority unless another majority is specified in the Companies Law or the Company’s Articles of Association (Article 14.3).

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(c) Election of Directors.

The Company’s directors are elected by the shareholders at a shareholders’ meeting. The Ordinary Shares do not have cumulative voting rights in the election of directors. The holders of Ordinary Shares conferring more than 50% of the voting power present by person or by proxy at the shareholders’ meeting, have the power to elect the directors. The directors elected shall hold office until the next annual meeting, or sooner if they cease to hold office pursuant to the provisions of the Company’s Articles. In addition, the Board of Directors may appoint a director (to fill a vacancy or otherwise) between shareholder meetings, and such appointment shall be valid until the next annual meeting or until such appointee ceases to hold office pursuant to the provisions of the Company’s Articles. In compliance with the Companies Law, the Company has two external directors. The external directors are also appointed by the shareholders and their term of office is three years. Directors of the Company stand for reelection at every annual meeting (Article 16.2) and not at staggered intervals, with the exception of the External directors who are appointed for a period of 3 years under the Israeli Companies Law, 1999.

(d) Redemption

The Company may, subject to any applicable law, issue redeemable securities on such terms as determined by the Board of Directors, provided that the general meeting of shareholders approves the Board of Director’s recommendation and the terms determined (Article 27).

(e) Capital Calls by the Company

The Board of Directors may only make calls for payment upon shareholders in respect of monies not yet paid for shares held by them (Article 7.2).

(f) Discrimination

No provision in the Company’s Articles of Association discriminates against an existing or prospective holder of securities, as a result of such shareholder owning a substantial amount of shares.

4. Modification of Rights of Holders of Stock

The general meeting of shareholders may resolve to create new shares of an existing class or of a new class with special rights and/or restrictions (Article 9.1).

So long as not otherwise provided in the shares’ issue terms and subject to the provisions of any law, the rights attached to a particular class of shares may be altered, after a resolution is passed by the Company and with the approval of a resolution passed at a general meeting of the holders of the shares of such class or the written agreement of all the class holders. The provisions of the Company’s Articles of Association regarding general meetings shall apply, mutatis mutandis, to a general meeting of the holders of a particular class of shares (Article 10.1). The rights vested in the holders of shares of a particular class that were issued with special rights shall not be deemed to have been altered by the creation or issue of further shares ranking equally with them, unless otherwise provided in such shares’ issue terms (Article 10.2).

The above mentioned conditions are not more onerous than is required by law.

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5. Annual General Meetings and Extraordinary General Meetings

General meetings shall be convened at least once a year at such place and time as determined by the Board of Directors but no later than 15 months from the last general meeting. Such general meetings shall be called “annual meetings”. The Company’s other meetings shall be called “special meetings” (Article 12.1). The annual meeting’s agenda shall include a discussion of the Board of Directors’ reports and the financial statements as required at law. The annual meeting shall appoint an auditor, appoint the directors pursuant to these articles and discuss all the other matters which must be discussed at the Company’s annual general meeting, pursuant to these articles or the Law, as well as any other matter determined by the Board of Directors (Article 12.2).

The Board of Directors may convene a special meeting pursuant to its resolution and it must convene a general meeting if it receives a written requisition from any one of the following (hereinafter referred to as “requisition”) (i) two directors or one quarter of the directors holding office; and/or (ii) one or more shareholders holding at least 5% of the issued capital and at least 1% of the voting rights in the Company; and/or (iii) one or more shareholders holding at least 5% of the voting rights in the Company (Article 12.3). A requisition must detail the objects for which the meeting must be convened and shall be signed by the persons requisitioning it and sent to the Company’s registered office. The requisition may be made up of a number of documents in an identical form of wording, each of which shall be signed by one or more of the persons requisitioning the meeting (Article 12.4). Where the Board of Directors is required to convene a special meeting, it shall do so within 21 days of the requisition being submitted to it, for a date that shall be specified in the invitation and subject to the law (Article 12.5).

Notice to the Company’s members regarding the convening of a general meeting shall be sent to all the shareholders listed in the Company’s shareholders’ register at least 21 days prior to the meeting and shall be published in other ways insofar as required by the law. The notice shall include the agenda, proposed resolutions and arrangements with regard to a written vote. The accidental omission to give notice of a meeting to any member, or the non-receipt of notice sent to such member, shall not invalidate the proceedings at such meeting (Article 12.6).

The shareholders entitled to participate in and vote at the general meeting are the shareholders on the date specified by the Board of Directors in the resolution to convene the meeting, and subject to the law (Article 14.1).

No discussions may be commenced at the general meeting unless a quorum is present at the time of the discussion’s commencement. A quorum is the presence of at least two shareholders holding at least 33⅓% of the voting rights (including presence through a proxy or a voting instrument), within half an hour of the time fixed for the meeting’s commencement (Article 13.1). If no quorum is present at a general meeting within half an hour of the time fixed for the commencement thereof, the meeting shall be adjourned for one week, to the same day, time and place, or to a later time if stated in the invitation to the meeting or in the notice of the meeting (hereinafter referred to as “the adjourned meeting”) (Article 13.2). The quorum for the commencement of the adjourned meeting shall be any number of participants.

The Articles of Association provide that all shareholder resolutions shall be passed by an ordinary (simple) majority of the votes cast, unless another majority is specified in the Companies Law or in the Articles (Article 14.3).

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6. Limitations on the rights to own securities

There are no limitations on the rights to own the Company’s securities, including the rights of non-residents or foreign shareholders to do so.

7. Change of Control

Under the Companies Law, a merger is generally required to be approved by the shareholders and Board of Directors of each of the merging companies. Shareholder approval isn’t required if the company that will not survive is controlled by the surviving company. Additionally, the law provides some exceptions to the shareholder approval requirement in the surviving company. If the share capital of the company that will not be the surviving company is divided into different classes of shares, the approval of each class is also required, unless determined otherwise by the court. A majority of votes approving the merger shall suffice, unless the company (like ours) was incorporated in Israel prior to the Companies Law of 1999, in which case a majority of 75% of the voting power is needed in order to approve the merger. Additionally, unless the court determines differently, a merger will not be approved if it is objected to by a majority of the shareholders present at the meeting, after excluding the shares held by the other party to the merger, by any person who holds 25% or more of the other party to the merger and by the relatives of and corporations controlled by these persons. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties of the merger. Also, a merger can be completed only after all approvals have been submitted to the Israeli Registrar of Companies and provided that 30 days have elapsed since shareholder approval was received and 50 days have elapsed from the time that a proposal for approval of the merger was filed with the Registrar.

The Companies Law also provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a holder of 25% or more of the voting power at general meetings. This rule does not apply if there is already another holder of 25% or more of the voting power at general meetings. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a holder of more than 45% of the voting power of the company. This rule does not apply if someone else already holds 45% of the voting power of the company. An acquisition from a 25% or 45% holder, which turns the purchaser into a 25% or 45% holder respectively, does not require a tender offer. An exception to the tender offer requirement may also apply when the additional voting power is obtained by means of a private placement approved by the general meeting of shareholders. These tender offer requirements do not apply to companies whose shares are listed for trading outside of Israel if, under local law or the rules of the stock exchange on which their shares are traded, there is a limitation on the percentage of control which may be acquired or the purchaser is required to make a tender offer to the public.

Under the Companies Law, a person may not acquire shares in a public company if, after the acquisition, he will hold more than 90% of the shares or more than 90% of any class of shares of that company, unless a tender offer is made to purchase all of the shares or all of the shares of the particular class. The Companies Law also provides that as long as a shareholder in a public company holds more than 90% of the company’s shares or of a class of shares, that shareholder shall be precluded from purchasing any additional shares (an exemption exists where the shareholder held prior to and following February 2000, over 90% of any class of shares, in which case he may purchase additional shares by a tender offer that was accepted by a majority of the offerees). If a tender offer is accepted and less than 5% of the shares of the company are not tendered, all of the shares will transfer to the ownership of the purchaser. If 5% or more of the shares of the company are not tendered, the purchaser may not purchase shares in a manner which will grant him more than 90% of the shares of the company.

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8. Disclosing share ownership

The Company has no bylaw provisions governing the ownership threshold, above which shareholder ownership must be disclosed.

10C. Material Contracts

All material contracts have been described in detail throughout this form, wherever applicable.

10D. Exchange Controls

All exchange control restrictions previously imposed by the State of Israel have been removed, although there are still reporting requirements for foreign currency transactions. Legislation remains in effect, however, pursuant to which currency controls can be imposed by administrative action at any time.

At this time, due to the removal of the restrictions, non-residents of Israel who purchase our ordinary shares will be able to convert any proceeds from the sale of these ordinary shares, as well as dividend and liquidation distributions, if any, into non-Israeli currency. There are no limitations on the Company’s ability to import and export capital.

10E. Taxation

The following is a summary of the material Israeli tax consequences, Israeli foreign exchange regulations and certain Israeli government programs affecting the Company.

To the extent that the discussion is based on new tax or other legislation that has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in the discussion will be accepted by the tax or other authorities in question. The discussion is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.

ISRAELI TAX CONSIDERATIONS

The following is a description of material tax consequences regarding the ownership and disposition of our ordinary shares under Israeli tax laws to which our shareholders may be subject. The information below does not apply to specific persons or cover specific situations. Therefore, you are advised to consult your own tax advisor as to particular tax consequences unique to you related to an investment in our ordinary shares including the effects of applicable Israeli or foreign or other tax laws and possible changes in the tax laws.

To the extent that the discussion is based on legislation yet to be judicially or administratively interpreted, we cannot assure you that the views we express herein will accord with any such interpretation in the future.

Tax Consequences Regarding Disposition of Our Ordinary Shares

In general, Israel imposes capital gains tax on the sale of capital assets, including shares of Israeli companies by both Israeli residents and non-Israeli resident shareholders, unless a specific exemption is available or unless a tax treaty between Israel and the shareholders’ country of residence provide otherwise. Shareholders that are not Israeli residents are generally exempt from Israeli capital gains tax on any gain derived from the sale of our ordinary shares, provided that such gains did not derive from a permanent establishment of such shareholders in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemption if an Israeli resident (a) has a controlling interest of 25% or more in such non-Israeli corporation; or (b) is the beneficiary of or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.

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In certain instances where our non-Israeli shareholders may be liable to Israeli tax on the sale of our ordinary shares, the payment of the consideration may be subject to Israeli withholding tax.

In addition, the sale, exchange or disposition of our ordinary shares by shareholders who are U.S. residents (within the meaning of the U.S.-Israel Tax Treaty) holding the ordinary shares as a capital asset will be also exempt from Israeli capital gains tax under the U.S.-Israel Tax Treaty, unless, either (i) the shareholders hold, directly or indirectly, shares representing 10% or more of our voting shares during any part of the 12-month period preceding such sale, exchange or disposition; or (ii) the capital gains arising from such sale, exchange or disposition are attributable to a permanent establishment of the shareholders located in Israel. In such case, the shareholders would be subject to Israeli capital gain tax, to the extent applicable, as mentioned above. However, under the U.S.-Israel Tax Treaty, the U.S. resident would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed on the sale, exchange or disposition, subject to the limitation in the U.S. law applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to U.S. state or local taxes.

Israeli individual shareholders selling our ordinary shares are subject to 20% tax rate on any real capital gain accrued after January 1, 2003, or 25% tax rate if such individual shareholder holds more than 10% interest in the company. Israeli corporate shareholders (which were not subject to the provisions of the Inflationary Adjustments Law, prior to the publishing of amendment no. 147 to the Income Tax Ordinance, in 2005), selling our ordinary shares are subject to a 25% tax rate on any real capital gain. Israeli corporate shareholders which were subject in 2005 to the provisions of the Inflationary Adjustments Law, selling our ordinary shares are subject to the regular corporate tax rates on any capital gain.

Taxes Applicable to Dividends distributed

Non-residents of Israel are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 20%, which tax will be withheld at source, unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence.

Under the U.S.-Israel Tax Treaty, the maximum rate of tax withheld in Israel on dividends paid to a holder of our ordinary shares who is a U.S. resident (within the meaning of the U.S.-Israel Tax Treaty) is 25%. Furthermore, the maximum rate of withholding tax on dividends, that are paid to a U.S. corporation holding 10% or more of our outstanding voting capital during the part of the tax year that precedes the date of the payment of the dividend and during the whole of its prior tax year, is 12.5%. This reduced rate will not apply if more than 25% of our gross income consists of interest or dividends, other than dividends or interest received from a subsidiary corporation 50% or more of the outstanding shares of the voting shares of which are owned by the company. In order to obtain such a reduced tax rate, it is necessary to submit an application to the tax assessing officer.Israeli resident individuals are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares, other than bonus shares (share dividends) or stock dividends, at the rate of 20%. Dividends paid on our ordinary shares to Israeli companies are exempt from such tax, except for dividends distributed from income derived outside of Israel, which are subject to the 25% tax rate.

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General Corporate Tax Structure

Israeli companies are generally subject to income tax on their taxable income at the rate of 31% for the year 2006, 29% for 2007, 27% for 2008, 26% for 2009 and 25% for year 2010 and thereafter, and are subject to capital gains tax at a rate of 25% for capital gains (other than gains deriving from the sale of listed securities) derived after January 1, 2003.

Tax Benefits and Grants for Research and Development

Israeli tax law allows, under certain conditions, a tax deduction in the year incurred for expenditures (including capital expenditures) in scientific research and development projects, if the expenditures are approved by the relevant Israeli government ministry, determined by the field of research, the research and development is for the promotion of the enterprise and is carried out by or on behalf of the company seeking such deduction.

In case the tax deduction, in the year research and development expenditures are incurred, is not approved by the relevant Israeli government ministry, the Company will be entitled for the tax deduction over a period of three years.

Special Provisions Relating to Taxation Under Inflationary Conditions

BOS and its Israeli subsidiaries are taxed under the Income Tax Law (Inflationary Adjustments), 1985, generally referred to as the Inflationary Adjustments Law. The Inflationary Adjustments Law is highly complex and represents an attempt to overcome the problems presented to a traditional tax system by an economy undergoing rapid inflation. Its features, which are material to us, are summarized as follows:

· Where a company’s equity, as calculated under the Inflationary Adjustments Law, exceeds the depreciated cost of its fixed assets (as defined in the Inflationary Adjustments Law), a deduction from taxable income is permitted equal to the excess multiplied by the applicable annual rate of inflation. The maximum deduction permitted in any single tax year is 70% of taxable income, with the unused portion permitted to be carried forward, linked to the Israeli consumer price index. The unused portion that was carried forward may be deductible in full in the following year.

· Where a company’s depreciated cost of fixed assets exceeds its equity, then the excess multiplied by the applicable annual rate of inflation is added to taxable income. (hereinafter: “Inflation supplement”). Note, the inflation supplement will only be added to the corporate income but not to other incomes such as capital gains.

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

The Minister of Finance may, with the approval of the Knesset Finance Committee, determine by decree, during a certain fiscal year (or until February 28^th of the following year) in which the rate of increase of the Israeli consumer price index would not exceed or did not exceed, as applicable, 3.0%, that some or all of the provisions of the Inflationary Adjustments Law shall not apply with respect to such fiscal year, or that the rate of increase of the Israeli consumer price index relating to such fiscal year shall be deemed to be 0%, and to make the adjustments required to be made as a result of such determination.

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U.S. TAXATION

Subject to the limitations described herein, the following is a discussion of the material U.S. federal income tax consequences of the purchase, ownership and disposition of our ordinary shares to a U.S. holder. A U.S. holder is a beneficial owner of our ordinary shares who is:

• an individual who is a citizen or resident of the United States for U.S. federal income tax purposes;

• a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or any political subdivision thereof or the District of Columbia;

• an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or

• a trust (i) if a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (ii) that has in effect a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person.

A non-U.S. holder is a beneficial owner of our ordinary shares that is not a U.S. holder. Unless otherwise specifically indicated, this discussion does not consider the U.S. federal income tax consequences to a person that is a non-U.S. holder of our ordinary shares and considers only U.S. holders that will own the ordinary shares as capital assets (generally for investment).

If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our ordinary shares, the tax treatment of the partnership and a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor as to its tax consequences.

This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), current and proposed Treasury Regulations promulgated under the Code and administrative and judicial interpretations of the Code, all as currently in effect and all of which are subject to change, possibly with retroactive effect. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular U.S. holder based on the U.S. holder’s particular circumstances. In particular, this discussion does not address the U.S. federal income tax consequences to U.S. holders who are broker-dealers or who own, directly, indirectly or constructively, 10% or more (by voting power) of our company, real estate investment trusts, regulated investment companies, grantor trusts, U.S. holders holding the ordinary shares as part of a hedging, straddle or conversion transaction, U.S. holders whose functional currency is not the U.S. dollar, insurance companies, tax-exempt organizations, financial institutions, persons that receive ordinary shares as compensation for the performance of services, certain former citizens or long-term residents of the United States and persons subject to the alternative minimum tax, who may be subject to special rules not discussed below. Additionally, this discussion does not address the possible application of U.S. federal estate or gift taxes or any aspect of state, local or non-U.S. tax laws.

Each holder of our ordinary shares is advised to consult his or her tax advisor with respect to the specific U.S. federal, state, local and foreign income tax consequences to him or her of purchasing, holding or disposing of our ordinary shares.

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U.S. Holders of Ordinary Shares

Taxation of distributions on ordinary shares

Subject to the discussion below under “Tax consequences if we are a passive foreign investment company,” a distribution paid by us with respect to our ordinary shares, including the amount of any non-US taxes withheld, to a U.S. holder will be treated as dividend income to the extent that the distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. Dividends that are received with respect to ordinary shares by U.S. holders that are individuals, estates or trusts generally will be taxed at the rate applicable to long-term capital gains (currently a maximum rate of 15% for the taxable years beginning on or before December 31, 2010), provided that such dividends meet the requirements of “qualified dividend income.” Dividends that fail to meet such requirements, and dividends received by corporate U.S. holders, are taxed at ordinary income rates. No dividend received by a U.S. holder will be a qualified dividend (1) if the U.S. holder held the ordinary share with respect to which the dividend was paid for less than 61 days during the 121-day period beginning on the date that is 60 days before the ex-dividend date with respect to such dividend, excluding for this purpose, under the rules of Code section 246(c), any period during which the U.S. holder has an option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such ordinary share (or substantially identical securities); or (2) to the extent that the U.S. holder is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in property substantially similar or related to the ordinary share with respect to which the dividend is paid. If we were to be a “passive foreign investment company” (as such term is defined in the Code) for any taxable year, dividends paid on our ordinary shares in such year or in the following taxable year would not be qualified dividends. In addition, a non-corporate U.S. holder will be able to take a qualified dividend into account in determining its deductible investment interest (which is generally limited to its net investment income) only if it elects to do so; in such case the dividend will be taxed at ordinary income rates.

The amount of any distribution which exceeds the amount treated as a dividend will be treated first as a non-taxable return of capital, reducing the U.S. holder’s tax basis in its ordinary shares to the extent thereof, and then as capital gain from the deemed disposition of the ordinary shares. Corporate holders will not be allowed a deduction for dividends received in respect of the ordinary shares.

Dividends paid by us in NIS will be included in the gross income of U.S. holders at the dollar amount of the dividend (including any non-U.S. taxes withheld therefrom), based upon the spot rate of exchange in effect on the date the distribution is included in income. U.S. holders will have a tax basis in the NIS for U.S. federal income tax purposes equal to that dollar value. Any subsequent gain or loss in respect of the NIS arising from exchange rate fluctuations will generally be taxable as U.S. source ordinary income or loss.

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Subject to the limitations set forth in the Code and the Treasury Regulations thereunder, U.S. holders may elect to claim as a foreign tax credit against their U.S. federal income tax liability the non-U.S. income tax withheld from dividends received in respect of the ordinary shares. The limitations on claiming a foreign tax credit include, among others, computation rules under which foreign tax credits allowable with respect to specific classes of income cannot exceed the U.S. federal income taxes otherwise payable with respect to each such class of income. In this regard, dividends paid by us generally will be foreign source “passive income” for U.S. foreign tax credit purposes. U.S. holders that do not elect to claim a foreign tax credit may instead claim a deduction for the non-U.S. income tax withheld if they itemize deductions. The rules relating to foreign tax credits are complex, and you should consult your tax advisor to determine whether and to what extent you would be entitled to this credit. A U.S. holder will be denied a foreign tax credit for non-U.S. income taxes withheld from a dividend received on the ordinary shares (i) if the U.S. holder has not held the ordinary shares for at least 16 days of the 31-day period beginning on the date which is 15 days before the ex-dividend date with respect to such dividend or (ii) to the extent the U.S. holder is under an obligation to make related payments with respect to positions in substantially similar or related property. Any days during which a U.S. holder has substantially diminished its risk of loss on the ordinary shares are not counted toward meeting the required 16-day holding period. Distributions of current or accumulated earnings and profits generally will be foreign source passive income for U.S. foreign tax credit purposes.

Taxation of the disposition of ordinary shares

Subject to the discussion below under “Tax consequences if we are a passive foreign investment company,” upon the sale, exchange or other disposition of our ordinary shares, a U.S. holder will recognize capital gain or loss in an amount equal to the difference between the amount realized on the disposition and the U.S. holder’s tax basis in the ordinary shares. The gain or loss recognized on the disposition of the ordinary shares will be long-term capital gain or loss if the U.S. holder held the ordinary shares for more than one year at the time of the disposition (long-term capital gains are currently taxable at a maximum rate of 15% for taxable years beginning on or before December 31, 2010). Capital gain from the sale, exchange or other disposition of ordinary shares held for one year or less is short-term capital gain. Gain or loss recognized by a U.S. holder on a sale, exchange or other disposition of ordinary shares generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes.

A U.S. holder that uses the cash method of accounting calculates the dollar value of the proceeds received on the sale as of the date that the sale settles. However, a U.S. holder that uses the accrual method of accounting is required to calculate the value of the proceeds of the sale as of the trade date and may therefore realize foreign currency gain or loss. A U.S. holder may avoid realizing foreign currency gain or loss by electing to use the settlement date to determine the proceeds of sale for purposes of calculating the foreign currency gain or loss. In addition, a U.S. holder that receives foreign currency upon disposition of ordinary shares and converts the foreign currency into dollars after the settlement date or trade date (whichever date the U.S. holder is required to use to calculate the value of the proceeds of sale) will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the dollar, which will generally be U.S. source ordinary income of loss.

Tax consequences if we are a passive foreign investment company

We will be a passive foreign investment company, or PFIC, for a taxable year if either (1) 75% or more of our gross income in a taxable year is passive income or (2) 50% or more of the value, determined on the basis of a quarterly average, of our assets in the taxable year produce, or are held for the production of, passive income. If we own (directly or indirectly) at least 25% by value of the stock of another corporation, we will be treated for purposes of the foregoing tests as owning our proportionate share of the other corporation’s assets and as directly earning our proportionate share of the other corporation’s income. Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from commodities and securities transactions.

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We believe that we were not a PFIC for our 2007 taxable year. Our status in the current and future taxable years will depend on our assets and income in those years. We have no reason to believe that our assets or income will change in a manner that would cause us to be classified as a PFIC. However, since the determination of whether we are a PFIC is based upon such factual matters as the valuation of our assets (which may depend upon our market capitalization, which is subject to fluctuation) and, in certain cases, the assets of companies held by us, there can be no assurance that we will not become a PFIC. If we were a PFIC, and you are a U.S. holder, you generally would be subject to imputed interest charges and other disadvantageous tax treatment with respect to any gain from the sale or exchange of, and certain distributions with respect to, your ordinary shares (including the denial of the taxation of such distributions and gains at the lower rates applicable to long-term capital gains as discussed above under “Taxation of distributions on ordinary shares” and “Taxation of the disposition of ordinary shares”).

If we were a PFIC, you could make certain elections that may alleviate certain tax consequences referred to above, and one of these elections may be made retroactively if certain conditions are satisfied. It is expected that the conditions necessary for making certain of such elections will apply in the case of our ordinary shares. Neither the Company nor its advisors have the duty to or will undertake to inform U.S. Shareholders of changes in circumstances that would cause the Company to become a PFIC. The Company does not currently intend to take the action necessary for a U.S. Shareholder to make a “qualified electing fund” election in the event the Company is determined to be a PFIC.

U.S. holders are urged to consult their tax advisors regarding the application of the PFIC rules, including eligibility for and the manner and advisability of making certain elections with respect to our PFIC status.

Information reporting and backup withholding

A U.S. holder generally is subject to information reporting and may be subject to backup withholding at a rate of 28% with respect to dividend payments made with respect to, and proceeds from the disposition of, the ordinary shares. Backup withholding will not apply with respect to payments made to exempt recipients, including corporations, or if a U.S. holder provides a correct taxpayer identification number, certifies that such holder is not subject to backup withholding or otherwise establishes an exemption. Backup withholding is not an additional tax. It may be claimed as a credit against the U.S. federal income tax liability of a U.S. holder or the U.S. holder may be eligible for a refund of any excess amounts withheld under the backup withholding rules provided, in either case, that the required information is furnished to the Internal Revenue Service.

Non-U.S. Holders of Ordinary Shares

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

Non-U.S. holders are generally not subject to information reporting or backup withholding with respect to the payment of dividends on, or proceeds from the disposition of, ordinary shares, provided that the non-U.S. holder provides its taxpayer identification number, certifies to its foreign status or otherwise establishes an exemption.

- 78 -

10F. Dividends and Paying Agents

Not applicable.

10G. Statement by Experts

Not applicable.

10H. Documents on Display

The documents concerning the Company that are referred to in the form may be inspected at the Company’s office in Israel.

10I. Subsidiary Information

For information relating to the Company’s subsidiaries, see “Item 4C. Organizational Structure” as well as the Company’s Consolidated Financial Statements (Items 8 and 18 of this form).

Item 11: Quantitative and Qualitative Disclosure about Market Risk

Currency Exchange Rate Risk Management

The Company’s functional currency is the U.S. Dollar. Since the Company operates in Israel and Europe it manages assets and liabilities in currencies other than U.S. Dollar such as New Israeli Shekel and Euro.

The balance of monetary assets in comparison to liabilities in non-dollar currencies in the Balance Sheet as of December 31, 2007 and December 31, 2006 (“Balance Sheet Exposure”) is presented in the table below.

The data is presented in U.S. Dollars (in thousands):

	December 31, 2007					December 31, 2006
	Israeli currency (1)			Non-dollar Currencies (2)		Israeli currency (1)			non-dollar Currencies (2)
	U.S.$			U.S.$		U.S.$			U.S.$
Current assets:
Cash and cash equivalents		113			83		653			213
Trade receivables		3,738			979		2,399			–
Other accounts receivable		383			–		402			144
		4,234			1,062		3,454			357
Long term assets		568			–		768			–
Total assets		4,802			1,062		4,222			357
Current liabilities:
Short term loans from banks and current maturities of long term loans		2,023			592		1,925			–
Trade payables		1,461			189		1,549			200
Other accounts payable		660			–		582			–
		4,144			781		4,056			200
Long term liabilities		1,417			–		915			–
Total liabilities		5,561			781		4,971			200
Net assets (liabilities)		(759	)		281		(749	)		157

(1)	The above does not include balances in Israeli currency linked to the U.S. dollar.
(2)	Primarily Euro.

- 79 -

The Company does not use financial instruments and derivatives, but manages the risk of Balance Sheet Exposure by attempting to maintain a similar balance of assets and liabilities in New Israeli Shekels and the USD currencies. The purchases and salary expenses in Israel are paid in the local currency, New Israeli Shekels.

A material change in currency exchange rate of the NIS or Euro compared to the U.S. Dollar may have an effect on the Company’s financial results and cash flow.

Credit Risk Management

The company sells its products and purchases products from vendors on credit terms.

The trade receivables of the Company are derived from sales to customers located primarily in Israel, the United States and Europe. The Company generally does not require collateral; however, in certain circumstances, the Company may require letters of credit, other collateral, additional guarantees or advanced payments.

Provisions are made for doubtful debts on a specific basis and, in management’s opinion, appropriately reflect the loss inherent in collection of the debts. Management bases this provision on its assessment of the risk of the debt.

The table below presents the account receivables balance by geographical market as of December 31, 2007 and December 31, 2006:

	December 31
	2007		2006
America	$	1,820,000	$	561,000
Europe		1,667,000		345,000
Far East		43,000		51,000
Israel and others		5,584,000		4,675,000
	$	9,114,000	$	5,632,000

- 80 -

Interest Rate Risk

The Company’s exposure to market risk for changes in interest rates, is due to its investment of its surplus funds and loans that carry variable interest.

The Company has a conservative investment policy. According to this policy the Company invests in bank deposits and in high level marketable securities.

A material change in interest we receive on our bank deposits or pay on our loans may have an effect on the Company’s financial results and cash flow. A 100 basis point increase in interest rates would have increased our net interest expense for 2007 by approximately $61,000.

Bank Risk

The Company invests and manages the majority of its funds in Bank Leumi LeIsrael, Bank Leumi U.S.A. and JPMorgan Chase Bank, N.A..

Item 12: Description of Securities Other than Equity Securities

Not applicable.

PART II

Item 13: Defaults, Dividend Arrearages and Delinquencies

Not applicable.

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

Not applicable.

Item 15: Controls and Procedures

(a) Disclosure controls and procedures.

The Company’s principal executive officer and its principal financial officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, such principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.

- 81 -

(b) Management’s Annual Report on Internal Control Over Financial Reporting.

Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this assessment, they used the criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2007, our internal control over financial reporting is effective based on those criteria. Notwithstanding the foregoing, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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

(c) Change in Internal Control over Financial Reporting.

There were no changes in the Company’s internal controls over financial reporting that occurred during the fiscal year ended December 31, 2007, that have materially affected or are reasonably likely to materially affect these controls.

(d) Other.

The Company believes that a control system, no matter how well designed and operated, can not provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with the Company have been determined.

Item 16: [Reserved]

Item 16A: Audit Committee Financial Expert

The Company’s Board of Directors has determined that Prof. Adi Raveh and Mr. Ronen Zavlik, both members of the audit committee, are “audit committee financial experts”, as defined by the applicable SEC regulations. The experience of each is listed under Item 6A. Both are “independent” under the applicable SEC and Nasdaq regulations.

Item 16B: Code of Ethics

The Company has adopted a Code of Ethics applicable to its executive officers, directors and all other employees. A copy of the code is posted on our website and may also be obtained, without charge, upon a written request addressed to the Company’s investor relations department.

Item 16C: Principal Accountant Fees and Services

The Company’s principal accountants for the years 2006 and 2007 were Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global.

- 82 -

The table below summarizes the audit and other fees paid and accrued by the Company and its consolidated subsidiaries to Kost Forer Gabbay & Kasierer and Arik Eshel, during each of 2006 and 2007:

	Year Ended December 31, 2007					Year Ended December 31, 2006
	Amount		Percentage			Amount		Percentage
Audit Fees		134,200		94	%		62,000		76	%
Audit-Related Fees (1)		–		–			20,000		24	%
Tax Fees (2)		8,500		6	%		–		–
Total		142,700		100	%		82,000		100	%

(1)	“Audit-related fees” are fees related to assurance and associated services that traditionally are performed by the independent auditor, including consultation concerning reporting standards.
(2)	“Tax fees” are fees for professional services rendered by the Company’s auditors with respect to tax advice related to acquisitions and tax compliance with the Israeli law for encouragement of investment, and issuance of annual tax reports.

Audit Committee’s pre-approval policies and procedures:

The Audit Committee is responsible for the oversight of the independent auditors’ work, including the approval of services provided by the independent auditor. These services may include audit, audit-related, tax or other services, as described above. On an annual basis the audit committee pre-approves audit and non-audit services to be provided to the Company by its auditors, listing the particular services or categories of services, and sets forth a specific budget for such services. Additional services not covered by the annual pre-approval may be approved by the Audit Committee on a case-by-case basis as the need for such services arises. Furthermore, the Audit Committee has authorized the Committee Chairman to pre-approve engagements of the Company’s auditors so long as the fee for each such engagement does not exceed $5,000 and so long as the engagement is notified to the Committee at its next subsequent meeting. Any services pre-approved by the Audit Committee (or by the Chairman) must be permitted by applicable law. Once services have been pre-approved, the audit committee receives a report on a periodic basis regarding the extent of the services actually provided and the fees paid.

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

Not applicable to Registrant

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

The Company (or anyone acting on its behalf) did not purchase any of the Company’s securities in 2007.

- 83 -

PART III

Item 17: Financial Statements

Not applicable.

Item 18: Financial Statements

The following financial statements are filed as part of this Annual Report:

	Page
Reports of Independent Registered Public Accounting Firms	F-2 – F-3
Consolidated Balance Sheets	F-4 – F-5
Consolidated Statements of Operations	F-6
Statement of Changes in Shareholders’ Equity	F-7
Consolidated Statements of Cash Flows	F-8 – F-10
Notes to Consolidated Financial Statements	F-11 – F-55

The audited financial statements filed as part of this Form 20-F are identical to the audited financial statements that were filed as part of the Form 6-K on March 31, 2008.

Item 19: Exhibits

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

1.1	Memorandum of Association, as amended (incorporated by reference to Exhibit 1.1 of the Company’s Annual Report on Form 20-F filed with the SEC on June 28, 2006).
1.2	Articles of Association, as amended (incorporated by reference to Exhibit 1.2 of the Company’s Annual Report on Form 20-F filed with the SEC on June 28, 2006).
4.1	Form of Indemnification Agreement between the Company and its officers and directors, as amended (incorporated by reference to Exhibit 4.1 of the Company’s Annual Report on Form 20-F filed with the SEC on June 28, 2006).
4.2	Services Agreement, dated as of April 15, 2003, between Cukierman & Co. Investment House Ltd., BOScom Ltd. and the Registrant (incorporated by reference to the Company’s Annual Report on Form 20-F filed on June 17, 2004).
4.3	M&A Addendum to the Service Agreement, as of August 22, 2004, between Cukierman & Co. Investment House Ltd., BOScom Ltd. and the Registrant (incorporated by reference to the Company’s Annual Report on Form 20-F filed on June 27, 2005).
4.4	Securities Purchase Agreement and Master Security Agreement, dated as of August 16, 2006, by and between Laurus Master Fund Ltd. and the Registrant (the Secured Convertible Term Note, Ordinary Shares Purchase Warrant and Registration Rights Agreement are incorporated by reference to the Company’s Registration Statement on Form F-3 no. 333-137153)
4.5	Distribution Agreement, dated as of January 15, 2003, by and between BOScom Ltd. and BOSaNOVA Inc. (incorporated by reference to the Company’s Annual Report on Form 20-F/A filed on January 6, 2005).

- 84 -

4.6	Letter agreement among New World Brands, Inc., Qualmax, Inc., IP Gear, Ltd., P&S Spirit, LLC and B.O.S Better Online Solutions Ltd., dated December 31, 2006 (incorporated by reference to Exhibit 10.17 to the Company’s Registration Statement on Form F-1/A filed with the SEC on February 12, 2007).
4.7	The Registrant’s Israeli 2003 Share Option Plan (incorporated by reference to the Company’s Registration Statement on Form S-8 No. 333-11650).
4.8	Share Purchase Agreement dated as of the October 30, 2007 by and between Donald Levi and Andrew Levi, Summit Radio Corp. and the Registrant.
4.9	Securities Purchase Agreement, dated as of the December 10, 2007, by and between certain investors and the Registrant; Registration Rights Agreement dated as of the December 10, 2007 by and between certain investors and the Registrant; and Form of Warrant dated as of December 31, 2007 issued by the Registrant to certain investors.
4.10	Asset Purchase Agreement dated as of the January 29, 2008 by and between Dimex Systems (1988) Ltd., Dimex Hagalil Ltd., and the Registrant.
4.11	Bank Leumi Le-Israel Agreements: Summary of Economic Terms, Form of Request to Allocate a Credit in Israeli Currency (unlinked), and Form of Request to Allocate a Credit Framework in Debitory Account (unlinked).
4.12	Promissory Note for the amount of $2,500,000 made by Summit Radio Corp. to the order of Bank Leumi USA.
8.1	List of subsidiaries (incorporated by reference to Item 4C of this Annual Report on Form 20-F).
11	Statement of Computation of Earnings Per Share
12.1	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
12.2	Certification by Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
13.1	Certification by Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934.
23.1	Consent of Kost Forer Gabbay & Kasierer, a member of Ernst &Young Global.
23.2	Consent of Arik Eshel, CPA & Assoc., PC

- 85 -

Signatures

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

B.O.S. Better Online Solutions Ltd.
/s/ Shmuel Koren	/s/ Eyal Cohen
Shmuel Koren	Eyal Cohen
President and Chief Executive Officer	Chief Financial Officer
Date: June 30, 2008

- 86 -

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2007

IN U.S. DOLLARS

INDEX

	Page
Reports of Independent Registered Public Accounting Firms	F-2 – F-3
Consolidated Balance Sheets	F-4 – F-5
Consolidated Statements of Operations	F-6
Statements of Changes in Shareholders’ Equity	F-7
Consolidated Statements of Cash Flows	F-8 – F-10
Notes to Consolidated Financial Statements	F-11 – F-55

n Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 67067, Israel n Phone: 972-3-6232525
Fax: 972-3-5622555

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

B.O.S. BETTER ONLINE SOLUTIONS LTD.

          We have audited the accompanying consolidated balance sheets of B.O.S Better Online Solutions Ltd. (the “Company”) and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of Lynk USA Inc., a wholly-owned U.S. subsidiary, which statements reflect total assets constituting 14% in 2007 and total revenues constituting 7% in 2007 of the related consolidated totals. These statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Lynk USA Inc., is based solely on the report of the other auditors.

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

          In our opinion, based on our audit and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries at December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

          As discussed in Note 2s to the consolidated financial statements, effective January 1, 2006, the Company adopted the provision of Statement of Financial Accounting Standard No. 123(R), “Shared-Based Payment”.

Tel-Aviv, Israel	KOST FORER GABBAY & KASIERER
March 31, 2008	A Member of Ernst & Young Global

F-2

ARIK ESHEL, CPA & ASSOC., PC
Certified Public Accountants and Consultants

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Lynk USA, Inc.

We have audited the accompanying consolidated balance sheet of Lynk USA, Inc. (the Company) and its subsidiary as of December 31, 2007, and the related consolidated statement of operation, statement of changes in shareholders’ equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2007 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lynk USA, Inc. and its subsidiary at December 31, 2007, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

ARIK ESHEL, CPA & ASSOC., PC
March 31, 2008

F-3

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

	December 31,
	2007		2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,271	$	2,033
Trade receivables (net of allowance for doubtful accounts of $122 and $23 at December 31, 2007 and 2006, respectively)		9,114		5,632
Other accounts receivable and prepaid expenses (Note 3)		945		858
Inventories (Note 4)		8,321		4,017
Total current assets		22,651		12,540
LONG-TERM ASSETS:
Severance pay fund		687		741
Investment in other companies (Note 5)		2,494		8,082
Other assets		42		65
Total long-term assets		3,223		8,888
PROPERTY, PLANT AND EQUIPMENT, NET (Note 6)		719		520
GOODWILL (Note 8)		2,861		952
OTHER INTANGIBLE ASSETS, NET (Note 7)		1,678		1,629
	$	31,132	$	24,529

F-4

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

	December 31,
	2007			2006
CURRENT LIABILITIES:
Short-term bank loans and current maturities (Note 9)	$	5,028		$	2,949
Current maturities of convertible note		-			1,139
Trade payables		5,258			3,844
Employees and payroll accruals		552			460
Deferred revenues		116			103
Accrued expenses and other liabilities (Note 10)		1,290			999
Total current liabilities		12,244			9,494
LONG-TERM LIABILITIES:
Long-term bank loans, net of current maturities (Note 11)		3,286			-
Convertible note, net of current maturities (Note 12)		-			1,171
Deferred taxes		366			362
Accrued severance pay		798			916
Other long-term liabilities		-			237
Total long-term liabilities		4,450			2,686
COMMITMENTS AND CONTINGENT LIABILITIES (Note 13)
SHAREHOLDERS’ EQUITY (Note 14):
Share capital
Ordinary shares of NIS 4.00 par value: Authorized: 35,000,000 shares at December 31, 2007 and 2006; Issued and outstanding: 10,857,554 and 6,744,798 shares at December 31, 2007 and 2006, respectively;		10,628			6,571
Additional paid-in capital		54,758			48,330
Accumulated other comprehensive income		19			19
Accumulated deficit		(50,967	)		(42,571	)
Total shareholders’ equity		14,438			12,349
Total liabilities and shareholder’s equity	$	31,132		$	24,529

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

F-5

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands, except per share data

	Year ended December 31,
	2007			2006			2005
Revenues	$	23,774		$	20,917		$	24,099
Cost of revenues		19,099			16,200			17,854
Gross profit		4,675			4,717			6,245
Operating costs and expenses:
Research and development		636			486			893
In process Research and Development		170			-			-
Sales and marketing		3,811			2,019			2,425
General and administrative		1,980			3,268			2,667
Total operating costs and expenses		6,597			5,773			5,985
Operating income (loss)		(1,922	)		(1,056	)		260
Financial expenses, net (Note 16a)		(469	)		(626	)		(448	)
Other income (expenses), net (Note 1d)		(6,233	)		-			355
Income (loss) before taxes on income		(8,624	)		(1,682	)		167
Taxes on income (tax benefit) (Note 15)		9			(89	)		204
Net loss after taxes on income		(8,633	)		(1,593	)		(37	)
Equity in losses of an affiliate		-			-			(1,750	)
Minority interest in earnings of a subsidiary		-			-			(223	)
Loss from continuing operations		(8,633	)		(1,593	)		(2,010	)
Income (loss) from discontinued operations (Note 1d)		237			1,685			(1,595	)
Net income (loss)	$	(8,396	)	$	92		$	(3,605	)
Basic and diluted net loss per share from continuing operations (Note 16b)	$	(1.00	)	$	(0.24	)	$	(0.36	)
Basic and diluted net earnings (loss) per share from discontinued operations (Note 16b)	$	0.02		$	0.25		$	(0.28	)
Basic and diluted net earnings (loss) per share (Note 16b)	$	(0.97	)	$	0.01		$	(0.64	)

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

F-6

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

U.S. dollars in thousands, except share data

	Ordinary shares		Share capital		Additional paid in capital			Deferred share-based compensation			Accumulated other comprehensive income			Accumulated deficit			Total comprehensive loss			Total shareholders’ equity
Balance at January 1, 2005		4,737,658	$	4,823	$	44,426		$	(174	)	$	31		$	(39,058	)				$	10,048
Amortization of deferred share-based compensation		-		-		-			62			-			-						62
Conversion of convertible note		640,293		570		1,046			-			-			-						1,616
Issuance of shares related to acquisition of Odem, net		232,603		202		330			-			-			-						532
Issuance of shares related to the private placement, net		953,743		815		1,225			-			-			-						2,040
Issuance of Ordinary shares for options exercised		25,088		22		28			-			-			-						50
Share-based compensation related to warrants issued to service providers		-		-		348			-			-			-						348
Warrants related to a convertible note issued to lenders		-		-		185			-			-			-						185
Other comprehensive loss:
Net loss		-		-		-			-			-			(3,605	)	$	(3,605	)		(3,605	)
Loss on available-for-sale marketable securities		-		-		-			-			(4	)		-			(4	)		(4	)
Foreign currency translation adjustments		-		-		-			-			(6	)		-			(6	)		(6	)
Total comprehensive loss																	$	(3,615	)
Balance at December 31, 2005		6,589,385		6,432		47,588			(112	)		21			(42,663	)					11,266
Reversal of deferred share-based compensation		-		-		(112	)		112			-			-						-
Issuance of Ordinary shares for options exercised		68,747		61		74			-			-			-						135
Share-based compensation expense		21,666		20		411			-			-			-						431
Share-based compensation related to warrants issued to service providers		65,000		58		238			-			-			-						296
Warrants related to a convertible note issued to lenders		-		-		131			-			-			-						131
Other comprehensive income:
Net income		-		-		-			-			-			92		$	92			92
Loss on available-for-sale marketable securities		-		-		-			-			(2	)		-			(2	)		(2	)
Total comprehensive income																	$	90
Balance at December 31, 2006		6,744,798		6,571		48,330			-			19			(42,571	)					12,349
Issuance of Ordinary shares for options exercised		23,498		23		23															46
Issuance of shares related to the private placement net		1,471,176		1,483		1,983															3,466
Issuance of shares related to rights offering, net		1,739,398		1,720		2,229															3,949
Issuance of shares related to conversion of convertible note		878,670		831		1,066															1,897
Share-based compensation expense		-		-		516			-			-			-						516
Warrants related to a convertible note issued to lenders		-		-		611			-			-			-						611
Other comprehensive income:
Net loss		-		-		-			-			-			(8,396	)	$	(8396	)		(8,396	)
Total comprehensive loss																	$	(8,396	)
Balance at December 31, 2007		10,857,540	$	10,628	$	54,758		$	-		$	19		$	(50,967	)				$	14,438

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

F-7

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Year ended December 31,
	2007			2006			2005
Cash flows from operating activities:
Net income (loss)	$	(8,396	)	$	92		$	(3,605	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Loss (income) from discontinued operations		(237	)		(1,685	)		1,595
Depreciation and amortization		588			378			474
Amortization of premium and accretion of accrued interest on available-for-sale marketable securities		-			-			35
Impairment of investments		5,588			39			-
Severance pay, net		(64	)		(75	)		(75	)
Equity in losses of an affiliate		-			-			1,750
Minority interest in earnings of a subsidiary		-			-			223
Share-based compensation related to warrants issued to service providers		-			296			59
Capital gain from sale of product line		-			-			(273	)
Net loss from decrease in value of Put options		-			-			8
Capital loss from sale of property and equipment		(19	)		-			3
Share-based compensation related to employees		516			431			244
Financial expenses in connection with long-term convertible note		710			162			120
Increase in trade receivables		(687	)		(788	)		(547	)
Decrease in deferred taxes, net		(118	)		(70	)		(88	)
Decrease (increase) in other accounts receivable and prepaid expenses		(121	)		(595	)		86
Increase in inventories		(1,209	)		(697	)		(1,971	)
Increase (decrease) in trade payables		(1,135	)		790			(172	)
Decrease in employees and payroll accruals, deferred revenues, accrued expenses and other liabilities		(11	)		(231	)		(123	)
Net cash used in operating activities from continuing operations		(4,595	)		(1,953	)		(2,257	)
Net cash used in operating activities from discontinued operations		-			(446	)		(1,647	)
Net cash used in operating activities		(4,595	)		(2,399	)		(3,904	)
Cash flows from investing activities:
Purchase of property and equipment		(214	)		(24	)		(245	)
Proceeds from sale of property and equipment		31			-			13
Proceeds from sale of product line		-			-			257
Investment in long-term marketable securities		-			-			(607	)
Proceeds from redemption of marketable securities		-			1,331			2,316
Investment in other companies		-			(676	)		-
Acquisitions, net of cash acquired (a,b,c,d)		(4,548	)		-			(1,124	)
Net cash provided by (used in) investing activities from continuing operations		(4,731	)		631			610
Net cash used in investing activities from discontinued operations		-			(221	)		(1,087	)
Net cash provided by (used in) investing activities		(4,731	)		410			(477	)
Cash flows from financing activities:
Proceeds from shares issuance, net		6,625			-			-
Repayment of short-term and long-term bank loans		(293	)		(26	)		(55	)
Proceeds from short-term bank loans		1,454			686			933
Proceeds from long-term bank loans		4,203			-			-
Proceeds (payments) from long-term convertible note and warrants, net of issuance expenses		(120	)		1,319			1,246
Payment of long-term convertible note		(351	)		(438	)		(55	)
Proceeds from exercise of options		46			135			2,090
Net cash provided by financing activities		11,564			1,676			4,159
Increase (decrease) in cash and cash equivalents		2,238			(313	)		(222	)
Increase in cash and cash equivalents from discontinued operations		-			114			163
Effect of exchange rate changes on cash and cash equivalents		-			-			(13	)
Cash and cash equivalents at the beginning of the year		2,033			2,232			2,304
Cash and cash equivalents at the end of the year	$	4,271		$	2,033		$	2,232

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

F-8

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

		Year ended December 31,
		2007		2006			2005
Supplemental disclosure of cash flow activities:
(i)	Net cash paid during the year for:
	Interest	$	336	$	532		$	126
	Income tax	$	38	$	180		$	309
(ii)	Non-cash activities:
	Conversion of convertible note into shares	$	2,017	$	-		$	1,614
	Sale of the communication segment in consideration for shares in Qualmax	$	-	$	958		$	4,690
	Conversion of Qualmax’s debt into New World Brand’s shares	$	-	$	1,480		$	-
	Sale of PrintBOS:
	Consideration, net	$	-	$	-		$	275
	Disposal of fixed assets		-		-			(28	)
	Disposal of liability		-		-			100
	Related expenses		-		-			(74	)
	Capital gain	$	-	$	-		$	273
	Sale of the communication segment:
	Consideration, net	$	-	$	2,437		$	3,690
	Disposal of tangible and intangible assets		-		(752	)		(2,425	)
	Related expenses		-		-			(486	)
	Capital gain	$	-	$	1,685		$	779
(a)	Acquisition of Odem:
	Fair value of net tangible assets acquired (excluding cash and cash equivalents) and liabilities assumed at acquisition date	$	-	$	-		$	1,020
	Fair value of net intangible assets acquired at acquisition date		-		-			718
	Less -		-		-
	Amount acquired by issuance of shares		-		-			532
	Payables		-		-			219
	Add-		-		-
	Cancellation of Put and Call options		-		-			137
		$	-	$	-		$	1,124

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

F-9

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

		Year ended December 31,
		2007			2006		2005
(b)	Acquisition of Summit
	Fair value of net tangible assets acquired (excluding cash and cash equivalents) and liabilities assumed at acquisition date	$	3,192		$	-	$	-
	Fair value of net intangible assets acquired at acquisition date		2,058			-		-
	Less - Amount acquired by issuance of shares		(903	)		-		-
		$	4,347		$	-	$	-
(c)	Acquisition of CYMS Ltd assets and liabilities
	Fair value of net tangible assets acquired (excluding cash and cash equivalents) and liabilities assumed at acquisition date	$	11		$	-	$	-
	Fair value of net intangible assets acquired at acquisition date		55			-		-
	Less amount acquired by issuance of shares		(15	)		-		-
		$	51		$	-	$	-
(d)	Acquisition of OptimizeIT assets and liabilities
	Fair value of net intangible assets acquired at acquisition date	$	170			-		-
	Less amount acquired by issuance of shares		(20	)		-		-
		$	150		$	-	$	-

F-10

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL

a.	B.O.S. Better Online Solutions Ltd. (“BOS”) is an Israeli corporation (together with its subsidiaries the “Company”).
	The Company has two operating segments, the Mobile and RFID Solutions segment and the Supply Chain Solutions segment.
	The Company’s wholly owned subsidiaries include:
	In Israel:
	(1)	BOScom Ltd, part of the Mobile and RFID segment. In January 2008 BOScom changed it’s name to Dimex Solutions Ltd. and its subsidiary Dimex Hagalil Projects (2008) Ltd., which was incorporated in January 2008. (see note 19);
	(2)	Odem Electronic Technologies 1992 Ltd., which was purchased on November 18, 2004 from Odem’s previous shareholders, and in which, by November 2005, the Company’s holdings increased to 100%. Odem, an Israeli company, is a major solution provider and distributor of RFID and electronics components and advance technologies in the Israeli market. Odem is a part of both the Mobile and RFID and the Supply Chain segments; and
	(3)	Quasar Telecom Ltd., which obtained the assets BOS acquired in September 2004 from Quasar Communication Systems Ltd. The assets of Quasar Telecom were sold to IP Gear Ltd., a subsidiary of Qualmax Inc. as part of the sale of the Communications Segment in the fourth quarter of 2005.
	In the U.S.:
	(1)	Ruby-Tech Inc., a New York corporation, a wholly owned subsidiary of Odem and a part of both the Mobile and RFID and the Supply Chain segments;
	(2)	Lynk USA Inc., a Delaware Corporation, and its subsidiaries:
		a.	Summit Radio Corp., part of the Supply chain solutions segment, was purchased on November 21, 2007 from Summit’s previous shareholders. Summit is a supply chain provider, mainly of electronic components to the aircraft and defense industry.
		b.	Pacific Information Systems, Inc. (“PacInfo”), a, Delaware corporation and PacInfo’s subsidiary, Dean Tech Technologies Associates, LLC., a Texan corporation, are no longer active.
	(3)	BOS Delaware Inc., a Delaware corporation, which operations were ceased in 2002.

F-11

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

	In Europe:
	BOScom had a UK subsidiary, Better On-Line Solutions Ltd., and its subsidiary, Better On-Line Solutions S.A.S in France. Since 2002, the subsidiaries are no longer active.
	BOS communication segment (the “communication segment”) included: BOScom’s business of communication solutions which provides multi-path, intelligent routing voice over IP gateways and the Company’s wholly-owned subsidiary Quasar Telecom (2004) Ltd. (“Quasar”), which provides communication solutions based on cellular technology. The assets and liabilities of this segment have been sold as part of the disposal of the communication segment in December 2005 (see d).
	In addition, the Company holds shares in two other companies:
	1.	Surf Communication Systems Ltd. (“Surf”), a developer and supplier of access and network convergence software solutions to the wire line and wireless telecommunications and data communications industries. In June 2006, the Company invested $300, following which, the Company holds 6.94% of Surf’s issued and outstanding shares (see Note 5).
	2.	Qualmax Inc. (“Qualmax”), a U.S. public corporation listed on the Pink Sheets (“QMXI.PK”), and its subsidiary New World Brands Inc. (OTC: NWBD.OB) (“NWB”). The Company holds 17.87% of the issued and outstanding shares of Qualmax Inc. and 3.96% of the issued and outstanding shares of NWB. The Company’s holdings in Qualmax and NWB were received as the consideration for the sale of the communication segment (see d).
b.	Business combination:
	Acquisition of Odem:
	On November 18, 2004, the Company purchased 63.8% of the outstanding shares of Odem, from Odem’s existing shareholders. In consideration for Odem’s shares the Company (i) issued 290,532 of the Company’s Ordinary shares subject to “lock-up” periods of 2 to 4 years and (ii) paid an amount of $1,971 in cash.
	On September 29, 2005 and November 1, 2005, the Company purchased an additional 23.9% and 12.3% of the outstanding shares of Odem, respectively, from Odem’s minority shareholders. Following these purchases, the Company owns 100% of Odem. In consideration for the 12.3% of Odem’s shares purchased in November 2005 the Company paid $554, in cash and for the 23.9% of Odem’s shares purchase in September 2005 the Company (i) issued 232,603 of the Company’s Ordinary shares and (ii) paid an amount of $716 in cash.

F-12

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

The acquisitions have been treated using the purchase method of accounting in accordance with SFAS 141 “Business Combinations”. The purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition. The excess of the purchase price over the estimated fair value of the tangible and intangible assets acquired has been recorded as goodwill.

The Company has allocated the total cost of Odem acquisition in 2005 as follows:

Allocation of purchase price	November 1, 2005			September 29, 2005			Total			Estimated useful life
Tangible assets	$	340		$	681		$	1,021
Customer list (1)		85			509			594			9 years
Deferred tax liability		(23	)		(136	)		(159	)
Goodwill		138			144			282
Total purchase price	$	540		$	1,198		$	1,738

(1) The Company’s allocation of purchase price valued the acquired customer list by calculating cash flow benefit as a direct result of the customer relationship.

Acquisition of Summit:

On November 21, 2007 the Company purchased 100% of the outstanding shares of Summit, from Summit’s existing shareholders. In consideration for Summit’s shares the Company (i) issued 360,000 of the Company’s Ordinary shares subject to “lock-up” periods of 1-2 years and (ii) paid an amount of $4,472 in cash (including $373 against undistributed net income for the first nine months of 2007 in Summit). In addition, Summit’s selling shareholders will receive contingent consideration up to $500, based on performance in the years 2008 and 2009.

The Company’s consolidated financial statements reflect the purchase price determined as follows:

	November 21, 2007
Issuance of shares (1)	$	874
Cash consideration		4,472
Transaction costs (includes issuance costs in the amount of $29)		355
Total purchase price	$	5,701

(1) The value of the Ordinary shares issued was determined based on the average market price of the Company’s Ordinary shares over the period of two days before and after the terms of the transaction were agreed to and announced.

F-13

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:-	GENERAL (Cont.)
		The Company has allocated the total purchase price as follows:

Allocation of purchase price	Summit			Estimated useful life
Cash	$	451
Tangible assets (1)		3,192
Backlog (2)		55
Customer list (3)		167			12 years
Non-competing rights (4)		40			6 years
Deferred tax liability		(113	)
Goodwill		1,909
Total purchase price	$	5,701

(1)	Includes fair value of inventory – Reflects the expected profit from realization of the inventory.
(2)	Backlog – The economic value of the backlog is calculated by deducting the relative expenses which will be accrued to sales equal to the Backlog.
(3)	Customer list - The Company’s allocation of purchase price is valued the acquired customer list by calculating cash flow benefit as a direct result of the customer relationship.
(4)	Non-competing rights - The value of the non-competing right is calculated by assessing the economic damage which might occur due to possible competing by the Sellers, and which is mitigated by having a non-competing agreement. The value of the non-competing right is the discounted cash flow which relates to portion of the Company’s income that could have been lost if the Sellers would compete.

The acquisitions have been treated using the purchase method of accounting in accordance with SFAS 141 “Business Combinations”. The purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition. The results of operations of Summit are included in the consolidated financial statements of operations as of the acquisition date.

The excess of the purchase price over the estimated fair value of the tangible and intangible assets acquired has been recorded as goodwill.

The results of operations of Summit have been included in the Company’s consolidated statements of income since the completion of the acquisition in November 21, 2007. The following unaudited pro forma information presents a summary of the results of operations of the Company assuming the acquisition of Summit occurred at the beginning of each of the following periods:

F-14

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

	Year Ended December 31,
	2007			2006
	(unaudited)
Revenues	$	39,110		$	36,436
Net income (loss)	$	(8,669	)	$	309
Net income per share – basic	$	(1.00	)	$	0.05
Net income per share – diluted	$	(1.00	)	$	0.05

Acquisition of Cyms Ltd. assets and Liabilities:

On July 1, 2007, the Company entered into an agreement with Cyms Ltd., to purchase its assets and liabilities, for an aggregate consideration of $ 66 which was paid by issuance of 5,594 shares of the Company and cash payment of $51. The assets of Cyms Ltd. were transferred into the Company on July 1, 2007 (the “closing date”).

The Company’s consolidated financial statements reflect the purchase price determined as follows:

	November 21,
	2007
Issuance of shares (1)	$	15
Cash consideration		51
Total purchase price	$	66

(1)	The value of the Ordinary shares issued was determined based on the average market price of the Company’s Ordinary shares over the period of two days before and after the terms of the transaction were agreed to and announced.
The Company has allocated the total purchase price as follows:

Allocation of purchase price	Cyms		Estimated useful life
Tangible assets	$	11
Technology (1)		55		6 years
Total purchase price	$	66

(1) The Company’s allocation of purchase price valued the acquired technology by calculating cash flow benefit as a direct result of the technology.

F-15

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

The Summit acquisition has been treated using the purchase method of accounting in accordance with SFAS 141 “Business Combinations”. The purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition.

Acquisition of OptimizeIT, a partnership organized under the laws of the State of Israel, assets and liabilities:

On October 1, 2007, the Company entered into an agreement with OptimizeIT to purchase its assets, for an aggregate consideration of $170 which was paid by issuance of 8,000 shares of the Company and a cash payment of $150. The assets of Optimize IT were transferred into the Company on October 1, 2007

The Company’s consolidated financial statements reflect the purchase price determined as follows:

	November 21, 2007
Issuance of shares (1)	$	20
Cash consideration		150
Total purchase price	$	170

The Company has allocated the total purchase price as follows:

Allocation of purchase price	OptimizeIT		Estimated useful life
Research and development in process	$	170		NA
Total purchase price	$	170

The Company recorded a charge of $170 with respect to the OptimizeIT transaction related to in process research and development for projects which have not yet reached technological feasibility and which have no alternative future use.

The Cyms and OptimizeIT transactions have been treated as asset acquisitions on the basis of the fair values exchanged.

F-16

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

c.	Sale of product line:
	On July 18, 2005, BOScom signed an asset purchase agreement with Consist Technologies Ltd. and Consist International Inc. (collectively, “Consist”), for the sale of its PrintBOS product line in consideration of $500 and a contingent payment in each of the next three years equal to 6%-10% of future revenues exceeding $1,000 per year, Consist will generate from the PrintBOS product line. The Company has recognized a gain of $273 in 2005 with respect of this sale. As of December 31, 2005, the Company has received $375 and the remaining $125 has been placed in an escrow for a period of three years, pending repayment of royalties to the Office of the Chief Scientist (“OCS”) on sales of PrintBOS products. For the years ended December 31, 2006 and 2007, total revenues generated by Consist from the PrintBOS products in each year were less than $1,000 and, therefore, the Company did not receive any royalties in 2006 and 2007.
d.	Discontinued operations:
	1.	Sale of communication segment:
		On December 31, 2005, the Company sold its communication segment, including its property and equipment, goodwill, technology, trade name, existing distribution channels and related contingent liability to the Office of the Chief Scientist to IP Gear Ltd. (“IP Gear”), a wholly owned Israeli subsidiary of Qualmax. The consideration paid to the Company in the transaction was approximately 3.2 million Qualmax shares of Common stock constituting approximately 16% of Qualmax’s total issued and outstanding Common stock and $800 in royalties to be paid at a rate of 4% from future revenues IP Gear will generate from the disposed segment (“Royalties”) with the entire $800 due no later than 90 days from the third anniversary of the closing of the transaction. Additional shares may be issued to the Company at the end of four consecutive fiscal quarters following the closing of the transaction, contingent upon IP Gear generating by then a certain level of revenues from the disposed segment (“Earn Out Shares”). The maximum number of Earn Out Shares that may further be issued to the Company is approximately 1 million, constituting an additional 5% of Qualmax outstanding shares. In June 2006, the Company received 250,000 of Qualmax shares, valued at $1.43 per share, as part of the Earn Out Shares consideration.
		The Company received certain piggy-back registration rights with respect to the Qualmax shares. The Company does not have a representative on the Board of Qualmax.
		In addition, the Company and IP Gear entered into an Outsourcing Agreement, pursuant to which the Company provided IP Gear with certain operating services relating to the sold communication segment through December 31, 2006. In accordance with the Outsourcing Agreement, the first three months of services were provided for no charge. For services rendered from April 2006 through December 2006, the Company charged IP Gear $240, which was paid by issuing the Company Qualmax subsidiary’s shares in December 2006, as part of an agreement signed by the parties (see below).

F-17

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

The Company also granted a bridge loan to IP Gear in the amount of $1,000. The term of the loan is three years and it bears interest equal to the Prime rate plus 2.5%, up to a maximum of 12%. In the first 18 months, IP Gear shall pay only the interest accrued on the loan and monthly principal and interest payments shall commence thereafter. The loan granted to IP Gear is secured by a first priority floating charge, which may be subordinated to a charge in favor of a major financial institution in the event such charge is recorded. In addition, repayment is guaranteed by Qualmax Inc.

The loan agreement provides that if the disposed segment would incur losses that exceed $250 in the first quarter of 2006, the principal amount to be repaid under the loan shall be reduced by the excess losses. In such event, Qualmax shall issue to the Company additional shares of Common stock against such reduction, valued at a predetermined price of $1.43 per share. Pursuant to this provision, in May 2006, Qualmax issued to the Company 244,755 shares, at a price of $1.43 per share, resulting in an amount of $350. In June 2006, Qualmax issued BOS an additional 174,825 shares, reducing the principal amount of the loan to $400. As of December 31, 2007 the company holds 17.87% of the issued and outstanding Common stock of QMX.

Qualmax also issued to the Company a five-year warrant for the purchase of up to 107,143 shares, constituting less than 1%, of its outstanding shares in Qualmax, at the exercise price of $2.80 per share (“Warrants”). The Company received certain piggy-back registration rights with respect to the shares underlying the Warrants.

The Company signed in December 2006 an agreement with Qualmax and its subsidiaries, NWB and IP Gear, pursuant to which, the outstanding debt of Qualmax to the Company, in the amount of $1,480 (which included long-term debt, outsourcing fees, royalties and other debts), was repaid to the Company through the issuance of 5.506652 shares of series A Convertible Preferred stock of NWB which are convertible into approximately 16,446,544 shares of NWB

Common stock, reflecting a conversion rate of $0.09 per one share of Common stock. During 2007 NWB converted its series A Preferred stock into Common stock and as a result the company holds as of December 31, 2007, 3.96% of the issued and outstanding Common stock of NWB.

The Company’s registration rights with respect to the Qualmax shares shall also apply to NWB shares. In addition, the Company agreed to enter into a lock up agreement, restricting the transfer of its share holdings in Qualmax and in NWB, for up to two years.

In connection with the transaction, the Company agreed to grant NWB, contingent upon the satisfaction of certain conditions, a three-year option that will expire on December 31, 2009, to purchase up to 30% of the NWB’s shares held by the Company, at prices ranging from $0.12 to $0.24 per share of Common stock. As of December 31, 2007 the conditions have not been met, hence the option has not been granted and the fair value of the option is $0.

F-18

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

As of December 31, 2007, the restriction on the shares held in Qualmax and NWB terminates within one year and as a result the shares should be recorded at fair value. Therefore, the Company accounts for its holdings in Qualmax and NWB shares as available for sale in accordance with Statement of Financial Accounting Standard 115 “Accounting for Certain Investments in Debt and Equity Securities”. Unrealized gains and losses, net of the related tax effect as of December 31, 2007, are included in other comprehensive income. As a result of the decrease in the share prices of these companies as of December 31, 2007, the Company recorded loss of $5,588. On February 18, 2008, New World Brands and Qualmax, entered into an agreement and plan of merger (see note 19), pursuant to which Qualmax will be merged with and into NWB. Upon completion of the merger, which is subject to completion of certain conditions, BOS holding in Qualmax will be converted into holding in New World Brands. These holdings were the consideration for selling the communication division in years 2005 and 2006.

For the years ended December 31, 2006 and 2005, the Company’s consolidated financial statements reflected a capital gain from the sale of the communication segment, which was determined as follows:

	Year ended December 31,
	2006		2005
Consideration:
Ordinary shares of Qualmax (1)	$	957	$	4,586
107,143 warrants (2)		-		104
5.50652 series A Preferred stock of NWB (3)		1,480		-
Debt conversion (loan granted to IP Gear)		-		(1,000	)
Total consideration		2,437		3,690
Cost:
Disposal of assets (liabilities) related to the communication segment		752		2,425
Transactions related costs		-		486
Total cost		752		2,911
Capital gain	$	1,685	$	779

There was no capital gain in 2007.
(1)	Valued at $1.43 per share.
(2)	Valued at $0.97 per warrant.
(3)	5.50652 series A Preferred stock convertible into 16.5 million shares of Common stock of NWB. Each share of Common stock is valued at $0.09 per share.

F-19

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

	Following the agreement, signed in December 2006, the Company has accounted for the communication segment as a “discontinued operations”, in accordance with EITF 03-13 “Applying the Conditions in Paragraph 42 of FASB Statement 144 in Determining Whether to Report Discontinued Operations”. As such, the results of operations, including revenues, cost of revenues, operating expenses, and other income and expenses of the communication segment for 2005, have been reclassified in the accompanying statements of operations as discontinued operations.
	As of December 31, 2007, Qualmax share price is $0.21 and NWB share price is $0.04. The Company recorded a loss in the amount of $5,588 as the decrease was other than temporary.
2.	Discontinued product line:
	During the fourth quarter of 2002, PacInfo ceased its operations.
	The results of operations, including revenues, cost of revenues, operating expenses and other income and expenses of the communication segment and PacInfo’s operations for 2007, 2006 and 2005, have been reclassified in the statements of operations. Taxes were not attributed to the discontinued operations due to utilization of losses from previous years, for which a valuation allowance was provided.
	Summarized selected financial information and cash flows of the discontinued operations are as follows:

	Year ended December 31,
	2007		2006			2005
Revenues	$	-	$	-		$	2,954
Cost of revenues		-		-			2,171
Operating expenses		-		752			3,157
Operating loss		-		(752	)		(2,374	)
Gain derived from sale of the discontinued operations		237		2,437			779
Net income (loss)	$	237	$	1,685		$	(1,595	)

F-20

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

	Year ended December 31,
	2007			2006			2005
Cash flows from operating activities
Gain (loss) from discontinued operations	$	237		$	1,685		$	(1,595	)
Depreciation and amortization of equipment and intangibles		-			-			107
Capital gain		-			(2,052	)		(779	)
Adjustments due to changes in working capital		(237	)		(79	)		620
Net cash flows used in operating activities	$	-		$	(446	)	$	(1,647	)
Cash flows from investing activities
Communication sales costs	$	-		$	(221	)	$	-
Purchase of property and equipment		-			-			(27	)
Payment on account of sale of Communication Segment		-			-			(1,060	)
Investment in Company		-			-			-
Net cash flows used in investing activities	$	-		$	(221	)	$	(1,087	)

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES
	The consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”).
	a.	Use of estimates:
		The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
	b.	Financial statements in U.S. dollars:
		A substantial portion of the Company’s revenues is generated in U.S. dollar (“dollars”). In addition, most of the Company’s costs are incurred in dollars. Company’s management believes that the dollar is the primary currency of the economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the dollar.

F-21

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
		Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into U.S. dollars in accordance with Statement 52 of the Financial Accounting Standards Board (“FASB”) “Foreign Currency Translation”. All transactions gains and losses from the remeasurement of monetary balance sheet items are reflected in the statement of operations as financial income or expenses as appropriate.
		The financial statements of Odem, a subsidiary, whose functional currency as of December 31, 2004, was other than dollar have been translated into dollars, but on April 1, 2005, due to significant changes in circumstances initiated by management, like transition of Odem’s majority of sales, expenses and budget from New Israeli Shekels (NIS) to dollars, indicate a functional currency change. Since the functional currency changed from a foreign currency to the reporting currency, dollars, as of March 31, 2005, the translation adjustments for non-monetary assets prior to the change, became the accounting basis for the periods starting April 1, 2005.
	c.	Principles of consolidation:
		The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances including profits from intercompany sales not yet realized outside the Company have been eliminated upon consolidation.
	d.	Cash equivalents:
		Cash equivalents are short-term highly liquid investments that are readily convertible to cash originally purchased with maturities of less than three months.
	e.	Inventories:
		Inventory write-offs are provided to cover risks arising from slow-moving items or technological obsolescence. As of December 31, 2007 and 2006, inventory is presented net of $358 and $100, respectively, for technological obsolescence and slow moving items (see also Note 4).
		Inventories are valued at the lower of cost or market value. Cost is determined as follows:
		Raw and packaging materials - moving average cost method.
		Products in progress and finished products - moving average cost method.
	f.	Grants and royalty-bearing grants:
		Grants and royalty-bearing grants from the Chief Scientist of the Ministry of Industry and Trade in Israel for funding certain approved research and development projects are recognized at the time the Company is entitled to such grants, on the basis of the related costs incurred, and are presented as a deduction of research and development costs.

F-22

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
		During 2005, the Company received a royalty-bearing grant from the Chief Scientist of the Ministry of Industry and Trade in Israel, in the amount of $296, for its participation in the discontinued operations. There were no grants in 2007 and 2006.
	g.	Investment in an affiliate:
		An affiliate is a company in which the Company is able to exercise significant influence, but that is not a subsidiary and is accounted for by the equity method, net of write-down for decrease in fair value which is not of a temporary nature. The Company’s investment in Surf has been included as an affiliate until September 30, 2005. In June 2006, following an investment round, the Company holding in Surf decreased to 7.8% of Surf’s issued and outstanding shares. As a result, the Company ceased to have the ability to exercise significant influence over Surf and, accordingly, the adjusted carrying amount of the investment is accounted for based on the cost accounting method (see Note 5).
		The Company’s investment in this company is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable, in accordance with Accounting Principle Board Opinion 18 “The Equity Method of Accounting for Investments in Common Stock” (“APB 18”). During 2005, an impairment of $1,385 has been recorded in “equity in losses of an affiliate” in the statement of operations.
	h.	Investment in other companies:
		Investments in public companies with restrictions of less than one year are classified as available-for-sale under FAS 115 (“Readily Determined Sales Price Currently Available on a Security Exchange”), and are adjusted to their fair market value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss).
		Investment in QMX and NWB presented, commencing December 31, 2007 at the sales price on the applicable Security Exchange, respectively to FAS 115 (See note 1d).
		Management evaluates investments in other companies for evidence of other than temporary declines in value. Accordingly, during 2007 and 2006, an impairment loss, due to other than temporary decline, of $5,588 and $39 has been recorded, accordingly and presented in other income (loss), net in the consolidated statements of operations. During 2005, no impairment losses have been identified.
	i.	Property, plant and equipment:
		Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by using the straight line method over the estimated useful lives of the assets, at the following annual rates:

F-23

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	%
Computers and software	20 - 33	(mainly 33%)
Office furniture and equipment	6 - 15	(mainly 10%)
Leasehold improvements	10	(over the shorter of the period of the lease or the life of the assets)
Vehicles	15
Plant	4

j.	Impairment of long-lived assets:
	The Company’s long-lived assets are reviewed for impairment in accordance with Statement of Financial Accounting Standard 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During 2007, 2006 and 2005, no impairment losses have been identified.
k.	Goodwill:
	Goodwill represents excess of the costs over the net assets of businesses acquired. Under SFAS 142 goodwill is not amortized but instead is tested for impairment at least annually or between annual tests in certain circumstances, and written-down when impaired. Goodwill attributable to each of the reporting units is tested for impairment by comparing the fair value of each reporting unit with its carrying value. The reporting units of the Company for purposes of the impairment test are: the Company’s Mobile and RFID operating segments, Summit and Odem which comprise the Supply Chain segment, as these are the components of the business for which discrete financial information is available and segment management regularly reviews the operating results of those components. Fair value is determined using income and market approaches. Significant estimates used in the methodologies include estimates of future cash flows, future short-term and long-term growth rates, weighted average cost of capital and estimates of market multiples for each of the reportable units. During 2007, 2006 and 2005, no impairment losses have been identified.
l.	Research and development costs:
	Statement of Financial Accounting Standards 86 “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,” (“SFAS 86”) requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company’s product development process, technological feasibility is established upon completion of a working model. Research and development costs incurred in the process of developing product improvements or new products, are generally charged to expenses as incurred, net of participation of the Office of the Chief Scientist of the Israeli Ministry of Industry and Trade. Costs incurred by the Company between completion of the working model and the point at which the product is ready for general releases are insignificant.

F-24

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

m.	Severance pay:
	The Company’s liability for severance pay for Israeli resident employees is calculated pursuant to the Israeli severance pay law based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date. Employees are entitled to one month’s salary for each year of employment or a portion thereof. The Company’s liability for its Israeli resident employees is covered by insurance policies designed solely for distributing severance pay. The value of these policies is recorded as an asset in the Company’s balance sheet.
	The insurance policies include profits accumulated up to the balance sheet date. The insurance policies may be withdrawn only upon complying with the Israeli severance pay law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies and includes profits.
	Severance expenses for 2007, 2006 and 2005 amounted to $275, $298 and $256, respectively.
n.	Revenue recognition:
	The Company sells its products through direct sales, distributors and resellers channels.
	The Company derives its revenues from the sale of products, license fees for its products, commissions, support and services.
	Revenues from product sales are recognized in accordance with Staff Accounting Bulletin 104 “Revenue Recognition in Financial Statements” (“SAB 104”) when delivery has occurred, persuasive evidence of an arrangement exists, the vendor’s fee is fixed or determinable, no further obligation exists, and collectibility is reasonably assured.
	Most of the Company’s revenues are generates from sale of its products directly to end-users and indirectly, mostly through independent distributors. Other than pricing terms which may differ due to the volume of purchases between distributors and end-users, there are no material differences in the terms and arrangements involving direct and indirect customers. The majority of the Company’s products sold through agreements with independent distributors are non-exchangeable, non refundable, non-returnable without any rights of price protection or stock rotation. Accordingly, the Company considers the distributors as end-users.
	Revenue from license fees is recognized in accordance with Statement of Position (“SOP”) 97-2 “Software Revenue Recognition”, when persuasive evidence of an agreement exists, delivery has occurred, no significant obligations with regard to implementation remain, the fee is fixed or determinable, and collectibility is probable. The Company generally does not grant a right of return to its customers. When a right of return exists, the Company defers revenue until the right of return expires, at which time revenue is recognized provided that all other revenue recognition criteria have been met.

F-25

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	Revenues from maintenance and support are recognized ratably over the period of the support contract. The fair value of the support is determined based on the price charged when it is sold separately or renewed.
	With regard to software arrangements involving multiple elements such as software product and maintenance and support, the Company has adopted Statement of Position No. 98-9, “Modification of SOP No. 97-2, Software Revenue Recognition with Respect to Certain Transactions” (“SOP No. 98-9”). According to SOP No. 98-9, revenues should be allocated to the different elements in the arrangement under the “residual method” when Vendor Specific Objective Evidence (“VSOE”) of fair value exists for all undelivered elements and no VSOE exists for the delivered elements. Under the residual method, at the outset of the arrangement with the customer, the Company defers revenue for the fair value of its undelivered elements (maintenance and support) and recognizes revenue for the remainder of the arrangement fee attributable to the elements initially delivered in the arrangement (software product) when the basic criteria in SOP No. 97-2 have been met. Any discount in the arrangement is allocated to the delivered element. Maintenance and support revenue is deferred and recognized on a straight-line basis over the term of the maintenance and support agreement. The VSOE of fair value of the undelivered elements (maintenance and support) is determined based on the price charged for the undelivered element when sold separately or for new arrangements, based upon the price that management will determine to charge.
o.	Warranty:
	BOScom provides a warranty of between 3 to 36 months at no extra charge, whereby defective hardware covered by the warranty should be sent back to the company. The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
	During 2007 and 2006, the Company’s Provision for warranty was $20 and $73, respectively.
p.	Income taxes:
	The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No 109, “Accounting for Income Taxes”. This Statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company has provided valuation allowances, in respect of deferred tax assets resulting from tax loss carryforward and other reserves and allowances due to its history of operating losses and current uncertainty concerning its ability to realize these deferred tax assets in the future.

F-26

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes–An interpretation of FASB Statement No. 109.
	The Interpretation clarifies the accounting for uncertainties in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attributes of income tax positions taken or expected to be taken on a tax return. Under FIN 48, the impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained. The Company adopted the provisions of FIN 48 as of January 1, 2007. The impact of adopting FIN 48 was insignificant to the Company’s consolidated financial statements.
q.	Concentrations of credit risk:
	Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, trade receivables, other accounts receivable and marketable securities.
	The trade receivables of the Company are derived from sales to customers located primarily in Israel, South America, North America and Europe. The Company generally does not require collateral; however, in certain circumstances, the Company may require letters of credit, other collateral, additional guarantees or advanced payments. An allowance for doubtful accounts is determined with respect to specific debts that are doubtful of collection.
	The Company has no off-balance-sheet concentrations of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
r.	Basic and diluted net earnings (loss) per share:
	Basic net earnings (loss) per share are calculated based on the weighted average number of Ordinary shares outstanding during each year. Diluted net earnings (loss) per share is calculated based on the weighted average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year, in accordance with SFAS 128, “Earnings Per Share”.
	The total number of shares related to the outstanding options and warrants excluded from the calculations of diluted net earnings (loss) per share, since they would have an anti-dilutive effect, were 3,305,333, 1,386,424 and 1,506,803 for the years ended December 31, 2007, 2006 and 2005, respectively.
s.	Accounting for share-based compensation:
	On January 1, 2006, the Company adopted Statement of Financial Accounting Standards 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees and directors. SFAS 123(R) supersedes Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees” (“APB 25”), for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

F-27

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

SFAS 123(R) requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statement of operations. Prior to the adoption of SFAS 123(R), the Company accounted for equity-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards 123, “Accounting for Share-based Compensation” (“SFAS 123”).

The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the Accounting Standard starting from January 1, 2006, the first day of the Company’s fiscal year 2006. Under that transition method, compensation cost recognized in the year ended December 31, 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated.

As a result of adopting SFAS 123(R) on January 1, 2006, the Company’s income before income taxes for the year ended December 31, 2006 was $370, lower than if it had continued to account for stock-based compensation under APB 25. Basic and diluted net earnings per share for the year ended December 31, 2006, are $0.06 and $0.05, respectively, lower than if the Company had continued to account for share-based compensation under APB 25.

Prior to January 1, 2006, the Company applied the intrinsic value method of accounting for stock options as prescribed by APB 25, whereby compensation expense is equal to the excess, if any, of the quoted market price of the stock over the exercise price on the date of grant of the award.

F-28

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The pro-forma table below reflects the Company’s stock based compensation expense, net loss and basic and diluted net loss per share for the year ended December 31, 2005 had the Company applied the fair value recognition provisions of SFAS 123, as follows:

	December 31, 2005
Net loss from continuing operations, as reported	$	(2,010	)
Add: share-based compensation expenses related to employee stock options determined under intrinsic value method included in the reported net loss		62
Deduct: share-based compensation expense related to employee stock options determined under fair value method for all awards		(246	)
Pro forma net loss from continuing operations		(2,194	)
Pro forma net loss from discontinued operations		(1,595	)
Pro forma net loss	$	(3,789	)
Basic and diluted net loss per share from continuing operations, as reported	$	(0.36	)
Basic and diluted net loss per share from discontinued operations, as reported	$	(0.28	)
Basic and diluted net loss per share, as reported	$	(0.64	)
Basic and diluted net loss per share, including the effect of share-based compensation expense	$	(0.67	)

F-29

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The fair value for options granted in 2005 is amortized over their vesting period and estimated at the date of grant using the Black-Scholes-Merton options pricing model with the following weighted average assumptions:

	Year ended December 31,
	2005
Risk free interest		4.00%
Dividend yields		0%
Volatility		120%
Average Expected life		3 years

Pro-forma compensation expense under SFAS 123, among other computational differences, does not consider potential pre-vesting forfeitures. Because of these differences, the pro-forma stock based compensation expense presented above for the prior year ended December 31, 2005 under SFAS 123 and the stock based compensation expense recognized during the years ended December 31, 2007 and 2006 under SFAS 123(R) are not directly comparable.

The Company recognizes compensation expenses for the value of its awards granted subsequent to January 1, 2006 based on the straight line method over the requisite service period of each of the awards, net of estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures.

The Company estimates the fair value of stock options granted using the Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the most significant are expected stock price volatility and the expected option term. Expected volatility was calculated based upon actual historical stock price movements over the most recent periods ending on the date of grant, equal to the expected option term. The expected option term represents the average of the options contractual life and the vesting period in accordance with SAB 107 guidance. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.

The fair value for options granted in 2007 and 2006 is estimated on the date of grant using a Black-Scholes options pricing model with the following weighted average assumptions:

	2007		2006
Risk free interest		4.62%		4.91%
Dividend yields		0%		0%
Volatility		58%		78%
Expected option term		5.68 years		3.44 years
Forfeiture rate		15%		0%

F-30

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

During 2007 and 2006, the Company recognized stock-based compensation expense related to employee stock options in the amount of $516 and $727 respectively as follows:

	Year ended December 31,
	2007		2006
Selling and marketing	$	296	$	152
General and administrative		220		575
Total Stock-based compensation expense	$	516	$	727

	During the year ended December 31 2005, the Company recognized general and administrative, stock-based compensation expense in the amount of $112.
	The Company applies SFAS 123 “Accounting for stock Based Compensation” (“SFAS 123”) and EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction With, Selling, Goods or Services”, with respect to warrants issued to non-employees. SFAS 123 requires the use of option valuation models to measure the fair value of the warrants at the date of grant.
t.	Fair value of financial instruments:
	The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
	The carrying amounts of cash and cash equivalents, trade receivables, other accounts receivable and trade payables approximate their fair value due to the short-term maturities of such instruments. The fair value for marketable securities is based on quoted market prices. The fair value of investments in other companies is based on independent third-party evaluations.
u.	Impact of recently issued accounting pronouncements:
	In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis, and should be applied prospectively. The adoption of the provisions of SFAS 157 related to financial assets and liabilities and other assets and liabilities that are carried at fair value on a recurring basis is not anticipated to materially impact the Company’s consolidated financial position and results of operations. Subsequently, the FASB provided for a one-year deferral of the provisions of SFAS 157 for non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a non-recurring basis.

F-31

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company is currently evaluating the impact of adopting the provisions of SFAS 157 for non-financial assets and liabilities that are recognized or disclosed on a non-recurring basis.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). Under this Standard, the Company may elect to report financial instruments and certain other items at fair value on a contract-by-contract basis with changes in value reported in earnings. This election is irrevocable. SFAS 159 provides an opportunity to mitigate volatility in reported earnings that is caused by measuring hedged assets and liabilities that were previously required to use a different accounting method than the related hedging contracts when the complex provisions of SFAS 133 hedge accounting are not met. SFAS 159 is effective for years beginning after November 15, 2007. There is no impact of adopting SFAS 159 on its financial position, cash flows, and results of operations of the Company.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (Revised 2007) (SFAS 141R), Business Combinations. SFAS 141R will change the accounting for business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change the accounting treatment and disclosure for certain specific items in a business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS 141R will have an impact on accounting for future business combinations once adopted and not on prior acquisitions. The Company is currently evaluating the impact of adopting the provisions of SFAS 141R.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This standard is effective for fiscal years beginning after December 15, 2008 and should be applied prospectively. However, the presentation and disclosure requirements of the statement shall be applied retrospectively for all periods presented. The adoption of the provisions of Statement No. 160 is not anticipated to materially impact the Company’s consolidated financial position and results of operations. The Company is currently evaluating the impact of adopting the provisions of SFAS 160.

F-32

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
		In December 2007, the U.S. Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin 110 (“SAB No. 110”) to amend the SEC’s views discussed in Staff Accounting Bulletin 107 (“SAB No. 107”) regarding the use of the simplified method in developing an estimate of expected life of share options in accordance with SFAS No. 123(R). SAB No. 110 is effective for the company beginning in the first quarter of fiscal year 2008. The Company expects to continue using the simplified method. As a result, the Company does not expect the adoption of SAB No. 110 will have a significant impact on its consolidated financial statements.
NOTE 3:-	OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

	December 31,
	2007		2006
Government authorities – Income tax advances and V.A.T	$	363	$	279
Advances to suppliers		405		296
Prepaid expenses		129		201
Other		48		82
	$	945	$	858

NOTE 4:- INVENTORIES

Raw materials (including packaging materials and Products in progress)	$	260	$	120
Finished products		8,061		3,897
	$	8,321	$	4,017

	The inventories are presented net of write-off for technological obsolescence and slow moving items of $358 and $100 as of December 31, 2007 and 2006, respectively.
NOTE 5:-	INVESTMENT IN OTHER COMPANIES
	a.	Investment in Surf Communication Systems Ltd.:

F-33

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 5:-	INVESTMENT IN OTHER COMPANIES (Cont.)
		In September 2005, Surf entered into a private placement that is considered an event of change in circumstances having a significant adverse effect on the fair value of the investment. Therefore, the Company has evaluated its investment in Surf and determined that it amounts to $722 as of December 31, 2005 based on management’s analysis (supported by an independent third-party valuation). As a result, the Company has recorded an impairment of $1,385, which has been included in the equity in losses of an affiliate in the statement of operations for the year December 31, 2005.
		In June 2006, as part of the investment round, the Company invested $300 in Surf, following which, the Company holds 7.8% of Surf’s issued and outstanding shares. As a result, the Company ceased to have the ability to exercise significant influence over Surf and, accordingly, the adjusted carrying amount of the investment of $722 is accounted for based on the cost accounting method, which resulted in impairment of $39. As of December 31, 2007 the Company holds 6.94% of Surf’s issued and outstanding shares.
		Summarized combined financial information of Surf for the years in which the investment was accounted using the equity method was as follows:

	Year ended December 31, 2005
Revenues	$	2,055
Cost of sales	$	660
Operating expenses from continuing operations	$	3,694
Net loss	$	2,334

F-34

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 5:-	INVESTMENT IN OTHER COMPANIES (Cont.)
	b.	The Company’s investments in companies comprise of:

	December 31,
	2007		2006
Surf Communication Systems Ltd.	$	983	$	983
Qualmax Inc. (1)		819		5,619
New World Brands Inc. (1)		692		1,480
	$	2,494	$	8,082

		(1) As of December 31, 2007 the investment in the companies was changed from cost method under APB18 to available for sale under FAS115 and presented in fair value (See Note 1d and Note 2h).
NOTE 6:-	PROPERTY, PLANT AND EQUIPMENT

	December 31,
	2007		2006
Cost:
Computers and software	$	1,942	$	1,697
Office furniture and equipment		562		458
Leasehold improvements and plant		1,313		1,116
Vehicles		60		89
		3,877		3,360
Accumulated depreciation:
Computers and software		1,794		1,569
Office furniture and equipment		431		301
Leasehold improvements and plant		928		906
Vehicles		5		64
		3,158		2,840
Depreciated cost	$	719	$	520

Depreciation expenses amounted to $123, $171 and $317 for the years ended December 31, 2007, 2006 and 2005, respectively.

F-35

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 7:- OTHER INTANGIBLE ASSETS

	December 31,
	2007		2006
Cost:
Backlog	$	55	$	-
Non-competing rights		40		-
Technology		226		-
Customer list		2,177		2,010
		2,498		2,010
Accumulated amortization:
Backlog		55		-
Non-competing rights		1		-
Technology		178		-
Customer list		586		381
		820		381
Amortized cost	$	1,678	$	1,629

Amortization expenses amounted to $439, $207 and $143 for the years ended December 31, 2007, 2006 and 2005, respectively.

Estimated amortization expenses for the years ended:

	December 31,
2008		246
2009		246
2010		238
2011		227
2012 and thereafter		721
	$	1,678

F-36

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 8:-	GOODWILL
	Goodwill attributed to operating segments for the years ended December 31, 2007, 2006 and 2005 is as follows:

	Mobile and RFID		Supply chain solutions		Total
Balance as of January 1, 2006	$	-	$	952	$	952
Acquisition of Summit		-		1,909		1,909
Balance as of December 31, 2007	$	-	$	2,861	$	2,861

NOTE 9:- SHORT-TERM BANK LOANS

Loan currency	Weighted Interest Rate as of December 31, 2007		December 31,
	%		2007		2006
NIS		6.61	$	1,380	$	2,931
Euro		6.55		590		-
$		6.55		2,415		-
				4,385		2,931
Add current maturities		7.75		643		18
			$	5,028	$	2,949

Odem has registered floating charges on its assets and certain fix charges on its assets in connection with the loans.

F-37

B.O.S. BETTER ONLINE SOLUTIONS LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 10:- ACCRUED EXPENSES AND OTHER LIABILITIES

	December 31,
	2007		2006
Government of Israel – royalties and V.A.T	$	416	$	319
Provision for warranty		20		73
Professional services		342		315
Short term deferred tax		75		60
Other		437		232
	$	1,290	$	999

NOTE 11:-	LONG-TERM BANK LOANS
	a.	Classified by linkage terms and interest rates, the total amount of the loans is as follows:

Loan currency	Weighted Interest Rate as of December 31, 2007		December 31,
	%		2007		2006
NIS		6.43	$	1,479	$	18
$		7.75		2,450		-
				3,929		18
Less – current maturities		7.75		643		18
			$	3,286	$	-

	During 2007, the Company complied with the covenants set forth under the long-term loan agreement.
b.	The loans mature in the following years subsequent to the balance sheet dates:

First year (current maturities)	643
2009	3,091
2010	174
2011	13
2012	8

c. Odem and Summit have registered floating charges on their assets and certain fix charges in connection with the loans.

F-38

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 12:- LONG-TERM CONVERTIBLE NOTE

On June 10, 2004, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”), with Laurus Master Fund Ltd. (the “Investor”), under which the Company issued to the Investor in a private placement (i) a Secured Convertible Term Note of a $2,000 principal amount, due June 10, 2007 (the “Note”); and (ii) a warrant to purchase 130,000 Ordinary shares at an exercise price of $4.04 per share (the “Warrant”). Under the terms of the agreement, several fees in the amount of $115 were paid to the Investor. These fees are presented as discount of the principal convertible loan. The Note is convertible into Ordinary shares at a price of $3.08 per share. The principal amount of the Note is repayable in monthly installments, commencing September 2004, in the initial amount of $20 eventually increasing to $74. The Note bears prime interest rate plus 3% which is subject to reduction in certain conditions. The Warrant is exercisable, in whole or in part, until June 10, 2011. Pursuant to its undertaking in the Registration Rights Agreement with the Investor the Company filed with the Securities and Exchange Commission a registration statement on Form F-3 covering the resale of Ordinary shares that are issuable upon conversion of the Note and/or exercise of the Warrants, and/or issuable in payment of principal and interest on the Note. The Registration Rights Agreement provided that any delay in registration and/or effectiveness of the underlying shares of the transaction, or failure to maintain their effectiveness, will result in penalties to be paid in cash, as liquidated damages. The registration statement became effective on March 11, 2005. Due to the delay in the effectiveness of the registration of the shares, the Company paid the Investor liquidated damages of $92.

The Note conversion price is subject to proportional adjustment in the event of stock splits, combinations, subdivisions of the Ordinary shares or if dividend is paid in Ordinary shares. In addition, if the Company issues stock in certain types of transactions at a price lower than the initial conversion price, then the conversion price will be adjusted to a lower price based on a weighted average formula.

The fair value of the Warrants was calculated using the Black-Scholes options pricing model with the following assumptions: a risk-free interest rate of 3.34%, a dividend yield of 0%, a volatility of the expected market price of the Company’s Ordinary shares of 100% and a weighted-average contractual life of 7 year. The fair value of the Warrants in the amount of $99 is presented as a component in shareholders’ equity. Since the effective conversion price was greater than the share price at the commitment date, no beneficial conversion feature exists.

In March 2005, the Investor elected to convert $308 of the Note principal into 100,000 Ordinary shares of the Company. Due to the private placement agreement secured by the Company in June 2005, the conversion price was adjusted to $2.94 per share, and in July 2005, the Investor completed the conversion of the balance of the Note principal, which had not been previously converted or repaid, and the accrued interest into an additional 540,293 Ordinary shares for approximately $1,580.

F-39

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 12:- LONG-TERM CONVERTIBLE NOTE (Cont.)

In September 2005, the Company entered into a Second Securities Purchase Agreement (the “Second Purchase Agreement”) with the Investor, under which the Company issued to the Investor in a private placement (i) a Secured Convertible Term Note of a $1,500 principal amount, due September 2008 (the “Note”), and (ii) a warrant to purchase 73,052 ordinary shares at an exercise price of $4.04 per share (the “Warrant”). According to the Second Agreement, several fees in the total amount of $116 were paid to the Investor. These fees are presented as a discount of the principal convertible loan. The Note is convertible into Ordinary shares at a price of $3.08 per share. The principal amount of the Note is repayable in monthly installments, commencing as of January 2006, in the initial amount of $15 eventually increasing to $55. The Note bears prime interest rate plus 1.5% which is subject to reduction under certain conditions. The Warrant is exercisable, in whole or in part, until September 29, 2012. Pursuant to its undertaking in the Registration Rights agreement with the Investor, the Company filed with the Securities and Exchange Commission a registration statement on Form F-3 covering the resale of Ordinary shares that is issuable upon conversion of the Note and/or exercise of the Warrants, and/or issuable in payment of principal and interest on the Note. The Registration Rights agreement provided that any delay in registration and/or effectiveness of the underlying shares of the transaction, or failure to maintain their effectiveness, will result in penalties to be paid in cash, as liquidated damages. The registration statement became effective on February 8, 2006.

The Note conversion price is subject to proportional adjustment in the event of stock splits, combinations, subdivisions of the Ordinary shares or if dividend is paid on the Ordinary shares in Ordinary shares. In addition, if BOS issues stock in certain types of transactions at a price lower than the initial conversion price, then the conversion price will be adjusted to a lower price based on a weighted average formula.

The fair value of the Warrants was calculated using the Black-Scholes options pricing model with the following assumptions: a risk-free interest rate of 4.08%, a dividend yield of 0%, a volatility of the expected market price of the Company’s Ordinary shares of 100% and a weighted-average contractual life of seven years. The fair value of the Warrants in the amount of $144 is offset against the note, amortized over the period of the note and presented as a component in shareholders’ equity.

On August 17, 2006 the Company entered into a Third Securities Purchase Agreement (the “Third Agreement”) with the Investor under which the Company issued to the Investor in a private placement (i) a third Convertible Term Note of a $1,500 principal amount, due August 2009 (the “Note”), and (ii) a warrant to purchase 73,052 Ordinary shares at an exercise price of $4.04 per share (the “Warrant”). The Note is convertible into Ordinary shares at a price of $3.08 per share for the first 500,000 and $4.08 for any additional amount payable thereunder. The principal amount of the Note is repayable in monthly installments, commencing as of December 2006, in the initial amount of $15 eventually increasing to $55. The Note bears prime interest rate plus 1.5% which is subject to reduction under certain conditions. The Warrant is exercisable, in whole or in part, until August 16, 2013 at an exercise price of $4.04 for the first 24,351 Ordinary shares acquirable thereunder, and of $5.30 per share for the additional 48,701 acquirable thereunder. Pursuant to its undertaking in the Registration Rights agreement with the Investor, the Company filed with the Securities and Exchange Commission a registration statement on Form F-3 covering the resale of Ordinary shares that is issuable upon conversion of the Note and/or exercise of the Warrants, and/or issuable in payment of principal and interest on the Note.

F-40

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 12:- LONG-TERM CONVERTIBLE NOTE (Cont.)

The Registration Rights agreement provided that any delay in registration and/or effectiveness of the underlying shares of the transaction, or failure to maintain their effectiveness, will result in penalties to be paid in cash, as liquidated damages. The registration statement became effective on December 5, 2006.

The fair value of the Warrants was calculated using the Black-Scholes options pricing model with the following assumptions: a risk-free interest rate of 4.83%, a dividend yield of 0%, a volatility of the expected market price of the Company’s Ordinary shares of 80% and a weighted-average contractual life of seven years. The fair value of the Warrants in the amount of $131 is offset against the note, amortized over the period of the note and presented as a component in shareholders’ equity.

On June 21, 2007, the Company entered into an agreement with the Investor, pursuant to which the Investor converted the entire outstanding principal amount for approximately $2,223 into 878,670 Ordinary Shares of the Company at a conversion price of $2.53. As a result of reducing the conversion price which resulted in the Company recorded expenses upon conversion of $611 in year 2007.

NOTE 13:- COMMITMENTS AND CONTINGENT LIABILITIES

a.	Commitments:
	1.	Royalty commitments:
		a)	Under the Company’s research and development agreements with the Office of the Chief Scientist (“OCS”) and pursuant to applicable laws, the Company is required to pay royalties at the rate of 3.5% of sales of products developed with funds provided by the OCS, up to an amount equal to 100% of the research and development grants (dollar-linked) received from the OCS. The obligation to pay these royalties is contingent upon actual sales of the products. Royalties payable with respect to grants received under programs approved by the OCS after January 1, 1999, are subject to interest on the U.S. dollar-linked value of the total grants received at the annual rate of LIBOR applicable to U.S. dollar deposits at the time the grants are received.
			As of December 31, 2007, the Company has an outstanding contingent obligation to pay royalties, including interest, in the amount of approximately $3,462, in respect of these grants.
		b)	The Israeli Government, through the Overseas Marketing Fund, awarded the Company grants for participation in expenses for overseas marketing. The Company is committed to pay royalties to the Fund for Encouragement of Marketing Activities at the rate of 3% of the increase in export sales, up to the amount of the grants received by the Company linked to the dollar and bearing interest.

F-41

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 13:- COMMITMENTS AND CONTINGENT LIABILITIES

			As of December 31, 2007, the Company has an outstanding contingent obligation to pay royalties including interest of $83 with respect to these grants.
	2.	Other commitments:
		The facilities of the Company are rented under operating lease agreements that expire on various dates ending in 2009. Minimum future rental payments for 2008, 2009, 2010, 2011, 2012, are $163, $140, $55, $48 and $4 respectively.
		The Company’s motor vehicles are rented under various cancelable operating lease agreements. The lease agreements for the motor vehicles expire on various dates ending in 2009. The maximum breach of contract fees can amount to $74.
		Lease payments for the facilities occupied by the Company and the Company’s motor vehicles in 2007, 2006 and 2005 amounted to $407, $343 and $408, respectively.
b.	In April 2006, BOSâNOVA EURL, a French company and former distributor of the Company, served the Company with a claim filed with the French Trade Tribunal alleging breach of exclusive distributor rights in France and asserting ownership to certain intellectual property rights in the Company’s products. The plaintiff seeks an amount of approximately 3.3 million Euros and additional remedies. This claim follows a previous motion for temporary injunctive relief that was filed against the Company’s new French distributor, said motion ultimately denied by French Trade Tribunal. On September 18, 2007, the French Trade Tribunal rejected the Company’s assertion that jurisdiction is with the Israeli courts, and the Company has appealed this decision. The Company assesses the prospect of the claimant to prevail and recover a significant amount is remote. The Company’s financial statements include a provision in this respect.
	In January 2008, a former employee of the Company, filed a claim against the Company in the Labor Court in Tel Aviv, for severance payments in the amount of NIS 306 (approximately $80). The plaintiff also demands compensation for delay in payment of the said severance pay of NIS 207 (approximately $54). The Company is yet to file its statement of defense. The Company’s financial statements include a provision in this respect.

F-42

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 14:- SHAREHOLDERS’ EQUITY

a.	Private placement:
	In April 2007, the Company completed a right offering in which it issued 1,739,398 ordinary shares at a share price of $2.5. The gross proceeds amounted to $4.4 million and the issuance costs amounted to $400.
	On June 21, 2007 Laurus Master Fund Ltd. converted the entire outstanding principal amount under its Convertible Notes of approximately $2,223 into 878,670 Ordinary Shares of BOS. (See also Note 12).
	On June 26, 2007 the Company entered into a definitive private placement agreement with a European private investor for the issuance of 226,415 Ordinary Shares at a price per share of $2.65. Issuance costs amounted to $36.
	On July 1, 2007 the Company issued 5,594 shares of the Company as part of the consideration paid for the purchasing the assets of Cyms Ltd. (See Note 1b).
	On October 1, 2007 the Company issued 8,000 shares of the Company as part of the consideration paid for the purchasing of OptimizeIT assets (See Note 1b).
	On November 21, 2007 the Company issued 360,000 shares of the Company as part of the consideration paid for the purchasing of Summit shares (See Note 1b).
	On December 11, 2007 the Company entered into a Share Purchase Agreement with Catalyst Fund L.P. (“Catalyst”) and three subsidiaries of D.S. Apex Holdings Ltd. (“Apex”), under which the Company issued on December 31, 2007 833,560 Ordinary Shares at a price of $2.40 per share (reflecting an aggregate investment of approximately $2 million), and 541,814 warrants at exercise price of $2.76, exercisable for four years from their date of issuance. The Company has paid 3% placement fees in cash to APEX and 6% in 25,007 Ordinary Shares to Catalyst. The Company also entered into a Registration Rights Agreement pursuant to which the Company shall prepare and file with the Securities and Exchange Commission a registration statement covering the resale of the Ordinary Shares issued to the investors.
	The Company’s outstanding warrants to shareholders as of December 31, 2007 are as follows:

Range of exercise price		Outstanding and exercisable warrants as of December 31, 2007		Weighted average exercise Price of outstanding warrants		Weighted average remaining contractual life (years)		Weighted average exercise price of warrants exercisable
$	2.76		541,814	$	2.76		4.00	$	2.76
$	3.03		572,219	$	3.03		0.50	$	3.03
			1,114,033	$	2.90		2.20	$	2.90

F-43

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 14:- SHAREHOLDERS’ EQUITY (Cont.)

b.	Stock option plans:
	In May 2003, the Company’s shareholders approved the adoption of the 2003 Stock Option Plan (the “Plan”), pursuant to which 625,000 Ordinary Shares are reserved for purchase by employees, directors, consultants and service providers of the Company. In June 2005, the Company’s shareholders approved an increase of the number of Ordinary shares reserved for issuance under the Plan, to 1,000,000. In May 2006, the Company’s shareholders approved an increase of the number of Ordinary Shares reserved for issuance under Plan, to 1,500,000. In August 2007, the Company’s shareholders approved an increase of the number of Ordinary shares reserved for issuance under the Plan, to 2,600,000. Any option which is canceled or forfeited before expiration will become available for future grants.
	As of December 31, 2007 an aggregate of 869,171 of these options are still available for future grants. Each option granted under the Plans expires between 3-10 years from the date of the grant. The options vest gradually over a period of up to four years.
	During 1994, 1995, 1999, 2000, 2001, the Company’s Board adopted stock option plans (the “Plans”) pursuant to which 656,250 options for the purchase of the Company’s Ordinary Shares may be granted to officers, directors, consultants and employees of the Company. The Board has resolved that no further grants shall be made from these Plans.
	A summary of the Company’s employees and director’s stock option activity and related information for the year ended December 31, 2007, is as follows:

	Number of options			Weighted-average exercise price		Weighted- average remaining contractual term (in years)		Aggregate intrinsic value
Options outstanding at January 1, 2007		822,660		$	3.36		5.01	$	0.69
Changes during the year:
Granted		1,153,100		$	2.47
Exercised		(19,999	)	$	2.39
Forfeited or cancelled		(135,565	)	$	7.98
Options outstanding at December 31, 2007		1,820,196		$	2.47		6.62	$	0.15
Vested and expected to vest		1,619,554		$	2.47		6.62	$	0.15
Exercisable at December 31, 2007		334,665		$	2.24		3.87

The weighted-average grant-date fair value of options granted during the year ended December 31, 2007 and 2006 was $1.43 and $1.45, respectively. The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the fair market value of the Company Ordinary Shares on December 31, 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2007.

F-44

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 14:- SHAREHOLDERS’ EQUITY (Cont.)

Total aggregate intrinsic value of options exercised for the year ended December 31, 2007 and 2006 was $0.70 and $0.00 respectively. The aggregated intrinsic value of options outstanding for the year ended December 31, 2007 and 2006 was $0.15 and $0.69, respectively. As of December 31, 2007 there was $1,560 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s stock option plans. That cost is expected to be recognized over a weighted-average period of 23 months.

As of December 31, 2007 there was $1,560 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted to employees and directors under the Company’s Plans. That cost is expected to be recognized over a weighted-average period of 23 months.

Cash received from exercise of options for the years ended December 31, 2007, 2006 and 2005 were approximately $46, $135 and $50 respectively.

As part of the disposition of the communication segment and the PrintBOS product line, the Company extended the options contractual life of employees who became the buyers’ employees. As a result, the Company recorded an expense of $104 in 2005 which was offset from the capital gain derived from the sale of this segment and product line in 2005.

The options granted to employees outstanding as of December 31, 2007 have been separated into ranges of exercise prices, as follows:

exercise price		Options outstanding as of December 31, 2007		remaining contractual life (years)		Options exercisable as of December 31, 2007		Weighted average remaining contractual life (years)
$	0		73,000		6.88		73,000		6.88
$	1.84		30,000		0.67		30,000		0.67
$	2.00		10,462		1.62		10,462		1.62
$	2.28		7,500		2.50		5,000		2.50
$	2.39		400,000		6.75		-		-
$	2.48		7,500		2.87		5,000		2.87
$	2.52		700,600		9.16		-		-
$	2.57		22,500		4.61		-		-
$	2.58		67,261		5.84		16,816		5.84
$	2.63		7,500		3.14		2,500		3.14
$	2.68		420,976		3.38		140,324		2.38
$	2.70		15,000		3.39		5,000		3.39
$	3.00		48,000		7.15		36,666		7.08
$	6.80		8,197		0.87		8,197		0.87
$	18.00		450		1.86		450		1.86
$	28.00		1,250		2.4		1,250		2.4
			1,820,196		6.62		334,665		3.87

F-45

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 14:- SHAREHOLDERS’ EQUITY (Cont.)

c. Warrants issued to service providers:

The Company accounts for these options in accordance with the provisions of SFAS 123 and EITF 96-18. The fair value for these options was estimated at the date of grant using Black-Scholes options pricing model with the following assumptions for the years ended December 31, 2006 and 2005: risk-free interest rate of 4.9% and 1.5%, respectively, dividend yields of 0% and 0%, respectively, volatility of 77% and 70%, respectively, and an expected life of 4.2 years and 2.5 years, respectively. No warrants were granted to service provider during year 2007.

The compensation expenses that have been recorded in the consolidated financial statements regarding these warrants for the years ended December 31, 2007, 2006 and 2005 were $43, $116 and $348, respectively.

The Company’s outstanding warrants to service providers as of December 31, 2007 are as follows:

Range of exercise price		Outstanding and exercisable warrants as of December 31, 2007		Warrants outstanding Weighted average exercise price		Weighted average exercise price of warrants exercisable		Weighted average remaining contractual life (years)
$	2.3		10,000	$	2.3	$	2.3		3.00
$	3.08		10,000	$	3.08	$	3.08		1.00
$	4.00		75,000	$	4.00	$	4.00		1.00
$	4.04		227,403	$	4.04	$	4.04		4.10
$	5.30		48,701	$	5.30	$	5.3		5.63
			371,104	$	4.12	$	4.12		3.56

NOTE 15:- TAXES ON INCOME

a. Reduction in corporate tax rate:

In June 2004, an amendment to the Income Tax Ordinance (No. 140 and Temporary Provision), 2004 was passed by the “Knesset” (Israeli parliament) and on July 25, 2005, another law was passed, the amendment to the Income Tax Ordinance (No. 147) 2005, according to which the corporate tax rate is to be progressively reduced to the following tax rates: 2004 - 35%, 2005 - 34%, 2006 - 31%, 2007 - 29%, 2008 - 27%, 2009 - 26%, 2010 and thereafter - 25%.

F-46

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 15:- TAXES ON INCOME (Cont.)

c. Loss carryforward:

Domestic (Israel):

The Company and its Israeli subsidiary have accumulated losses for Israel income tax purposes as of December 31, 2007, in the amount of approximately $36,132. These losses may be carryforward (linked to the Israeli Consumer Price Index (“CPI”)) and offset against taxable income in the future for an indefinite period.

Foreign:

As of December 31, 2007, the U.S. subsidiaries had U.S. Federal and State net operating loss carryforward of approximately $8,100, which can be carried forward and offset against taxable income. Utilization of U.S. net operating losses may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state law provisions. The annual limitations may result in the expiration of net operating losses before utilization.

d.	Deferred income taxes:
	Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets are as follows:

	December 31,
	2007			2006
Assets in respect of:
Property, plant and equipment	$	21		$	3
Allowances and provisions		517			296
Net operating loss carryforward		11,445			10,674
		11,983			10,973
Liabilities in respect of intangible assets		(441	)		(422	)
Net deferred tax assets before valuation allowance		11,542			10,551
Valuation allowance (1)		(11,922	)		(10,936	)
Net deferred tax liability	$	(380	)	$	(385	)

(1) The Company has provided valuation allowances for BOS and all its subsidiaries except for Odem, in respect of deferred tax assets resulting from tax loss carryforward and other reserves and allowances due to their history of operating losses and current uncertainty concerning their ability to realize these deferred tax assets in the future.

F-47

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 15:- TAXES ON INCOME (Cont.)

	December 31,
	2007			2006
Presented in balance sheet:
Current assets	$	19		$	14
Long-term assets		42			23
Current liabilities		(75	)		(60	)
Long-term liabilities		(366	)		(362	)
Net deferred tax liability	$	(380	)	$	(385	)

e. Taxes on income (tax benefit) are comprised as follows:

	Year ended December 31,
	2007			2006			2005
Current	$	80		$	17		$	259
Prior years		47			-			-
Deferred		(118	)		(106	)		(55	)
	$	9		$	(89	)	$	204
Domestic	$	16		$	(106	)	$	74
Foreign		(7	)		17			130
	$	9		$	(89	)	$	204

f. Effective tax

Income (loss) before taxes on income from operating activities related to continuing operations	$	(8,624	)	$	(1,682	)	$	167
Statutory tax rate		29	%		31	%		34	%
Provision at statutory tax rate		(2,501	)		(521	)		57
Non-deductible expenses		290			21			219
Deferred taxes on losses reserves and allowances for which a valuation allowance was provided		2,220			411			(72	)
Taxes on income (tax benefit)	$	9		$	(89	)	$	204

F-48

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 15:- TAXES ON INCOME (Cont.)

g.	Tax assessments:
	BOS and BOScom have final assessments through 2002. Odem has final assessment through 2004.
k.	The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. The impact of adopting FIN 48 was insignificant impact on the Company’s consolidated financial statements.
	In accordance with the Company’s accounting policy, both before and after adoption of FIN 48, interest expense and potential penalties related to income taxes are included in the tax expense line of the Company’s condensed consolidated statements of operations.
	The Company and its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states in the U.S. and Israel jurisdiction. BOS, BOScom and Quasar may be subject to examination by the Israel tax authorities for fiscal years 2002 through 2007. Odem may be subjected to examination by the Israel tax authorities for fiscal years 2004 through 2007. Link USA (the U.S. subsidiary) may be subject to examination by the U.S. Internal Revenue Service (“IRS”) for fiscal years 1998 through 2007 can be carried forward and offset against taxable income for 15 to 20 years.
	The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to tax audits and settlement. The final tax outcome of the Company’s tax audits could be different from that which is reflected in the Company’s income tax provisions and accruals. Such differences could have a material effect on the Company’s income tax provision and net loss in the period in which such determination is made.

F-49

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 16:-	SUPPLEMENTARY INFORMATION TO STATEMENTS OF OPERATIONS
	a.	Financial income (expenses), net:

	Year ended December 31,
	2007			2006			2005
Financial income:
Interest on bank deposits and marketable securities	$	122		$	73		$	57
Other (mainly foreign currency translation income)		-			65			-
		122			138			57
Financial expenses:
In respect of long-term bank loans and convertible note		(585	)		(694	)		(427	)
Other (mainly foreign currency translation losses)		(6	)		(70	)		(78	)
		(611	)		(764	)		(505	)
	$	(469	)	$	(626	)	$	(448	)

b.	Earnings (loss) per share:
	1.	Numerator:

Numerator for basic and diluted net earnings (loss) per share:
Loss from continuing operations	$	(8,633	)	$	(1,593	)	$	(2,010	)
Income (loss) from discontinued operations		237			1,685			(1,595	)
Net earnings (loss) available to Ordinary shareholders	$	(8,396	)	$	92		$	(3,605	)

2. Denominator (in thousands):

Basic weighted average Ordinary shares outstanding (in thousands)		8,651			6,675			5,616
Diluted weighted average Ordinary Shares outstanding (in thousands)		11,783			6,793			5,616
Basic and diluted net loss per share from continuing operations	$	(1.00	)	$	(0.24	)	$	(0.36	)
Basic and diluted net earnings (loss) per share from discontinued operations	$	0.02		$	0.25		$	(0.28	)
Basic and diluted net earnings (loss) per share	$	(0.97	)	$	0.01		$	(0.64	)

F-50

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 17:-	SEGMENTS AND GEOGRAPHICAL INFORMATION
	Commencing 2006 and subsequent to the disposal of the communication segment in 2006, the Company managed its business with two reportable segments, consisting of the Software Solutions segment and the Supply Chain Solutions segment. Commencing 2007 and subsequent to the acquisition of Summit, the Company manages its business with two reportable segments, consisting of the Mobile and RFID Solutions segment and Supply Chain Solutions segment. Amounts for fiscal years 2006 and 2005 have been recast to conform to the current management view.
	The Company’s management makes financial decisions and allocates resources, based on the information it receives from its internal management system. The Company allocates resources and assesses performance for each operating segment using information about revenues, gross profit and operating income (loss) before interest and taxes.
	a.	Revenues, gross profit and operating income (loss) for the operating segments for the years 2007, 2006 and 2005 were as follow:

	Mobile and RFID			Supply Chain Solutions			Not allocated			Consolidated
2007
Revenues	$	2,673		$	21,101		$	-		$	23,774
Gross profit	$	1,436		$	3,239		$	-		$	4,675
Operating profit (loss)	$	(108	)	$	(108	)	$	(1,706	)	$	(1,922	)
Assets related to segment	$	1,205		$	27,002		$	2,925		$	31,132
2006
Revenues	$	2,344		$	18,573		$	-		$	20,917
Gross profit	$	1,401		$	3,316		$	-		$	4,717
Operating loss	$	126		$	641		$	(1,823	)	$	(1,056	)
Assets related to segment	$	243		$	13,700		$	10,586		$	24,529
2005
Revenues	$	3,993		$	20,186		$	(80	)	$	24,099
Gross profit	$	2,442		$	3,803		$	-		$	6,245
Operating income (loss)	$	607		$	1,167		$	(1,514	)	$	260
Assets related to segment	$	391		$	11,535		$	10,720		$	22,646

F-51

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 17:- SEGMENTS AND GEOGRAPHICAL INFORMATION (Cont.)

b. The following presents total revenues and long-lived assets for the years 2007, 2006 and 2005 based on the location of customers:

	Year ended December 31,
	2007				2006				2005
	Total revenues		Long-lived assets *)		Total revenues		Long-lived assets *)		Total revenues		Long-lived assets *)
America	$	5,420	$	2,225	$	2,848	$	-	$	3,439	$	-
Far East		964		-		2,019		-		6,083		-
Europe		1,511		-		1,173		-		1,171		-
Israel and others		15,879		3,033		14,877		3,101		13,406		3,455
	$	23,774	$	5,258	$	20,917	$	3,101	$	24,099	$	3,455

	Total revenues are attributed to geographical areas based on the location of customers in accordance with Statement of Financial Accounting 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”).
	*)	Long-lived assets comprise goodwill, intangible assets, property, plant and equipment.
c.	Major customer’s data as a percentage of total revenues:

	Year ended December 31,
	2007			2006			2005
Customer A		4	%		7	%		11	%
Customer B		21	%		24	%		16	%

Major customer’s trade receivable balances as of December 31, 2007 and 2006 are $1,417 and $2,388, respectively.

NOTE 18:-	RELATED PARTIES
	Service Agreement of Cukierman & Co.:
	The Company’s audit committee and Board approved the engagement of Cukierman & Co. Investment House Ltd., to provide non-exclusive investment-banking services and business development services to the Company, effective April 15, 2003. Cukierman & Co. is a company indirectly controlled by Mr. Edouard Cukierman. Since June 26, 2003, Mr. Cukierman serves as Chairman of the Company’s Board, and he is also a co-manager of the Catalyst Fund, the Company’s largest shareholder. For its services, Cukierman & Co. is paid a monthly sum of $10 plus VAT, in addition to a success fee of 4%-6% for a consummated private placement. According to its terms, the Company may terminate the agreement at any time, by giving one month prior written notice. The agreement provided that the success fees for securing M&A transactions will be 3.5% of the proceeds exchanged in such a transaction.

F-52

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 18:-	RELATED PARTIES (Cont.)
	The payments the Company paid and accrued according to the Service Agreement with Cukierman & Co are:

	Payments in Year ended December 31, 2007			Accrued liability as of December 31, 2007
Business development	$	70		$	50
Success fee in respect of issuance of convertible loan		120			-
Success fee in respect of issuance of investment in Summit		28	*		143
Total	$	218		$	193

* Payment by 12,600 shares of the Company at a price of $2.28 per share (reflecting the Company share price at the grant date).

	Payments in Year ended December 31, 2006		Accrued liability as of December 31, 2006
Business development	$	120	$	11
Success fee in respect of issuance of convertible loan		75		2
	$	195	$	13

On May 18, 2006 the shareholders approved a grant to Mr. Edouard Cukierman of 21,666 Ordinary Shares (for no consideration), and 233,876 options to purchase Ordinary Shares of the Company, pursuant to the Company’s 2003 Israeli Share Option Plan, at an exercise price of $2.68. The options’ exercise price was equal to the average closing price of the Company’s shares on the Nasdaq Global Market on the 20 trading days preceding the shareholders’ meeting date at which the grant was approved (the “Grant Date”). The options vest in three equal parts on the first, second and third anniversary of the Grant Date, and expire from May 2010 through May 2012.

On November 7, 2007 the shareholders approved the Agreement with Edouard Cukierman, the Chairman of the Board, pursuant to which, Mr. Edouard Cukierman shall be granted options (the “Options”) to purchase up to 100,000 Ordinary Shares of the Company per each calendar year of service as the Company’s Chairman of the Board of Directors (the “Service”) in the years 2007-2010 (pro-rated for any part of the Calendar year). The Options shall be in lieu of any compensation, fees or options otherwise payable by the Company to Cukierman as a director.

The Options shall vest on a quarterly basis. The exercise price of the Options is $2.385 which was equal to the weighted average of the closing prices of the Company’s Ordinary Shares on the Nasdaq Global Market during the thirty-day period preceding the shareholders approval. Unexercised Options shall expire after five years from their respective grant date.

F-53

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 18:-	RELATED PARTIES (Cont.)
	Pursuant to the Agreement, if the Service is terminated by the Company for no Cause (as defined in the Agreement) then: (i) any unvested Options shall be immediately vested in full as of the date of the termination; (ii) the Company shall grant Cukierman such number of Options amounting, together with Options previously granted, to 400,000 Options, and such additional options shall be vested upon grant; and (iii) the Options shall be exercisable for a period of twenty four (24) months from termination.
	If the Service is terminated by Cukierman in circumstances not involving Cause, his vested options shall be exercisable for six (6) months from the date of said termination.
	On December 11, 2007 the Company entered into a Share Purchase Agreement under which the Company issued on December 31, 2007 833,560 Ordinary Shares at a price of $2.40 per share (reflecting an aggregate investment of approximately $2 million), and 541,814 warrants at exercise price of $2.76, exercisable for four years from their date of issuance.
	The investors are Catalyst Fund L.P. (“Catalyst”) and three subsidiaries of D.S. Apex Holdings Ltd. (“Apex”). The Company paid 3% placement fees in cash to Apex and 6% in ordinary shares to Catalyst.
	The payments the Company paid and accrued according to the Share Purchase Agreement are:

	Payments in Year ended December 31, 2007		Accrued liability as of December 31, 2007
Catalyst	$	50	$	-
APEX		-		48

* Payment by 26,000 shares of the Company at a price of $1.90 per share (reflecting the Company share price at the grant date).

F-54

B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 19:-	SUBSEQUENT EVENT (UNAUDITED)
	In January 2008, BOScom changed its name to Dimex Solutions Ltd. On January 14, 2008, Dimex Solutions incorporated a fully owned subsidiary named Dimex Hagalil Projects (2008) Ltd.
	In March 2008, Dimex Solutions Ltd. purchased the assets and activities of Dimex Systems Ltd., an Israeli private company and Dimex Hagalil Projects (2008) Ltd. purchased assets and activities of Dimex Hagalil Ltd., subsidiary of Dimex Systems Ltd. (together called “Dimex”). Dimex is an integrator of AIDC (Automatic Identification and Data Collection) solutions based on RFID and Barcode technology. The consideration for acquiring the business operation of Dimex was NIS 17.6 million (approximately $4,800) and for the inventory, accounts receivable and fixed assets, the consideration was NIS 27 million (approximately $7,400).
	The consideration is comprised of cash, payable over a 24-month period and 500,224 BOS Ordinary Shares (equal to approximately 4.4% of then outstanding shares of BOS). Part of the acquisition will be financed by bank debt.
	The acquisition is treated using the purchase method of accounting in accordance with SFAS 141, “Business Combinations”.
	On February 18, 2008 NWB and Qualmax, entered into an agreement and plan of merger, pursuant to which Qualmax will be merged with and into the NWB. Upon completion of the merger, which is subject to certain conditions, BOS holdings in Qualmax will be converted into holdings in NWB.

F-55

EX-4.8

Exhibit 4.8

SHARE PURCHASE AGREEMENT

        This Agreement (the “Agreement”) is made as of October 30, 2007, by and among Donald Levi and Andrew Levi (mutually the “Sellers”); B.O.S Better Online Solutions Ltd., an Israeli company No. 520042565, having its address at 20 Freiman Street Rishon LeZion, 75100 (the “Purchaser”); and Summit Radio Corp., a New Jersey corporation, having its address at 1008 Teaneck Road, Teaneck, New Jersey 07666 (the “Company”).

W I T N E S S E T H :

        WHEREAS, the Sellers are the owners of 100% of the issued and outstanding capital stock in the Company; and

        WHEREAS, the Sellers wish to sell to the Purchaser, in the aggregate, 20 shares of common stock of the Company, no par value (the “Company Shares”), representing 100%, as of Closing (as defined below), of the issued and outstanding capital stock of the Company; and

        WHEREAS, the Purchaser wishes to acquire such Company Shares in accordance with the terms of this Agreement; and

        NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereby agree as follows:

1. Sale and Purchase of Shares.

1.1 General. Each Seller, severally and not jointly, shall sell, at the Closing, to the Purchaser, and the Purchaser shall purchase, at the Closing, all rights, title and interest in each Seller’s Sold Shares (as defined below) on the terms of this Agreement, free from all claims, liens, charges, pledges, security interests, encumbrances and third party rights of any kind (the “Security Interests”), other than as currently existing under the Company’s certificate of incorporation, as amended (the “Certificate of Incorporation”) and/or bylaws, as amended (the “Bylaws”), together with all rights, preferences and privileges attaching to, or conferred by, them. “Sold Shares” shall mean, in relation to a Seller, the Company Shares set forth opposite such Seller’s name in Schedule A.

1.2 Closing Consideration. Subject to Closing, the Purchaser shall, in consideration for the purchase from each Seller of the Sold Shares: (i) issue to the relevant Seller ordinary shares nominal value NIS 4.00 each, of the Purchaser, as set forth in Schedule A (the “Consideration Shares”), such Consideration Shares to be placed in escrow as set forth below, and (ii) pay to the relevant Seller cash in the amount set forth in Schedule A hereto (the “Cash Payment”).

At Closing, the Consideration Shares will be placed into escrow with the office of GREENBERG TRAURIG, P.A. (the “Shares Escrow Agent”), pursuant to an escrow agreement in the form attached hereto as Exhibit A (the “Escrow Agreement”). The Consideration Shares shall be released to the respective Sellers upon the lapse of ten (10) months from the Closing (the “Escrow Period”), unless the Purchaser shall have submitted to the Sellers a claim for indemnification, in which case the amount of the Consideration Shares required to cover the potential claim shall remain in escrow pending the resolution of such claim and shall be used to satisfy all or part of such claim if sustained. During the Escrow Period the Sellers shall be deemed to be the owners of the Consideration Shares for the purpose of voting the Consideration Shares. All dividends, bonus shares, options or other distributions to shareholders as may be declared by the Company in respect of the Consideration Shares shall be paid, issued or distributed to the Shares Escrow Agent, who shall hold them until such time that the same are released from escrow as provided in the Escrow Agreement.

1.3 Deposit. The parties acknowledge that the Purchaser has transferred to Kilstein & Kilstein (the “DepositEscrow Agent”) to the sum of $250,000 (the “Deposit”).

1.4 Contingent Consideration. The Purchaser shall pay an amount of up to $500,000 in cash, in contingent payments (the “Contingent Consideration”), payable to the Sellers jointly upon achievement by the Company of the financial milestones (each, a “Target”) stated on Schedule B.

2. Closing. The closing of the sale and purchase of the Sold Shares of each Seller listed in Schedule A shall take place at a closing (the “Closing”), which will be held at the offices of Greenberg Traurig, P.A. 200 Park Avenue, Florham Park, New Jersey 07932 within five (5) business days from the date all conditions precedent stated in Sections 8 and 9 hereof have been fulfilled or waived (as applicable) or on such other date, time and place as the Purchaser and the Sellers shall mutually agree. The date of the Closing shall be deemed the “Closing Date”.

2.1 Transactions at Closing. At the Closing, the following transactions shall occur, which transactions shall be deemed to take place simultaneously, and no transaction shall be deemed to have been completed or any document delivered until all such transactions have been completed and all required documents delivered:

2.2.1 The Sellers and the Company shall deliver, or procure the delivery, to the Purchaser of the following documents:

a. Certificates representing all of the Sold Shares, each such certificate to be duly and validly endorsed in favor of the Purchaser or accompanied by separate stock powers duly and validly executed by the relevant Seller and otherwise sufficient to vest in the Purchaser good and marketable title to such stock;

b. A certificate, duly executed by an executive officer of the Company, dated as of the Closing Date, confirming that the representations and warranties made in Section 4 were true and correct in all material respects when made and are true and correct in all material respects on and as of the Closing Date, as though made on the Closing Date, and that the Company has performed in all material respects all obligations required under this Agreement to be performed by it on or before the Closing;

- 2 -

c. Certificates of each of the Sellers dated as of the date of the Closing, confirming that the representations and warranties made in Sections 3, 4 and 5 were true and correct in all material respects when made and are true and correct in all material respects on and as of the Closing Date, as though made on the Closing Date.

d. An executed opinion of counsel to the Company and Sellers in the form attached hereto as Schedule 2.2.1(d) , dated as of the date of the Closing and addressed to the Purchaser.

e. Resignation letters signed by the Sellers, resigning from the Board of Directors of the Company, effective as of the Closing.

f. The employment agreement between Donald Levi and the Company in the form attached as Schedule 2.2.1(f) hereto executed by Donald Levi (the “Donald Levi Employment Agreement”).

g. The employment agreement between Andrew Levi and the Company in the form attached as Schedule 2.2.1(g) executed by Andrew Levi (the “Andrew Levi Employment Agreement”).

h. True and correct copies of resolutions or unanimous consents of the Company’s Board of Directors approving the transactions contemplated hereby.

i. A copy of all approvals and consents of, or notices to, any governmental authority or agency needed to enter into and/or consummate the transactions contemplated hereby.

2.2.2 The Purchaser shall deliver to the Sellers the following documents:

a. True and correct copies of resolutions or unanimous consents of the Purchaser’s Board of Directors approving (i) the transactions contemplated hereby; (ii) the issuance of the Consideration Shares (for deposit with the Shares Escrow Agent) and the transfer of the Cash Payment (less the Deposit) to the Sellers in accordance with Schedule A hereto and (iii) the Contingent Consideration in accordance with Schedule B, against the transfer to the Purchaser of the Sold Shares, free and clear from any Security Interest;

b. Confirmation by the Shares Escrow Agent of receipt of validly executed share certificates covering the Consideration Shares, issued in the name of each Seller;

- 3 -

c. A certificate duly executed by an executive officer of the Purchaser, dated as of the date of the Closing, confirming that the representations and warranties made by the Purchaser in Section 6 were true and correct when made and are true and correct in all material respects on and as of the Closing Date, as though made on the Closing Date.

d. A copy of all approvals and consents of, or notices to, any governmental authority or agency needed to enter into and/or consummate the transactions contemplated hereby. Purchaser may certify in writing that all approvals have been secured.

e. If any closing document that is delivered by Purchaser to Sellers is in Hebrew, it shall be accompanied by an English translation thereof certified by an officer of Purchaser.

2.2.3 The Purchaser shall deliver to each Seller by certified check(s) or equivalent bank check(s) payable to each Seller or commence the transfer of the Cash Payment less the Deposit to the Sellers by wire transfer in immediate available funds to the accounts designated by the Sellers. Such payments shall be made in U.S. dollars. The actual receipt and clearance of such checks or other payments shall be a condition precedent to the effectiveness of each of the closing transactions.

2.2.4 The Purchaser shall instruct the Deposit Escrow Agent to transfer the Deposit to the Sellers.

2.2.5 The Company and the Sellers shall execute and deliver to each other General Releases in the forms attached hereto as Schedules 2.2.5(a), (b) and (c)

3. Representations and Warranties of Each Seller. Each Seller, severally and not jointly, represents and warrants to the Purchaser as follows:

3.1 He is the holder and legal owner of all rights, titles and interests in and to the Sold Shares set forth opposite its name in Schedule A, free from all Security Interests, , together with all rights, preferences and privileges attaching to, or conferred by, such Sold Shares;

3.2 He is not entitled to purchase, receive or otherwise acquire from the Company any additional securities of the Company, including without limitation securities exercisable or convertible into securities of the Company.

3.3 The execution and delivery of this Agreement (and the other documents contemplated hereby) by him does not, and the consummation of the transactions contemplated hereby and thereby will not:

(a) constitute a breach of any applicable law, rule or regulation of any government applicable to such Seller;

- 4 -

(b) require the consent or agreement of any court, governmental body or entity that has not been, or will not have been, obtained by such Seller prior to the Closing;

(c) violate any material contract, agreement, indenture, mortgage, instrument, lease, license, arrangement, or undertaking of such Seller;

(d) result in the creation or enforcement of any Security Interest upon the Sold Shares held by such Seller;

(e) violate or conflict with any judgment, order, injunction, decree, or ruling of any court or governmental authority to which the Seller is subject.

3.4 He has, and will have at the Closing, the right to sell and transfer, or procure the sale and transfer of, the full legal and beneficial interest in his respective Sold Shares to the Purchaser on the terms set out in this Agreement, free from all Security Interests, subject to such consents and approvals contemplated hereby and which shall have been obtained by the Closing.

4. Representations and Warranties regarding the Company. The Company and each Seller, severally and jointly, hereby represent and warrant to the Purchaser as follows:

4.1 Organization. The Company is a private company, duly incorporated and validly existing under the laws of its state of incorporation, and has full corporate power and authority to own, lease and operate its properties and assets and to conduct its business as currently being conducted. Copies of the Company’s Certificate of Incorporation and Bylaws as in effect on the date of this Agreement are attached hereto as Schedule 4.1. The Company has all permits, licenses and any similar authority necessary for the conduct of its business as currently being conducted by it, and the Company believes that it can, without undue burden or expense, obtain all permits, approvals, licenses and any similar authority necessary for the consummation of this Agreement and the transactions contemplated hereby. The Company is not in material default under any of its current franchises, permits, licenses or other similar authorities. The Company has not taken any action or failed to take any action, which such action or failure would preclude or prevent the Company from conducting its business after the Closing in the manner heretofore conducted.

4.2 Capital Stock.

4.2.1 The Company’s authorized capital stock as of the date hereof is two (200) hundred shares without par value. On the date hereof and immediately after the Closing, twenty (20) shares of common stock are and will be issued and outstanding.

4.2.2 All issued and outstanding shares of common stock of the Company have been duly authorized and validly issued, are fully paid and non-assessable, free and clear of any Security Interest.

4.2.3 A capitalization table showing the division of the issued and outstanding shares of Common Stock of the Company immediately prior to the Closing on a fully diluted basis is attached as Schedule 4.2.3. The shareholders identified in such Schedule are the shareholders of the Company immediately prior to the Closing, and are the lawful record owners of all of the issued and outstanding shares of common stock of the Company.

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4.2.4 There are no outstanding warrants, options or other rights to subscribe for, purchase or acquire from the Company any shares or other securities of the Company, and there are no agreements or undertakings providing for the issuance of, or the granting of the rights to acquire from the Company any shares or other securities of the Company or under which the Company is or may become obligated to issue any of its shares or securities.

4.2.5 The Sold Shares, when delivered to the Sellers will be duly authorized, validly issued, fully paid, non-assessable, and free of any preemptive rights, and when transferred in accordance with this Agreement will have the rights, preferences, privileges and restrictions set forth in the Company’s Certificate of Incorporation and Bylaws.

4.2.6 With the exception of an existing shareholders agreement between Donald Levi and Andrew Levi, which shall be terminated simultaneously with the Closing, without further obligation of the Company or Purchaser, there are no shareholders agreements, voting agreements, registration rights agreements or any other agreements or undertakings relating to the share capital of the Company which will be in effect as of the Closing.

4.2.7 Undistributed Profits through December 31, 2006 that have not been distributed to the shareholders of the Company are reflected on the books and records of the Company in the Accumulated Adjustment Account. Since January 1, 2007, the Company has declared and distributed an aggregate of $470,000 to its shareholders which represents the 2006 profits. The Sellers agree that no further amounts with respect to profits earned prior to December 31, 2006 shall be distributable to them by the Company either prior to or after the Closing Date. The Company shall distribute to Sellers the net income before Tax payable by the Company (if any such Tax is due from the Company) for the period commenced January 1, 2007 through the Tax Closing Date (September 30^th 2007). Such amount shall be declared as distribution to shareholders before the Closing Date and shall be paid to Sellers 5 days after Closing. For purposes of the foregoing, Taxes shall be computed on the basis of the Subchapter S election applicable through the Closing Date under which tax consequences are passed through to the shareholders.

4.2.8 The Company is not under any obligation to register for trading on any securities exchange any of its currently outstanding securities or any of its securities, which may hereafter be issued.

4.3 Subsidiaries. The Company has no Subsidiaries. The term “Subsidiary” means any corporation or other business entity of which the Company owns a majority of its outstanding capital stock. The Company does not own shares, equity or other rights in any other company or corporation (in any jurisdiction), is not a partner in any partnership (general or limited, incorporated or unincorporated), and is not a party to any joint venture activity.

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4.4 Board of Directors and Officers. A list of the directors and officers of the Company is included in Schedule 4.4. Except as set forth in Schedule 4.4, neither the Company nor the Sellers are parties to any agreement, obligation or commitment with respect to: (i) the election of any individual or individuals to the Board, (ii) any voting agreement or other arrangement among the Company’s shareholders, or (iii) any compensation to be provided to any of the Company’s directors or officers which will continue to bind the Company after the Closing with the exception of any unpaid 2007 Compensation due Sellers as more particularly set forth in section 7.1.

4.5 Records. The minute books of the Company, which have been provided to the Purchaser, contain accurate and complete copies of the minutes of every meeting of the Company’s shareholders and Board of Directors (and any committee thereof, if any). No resolutions have been passed, enacted, consented to or adopted by the Board of Directors (or any committee thereof) or by the shareholders of the Company, except for those contained in such minute books with the exception of resolutions given to banks as to authorized signatures. The corporate records of the Company are complete and accurate in all material respects. All returns, particulars, resolutions and other documents required to be filed with or delivered to the Secretary of State in respect of the Company have been properly filed or delivered. For purposes of this Section, unanimous consents shall be deemed to be resolutions and minutes.

4.6 Financial Statements.

4.6.1 A true, correct and complete copy of the unaudited financial statement for the fiscal year ended December 31, 2006 and audited financial statements for the period from January 1, 2007 through September 30, 2007, subject to such exceptions as are noted in such statements (the September 30, 2007 statement is referred to as the “Company Financial Statements”) are attached as Schedule 4.6.1. The Company Financial Statements have been prepared in conformity with the generally accepted accounting principles (“GAAP”), applied on a consistent basis throughout the periods indicated and with each other. The Company Financial Statements are consistent in all material respects with the books and records of the Company and fairly present the position of the Company as of the dates thereof and the results of operations and cash flows of the Company for the periods shown therein. Nothing has come to the attention of the Company or the Seller since September 30, 2007 (the “Balance Sheet Date”) that would indicate that such financial statements are not true and correct in all material respects as of the dates thereof.

4.6.2 During the period commenced by the Balance Sheet Date and ended on the date hereof, there has not been any of the following:

4.6.2.1 any material adverse change in the financial condition, results of operations, assets, liabilities or business of the Company;

4.6.2.2 any liability or obligation of any nature whatsoever incurred by the Company, other than obligations under contracts and commitments incurred in the ordinary course of business which are not required under GAAP to be reflected in the Company Financial Statements, which, individually or in the aggregate, the Company represents, are not material to the financial condition or operating results of the Company;

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4.6.2.3 any material asset or property of the Company has been made subject to a Security Interest of any kind;

4.6.2.4 any waiver of any material right of the Company or any cancellation of any material debt or claim held by the Company;

4.6.2.5 any payment of dividends on, or other distributions with respect to, any shares of the capital stock of the Company, or any agreement or commitment therefore.

4.6.2.6 any issuance of any shares of any class by the Company;

4.6.2.7 any sale, assignment, transfer or lease of any tangible or intangible assets (including intellectual property rights) of the Company, except for sales, assignments, transfers or leases of assets which are not material (individually or in the aggregate) to the Company’s business and, with the further exception of the sale of merchandise in the ordinary course of business;

4.6.2.8 any loan by the Company to any officer, director, employee, consultant or shareholder of the Company or any agreement or commitment therefor other than routine travel and other routine expense reimbursements in the ordinary course of business or loans made to employees who are not directors or shareholders of the Company;

4.6.2.9 any material damage, destruction or loss (individually or in the aggregate) (whether or not covered by insurance) affecting the assets, property or business of the Company;

4.6.2.10 any substantial change in the accounting methods, practices or policies followed by the Company for financial accounting or tax purposes, except as requested by Purchaser in connection with the Company Financial Statements and the Company’s inventory accounting system;

4.6.2.11 any material change or amendment to a material contract or arrangement by which the Company or any of their respective assets or properties is bound or to which the Company or any of its assets is subject the parties acknowledging that the Company is presently in the process of negotiating a renewal of its contract with Embraer which is the Company’s largest customer;

4.6.2.12 any satisfaction or discharge of any claim or Security Interest except in the ordinary course of business.

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4.6.2.13 any material change in any compensation arrangement or agreement with any director, officer, employee, consultant, advisor or contractor of the Company.

4.7 Authorization; Approvals.

4.7.1 All corporate action on the part of the Company necessary for the authorization, execution, delivery and performance of all its obligations under this Agreement and for the transfer of the Sold Shares under this Agreement has been (or will be) taken prior to the Closing.

4.7.2 This Agreement, when executed, and delivered by the Company and by each of the Sellers, shall constitute the valid and legally binding obligation of each of the Sellers, enforceable against the each Seller, as the case may be, in accordance with its terms. No consent, approval, order, license, permit, action by, or authorization of or from any person or entity or filing with any governmental authority on the part of the Company or any Seller is required that has not been, or will not have been, obtained by the Company or such Seller prior to the Closing in connection with the valid execution, delivery and performance of this Agreement or the transfer of the Sold Shares to the Purchaser.

4.8 Compliance with Law and Other Instruments.

4.8.1 The Company has conducted its business (i) in accordance with all applicable laws and regulations to which it is subject in the United States, except to extent that, individually or in the aggregate, would not cause a Material Adverse Effect, and (ii) to the best of its knowledge, in accordance with all material applicable laws and regulations to which it is subject in other jurisdictions and has received no written notice to the contrary within two (2) years last past or any other written notice to the contrary which has not been abated or complied with. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on the business, properties, assets, operations, prospects, results of operations or condition (financial or otherwise) of the Company

4.8.2 The Company is not (a) in default under its Certificate of Incorporation or by-laws, or (b) in default under any material note, indenture, mortgage, lease, agreement, contract, license, research and development commitment, purchase order or other instrument, document or agreement to which it is a party or by which it or any of its property is bound or affected. The Company has not received any written notice within two (2) years last past that it is in material default with respect to any existing applicable law, statute, ordinance, regulation, order, writ, injunction, decree or judgment of any court or any governmental department, commission, board, bureau, agency or instrumentality, in countries in which it conducts its business. Any written notice received prior to such two (2) year period has been abated or complied with.

4.8.3 To the Company’s and Seller’s best knowledge, no third party is in default under any material agreement, contract or other instrument, document or agreement to which the Company is a party except that Varig and Apex are subject to bankruptcy proceedings and Aeromot is apparently unable to meet its obligations as they fall due. The Company is not a party to, or named in, any order, judgment, decree or award of any governmental authority, agency, court, tribunal or arbitrator.

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4.9 No Breach.

4.9.1 Neither the execution and delivery of this Agreement nor compliance with the terms and provisions hereof, will conflict with or result in a breach or violation of, any of the terms, conditions and provisions of: (i) the Certificate of Incorporation, or by-laws of the Company, (ii) any judgment, order, injunction, decree, or ruling of any court or governmental authority, in countries in which the Company conducts its business, or to which the Company is subject, (iii) any agreement, contract, lease, license or commitment to which the Company is a party, or (iv) applicable law in countries in which the Company conducts its business.

4.9.2 Such execution, delivery and compliance by the Sellers will not (a) give to others any rights, including rights of termination, cancellation or acceleration, in or with respect to any agreement, contract or commitment referred to in Section 4.9.1, or (b) otherwise require the consent or approval of any person, which consent or approval has not heretofore been obtained or shall be obtained by the Closing.

4.10 Ownership of Assets. The Company has good and marketable title to, or a valid leasehold or license interest in its premises and in the properties and assets used by it, located on its premises, or shown on the Company Financial Statements, free and clear of all Security Interests except the automobiles and life insurance policies to be transferred to Sellers as provided in Section 12.12. No asset is shared by the Company with any other person or entity.

4.11 Bank Accounts; Debt and Loan Facilities.

4.11.1 Details regarding the Company’s bank accounts and the Company’s bank credit facilities (the “Bank Credit”) are as set forth in Schedule 4.11.1. Except for the bank accounts identified in Schedule 4.11.1, the Company does not have any other bank accounts severally or jointly with others.

4.11.2 Except for liabilities disclosed in the Company Financial Statements, the liabilities of the Company in excess of $5,000 are set forth in Schedule 4.11.2 (the “CompanyLiabilities”). The aggregate amount of the liabilities which are not reflected in the Company Financial Statements, including accrued 2007 salaries due Sellers as more particularly set forth in Section 7.1 and related Schedule 7.1, is set forth in Schedule 4.11.2. Except as set forth in Schedule 4.11.2, there are no debts owing by or to the Company other than the debts, which have arisen in the ordinary course of business, nor has the Company loaned any money, which has not yet been repaid.

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4.11.3 No financial facilities (loan or credit arrangements) have been made available to the Company by any bank or financing institution other than in the ordinary course of business. It is the intention of the Company and Purchaser to consider entering into a financial facility with a banking institution mutually acceptable to them, with the consent of Sellers and the Purchaser prior to the Closing Date.

4.11.4 The Company is not in material default under any loan agreement or any other instrument constituting any indebtedness or under any guarantee of any indebtedness, and there is no reason why any such indebtedness or guarantee should be called or the liabilities thereunder accelerated before their due date (if any) or any loan facilities terminated.

4.11.5 The Company, in cooperation with the Purchaser, shall have the right, prior to Closing, to establish a bank line of credit on commercially reasonable terms, with written consent of the Sellers.

4.12 Intellectual Property and Other Intangible Assets.

4.12.1 General. The Company owns, or has the right to use pursuant to a license, sublicense, agreement or permission, all Intellectual Property (as such term is defined below) necessary for the operation of the businesses of the Company as currently conducted. The Company has no licenses, sublicenses, agreements, and permissions (as amended to date) except Pentagon and inventory system and off-the-shelf computer software licenses. Each item of Intellectual Property owned or used by the Company immediately prior to the Closing hereunder will be owned or available for use by the Company on identical terms and conditions immediately subsequent to the Closing hereunder except for changes made by the provider thereof which are applicable to the Company and similarly situated other customers of the provider. No other Intellectual Property of any kind, owned by a third party, that is required by the Company to conduct its business, as currently conducted, requires, or would require, the payment of any substantial fee or royalty.

In this Agreement, “Intellectual Property” includes inventions and discoveries (whether or not patentable), patents, patent applications, trademarks, service marks, trade dress, designs, trade names, copyrightable works, copyrights, mask works, trade secrets, customer lists, techniques, know-how, proprietary processes and formulas, business strategies, and all other proprietary rights, industrial rights and any other similar rights, if registrable, then in such jurisdiction registered, and all copies and tangible embodiments thereof, or any part thereof, in whatever form or medium.

4.12.2 No Infringement. The Company has not misappropriated any Intellectual Property rights of any third party. To the best of the Company’s and each Seller’s knowledge, the Company has not infringed upon, or otherwise violated, any Intellectual Property rights of any third party. The Company has not received any charge, complaint, claim, demand or notice alleging any misappropriation, infringement or violation (including any claim that the Company must license or refrain from using any Intellectual Property rights of any third party) by the Company or its personnel of any Intellectual Property rights of any third party. To the Company’s and each Seller’s best knowledge, no third party has infringed upon, misappropriated, or otherwise violated, any Intellectual Property rights of the Company.

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4.12.3 Ownership of Intellectual Property. The Company has not registered or applied for registration of any Intellectual Property. All of the Intellectual Property which has been conceived, discovered, researched, created and developed or is currently being researched, created and developed by the Company’s employees, consultants or agents related to (i) the Company’s technology, (ii) any invention or work product created by or for the Company or (iii) any part of, or any derivative work of, any of the foregoing, is owned solely and exclusively by the Company. The Company has not granted any license, agreement, or other permission to any third party with respect to any of its Intellectual Property. With respect to each item of Intellectual Property necessary to the Company’s business: (i) the Company possesses all right, title, and interest in and to the item, free and clear of any Security Interest, license, royalty, commission or similar arrangements or other restriction except as referred to in Section 4.12.1; (ii) the item is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (iii) no action, suit, hearing, charge, complaint, claim, or demand is pending, or, to the knowledge of the Company, is threatened which challenges the legality, validity, enforceability, use or ownership of the item; (iv) the Company has never agreed to indemnify any person or entity for or against any infringement, misappropriation or other violation with respect to the item; and (v) the Company has not granted, and there are not outstanding, options, licenses or agreements of any kind relating to any Intellectual Property rights of the Company, nor is the Company a party to any option, license or agreement of any kind with respect to any of its Intellectual Property. ‘Summit Aviation’, ‘Sussex Mechanical’ and “Summit Radio”are the only trade names owned by the Company, and such trade names are unregistered except pursuant to the Company’s New Jersey Corporate Alternate Name filing.

4.12.4 Protection of IP Rights and Trade Secrets. The Company has taken all actions to maintain and protect each item of Intellectual Property that it owns or uses, which actions are customary in the industry in which the Company operates. All the confidential information of the Company is being (and has been) continuously maintained in confidence by taking reasonable precautions to protect and prevent its disclosure to unauthorized parties.

4.12.5 Limited IP Activity. The Company has not entered into any written agreements with its employees with respect to its Intellectual Property. It is engaged exclusively in the resale of products developed by third parties and does not conduct product research or development.

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4.13 Taxes.

4.13.1 The Company and the Sellers have timely filed all Tax Returns required to be filed with respect to the Company. All Taxes owed by the Company or the Sellers with respect to the Company have been paid. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return. There is no power of attorney with respect to any Tax executed or filed by or on behalf of the Company with any taxing authority, except for a power of attorney granted by the Company to Housman and Bloch.

4.13.2 The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, member or other third party.

4.13.3 There are no liens on any of the assets of the Company that arose in connection with any failure (or alleged failure) to pay any Tax, except for liens for Taxes not yet due. During the last five (5) years none of the Company’s Tax Returns has been audited or has been the subject of any notice of any audit, examination, investigation or other proceeding except standard worker’s compensation audits by the Company’s worker’s compensation insurers with the exception of a New Jersey Sales Tax audit covering years prior to 2004 which audit has been concluded and closed. No claim has ever been made by a taxing authority in a jurisdiction where the Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction.

4.13.4 The Company is not a party to any Tax allocation or sharing agreement. The Company does not have any liability for the Taxes of any other Person, whether pursuant to statute, regulation, administrative position of a taxing authority or as a transferee or successor, by contract or otherwise.

4.13.5 The Company will not be required to include in a taxable period ending after the Closing Date any gross income by reason of income accruing in a prior taxable period but not being recognized in any prior taxable period as a result of the installment method of accounting, the completed contract method of accounting, the long-term contract method of accounting, the cash method of accounting or Section 481 of the Code or any comparable provision of state, local or foreign Tax law.

4.13.6 As used in this Agreement, “Code” means the Internal Revenue Code of 1986, as amended; “Person” means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity (or any department, agency or political subdivision thereof; “Tax” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Section 59A of the Code), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not, and “Taxes” means any or all of the foregoing collectively; and “Tax Return” means any return, declaration, report, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto and including any amendment thereof. For purposes of this section 4.13, “Company” means the Company and/or any entity that at any time has been a subsidiary of the Company.

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4.13.7 The Company has not made any payments, is not obligated to make any payments and is not a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under section 280G of the Code or that would give rise to any obligation to indemnify any person for any excise tax payable pursuant to section 4999 of the Code.

4.13.8 The Company is not a controlled corporation or a distributing corporation in respect of a distribution to which section 355(e) of the Code could apply by reason of the acquisition of the Company’s shares pursuant to this agreement. No indebtedness of the Company consists of “corporate acquisition indebtedness” within the meaning of section 279 of the Code.

4.13.9 The Company has not been a United States real property holding corporation within the meaning of section 897(c)(2) of the Code during the applicable period specified in section 897(c)(1)(A)(ii) of the Code. The Company does not have, and has not had, a permanent establishment in any foreign country, as defined in any applicable income tax treaty to which the United Sates and the foreign country are parties or under the law of the foreign country. The Company does not have an overall foreign loss within the meaning of section 904(f) of the Code.

4.13.10 The Company has disclosed on its Federal Income Tax Returns all positions taken therein that could give rise to a substantial understatement of Federal income Tax within the meaning of section 6662 of the Code. The Company has not engaged in any “listed transaction” or “reportable transaction” within the meaning of section 6707A(c) of the Code or Treasury regulation section 1.6011-4(b) or any transaction (i) that was marketed to the Company in writing as a transaction that is intended to generate substantial tax benefits and (ii) with respect to which the Company has paid a promoter of the transaction total fees in excess of $100,000.

4.13.11 At all times since January 1, 1987, the Company has qualified as an S corporation (within the meaning of section 1361(a)(1) of the Code).

4.14 Contracts.

4.14.1 Schedule 4.14.1 lists each Material Agreement (as hereinafter defined) to which the Company is a party (collectively, the “Company Material Agreements”). A “Material Agreement” means any arrangement which was not entered into in the ordinary course of business, or which has a value in excess of $50,000. There is no oral Material Agreement to which the Company is party, other than those reflected in the Company Liabilities. True and correct copies of all such Company Material Agreements, as amended to date, have been delivered to the Purchaser.

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4.14.2 With respect to each Company Material Agreement at Closing and immediately after Closing hereunder: (i) such Company Material Agreement is legal, valid, binding, enforceable and in full force and effect, subject to and in accordance with its terms, subject as to enforceability to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors’ rights and to general principles of equity; (ii) the Company is not in breach or default, and no event has occurred which with notice or lapse of time or both would constitute a breach or default or permit termination, modification or acceleration thereunder, except for any breaches, defaults, terminations, modifications or accelerations which have been cured or waived; and (iii) no party has repudiated any provision of any such Company Material Agreement.

4.15 Litigation. The Company has not received notice in which it is: (i) named or otherwise identified in any outstanding injunction, judgment, order, decree, writ, stipulation, ruling or charge of any court or any governmental agency or any arbitrator; or (ii) a party or, to its best knowledge, threatened to be made a party to, any action, suit, proceeding, hearing, complaint, charge or investigation of, in, or before any court or quasi-judicial or administrative agency of any state, municipal, or foreign jurisdiction or before any arbitrator or other method of settling disputes or disagreements. To the best knowledge of the Company and each Seller, no action, suit, proceeding, hearing, complaint, charge or investigation is to be brought or threatened against the Company, and the Company does not intend to initiate any such action, suit, proceeding, hearing, complaint, charge or investigation. Without derogating from any of the foregoing, there is no action, suit, proceeding or investigation pending or currently threatened involving the prior employment of any of the Company’s employees, their use in connection with the Company’s business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreement with prior employers. The institution by any employee or former employee of a worker’s compensation or unemployment proceeding prior to the Closing Date shall not give rise to any right of termination by Purchaser if the Company has maintained required insurance as to worker’s compensation claims or such claim would not expose the Company to Damages.

4.16 Interested Party Transactions.

4.16.1 No officer, director or holder of more than 5% of the issued and outstanding capital stock of the Company (“Interested Party”), or any affiliate of such Interested Party or the Company, has or has had, either directly or indirectly, (a) an interest in any person or entity which (i) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by the Company, or (ii) purchases from or sells or furnishes to the Company any goods or services, or (b) a beneficial interest in any contract or agreement to which the Company is a party, except for ownership of less than 5% of the securities of a publicly held entity.

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4.17 Employees. There exist no arrangements or proposed transactions, either directly or indirectly, between the Company and any Interested Party or any affiliate or associate of any such Interested Party. No employee, shareholder, officer or director of the Company is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them, except in the ordinary course of business and except as stated in Section 7.1.

4.17.1 A full list of all of the Company’s officers and employees showing all Benefits (as defined below) payable or which the Company is bound to provide (whether now or at a future time set forth therein) to each officer and employee is set forth in Schedule 4.17.1. The Company has no written agreements with employees.

4.17.2 No senior employee of the Company with management responsibilities has been dismissed in the last six months or has given notice of termination of his/her employment.

4.17.3 Except for its 401K and health insurance plans and as provided by law and/or under legally binding collective agreements, there are no agreements or arrangements (whether legally enforceable or not) for the payment of any pensions, allowances, lump sums or other like benefits on retirement or on death or during periods of sickness or disablement for the benefit of any director or former director or employee or former employee of the Company for the benefit of the dependents of any such person in operation at the date hereof. The parties acknowledge that the life insurance policies upon the lives of the Sellers are to be transferred to them pursuant to the provisions of Section 12.12.

4.17.4 The Company does not operate any share incentive scheme, share option scheme or profit sharing scheme for the benefit of any of its respective officers, directors, employees or consultants.

4.17.5 The Company has paid in full or has made sufficient reserves in the Company Financial Statements for all of the payments and obligations due or payable with respect to its employees, including, but not limited to, social security payments and Income Tax withholdings. The Company does not create reserves for vacation or sick pay or severance pay.

4.17.6 For the purposes of this Section the term “Benefits” means benefits of every description including, without limitation, salaries, directors’ fees, social benefits, bonuses, commissions, profit shares under any incentive scheme and benefits in kind.

4.17.7 The Company does not maintain, and has not in the last three (3) years prior to the date hereof maintained, does not contribute to and has not in the last three (3) years prior to the date hereof contributed to, is not obligated and has not in the last three (3) years prior to the date hereof had any obligation to contribute to, or liability with respect to, any qualified defined contribution or defined benefit plans or arrangements (whether or not terminated) which are employee pension benefit plans (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended, or any successor statute thereto, and the rules and regulations promulgated thereunder) except its 401K Plan and health insurance plans.

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4.18 Insurance.

4.18.1 Schedule 4.18.1 lists all of the insurance policies currently maintained by the Company (the “Insurance Policies”). All such policies are in full force and effect, all premiums due and payable thereunder have been paid, and no notice of cancellation or termination has been received with respect to any such policy. Such policies are valid, outstanding and enforceable in accordance with their terms and will remain in full force and effect without the payment of any additional premiums through the Closing.

4.18.2 There are currently no claims pending under any Insurance Policies. To the best knowledge of the Company and the Seller, there is no threatened termination of any such Insurance Policies. The Company has not within the past five years been refused any insurance with respect to its assets or operations by reason of the nature of its operations and products, nor, during such five (5) year period, has its coverage been limited by any insurance carrier to which it has applied for any such insurance.

4.19 Brokers or Finders. Neither the Company nor any of the Sellers or any of their respective employees or shareholders has employed or made any agreement with any broker, finder or similar agent or any person or firm, which will result, directly or indirectly, in the obligation of the Seller, the Company or the Purchaser to pay any finder’s fee, brokerage fees or commission or similar payment in connection with the transactions contemplated hereby. It is acknowledged that the Purchaser has used Cukierman & Co. Investment House Ltd. (“Cukierman”) as financial advisor to this transaction. It is hereby clarified, that neither the Company nor the Sellers shall be liable to pay Cukierman any broker’s or finder’s fee or any other commission or similar fee, directly or indirectly, on account of any action taken by the Purchaser in connection with any of the transactions contemplated under this Agreement, and Purchaser agrees to indemnify Sellers and the Company from any and all claims by Cukierman resulting from any brokerage or finder’s fee arrangement made by Purchaser with Cukierman.

4.20 Option Plan. No options or similar rights have been granted and/or promised to any employees or consultants of the Company.

4.21 Foreign Corrupt Practices Act. Except as disclosed to the Purchaser in a writing from Sellers of even date with this agreement, neither the Company, nor any director, officer, agent, employee or other person acting on behalf of the Company has, in the course of acting for, or on behalf of, the Company, directly or indirectly used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; directly or indirectly made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of the United States; or directly or indirectly made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government or party official or employee.

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4.22 Environmental Matters. The Company is in compliance with all environmental laws and possesses all permits and authorizations necessary to conduct its business as presently conducted, except as would not result in a Material Adverse Effect. No written notice, notification, demand, request for information, citation, summons or complaint has been received or order has been issued, and no penalty has been assessed, and no investigation or review is pending or threatened by any governmental or administrative authority or other person with respect to any actual or alleged violation by the Company of any environmental law or liability thereunder, or actual or alleged failure by the Company to have any permit or authorization required under any environmental law in connection with the conduct of its business as presently conducted. The factual representations included in the application to the ISRA Bureau of the New Jersey Department of Environmental Protection for a Non-Applicability Determination shall be, when filed, true, correct and complete.

4.23 Full Disclosure. The representations and warranties of the Company and the Sellers in this Agreement, are each accurate, correct and complete in all material respects, and do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements and information contained herein or therein not misleading. Neither the Company nor the Seller is aware of any material information relating to the Company and its operations as contrasted with information relating generally to the economy and political affairs which would likely adversely and materially affect the business, operating results, properties, or financial condition of the Company, which has not been expressly disclosed to the Purchaser. The Purchaser has the right to rely fully upon the representations, warranties, covenants and agreements of the Company and the Seller contained in this Agreement or any Exhibit or Schedule hereto or any ancillary agreements or documents executed or delivered in connection with or pursuant to any of the foregoing.

5. Representations and Undertakings regarding the Consideration Shares.

Each Seller, severally and jointly, hereby represents, warrants and covenants to the Purchaser as follows:

5.1. Information and Advice. Each Seller confirms that he has received or has had full access to all the information he considers necessary or appropriate to make an informed decision with respect to this Agreement and the Consideration Shares received by him hereunder. Each Seller further confirms that he has had an opportunity to ask questions and receive answers from the Purchaser regarding the Purchaser’s business, management and financial affairs and to obtain additional information (to the extent the Purchaser possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to such Seller or to which such Seller had access.

5.2. Availability of Exemptions. Each Seller understands that the Consideration Shares are being offered pursuant to an exemption or exemptions from registration requirements of Israeli and US Federal and state securities laws, and that the Purchaser is relying upon the truth and accuracy of such Seller’s representations, warranties, agreements, acknowledgments and understandings set forth in this Section 5 herein in order to determine the applicability of such exemptions and the suitability of such Seller to receive the Shares.

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5.3. Legends. Each Seller acknowledges and agrees that certificates representing the Consideration Shares will contain one or more legends to the effect that transfer of such securities is prohibited except pursuant to registration under the Securities Act of 1933, as amended (the “Securities Act”) or pursuant to an available exemption from registration, similar to the following:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THE SHARES EVIDENCED BY THIS CERTIFICATE, FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL TO B.O.S BETTER ONLINE SOLUTIONS LTD. THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THESE SHARES ARE SUBJECT TO A NO SALE COMMITMENT AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF WITHOUT THE PRIOR WRITTEN CONSENT OF B.O.S BETTER ONLINE SOLUTIONS LTD. ANY PURPORTED SALE OR DISPOSITION IN CONTRIVANCE OF THE ABOVE SHALL BE DEEMED VOID AND HAVE NO EFFECT.”

5.4. Restrictions on Transferability and Hedging.

5.5.1. Each Seller understands that (i) the Consideration Shares have not been registered under the Securities Act, or under the laws of any other jurisdiction; (ii) such Consideration Shares are deemed to be “restricted securities” as defined in Rule 144 promulgated under the Securities Act, and cannot be sold, transferred or otherwise disposed of unless they are registered under the Securities Act and, where required, under the laws of other jurisdictions or unless an exemption from registration is then available; (iii) there is now no registration statement on file with the Securities and Exchange Commission with respect to the Consideration Shares to be received by such Seller.

5.5.2. Each Seller acknowledges that the Purchaser will not register any transfer of Consideration Shares not made pursuant to registration under the Securities Act, or pursuant to an available exemption from registration or made in contravention of the lock-up provisions of Section 5.8 below.

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5.5.3. Each Seller acknowledges, agrees and covenants not to engage in hedging transactions with regard to the Consideration Shares offered pursuant to this Agreement.

5.6. Investment Purposes. The Consideration Shares are being acquired for investment purposes only. The Consideration Shares are not being purchased with a view to, or for sale in connection with, any distribution or other disposition thereof. The Sellers have no present plans to enter into any contract, undertaking, agreement or arrangement for any such resale, distribution or other disposition and they will not divide their interests in the Consideration Shares with others, resell or otherwise distribute the Consideration Shares in violation of federal or state US Securities laws or the Israeli Securities Laws.

5.7. Intentionally omitted.

5.8. Lock Up. For a period of two years from the date of issuance of the Consideration Shares, no Seller shall sell, assign, transfer, pledge, hypothecate, mortgage or otherwise dispose of, by gift or otherwise any of the Consideration Shares, provided however, that the abovementioned restriction shall expire, for each Seller, with respect to fifty percent (50%) of the Consideration Shares issued to such Seller, upon the lapse of one year from the date of issuance of the Consideration Shares. Upon expiration of the applicable lock-up period, the Company shall take reasonable steps to cooperate with the Sellers in connection with re-sales pursuant to Rule 144 under the Securities Act. This Section shall not limit transfers of shares by will or intestacy during the applicable Lock Up period, but any such transferees shall remain bound by this lock-up provision.

5.9. Accredited Investor Status; Sophisticated Investor. Each Seller is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Act. Each Seller has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of investment in the Consideration Shares.

5.10. No Solicitation. At no time was such Seller presented with or solicited by any leaflet, public promotional meeting, newspaper or magazine article, radio or television advertisement or any other form of general advertising or general solicitation in connection with the Consideration Shares and the transaction contemplated hereby.

5.11. Broker-Dealer. The Seller is not a broker-dealer, nor is it an affiliate of any broker-dealer.

6. Representations and Warranties regarding the Purchaser.

Purchaser hereby represents and warrants to each of the Sellers as follows:

6.1. Corporate Organization. The Purchaser is a company duly incorporated and validly existing under the laws of Israel, and has the corporate power to own its property and to carry on its business as now being conducted. The Purchaser has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The Purchaser’s shares are traded on the Nasdaq Market and on the Tel-Aviv Stock Exchange and as such it is subject to both US and Israeli Securities Laws.

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6.2. Due Authorization and Valid Issuance. The Agreement has been, or will have been, at the time of its execution and delivery, duly executed and delivered by a duly authorized officer of the Purchaser. Prior to the Closing of this Agreement, the Purchaser shall have acted to complete all corporate action necessary on its part for the issuance, sale and delivery of the Consideration Shares. The Consideration Shares will, upon issuance, be duly authorized, validly issued, fully-paid and nonassessable.

6.3. Binding Agreement. The Agreement constitutes valid and legally binding obligations of the Purchaser enforceable against the Purchaser in accordance with its terms, except as (i) such enforceability may be limited by bankruptcy, insolvency, reorganization, arrangement, moratorium or similar laws relating to or affecting the rights of creditors and contracting parties generally, (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought.

6.4. Non-Contravention. Neither the execution and delivery of the Agreement, nor the consummation of the transactions or the performance of the obligations contemplated hereby will result in any violation or breach of any of the terms, conditions and provisions of: (i) the Purchaser’s articles of association, (ii) any judgment, order, injunction, decree, or ruling of any court or governmental authority, in countries in which the Purchaser conducts its business, to which the Purchaser is subject, (iii) any material agreement, contract, lease, license or commitment to which the Purchaser is a party and which would impair the ability of the Purchaser to execute, deliver or perform this Agreement, or (iv) material applicable law in countries in which the Company conducts its business. To the knowledge of the Purchaser, such execution, delivery and compliance by the Purchaser will not (a) give to others any rights, including rights of termination, cancellation or acceleration, in or with respect to any agreement, contract or commitment referred to in this Section 6.4, except as would not have a material adverse effect or (b) otherwise require the consent or approval of any person, which consent or approval has not heretofore been obtained or shall be obtained by the Closing.

6.5. No Consent. To the Purchaser’s knowledge, and in reliance on the representations of the Sellers given in section 5 hereof, except for reporting obligations and approvals required under applicable securities laws and market regulations in Israel and the United States and for approval by the Investment Center and notice to the Office of Chief Scientist of the Israeli Ministry of Trade & Industry and pursuant to the Foreign Investment and National Security Act of 2007, no consent of any governmental body or third party is required to be made or obtained by the Purchaser in connection with the execution and delivery of the Agreement by the Purchaser or the consummation by the Purchaser of the transactions or the performance of the obligations contemplated hereby by the Purchaser.

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6.6. Capitalization. The authorized share capital of the Purchaser consists as of the date hereof: of 35,000,000 Ordinary Shares, nominal value NIS 4.00 per share, of which, as of June 30, 2007, 9,601,033 Ordinary Shares were outstanding and issued. As of June 30, 2007, the Purchaser had 2,343,319 options issued to directors, officers and employees to purchase Ordinary Shares under various options plans as well as 858,323 Ordinary Shares underlying convertible notes and warrants to purchase ordinary shares, issued to investors and service providers. Any change in the above capitalization between the date hereof and the date of the Closing shall not constitute a default under this Agreement, provided, however, that such change is the result of the conversion or exercise of convertible securities, options or warrants of the Purchaser. A complete and detailed list of all options conversion rights, warrants and other securities convertible into Ordinary Shares is attached as Schedule 6.6.

6.7. Financial Statements.

6.7.1 The audited consolidated financial statements of the Purchaser as of December 31, 2006 and the related notes thereto, as filed by the Purchaser with the Securities and Exchange Commission under Form 20-F for the year ending December 31, 2006 are true, correct and complete in all material respects and fairly present the financial position of the Purchaser as of their respective dates, and have been prepared in all material respects in accordance with the books and records of the Purchaser as at the applicable dates and for the applicable periods. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods therein specified, except as may be disclosed in the notes to such financial statements, or as may be permitted by the Securities and Exchange Commission and except as disclosed in the filings the Purchaser made in connection with such statements, if any.

6.7.2 Other than as reported in the Purchaser’s public filings with the US Securities and Exchange Commissions (“Public Filings”), since December 31, 2006, there has not been any event or material adverse change in the financial conditions of the Purchaser as reflected in the financial statements which, individually or collectively with other events or changes, could have a material adverse effect on the Purchaser.

6.8 Legal Proceedings. Except as disclosed in the Purchaser’s Public Filings, there is no material legal or governmental proceeding pending or, to the knowledge of the Purchaser, threatened to which the Purchaser is or may be a party.

6.9 Compliance with Law. The business of the Purchaser is conducted in accordance with applicable laws, except to extent that, individually or in the aggregate, would not cause a material adverse effect on the Purchaser.

6.10 Disclosure. The representations and warranties of the Purchaser contained in this Section 6 as of the date hereof and as of the Closing, read together with the Company’s Public Filings, do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements herein, in light of the circumstances under which they are made, not misleading.

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6.11 Brokers. Neither the Purchaser nor any of Purchaser’s employees or shareholders has employed or made any agreement with any broker, finder or similar agent or any person or firm, which will result, directly or indirectly, in the obligation of the Seller, the Company or the Purchaser to pay any finder’s fee, brokerage fees or commission or similar payment in connection with the transactions contemplated hereby. It is acknowledged that the Purchaser has used Cukierman & Co. Investment House Ltd. (“Cukierman”) as financial advisor to this transaction. It is hereby clarified, that neither the Company nor the Sellers shall be liable to pay Cukierman any broker’s or finder’s fee or any other commission or similar fee, directly or indirectly, on account of any action taken by the Purchaser in connection with any of the transactions contemplated under this Agreement, and Purchaser agrees to indemnify Sellers and the Company from any and all claims by Cukierman resulting from any brokerage or finder’s fee arrangement made by Purchaser with Cukierman.

7. Covenants

7.1 Ordinary Course of Business. From and after the signing of this Agreement and until the Closing, except as otherwise stated herein, the Company and each of the Sellers, severally and jointly, covenant and agree with the Purchaser that the Company shall not engage in any practice, take any action, or enter into any transaction outside the ordinary course of business. Without limiting the generality of the foregoing, the Company will not, without the prior consent of the Purchaser: (a) authorize or effect any change in its corporate documents; (b) declare or pay any dividends or make any other distributions with respect to its capital stock, except as stated in this Section; (c) issue any shares or grant any option, warrant, convertible debenture or any other form of security exercisable into or convertible into shares of the Company; (d) enter into or renew any agreement with an Interested Party (including an employment agreement with any employee or director), or increase the rate of remuneration of any employee or director, and in any event, pay the Sellers remuneration at a rate of more than $5,000 per week per Seller; or (e) sell or agree to sell its assets (other than the Company’s inventory sold in the ordinary course of business). Any accrued but unpaid compensation to each Seller for 2007, at the rate of $5,000 per week, shall be paid by the Company not later than December 31, 2007. Schedule 7.1 sets forth any accrued but unpaid compensation to each Seller as of the date hereof.

7.2 Disposal of Interests. The Sellers further covenant with the Purchaser that, except as stated herein, none of the Sellers shall dispose of any interest in the Company Shares or grant any option over or create or allow to exist any Security Interest over the Company Shares.

7.3 Announcements. No announcement or other disclosure concerning the sale and purchase of the Sold Shares or any ancillary matter shall be made before or after the Closing by the parties or any person acting on their behalf, except subject to Purchaser’s prior written approval of the form and content of such announcement or disclosure or otherwise as required by law or by the applicable rules of any stock exchange or automated quotation system.

7.4 Reporting. The Sellers and the Company acknowledge that the Purchaser is a public company traded on NASDAQ and on the TASE and is subject to strict reporting requirements. On request, Sellers and the Company shall fully and timely provide the Purchaser with all information in their possession or control required by the Purchaser to meet all reporting requirements, including without limitation any and all financial information and financial statements.

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7.5 Registration Rights and Transferability. The Sellers shall have customary piggyback registration rights in connection with the Consideration Shares. The Consideration Shares shall be transferable subject to Section 5.8, pursuant to the provisions of Rule 144 under the Securities Act. If following a two-year period from the Closing, the Consideration Shares cannot be legally sold under Rule 144 or pursuant to another available exemption, the Sellers may request that Purchaser cause the Consideration Shares to be registered under the Securities Act.

7.6 Confidentiality. The Purchaser acknowledges that it has received and, prior to the Closing Date, shall receive certain information concerning the Company, including, but not limited to, information concerning its finances, personnel, business practices, customer information, pricing, plans, systems, practices and employees (the “Proprietary Information”), and the Purchaser agrees to keep such Proprietary Information confidential for a period of 18 months following the termination of this agreement (the “Restricted Period”).

7.7 Non-Solicitation. During the Restricted Period, the Purchaser shall not, directly or indirectly, solicit or accept business from any customer of the Company, unless the Purchaser sold products to such customer prior to June 18, 2007 (the “Term Sheet Date”). If the Purchaser sold products to such customer prior to the Term Sheet Date, the Purchaser may continue to sell such products to, and solicit sales of such products from, such customer during the Restricted Period. In addition, during the Restricted Period, Purchaser shall not solicit the employment or employ any individual employed by the Company as of the Term Sheet Date.

7.8 Covenants with Respect to Taxes.

7.8.1. The Company shall grant to Purchaser or its designees access at all reasonable times to all of the Company’s books and records (including tax workpapers and returns and correspondence with tax authorities), including the right to take extracts therefrom and make copies thereof, to the extent the books and records relate to taxable periods ending on or prior to or that include the Closing Date. Purchaser shall (i) grant to Sellers access at all reasonable times to all of the Company’s books and records (including tax workpapers and returns and correspondence with tax authorities), including the right to take extracts therefrom and make copies thereof, to the extent that the books and records relate to the operations of the Company during taxable periods ending on or prior to or that include the Closing Date, and (ii) otherwise cooperate with Sellers in connection with any audit of Taxes that relate to the business of the Company prior to Closing, in each case to the extent relevant to Sellers’ indemnification obligations under Section 11 hereof.

7.8.2. Intentionally omitted.

The Sellers and the Purchaser will use their best efforts to agree upon an allocation of the total purchase price on IRS Form 8883 if such form is required, and in the absence of an agreement the parties shall designate an accounting firm to determine the allocation, which determination shall be binding on the parties. The parties confirm that it is their intention that the entire Closing Consideration, consisting of the Cash Payment, the Consideration Shares and the Contingent Consideration shall qualify for capital gains treatment for purposes of the Sellers’ Federal and State Income Tax Returns. Purchaser shall reimburse Sellers for any additional tax (including the tax on the reimbursement amounts) which results to Sellers if any portion of the Closing Consideration is determined to be ordinary income rather than capital gains by reason of Purchaser’s allocation to any asset of the Company of an amount in excess of the book value thereof as of the Closing Date.

7.8.3. [Reserved]

7.8.4. Purchaser shall be responsible for preparing and filing, or causing the Company to prepare and file, all Tax Returns of the Company required to be filed after September 30, 2007 (the “Tax Cut-off Date”). Sellers shall be responsible for all Taxes that are applicable to the Company for the period commenced January 1, 2007 and ended on the Tax Cut-off Date and shall be entitled to all Tax credits and benefits under applicable law which relate to such period. Wherever possible, a short period return shall be filed for the period commencing January 1, 2007 and ending on the Tax Cut-off Date or if not possible, on the Closing Date. If such short period return cannot be filed as to any Tax, then, for purposes of this Agreement, in the case of any period that begins before the Tax Cut-off Date and ends after the Tax Cut-off Date, any Tax based directly or indirectly on gross or net income or receipts or imposed in respect of specific transactions, and any credits available with respect to any Tax, shall be allocated by assuming that the taxable period ended on the Tax Cut-off Date, and any other Tax shall be allocated based on the number of days in the taxable period ending on the Tax Cut-off Date divided by the total number of days in the taxable period

7.8.5. The parties acknowledge that the Company has elected to be taxed as a subchapter S corporation for federal and state Income Tax purposes and that the Company will cease to be an S corporation on the Closing Date. It is the intent of the parties that the tax burden of the Federal and State Income Tax on the net income of the Company for the portion of the Company’s 2007 taxable year prior to the Closing Date while the Company will be an S corporation shall be borne by each Seller to the extent that income is distributable to the Sellers pursuant to the provisions of Section 4.2.7.

7.8.6. Anything set forth in Sections 7.8.4 and 7.8.5 to the contrary notwithstanding, the parties agree that the entire profit before tax of the Company from January 1, 2007 to the Tax Closing Date of September 30, 2007 shall be belong to and be distributed to the Sellers within five days of Closing. Date. Sellers shall be responsible for all federal and state taxes applicable to such distribution.

Any profit from the Tax Closing Date to the Closing Date shall remain with the Company and Purchaser shall reimburse Sellers for the full amount of federal and state taxes due from Sellers (including any tax on the reimbursement amounts) with respect to such profit as determined by the Sellers’ accountant. The amount due Sellers under this Subparagraph 7.8.6 shall be payable to Sellers not later than January 15, 2008.

8. Conditions to Purchaser’s Obligation to Close. The obligation of the Purchaser to purchase the Sold Shares and issue the Consideration Shares at the Closing is subject to the fulfillment at or before the Closing of the following conditions precedent, any one or more of which may be waived in whole or in part by and at the sole discretion of the Purchaser:

8.1 Representations and Warranties. The representations and warranties made by the Company and each of the Sellers in this Agreement shall have been true and correct in all material respects when made, and shall be true and correct in all material respects as of the Closing as if made on the date of the Closing.

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8.2 Covenants. All covenants, agreements, and conditions contained in this Agreement to be performed or complied with by the Sellers and/or the Company prior to the Closing shall have been performed or complied with by the Sellers and the Company, as the case may be, prior to or at the Closing.

8.3 No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction, which prohibits the consummation of any of the transactions contemplated by this Agreement.

8.4 Company Approvals. The Company and the Sellers shall have secured all permits, consents, approvals and authorizations that shall be necessary or required of them lawfully to consummate the transaction contemplated by this Agreement and to transfer the Sold Shares to be purchased by the Purchaser at the Closing (“Company Approvals”). Sellers and the Company shall diligently pursue the application for and obtaining of the Company Approvals and shall keep Purchaser advised with respect thereto. A list of Company Approvals is set forth on Schedule 8.4.

8.5 Delivery of Documents. All of the documents to be delivered to the Purchaser pursuant to Section 2 shall have been fully-executed (if applicable) by all parties whose names appear as intended signatories thereto (other than the Purchaser), and delivered to the Purchaser.

8.6 Purchaser Approvals. Purchaser shall have secured all permits, consents, approvals and authorizations, that are not Company Approvals, necessary or required for Purchaser to lawfully consummate the transaction contemplated by this Agreement (“Purchaser Approvals”). Purchaser shall diligently pursue the application for and obtaining of the Purchaser Approvals and shall keep Sellers advised with respect thereto. A list of Purchaser Approvals is set forth on Schedule 8.6.

8.7 Notices to NASDAQ the TASE and the ISA. The Purchaser shall have made all required filings of notices with NASDAQ, the Tel Aviv Stock Exchange and the Israel Securities Authority and has received no notice which adversely affects the performance of the transactions contemplated hereunder. The Purchaser shall use its commercially reasonable efforts to complete such filings.

8.8 Proceedings and Documents. All corporate and other proceedings of the Company and the Sellers in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory in substance and form to the Purchaser and its counsel, and the Purchaser and its counsel shall have received all such counterpart originals or certified or other copies of such documents as the Purchaser or its counsel may reasonably request.

8.9 Absence of Adverse Changes. From the date hereof until the Closing, there will have been no material adverse change in the financial or business condition of the Company.

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8.10 Due Diligence. The Purchaser shall have completed the legal and financial due diligence review of the Company, to the sole and complete satisfaction of the Purchaser.

8.11 Intentionally deleted.

8.12 Company Lease. The Company’s existing lease for its business premises with the owners of such property shall be in full force and effect without modification. At the Closing, Sellers shall deliver an instrument executed on behalf of the Company and such owner confirming such status and that neither is in default under the lease.

8.13 Drop Dead Date. If, for any reason other than a material default by Purchaser of its obligations under this Agreement, all of the conditions to Purchaser’s obligation to close have not been satisfied or waived by Purchaser by January 1, 2008, then Purchaser, by written notice to Sellers shall have the right to terminate this Agreement whereupon the Deposit shall be returned to Purchaser and neither party shall have any further obligation to the other except as set forth in Sections 7.6 and 7.7.

8.14 IRS Form 8023. The Sellers shall have delivered to the Purchaser a properly executed IRS Form 8023 (as well as all similar state or local tax forms designed in writing by the Purchaser to the Sellers at least five Business Days prior to the Closing Date) if such form or forms is required to be filed under applicable law.

9. Conditions to Sellers’ Obligation to Close. The Sellers’obligation to sell the Sold Shares at the Closing are subject to the fulfillment, at the discretion of the Sellers, at or before the Closing of the following conditions precedent, any one or more of which may be waived in whole or in part by the Sellers:

9.1. Representations and Warranties. The representations and warranties made by the Purchaser in this Agreement shall have been true and correct in all material respects when made, and shall be true and correct in all material respects as of the Closing as if made on the date of the Closing.

9.2. Covenants. All covenants, agreements, and conditions contained in this Agreement to be performed or complied with by the Purchaser prior to the Closing shall have been performed or complied with by the Purchaser prior to or at the Closing.

9.3. No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction, which prohibits the consummation of any of the transactions contemplated by this Agreement.

9.4. Consents, etc. The Purchaser shall have secured all permits, consents and authorizations that shall be necessary or required of it lawfully to consummate the transactions contemplated by this Agreement and to issue the Consideration Shares to be issued at the Closing.

9.5. Delivery of Documents. All of the documents to be delivered to the Sellers pursuant to Section 2 shall have been fully-executed (if applicable) by all parties whose names appear as intended signatories thereto (other than the Sellers), and delivered to the Sellers or the Company.

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9.6. Approvals. The Purchaser and the Company shall have received the applicable Corporate Approvals set forth on Schedule 8.4 with respect to the transactions contemplated hereby.

9.7. Proceedings and Documents. All corporate and other proceedings of the Purchaser in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory in substance and form to the Sellers, and the Sellers shall have received all such counterpart originals or certified or other copies of such documents as the Sellers may reasonably request.

9.8. Drop Dead Date. If, for any reason other than a material default by the Company or Sellers of their obligations under this Agreement, all of the conditions to Sellers’ obligation to close have not been satisfied or waived by Sellers by January 1, 2008, then Sellers, by written notice to Purchaser shall have the right to terminate this Agreement whereupon the Deposit shall be returned to Purchaser and neither party shall have any further obligation to the other except as set forth in Sections 7.6 and 7.7.

10. Termination.

10.1. This Agreement may be terminated at any time prior to the Closing Date:

10.1.1. by mutual agreement of the Sellers and the Purchaser;

10.1.2. by the Purchaser if there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of the Company or the Sellers or if Purchaser’s due diligence examination shall reveal conditions not acceptable to the Purchaser in its sole discretion.

10.1.3. by the Purchaser if there shall be any action taken, or any law promulgated or issued or determined to be applicable to this agreement, by any governmental or regulatory authority, which would prohibit the Purchaser’s ownership of the Company;

10.1.4. by the Sellers if there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of the Purchaser.

10.2 In the event of a valid termination of this Agreement as provided in this Section, the Deposit Escrow Agent shall return the Deposit to Purchaser, and neither party shall have any further rights or obligations hereunder except for pursuant to Sections 7.6 (Confidentiality) and 7.7 (Non-Solicitation) of this Agreement, provided, however, that the parties shall each remain liable for any breaches of this Agreement prior to its termination.

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11 Indemnification and Remedies

11.1. Subject to the limitations set forth below, from and after the Closing, the Sellers agree, jointly and severally, to indemnify, and hold the Purchaser harmless against and in respect of any and all loss, liability, deficiency or damage, or actions in respect thereof (including reasonable legal fees and expenses) and/or any reduction in the value of the Sold Shares purchased by the Purchaser hereunder (“Damages”), as and when incurred, occasioned by any breach of any obligation of the Sellers hereunder, any breach of any representation or warranty of the Sellers or the Company contained herein (each such representation and warranty is deemed to be made on the date of this Agreement and at the Closing),any breach of any certificate or other instrument furnished or to be furnished by the Sellers hereunder or any Tax for any Taxable Year or any portion of a Taxable Year prior to the Closing, all subject to the terms set forth in this Section 11.

11.2. From and after the Closing, the Purchaser agrees to indemnify and hold each of the Sellers harmless against and in respect of any Damages, as and when incurred, occasioned by any breach of any obligation of the Purchaser hereunder, any breach of any representation or warranty of the Purchaser contained herein (each such representation and warranty is deemed to be made on the date of this Agreement and at the Closing) or any breach of any certificate or other instrument furnished or to be furnished by the Purchaser hereunder.

11.3. Promptly after (i) receipt by the party making the claim pursuant to this Section (or any of its directors, employees and advisors) of notice of the commencement of any action, proceeding or investigation; or (ii) the party making the claim pursuant to this Section (or any of its directors, employees and advisors) becoming aware of any breach of this Agreement or falsity of representation, in each case, in respect of which indemnity may be sought as provided above, such person (the “Indemnified Party”) shall notify the party or parties from whom indemnification is claimed (the “Indemnifying Party”) of the claim and, when known, the facts constituting the basis of such claim. In the event of any such claim for indemnification hereunder resulting from or in connection with any claim or legal proceeding by a third party, the notice to the Indemnifying Party shall specify, if known, the amount of damages asserted by such third party.

11.4. Upon receipt of any such notice from the Indemnified Party, the Indemnifying Party shall be entitled to participate in the defense of such claim and may assume the defense of such claim at its own expense and by its own counsel. If the Indemnifying Party elects to assume the defense of such claim, the Indemnified Party shall reasonably cooperate with the Indemnifying Party in defending such claim, at the expense of the Indemnifying Party. The parties acknowledge and agree that in the event the Indemnifying Party has properly assumed the defense of such claims provided herein, the Indemnified Party shall be entitled to retain its own counsel to participate in the defense of such claim at its own cost and expense.

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11.5. No claim shall be settled or compromised by the Indemnifying Party without the written consent of the Indemnified Party (which shall not be unreasonably withheld) if such settlement or compromise requires the Indemnified Party to make any payment or to take or refrain from taking any action or enjoins the Indemnified Party or subjects it to other equitable relief or subjects it to any potential criminal law, claim or liability.

11.6. Survival of Claims. Except as set forth in Section 11.8 hereof, the indemnity obligations under this Agreement shall survive the execution and the delivery of this Agreement and the Closing and remain in full force and effect for a period of ten (10) months from the Closing Date or, as to any tax, for a period of ten (10) months from the date of notice from the taxing authority that such tax is due. Purchaser must submit a written claim to Seller(s) within such period or Purchaser shall be barred from asserting the claim. After the written claim is submitted, Purchaser must file suit within 120 days or Purchaser shall be barred from asserting such claim unless the 120 day period is mutually extended by the parties in writing.

11.7. Limitations on Claim. Neither Sellers nor Purchaser shall assert any claim or series of claims for monetary compensation under this Section 11 or under any other provision of this Agreement or under the terms of the Employment Agreements unless the Damages sustained by the party making such claim are at least $50,000. In such event, any party liable for such Damages shall be liable for all Damages, including any amounts below $50,000 but in no event shall the total obligation of both Sellers under this Agreement, their Employment Agreements or otherwise exceed the lesser of the fair market value of Three Hundred and Sixty Thousand (360,000) ordinary shares of the Purchaser as of the date of claim or such fair market value as of the Closing Date, plus Two hundred Fifty Thousand ($250,000) Dollars. The aforementioned limitation shall not apply to: (i) unpaid tax obligations of the Company which accrued prior to the Closing; (ii) any debt of the Company to any third party as of the Closing (except Accounts Payable and other liabilities set forth on the Company’s financial records as of the Closing Date), and (iii) any Damages related to claims brought by that certain employee identified to Purchaser in writing by Seller as of even date of this Agreement. The $50,000 minimum set forth in this section shall not apply to claims made by the Sellers or either of them against the Company or Purchaser for failure to pay any portion of the Purchase Price, including the Contingent Consideration or any amount due to Sellers or either of them under the terms of the Employment Agreements. The amounts set forth in this Subparagraph 11.7 shall constitute the maximum total amount of Sellers potential liability to Purchaser and the Company for all claims for Damages accruing prior to or after the Closing Date.

11.8. The limitation of liabilities and remedies set forth in Section 11.7 above shall also apply to claims for Damages by Purchaser against Sellers by reason of acts or omissions by Seller occurring after the Closing Date except with respect to knowing or willful fraud or intentional misconduct occurring after the Closing Date. However, all claims by Purchaser must be made to Seller within ten (10) months following the first to occur of: (i) termination of employment by the Company of the Seller in question or (ii) the discovery of the act or omission by Purchaser. In the event Purchaser institutes litigation against Sellers for any reason, including breach of representation or warranty, and all or part of Purchaser’s claims against Seller are adjudicated in Seller’s favor (or if Purchaser shall voluntarily dismiss all or part of such claims), then Sellers shall be entitled to be reimbursed by Purchaser for Sellers’ legal fees and costs of defense applicable to the causes of action upon which Seller has prevailed in such litigation.

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11.9. The remedies specified in this Section 11 shall be the sole and exclusive remedy to which either party is entitled with regard to any Damages under this Agreement and under the Employment Agreement entered into by Sellers pursuant to this Agreement or for any other cause or matter; except that the provisions of Sections 7.6 (Confidentiality) and 7.7 (Non-Solicitation) which shall be enforceable by a decree of specific performance or equivalent equitable relief, issued on a temporary or permanent basis, without the requirement of the filing of any bond or other security by the Seller, and application for such relief shall not bar application for other relief for breach by the Purchaser of its obligations pursuant to Sections 7.6 and 7.7. All references to “Purchaser” shall be deemed to refer also to the Company following the Closing Date so that limitations applicable to Purchaser cannot be avoided by the assertion of claims against the Sellers, or either of them, by the Company.

12 Miscellaneous

12.1. Further Assurances. Each of the parties hereto shall perform such further acts and execute such further documents as may reasonably be necessary to carry out and give full effect to the provisions of this Agreement and the intention of the parties as reflected hereby.

12.2. Governing Law; Jurisdiction. This Agreement shall be governed by and construed according to the laws of the State of New York, without regard to the conflict of laws provisions thereof. Any dispute arising under or in relation to this Agreement shall be resolved in the Federal Court for the Southern District of New York only, and each of the parties hereby submits irrevocably to the exclusive jurisdiction of such court.

12.3. Expenses. Each of the parties hereto shall be responsible for its own costs and expenses (including legal fees) in connection with this Agreement and any other documents or actions relating to the transactions contemplated by this Agreement. All stamp duty and filing fees payable in respect of this Agreement or the transfer of shares as contemplated hereby shall be borne equally by the Sellers, on the one hand, and the Purchaser, on the other.

12.4. Successors and Assigns; Assignment. Except as otherwise expressly limited herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto. None of the rights, privileges, or obligations set forth in, arising under, or created by this Agreement may be assigned or transferred without the prior consent in writing of each party to this Agreement. Any provision of this Agreement notwithstanding, upon the death of either Donald Levi or Andrew Levi, such deceased Seller’s heirs, executors, personal representatives and estate shall have no liability whatsoever for any obligation of such deceased Seller except for the amount of any judgment entered against such deceased Seller in favor of Purchaser prior to his date of death or for any obligation acknowledged by such deceased Seller in a written document signed by him after the Closing Date or for any loan made to such deceased Seller after the Closing Date. Nothing herein shall be deemed to modify the limitation of liabilities set forth in Section 11.7 above.

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12.5. Entire Agreement. This Agreement and the Schedules and Exhibits attached hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matters hereof and thereof.

12.6. Notices, etc. All notices and other communications required or permitted hereunder to be given to a party to this Agreement shall be in writing and shall be faxed or mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed to such party’s address as set forth below or in Schedule A, as the case may be, or at such other address as the party shall have furnished to each other party in writing in accordance with this provision:

If to the Purchaser:

B.O.S Better Online Solutions Ltd.
20 Freiman Street
Rishon LeZion, 75100, Israel

Attention: Chief Financial Officer
Facsimile: (972) 3 954-1003

with a copy to:

Amit, Pollak, Matalon & Co., 17 Yitzhak
Sadeh Street, 19^th Floor
Tel Aviv 67775
Attention: Shlomo Landress, Adv.

Facsimile: (972) 3 568-9001

If to the Company:

Summit Radio Corp.
1008 Teaneck Road,
Teaneck, New Jersey 07666
Facsimile: (201) 837-8839

If to Sellers:

Andrew Levi
4 Deer Trail
Franklin Lakes, New Jersey 07417

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and

Donald Levi
42 Mill Road Extension
Woodcliff Lake, New Jersey 07677

With a copy for all Company and Seller communications to:

Neil I. Kilstein, Esq.
Kilstein & Kilstein, LLC
611 River Drive, Suite 320
Elmwood Park, New Jersey 07407
Facsimile: (201) 791-7797

Any notice sent in accordance with this Section 12.6 shall be effective (i) if mailed, three (3) business days after mailing, (ii) if sent by messenger, upon delivery, and (iii) if sent via facsimile, upon transmission and electronic confirmation of receipt or (if transmitted and received on a non-business day) on the first business day following transmission and electronic confirmation of receipt (provided, however, that any notice of change of address shall only be valid upon receipt).

12.7. Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party upon any breach or default under this Agreement, shall be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent, or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any of the parties, shall be cumulative and not alternative.

12.8. Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable under applicable law, then such provision shall be excluded from this Agreement and the remainder of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms; provided, however, that in such event this Agreement shall be interpreted so as to give effect, to the greatest extent consistent with and permitted by applicable law, to the meaning and intention of the excluded provision as determined by such court of competent jurisdiction.

12.9. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and enforceable against the parties actually executing such counterpart, and all of which together shall constitute one and the same instrument.

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12.10. Independent Agreement. The rights and obligations of the Sellers, the Company and the Purchaser under the terms of this Agreement shall be entirely independent of any rights and obligations of such parties under the Andrew Levi Employment Agreement or the Donald Levi Employment Agreement (the “Employment Agreements”). Specifically, the Sellers shall not have the right to terminate, rescind, modify or seek damages under this Agreement by reason of the breach or alleged breach by the Company of its obligations under the Employment Agreement, and the Purchaser shall not have the right to terminate, rescind, modify or seek damages under this Agreement by reason of the breach or alleged breach by a Seller of his obligations under any Employment Agreement.

12.11. Old Inventory. Certain inventory of the Company which is not included in the inventory records of the Company as set forth in Schedule 12.11 hereto (“Old Inventory”) shall be transferred by the Company to one or both of Sellers prior to Closing. This Old Inventory need not be removed from the basement of the Company’s building for at least two years from the Closing Date until sold or transferred to a third party. Purchaser upon serving one hundred twenty (120) prior written notice shall be permitted to specify the date of the removal of any remaining Inventory by a date no sooner than two years from the Closing Date (the “Removal Date”). Sellers may utilize the services of employees of the Company in connection with the sale and shipping of the old Inventory. Sellers may remove such Old Inventory upon its sale or other disposal, in whole or in part, and the net proceeds of sale or other deposition shall be Sellers’ sole property. Sellers shall bear the risk of loss with respect to the Old Inventory and costs (other than labor) of its removal. If the Old Inventory is not sold or otherwise transferred to a third party, Sellers shall remove the Old Inventory from the Company premises by the Removal Date. If Sellers fail to remove the Old Inventory by the Removal Date, Purchaser may do so at Seller’s cost and expense. The activities of Sellers with respect to the Old Inventory authorized under this Subparagraph shall not be deemed to violate the Employee Covenants of Unauthorized Disclosure, Noncompetition, and Non-solicitation set forth in the Employment Agreements.

12.12. Sellers Vehicles and Life Insurance. The vehicles and life insurance policies listed on Schedule 12.12 shall be transferred by the Company to Sellers prior to the Closing. It is understood that Andrew Levi is trading in his existing vehicle for a new vehicle of similar nature which will be transferred by the Company to him either before or after the Closing.

12.13. ISRA. Following execution of this Agreement, Sellers and the Company shall promptly apply to the ISRA Bureau of the New Jersey Department of Environmental Protection for a Non-Applicability Determination, and furnish Purchaser with a copy of the affidavit supporting such application. If the ISRA Bureau refuses to issue such determination, then Sellers shall file such further applications, pay such fees and perform such work as may be required for the obtaining of ISRA Clearance for the transactions contemplated by this Agreement provided however, that if the total cost of obtaining such clearance shall exceed $100,000, then Sellers may elect to terminate this Agreement unless Purchaser agrees to pay the excess of $100,000. The Closing Date shall be adjourned, if necessary, pending receipt of such clearance, whether by de minimus exemption, no further action letter or approved remediation plan.

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12.14. Knowledge of the Company. Whenever the term “knowledge” is used in this agreement, it shall mean, with respect to the Sellers and the Company, the knowledge of any fact, circumstance, event or other matter in question after reasonable inquiry, by either Seller and the Company’s attorneys and accountants.

12.15. Acquisition by Purchaser’s Subsidiary. Purchaser, at his sole discretion, may effect the acquisition pursuant to this Agreement through a wholly owned subsidiary provided that in any event Purchaser may remain subject to all of its obligations hereunder.

12.16. Assignment by Purchaser to Subsidiary. Purchaser may assign its rights, subject to its obligations, under this Agreement to a wholly owned subsidiary of Purchaser on written notice to Sellers accompanied by a copy of such assignment which shall include the assumption of any applicable Purchaser’s obligations by such assignee. Purchaser shall then be jointly and severally obligated with such assignee for Purchaser’s obligations hereunder. However such assignment shall not be permitted to the extent that it shall increase Sellers’ obligations, including tax obligations or materially increase their costs related to the transactions contemplated hereunder.

[Remainder of page intentionally left blank.]

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IN WITNESS WHEREOF the parties have signed this Share Purchase Agreement as of the date first hereinabove set forth.

B.O.S BETTER ONLINE SOLUTIONS LTD.		SUMMIT RADIO CORP.
By:	_________________________	By:	_________________________
Name:	_________________________	Name:	_________________________
Title:	_________________________	Title:	_________________________

__________________________
DONALD LEVI

__________________________
ANDREW LEVI

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SCHEDULE A

Name and Address of Seller	No. of Sold Shares		% of Share capital (fully diluted)			Consideration
						BOS Shares *		Cash at Closing**
Donald Levi		10		50	%		180,000	$	2,150,000
Andrew Levi		10		50	%		180,000	$	1,950,000
Total		20		100	%		360,000	$	4,100,000

* The Consideration Shares shall be placed in escrow.

** Includes the $250,000 Deposit.

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SCHEDULE B

MILESTONES FOR CONTINGENT CONSIDERATION

(a)     In the event the Company’s audited financial statements prepared in accordance with US GAAP for calendar year 2008 (the “2008 Financial Statements”), reflect Net Income of $400,000 (the “Target Amount”) or more, then BOS shall pay each Seller a cash payment of $125,000 on or before April 15, 2009.

(b)     In the event the Company’s audited Financial Statements prepared in accordance with US GAAP for the calendar year 2009 (the “2009 Financial Statements”) reflect Net Income of the Target Amount or more, then BOS shall pay each Seller a cash payment of $125,000 on or before April 15, 2010.

(c)     In the event Net Income is positive but is less than the Target Amount in either or both of 2008 and 2009, the Contingent Consideration payable to each Seller with respect to such year shall be $125,000 multiplied by the percentage the Net Income of the Company for such year is of the Target Amount.

(d)     The determination of whether an annual target has been met shall be made separately with respect to each applicable year (i.e. the payment for meeting Target (b) is not dependant on the Company meeting Target (a)).

(e)     In the computation of Net Income for purposes of Contingent Consideration:

(i) None of Purchaser’s overhead shall be allocated to the Company.

(ii) All compensation and other expenses not consistent with the practices of the Company prior to the Closing shall be reasonable in scope and amount.

(iii) Purchaser shall not circumvent Seller’s entitlement to contingent compensation by modifying the business practices of the Company from those prior to the Closing Date.

(f)     All references to Net Income shall be deemed to refer to net income before Income (or equivalent) Taxes, interest on borrowing made with respect to the acquisition of the Company Shares and amortization.

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EX-4.9

Exhibit 4.9

SECURITIES PURCHASE AGREEMENT

Dated as of

December 10, 2007

SECURITIES PURCHASE AGREEMENT

        This SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of December 10, 2007, by and among B.O.S Better Online Solutions Ltd., an Israeli company (the “Company”), and the entities listed in Schedule 1 (collectively, the “Investors” and each, an “Investor”).

        WHEREAS, subject to the terms and conditions herein, the Investors desire to acquire from the Company, and the Company desires to issue to the Investors Ordinary Shares of the Company, par value NIS 4.00 each (each, a “Share” and collectively the “Shares”, and when referred to the shares to be purchased by each Investor, such number of shares as set forth opposite such Investor’s name in the column labeled “No. of Shares” on Schedule 1 hereto); and

        WHEREAS, in connection with the Investors’ purchase of the Shares hereunder, the Company wishes to issue to the Investors such number of warrants to purchase Shares as set forth opposite each Investor’s name in the column labeled “No. of Warrants” on Schedule 1 hereto (reflecting 65% warrant coverage), on the terms and conditions hereof, and the Investors wish to purchase such number of warrants;

        NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investors hereby agree as follows:

1.     PURCHASE AND SALE OF SHARES.

    1.1        Subject to the satisfaction of the terms and conditions described in this Agreement, at the Closing (as defined below), the Company agrees to sell to each Investor, and each Investor, severally and not jointly, agrees to purchase from the Company, such number of Shares, against such amount, as is set forth opposite each Investor’s name in the columns labeled “No. of Shares”and “Purchase Amount”, respectively, on Schedule 1 hereto, and reflecting a price of $2.40 per Ordinary Share (the “PPS”).

    1.2        The parties agree that Schedule 1 hereto may be revised, at the Company’s sole discretion, to reflect additional investments by additional investors (the “Additional Investors”) who shall execute the Transaction Documents (as defined below) and be deemed Investors for the purpose hereof, provided however, that in no event shall the aggregate number of Shares issued to the Investors and the Additional Investors (including the Shares issuable under the Warrants) exceed 19.5% of the issued and outstanding share capital as of the date hereof.

    1.3        At the Closing, the Company shall issue and deliver to the Investors a Warrant in the form attached hereto as Exhibit A (the “Warrant”) to purchase such number of Shares as is set forth opposite such Investor’s name in the columns labeled “No. of Warrants”. The Warrant shall be exercisable for a period of four (4) years from the date of issuance (the “Warrant Issue Date”). The Warrant’s exercise price shall be $2.76 per Share.

2.     CLOSING. The execution and delivery of this Agreement shall occur upon delivery by facsimile of executed signature pages of this Agreement and all other documents, instruments and writings required to be delivered pursuant to this Agreement to Amit, Pollak, Matalon & Co., NITSBA Tower, 17 Yitzhak Sadeh St., Tel-Aviv 67775 Israel attn: Shlomo Landress, Adv., Fax: (972) 3 568-9001. The closing of the purchase and sale of the Shares will take place ten (10) days after the date hereof (or, if such date is not a business day, on the next business day thereafter), on which date the conditions for Closing set forth in Sections 5 and 6 herein shall be satisfied in full or waived by the appropriate party thereunder, or at such different date as may be mutually acceptable to the Investors and the Company (the “Closing”). At the Closing, each Investor shall deliver to the Company payment in full (without deduction of any fees or taxes) for the Shares to be purchased by such Investor in the amount set forth opposite such Investor’s name in the column labeled “Purchase Amount” on Schedule 1, via wire transfer of immediately available funds or bank or cashier’s check. At the Closing, the Company will deliver to each Investor a duly executed share certificate reflecting such number of shares set forth opposite such Investor’s name in the column labeled “No. of Shares”, and a Warrant validly executed by the Company.

3.     REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby represents and warrants to each Investor that:

    3.1        Corporate Organization. Each of the Company and its Subsidiaries (as defined below) is (i) a corporation duly incorporated, validly existing and in good standing (where such concept is applicable) under the Laws of the jurisdiction of its organization, (ii) has the corporate power and authority to own, lease and operate its property and to carry on its business as now being conducted, and (iii) is duly qualified and in good standing to do business in each jurisdiction in which the nature of the business conducted by it or the ownership or leasing of its properties makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on the business, properties, assets, operations, prospects, results of operations or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. The Company’s shares are traded on the Nasdaq Global Market and on the Tel-Aviv Stock Exchange (the “Principal Markets”) and as such it is subject to both US and Israeli Securities Laws. “Subsidiaries” shall mean BOScom Ltd. and Odem Electronic Technologies Ltd.

    3.2        Due Authorization and Valid Issuance. The Company has the corporate power to enter into this Agreement and the Registration Rights Agreement (the “Transaction Documents”). The Transaction Documents have been, or will have been, at the time of their respective execution and delivery, duly executed and delivered by the Company. Prior to the Closing of this Agreement, the Company shall have acted to complete all corporate action necessary on its part for the issuance, sale and delivery of the Shares, the Warrant and the shares issuable upon exercise thereof (the “Warrant Shares”). The Shares being purchased by the Investors hereunder and the Warrant Shares will, upon issuance and payment therefore pursuant to the terms hereof, be duly authorized, validly issued, fully-paid and nonassessable.

    3.3        Binding Agreement. The Transaction Documents constitute valid and legally binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as (i) such enforceability may be limited by bankruptcy, insolvency, reorganization, arrangement, moratorium or similar laws relating to or affecting the rights of creditors and contracting parties generally, (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought, and (iii) rights to indemnity and contribution may be limited by Israeli or U.S. state or federal securities laws applicable to the Company or by the public policy underlying such laws.

3

    3.4        Non-Contravention. Neither the execution and delivery of the Transaction Documents, nor the consummation of the transactions or the performance of the obligations contemplated hereby and thereby will result in any violation or breach of Company’s articles of association, by-laws, board resolutions or shareholders resolutions, or result in a violation of any law, rule, regulation, order, (including federal and state securities laws and regulations and the rules and regulations of the Primary Markets) or, to the Company’s best knowledge, judgment or decree.

    3.5        No Consent. To the Company’s best knowledge, and in reliance on the representations of the Investors given in Section 4 hereof, except for reporting obligations and approvals required under applicable securities laws and market regulations in Israel and the United States and for notices to or approvals by the Office of the Chief Scientist and the Investment Center of the Ministry of Industry, Trade and Labor (if required) no consent of any governmental body or third party is required to be made or obtained by the Company in connection with the execution and delivery of the Transaction Documents by the Company or the consummation by the Company of the transactions or the performance of the obligations contemplated hereby and thereby by the Company.

    3.6        Capitalization. The authorized share capital of the Company consists as of the date hereof: 35,000,000 Ordinary Shares, par value NIS 4.00 per share, of which, as of September 30, 2007, 9,609,911 Ordinary Shares are issued and outstanding, and 2,600,000 Ordinary Shares are reserved for issuance upon the exercise of warrants and of employee, director and consultant options already granted by the Company. The Company is currently in discussions with other investors with respect to additional financings, in which financings the price per share may be different than the PPS hereunder.

    3.7        SEC Documents. Since January 1, 2006, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it, as a foreign private issuer, with the Securities and Exchange Commission (“SEC”) pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof or prior to the date of the Closing, being hereinafter referred to as the “SEC Documents”). As of their respective dates, but subject to any amendments or supplements in later filings, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC but subject to any amendment or supplement in later filings, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

4

    3.8        Financial Statements. The audited consolidated financial statements of the Company as of December 31, 2006 and the related notes thereto, as filed by the Company with the SEC under Form 6-K on March 27, 2007, and as amended in the Company’s filing on Form 20-F/A made on November 28, 2007 (the “Financial Statements”) fairly present the financial position of the Company as of their respective dates, and have been prepared in accordance with the books and records of the Company as at the applicable dates and for the applicable periods. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods therein specified, except as may be disclosed in the notes to such financial statements, or as may be permitted by the Securities and Exchange Commission and except as disclosed in the filings the Company made in connection with such statements, if any.

    3.9        Indebtedness and other Contracts. Except as disclosed in the Financial Statements, or in the SEC Documents and except for the guarantee by the Company of the Subsidiaries bank credit, neither the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as defined below), (ii) is a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument would result in a Material Adverse Effect, (iii) is in violation of any term of or in default under any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (iv) is a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect. The Company’s SEC Documents provide a detailed description of the material terms of any such outstanding Indebtedness . For purposes of this Agreement: (a) “Indebtedness” of the Company or a Subsidiary means, without duplication, any of the following that individually exceeds $200,000: (1) all indebtedness for borrowed money, (2) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (3) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (4) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (5) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (6) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (7) all indebtedness referred to in clauses (1) through (6) above secured by (or for which the holder of such Indebtedness has an existing right to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by the Company or a Subsidiary, and (8) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (1) through (7) above; (b) “Contingent Obligation” means, as to the Company or a Subsidiary, any direct or indirect liability, contingent or otherwise, with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; and (c) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

5

    3.10        Legal Proceedings. Except as disclosed in the Company’s SEC Documents, there is no material legal or governmental proceeding pending or, to the knowledge of the Company, threatened to which the Company is or may be a party.

    3.11        Insurance. The Company and its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. The Company and its Subsidiaries have not been refused any insurance coverage sought or applied for and has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

    3.12        Employee Relations. (i) Neither the Company nor its Subsidiaries has entered into any collective bargaining agreement with their respective employees. The Company believes that its and its subsidiaries’ relations with their employees are good. No executive officer of the Company or its subsidiaries (as defined in Rule 501(f) of the 1933 Act) has notified the Company or its subsidiaries that such officer intends to leave the Company or its subsidiaries or otherwise terminate such officer’s employment with the Company or its subsidiaries. No executive officer of the Company or its subsidiaries is in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or its Subsidiaries to any liability with respect to any of the foregoing matters, except as would not have a Material Adverse Effect; (ii) Neither the Company nor its Subsidiaries is subject to, nor do any of its employees benefit from, whether pursuant to applicable employment laws, regulations, extension orders (Tzavei Harchava) or otherwise, any agreement, arrangement, understanding or custom applying to all employees in Israel or to all employees in the Company’s industry with respect to employment (including, without limitation, termination thereof) other than the minimum benefits and working conditions required by law to be provided pursuant to rules and regulations of the General Federation of Labor (Histadrut), the Coordinating Bureau of Economic Organization and the Industrialists’ Association or extension orders that apply to all employees in Israel or to all employees in the Company’s industry in Israel. The severance pay due to the Employees is fully funded or provided for in accordance with generally accepted accounting principles, consistently applied; (iii) the Company and its Subsidiaries are in compliance with all applicable laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

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    3.13        Title. The Company and its Subsidiaries have good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case either free and clear of all liens, encumbrances and defects or such as do not materially affect the value of such property and do not interfere with the use made of such property by the Company and its Subsidiaries. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made of such property and buildings by the Company and its Subsidiaries.

    3.14        Intellectual Property. (i) The Company, either directly or through its Subsidiaries, owns or possesses sufficient rights to use all material patents, patent rights, trademarks, copyrights, licenses, inventions, trade secrets, trade names and know-how (collectively, “Intellectual Property”) described or referred to in the Company’s public filings as owned or possessed by it, except where the failure to currently own or possess would not have a Material Adverse Effect, (ii) to the knowledge of the Company, the Company is not infringing, nor has it received any notice of, any asserted infringement of, any rights of a third party with respect to any Intellectual Property that, individually or in the aggregate, would have a Material Adverse Effect.

    3.15        Tax Status. The Company and each of its Subsidiaries (i) have made or filed all required Israeli tax returns, reports and declarations, (ii) have paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, and (iii) have set aside on their books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

    3.16        Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference. In addition, the Company has established and maintains disclosure controls and procedures as defined in Rule 13a-14 under the 1934 Act and in compliance with Rule 13a-15 under the 1934 Act.

    3.17        No General Solicitation; Placement Agent’s Fees. Neither the Company, nor any of its affiliates, and any Person acting on their behalf, has engaged in any form of general solicitation or general advertising or Directed Selling Efforts (within the meaning of Regulation D or S, respectively) in connection with the offer or sale of the Securities. Except for placement fees in the form of cash, ordinary shares or a combination thereof to certain of the Investors (or their affiliates or related entities), the Company will not be obligated for any finder’s fee or commission in connection with this transaction. The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions relating to or arising out of the transactions contemplated hereby, if such claims shall be contrary to the foregoing statement. The Company shall pay, and hold each Investor harmless against, any liability, loss or expense (including, without limitation, attorney’s fees and out-of-pocket expenses) arising in connection with any such claim, if such claim shall be contrary to the foregoing statement.

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    3.18        Dilutive Effect. The Company acknowledges that its obligation to issue the Warrant Shares upon exercise of the Warrants in accordance with this Agreement and the Warrants is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company

    3.19        Transactions with Affiliates. Except as set forth in the Company’s SEC Documents, none of the officers, directors or employees of the Company is presently a party to any transaction with the Company (other than for ordinary course services as employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any such officer, director, or employee has a substantial interest or is an officer, director, trustee or partner.

    3.20        Compliance with Law; Conduct of Business; Regulatory Permits. To the knowledge of the Company, the business of the Company is conducted in accordance with applicable laws, except to extent that, individually or in the aggregate, would not cause a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is in violation of any term of or in default under their Articles of Association or Memorandum of Association or other governing documents. Neither the Company nor any of its Subsidiaries is in violation of any statute, ordinance, rule or regulation, or to the Company’s knowledge, any judgment, decree or order applicable to the Company or any of its Subsidiaries, and neither the Company nor any of its Subsidiaries conducts its business in violation of any of the foregoing, except for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company is not in violation of any of the rules, regulations or requirements of the Principal Markets and has no knowledge of any facts or circumstances that would reasonably lead to delisting or suspension of the Ordinary Shares by the Principal Markets in the foreseeable future. To the Company’s knowledge, the Company possesses all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct its business, except where the failure to possess such certificate, authorization or permit would not have, individually or in the aggregate, a Material Adverse Effect, and the Company has not received any notice of proceedings relating to the revocation or modification of any certificate, authorization or permit. The Company is in compliance in all material respects with all conditions and requirements stipulated by the instruments of approval granted to it with respect to the “Approved Enterprise” status of any of the Company’s facilities by Israeli laws and regulations relating to such “Approved Enterprise” status and other tax benefits received by the Company, except for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect. The Company has not received any notice of any proceeding or investigation relating to revocation or modification of any “Approved Enterprise” status granted with respect to any of the Company’s facilities which the Company believes could reasonably be expected to result in material liability to the Company, except for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect, the Company is not in violation of any condition or requirement stipulated by the instruments of approval granted to the Company by the Office of Chief Scientist in the Israeli Ministry of Industry and Trade (the “OCS”) and any applicable laws and regulations with respect to any research and development grants given to it by such office as to grants for projects that the OCS has not confirmed as having been closed. The Company has or by Closing shall have (a) provided notice to the OCS, and (b) obtained approval of the Investment Center, to the transactions contemplated hereunder. All information supplied by the Company with respect to such applications was true, correct and complete in all material respects when supplied to the appropriate authorities. The Company’s contingent liabilities to the OCS are disclosed in the Company’s SEC Documents.

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    3.21        No Undisclosed Events, Liabilities, Developments or Circumstances. No event, liability, development or circumstance has occurred or exists, or is contemplated to occur (other than the transactions contemplated hereby), with respect to the Company or any of its Subsidiaries or their respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws in an immediate report to the SEC or the ISA.

    3.22        Sarbanes-Oxley Act. The Company is in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are applicable to the Company as a foreign private issuer and as are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of the date hereof, except where such noncompliance would not have a Material Adverse Effect.

    3.23        Form F-3 Eligibility. The Company is eligible to register the Ordinary Shares for resale by the Investors under Form F-3 promulgated under the 1933 Act. The Company qualifies as a “foreign private issuer” as such term is defined in the 1934 Act.

    3.24        Disclosure. The representations and warranties of the Company contained in this Section 3 as of the date hereof and as of the Closing, do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements herein, in light of the circumstances under which they are made, not misleading. The Company acknowledges and agrees that the Investors have not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 4.

4.     REPRESENTATIONS OF THE INVESTORS. Each of the Investors, severally represents to the Company that:

    4.1        Enforceability. If such Investor is a corporation, partnership, limited liability company, trust or other entity, (i) it is authorized and qualified and has full right and power to become an investor in the Company, is authorized to purchase the Shares and to perform its obligations pursuant to the provisions hereof, (ii) the person signing the Transaction Documents and any other instrument executed and delivered therewith on behalf of such Investor has been duly authorized by such entity and has full power and authority to do so, and (iii) such Investor has not been formed for the specific purpose of acquiring an interest in the Company.

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    4.2        Restrictions on Transferability and Hedging.

    4.2.1        Such Investor understands that (i) the Shares have not yet been registered under the Securities Act of 1933, or under the laws of any other jurisdiction; (ii) such Shares cannot be sold, transferred or otherwise disposed of unless they are subsequently registered under the Securities Act and, where required, under the laws of other jurisdictions or unless an exemption from registration is then available; (iii) there is now no registration statement on file with the Securities and Exchange Commission with respect to the Shares to be purchased by the Investor.

    4.2.2        Such Investor acknowledges and agrees that the certificates representing the Shares shall bear restrictive legends as counsel to the Company may determine are necessary or appropriate, including without limitation, legends under applicable securities laws similar to the following:

“The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares have been acquired for investment and may not be sold, transferred, assigned or otherwise disposed of in the absence of an effective registration statement with respect to the shares evidenced by this certificate, filed and made effective under the Securities Act of 1933, or an opinion of the Company’s counsel that registration under such Act is not required.”

    4.2.3        The Company will not register any transfer of Shares not made pursuant to registration under the Securities Act, or pursuant to an available exemption from registration.

    4.2.4        Each of the Investors agrees not to engage in hedging transactions with regard to the Shares sold pursuant to this Agreement.

    4.3        Offshore Transaction. Such Investor is not a “U.S. Person”, as such term is defined in Regulation S under the Securities Act of 1933 (“Reg. S”), its principal address is outside the United States and it has present intention of becoming a resident of (or moving its principal place of business to) the United States. Such Investor was located outside the United States at the time any offer to sell and any other action in connection with such offer and sale was made to such Investor and at the time that the buy order was originated by the Investor. The Shares are being acquired solely for such Investor’s own account, and in no event and without derogating from the foregoing, for the account or the benefit of a U.S. person. The Investor shall comply with the applicable distribution compliance periods pursuant to Reg. S.

    4.4        Investment Purposes. The Shares are being acquired for investment purposes. The Shares are not being purchased with a view to, or for sale in connection with, any distribution or other disposition thereof. The Investor has no present plans to enter into any contract, undertaking, agreement or arrangement for any such resale, distribution or other disposition and it will not divide its interest in the Company’s Shares with others, resell or otherwise distribute the Shares in violation of federal or state US Securities laws or the Israeli Securities Law.

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    4.5        Information and Advice. Without derogating from the Investor’s right to rely on the representations and warranties of the Company set forth in Section 3 above:

    4.5.1        Such Investor has carefully reviewed and understands the risks of a purchase of the Shares. In connection with such Investor’s investment in the Company, it has obtained the advice of its own investment advisors, counsel and accountants (the “Advisors”). The Investor and its Advisors have reviewed the Company’s public filings and have been furnished with all materials relating to the Company or the offering of the Shares (the “Offering”) that they have requested. The Investor and its Advisors have been afforded the opportunity to ask questions of the Company concerning the financial and other affairs of the Company and the conditions of the Offering and to obtain any additional information necessary to verify the accuracy of any representations or information set forth with respect to the Shares.

    4.5.2        The Company has answered all reasonable inquiries that such Investor and its Advisors have made concerning the Company or any other matters relating to the creation and operations of the Company and the terms and conditions of the Offering.

    4.6        Sophistication and Risk.

    4.6.1        It has such knowledge and experience in financial and business matters, that it is capable of evaluating, and has evaluated the merits and risks of the Offering. By reason of its business or financial experience, it has the capacity to protect its interests in connection with an investment in the Company.

    4.6.2        It understands that no Israeli or U.S. federal or state agency has passed upon the Shares or made any finding or determination as to the fairness of the transactions contemplated in the Transaction Documents.

    4.6.3        It understands that the Shares are speculative investments, which involve a high degree of risk, including the risk that such Investor might lose its entire amount invested in the Company.

    4.6.4        It understands that any tax benefits that may be available to such Investor may be lost through adoption of new laws, amendments to existing laws or regulations, or changes in the interpretation of existing laws and regulations.

    4.6.5        It has the financial ability to bear the economic risk of its investment in the Company and has adequate net worth and means of providing for the Investor’s current needs and contingencies to sustain a complete loss of the Investor’s investment and has no need for liquidity in the Investor’s investment in the Company.

    4.6.6        It is an “Accredited Investor,” as such term is defined in Rule 501 of Regulation D under the Securities Act of 1933.

    4.7        No solicitation. At no time was such Investor presented with or solicited by any leaflet, public promotional meeting, newspaper or magazine article, radio or television advertisement or any other form of general advertising or general solicitation concerning the Offering.

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    4.8        Broker-Dealer. The Investor is not a broker-dealer, nor is it an affiliate of any broker-dealer.

    4.9        Further Indebtedness. Such Investor acknowledges that no provision of the Transaction Documents executed and delivered by the Company restricts, or shall be construed to restrict, in any way the ability of the Company to incur indebtedness or to issue share capital or other equity securities (or securities convertible into equity securities) of the Company or to grant liens on its property and assets.

    4.10        Voting and/or Investment Control over the Investors. Each Investor has made available to the Company a list of individuals who have or share voting and/or investment control over such Investor. The Investor shall update such list as reasonably requested by the Company to comply with request for such information from any regulatory body.

    4.11        Independent Investment. No Investor has agreed to act with any other Person for the purpose of acquiring, holding, voting or disposing of the Shares purchased hereunder, and each Investor is acting independently with respect to its investment in the Shares. The obligations of each Investor under any Transaction Document are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investors, or any of them, as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors, or any of them, are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.

    4.12        Holdings. Schedule 1 attached hereto reflects the holdings of the Company’s shares by each Investor and its affiliates as of the date hereof, and as of the Closing.

    4.13        Availability of Exemptions. Each Investor understands that the Shares are being offered and sold in reliance on a transactional exemption or exemptions from the registration requirements of Israeli and U.S. Federal and state securities laws and the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of such Investor set forth herein in order to determine the applicability of such exemptions and the suitability of such Investor to acquire the Shares.

    4.14        Disclosure. The representations and warranties of each Investor contained in this Section 4 as of the date hereof and as of the Closing, do not contain any untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary to make the statements herein, in light of the circumstances under which they are made, not misleading. Each Investor understands and confirms that the Company will rely on the foregoing representations in effecting the transaction contemplated in the Transaction Documents and other transactions in securities of the Company.

5.    CONDITIONS OF EACH INVESTOR’S OBLIGATION AT THE CLOSING. The obligation of each Investor to purchase its respective Shares is subject to the fulfillment or waiver by such Investor prior to or on the date of the Closing of the conditions set forth in this Section 5. In the event that any such condition is not satisfied to the satisfaction of an Investor, then such non satisfied Investor shall not be obligated to proceed with the purchase of such securities.

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    5.1        Representations and Warranties. The representations and warranties of the Company under this Agreement shall be true in all material respects as of the Closing, with the same effect as though made on and as of such date.

    5.2        Compliance with Agreements. The Company shall have performed and complied in all material respects with all agreements or conditions required by this Agreement to be performed and complied with by it prior to or as of the Closing.

    5.3        Warrants. As of the Closing, the Warrants shall have been executed and delivered by the Company and each Investor.

    5.4        Issuance of Shares. As of the Closing, the Shares purchased by the Investors shall have been duly issued to the Investors.

    5.5        Registration Rights Agreement. As of the Closing, the Registration Rights Agreement in the form attached hereto as Exhibit A (the “Registration Rights Agreement”) shall have been executed and delivered by the Company and each Investor.

    5.6        No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

6.     CONDITIONS OF THE COMPANY’S OBLIGATION AT THE CLOSING. The obligation of the Company to issue the Shares to the Investors at the Closing is subject to the fulfillment or waiver by the Company prior to or on the Closing of the conditions set forth in this Section 6. In the event that any such condition is not satisfied to the satisfaction of the Company, then the Company shall not be obligated to proceed with the sale of the securities under this Agreement.

    6.1        Representations and Warranties. The representations and warranties of all the Investors under this Agreement shall be true in all material respects as of the Closing, with the same effect as though made on and as of such date.

    6.2        Compliance with Agreements. All Investors shall have performed and complied in all respects with all agreements or conditions required by this Agreement to be performed and complied with by it prior to or as of the Closing.

    6.3        Registration Rights Agreement. As of the Closing, the Registration Rights Agreement shall have been executed and delivered by all of the Investors.

    6.4        No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

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    6.5        Delivery of Purchase Amount. Each of the Investors shall have delivered to the Company its respective Purchase Amount for the Shares at the Closing Date.

    6.6        Government Approvals. The Company shall have received all necessary governmental approvals with respect to the transactions contemplated hereby. The Investor shall have executed any confirmations required by the Office of Chief Scientist.

    6.7        Notices to Nasdaq and the TASE. The Company shall have made all required filings of notices with Nasdaq and the Tel Aviv Stock Exchange. The Company shall use its best efforts to complete such filings.

7.     CONFIDENTIALITY. Any information disclosed to each of the Investors or their respective Advisors, which have not previously been made available to the general public by the Company, if any, shall be considered Confidential Information. Each Investor acknowledges the confidential nature of the Confidential Information it may have received, and agrees that the Confidential Information is the valuable property of the Company. Each Investor agrees that it and its Advisors shall not reproduce any of the Confidential Information without the prior written consent of the Company, nor shall they use any Confidential Information for any purpose except as permitted by and in the performance of this Agreement, or divulge all or any part of the Confidential Information to any third party. The confidentiality obligations undertaken by the Investors hereunder will remain in full force and effect regardless of the execution and consummation or termination of this Agreement.

8.     MISCELLANEOUS.

    8.1        Expenses. At the Closing, the Company shall reimburse the Investors for reasonable legal expenses of one counsel (Yigal Arnon & Co.) incurred in connection with the preparation of the Transaction Documents in an amount to be agreed to between the parties.

    8.2        Amendments. This Agreement may be modified, supplemented or amended only by a written instrument executed by the parties to this Agreement.

    8.3        Notices. Any notice that is required or provided to be given under this Agreement shall be deemed to have been sufficiently given and received for all purposes, (i) when delivered in writing by hand, upon delivery; (ii) if sent via facsimile, upon transmission and electronic confirmation of receipt (and if transmitted and received on a non-business day, on the first business day following transmission and electronic confirmation of receipt), (iii) seven (7) business days (and fourteen (14) business days for international mail) after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, or (iv) three (3) business days after being sent by internationally overnight delivery providing receipt of delivery, to the following addresses:

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if to the Company, B.O.S Better Online Solutions Ltd., 20 Freiman Street, Rishon Lezion, 75101 Israel Attn: Mr. Eyal Cohen, CFO, facsimile: (972) 3 954-1003, with a copy to Amit, Pollak Matalon & Co., NITSBA Tower, 17 Yitzhak Sadeh St., Tel-Aviv 67775 Israel attn: Shlomo Landress, Adv. Fax: (972) 3 568-9001; or at any other address designated by the Company to the Investors in writing;

if to an Investor, to 2 Kaufman St., 9^th Floor, Tel Aviv, Israel 68012, Fax: +972 3 516 with a copy (which shall not constitute notice) to Yigal Arnon & Co., 1 Azrieli Center, Tel Aviv 67021 Israel attn: Peter Sugarman, Adv. Fax (972) 3 608-7714 or at any other address designated by the Investors to the Company in writing.

    8.4        Survival of Representations and Warranties. All representations and warranties contained herein or in any Transaction Document or in any other certificate delivered hereunder or thereunder shall survive after the execution and delivery of this Agreement or such certificate or document, as the case may be, for a period of 24 months from the date hereof. All covenants and agreements in any Transaction Documents shall survive in accordance with their terms. This Section shall survive the termination of this Agreement for any reason.

    8.5        Delays or Omissions; Waiver. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party under this Agreement shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any breach or default, or an acquiescence thereto, or of a similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party hereto of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.

    8.6        Other Remedies. Any and all remedies herein expressly conferred upon a party shall be deemed cumulative with, and not exclusive of, any other remedy conferred hereby or by law on such party, and the exercise of any one remedy shall not preclude the exercise of any other.

    8.7        Entire Agreement. This Agreement and the exhibits and schedules hereto, constitute the entire understanding and agreement of the parties hereto with respect to the subject matter hereof and thereof and supersede all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, between the parties with respect hereto and thereto.

    8.8        Headings. All section headings herein are inserted for convenience only and shall not modify or affect the construction or interpretation of any provision of this Agreement.

    8.9        Severability. Should any one or more of the provisions of this Agreement (including its exhibits and schedules) or of any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable, all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement, shall be given effect separately from the provision or provisions determined to be illegal or unenforceable and shall not be affected thereby. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision, which will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provision.

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    8.10        Assignment. This Agreement may not be assigned in whole or in part by any Investor without the prior written consent of the Company.

    8.11        Governing Law and Venue. This Agreement shall be construed in accordance with and governed by the internal laws of the State of Israel, without regard to conflict of laws provisions. Any dispute arising under or in relation to this Agreement shall be adjudicated in the competent court of Tel Aviv-Jaffa district only, and each of the parties hereby submits irrevocably to the exclusive jurisdiction of such court.

    8.12        Counterparts. This Agreement may be executed concurrently in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

    8.13        Further Actions. At any time and from time to time, each party agrees, without further consideration, to take such actions and to execute and deliver such documents as may be reasonably necessary to effectuate the purposes of this Agreement.

(Remainder of page intentionally left blank.)

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IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement as of the date first set forth above.

B.O.S BETTER ON LINE SOLUTIONS LTD.
By:	____________________________
Name:	____________________________
Title:	____________________________
____________________________
[Name of Investor]
By:	____________________________
Name:	____________________________
Title:	____________________________

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Schedule 1

INVESTOR’S NAME AND ADDRESS	PURCHASE AMOUNT		NO. OF SHARES PURCHASED		NO. OF WARRANTS		PRE-CLOSING HOLDINGS					POST-CLOSING HOLDINGS
							Amount		Percent			Amount		Percent
K.G.M.
Provident
Fund
Address:
2 Kaufman St.,
Tel Aviv 68012	$	455,952		189,980		123,487		-		0.00			189,980		1.76	%
Yuvalim
Provident &
Hishtalmu Fund
Address:
2 Kaufman St.,
Tel Aviv 68012	$	264,096		110,040		71,526		97,239		0.97	%		207,279		1.92	%
Yuvalim Pension
Fund
Address:
2 Kaufman St.,
Tel Aviv 68012	$	280,224		116,760		75,894		247,144		2.48	%		363,904		3.37	%
Catalyst Fund LP
Address:
3 Daniel Frish
Street
Tel Aviv 64731	$	1,000,272		416,780		270,907		1,675,465		16.79	%		2,092,245		19.35	%
Additional
Investors

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EXHIBIT A

REGISTRATION RIGHTS AGREEMENT

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REGISTRATION RIGHTS AGREEMENT

        This Registration Rights Agreement is made and entered into as of December 10, 2007 by and among B.O.S. Better Online Solutions Ltd., an Israeli company (the “Company”), and the entities listed in Schedule 1 (collectively, the “Investors” and each, an “Investor”).

        WHEREAS, pursuant to that certain Securities Purchase Agreement (the “Purchase Agreement”) between the Company and the Investors dated as of December 10, 2007, Buyer issued to each Investor ordinary shares, each with a nominal value of NIS 4.00 per share, of the Company (“Ordinary Shares”) and Warrants (the “Warrants”) for the purchase of Ordinary Shares of the Company; and

        WHEREAS, the parties desire to set forth certain matters regarding ownership of the shares of the Company, as more fully set forth herein.

        NOW, THEREFORE, the parties hereto agree as follows:

1. DEFINITIONS.

        For purposes of this Agreement, the following terms shall have the meanings set forth below:

1.1 “Holders” means any Investor, transferee or assignee to whom any of the Investors assigns its rights, in whole or in part, and any transferee or assignee thereof to whom a transferee or assignee assigns its rights, in accordance with Section 9.

1.2 “ISA” means the Israel Securities Authority or any similar or successor agency of Israel administering the Israel Securities Law.

1.3 “Israel Securities Law” means the Israel Securities Law, 5728-1968 (including the regulations promulgated thereunder), as amended.

1.4 "1933 Act" means the U.S. Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute.

1.5 "1934 Act" means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, or any similar successor statute.

1.6 “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

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1.7 “Register”, “registered”, and “registration” refer to a registration effected by preparing and filing a registration statement in compliance with the 1933 Act and the effectiveness of such registration statement in accordance with the 1933 Act or the equivalent actions under the laws of another jurisdiction.

1.8 “Registrable Securities” means any Shares held by any Investor and any other securities issued by the Company to any Investor by means of exchange, reclassification, dividend, distribution, split-up, combination, subdivision, recapitalization, merger, spin-off, reorganization, contractual obligation or otherwise, prior to the date the Registration Statement was filed with the SEC.

1.9 “Registration Statement” means a registration statement or registration statements of the Company covering Registrable Securities filed with (a) the SEC under the 1933 Act, and (b) the ISA under the Israel Securities Law, to the extent required under the Israel Securities Law, so as to allow the Holder to freely resell the Registrable Securities in Israel, including on the TASE.

1.10 “SEC” means the United States Securities and Exchange Commission or any similar or successor agency of the United States administering the 1933 Act.

1.11 “Shares” means the Ordinary Shares issued to the Investors under the Purchase Agreement and any Warrant Shares purchased by the Investors under the terms of the Warrant.

1.12 "Warrant Shares" means Ordinary Shares purchased by the Investors pursuant to the exercise of the Warrant.

2. LISTING & REGISTRATION OF THE SHARES

2.1 The Company shall prepare, and, as soon as practicable but in no event later than 150 days after the date of this Agreement (the “Deadline”) file with the SEC (and make the required corresponding filings with the ISA) a Registration Statement on Form F-3 covering the resale of all of the then Registrable Securities that are not already registered. The Company shall use commercially reasonable efforts to have the Registration Statement declared effective by the SEC as soon as possible after such filing with the SEC.

2.2 In the event that Form F-3 shall not be available for the registration of the resale of Registrable Securities hereunder, the Company shall register the resale of the Registrable Securities on another appropriate form in accordance with its undertakings hereunder.

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2.3 The Company represents and warrants to the Investors that the Company is not a party to any agreement that conflicts in any manner with the Investors’ rights to cause the Company to register Registrable Shares pursuant to this Agreement. The Investors acknowledges that the Company had entered into a Registration Rights Agreement with S.G. Private Banking (Suisse) S.A. providing such investor with incidental registration rights.

3. RELATED OBLIGATIONS.

3.1 Following the filing and effectiveness of each Registration Statement with the SEC pursuant to Section 2.1, the Company shall use commercially reasonable efforts to keep the Registration Statement effective pursuant to Rule 415 of the 1933 Act at all times until the earlier of (i) the date as of which all of the Registrable Securities covered by such Registration Statement may be sold without restriction pursuant to Rule 144(k) under the 1933 Act (ii) the date on which the Holders shall have sold all the Registrable Securities covered by such Registration Statement; or (iii) the fifth anniversary of the date hereof (the “Registration Period”). The Company shall ensure that such Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, subject to Section 3.5 below.

3.2 The Company shall prepare and file with the SEC and the ISA (to the extent required) such amendments (including post-effective amendments) and supplements to each Registration Statement and the prospectus used in connection with such Registration Statement, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act and the Israel Securities Law with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to the Agreement (including pursuant to this Section 3.2 by reason of the Company filing a report on Form 20-F, Form 6-K or any analogous report under the 1934 Act), the Company shall have incorporated such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with the SEC (and the ISA) as may be required to maintain the Registration Statement effective during the Registration Period.

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3.3 The Company shall furnish each Holder whose Registrable Securities are included in any Registration Statement, without charge, (i) promptly after the same is prepared and filed with the SEC, at least three (3) copies of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, all exhibits and each preliminary prospectus (or such other number of copies as such Holder may reasonably request), (ii) upon the effectiveness of any Registration Statement, at least ten (10) copies of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Holder may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus and of any Registration Statements and prospectuses filed with the ISA, as such Holder may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Holder.

3.4 The Company shall use its commercially reasonable efforts to (i) register and qualify, unless an exemption from registration and qualification applies, the resale by the Holders of the Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of all the states of the United States, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3.4, or (y) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify each Holder who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose.

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3.5 The Company shall notify each Holder in writing of the happening of any event, (a “Discontinuation Event”) as promptly as practicable after becoming aware of such event, as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or an omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company shall use its commercially reasonable efforts to minimize the period of time during which a Registration Statement includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company shall promptly notify each Holder in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed so that the Registration Statement does not include an untrue statement of a material fact or an omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and when a Registration Statement or any post-effective amendment has become effective, (ii) of any request by the SEC or the ISA for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.

3.6 The Company shall use its commercially reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify each Holder who holds Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

3.7 The Company shall use its commercially reasonable efforts to cause all the Registrable Securities covered by a Registration Statement to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, including the NASDAQ and the TASE and the Company shall, not later than the effective date of a Registration Statement, deliver to the Holders a copy of the approval of the TASE (and/or any other exchange, if applicable) to the listing of the Registrable Securities covered by such Registration Statement on such exchange.

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3.8 The Company shall cooperate with the Holders who hold Registrable Securities being offered and, to the extent applicable, facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Holders may reasonably request and registered in such names as the Holders may request.

3.9 The Company shall provide a transfer agent and registrar of all Registrable Securities and a CUSIP number not later than the effective date of the applicable Registration Statement.

3.10 If requested by a Holder, the Company shall, to the extent necessary for compliance with the Securities Act of 1933: (i) as soon as practicable incorporate in a prospectus supplement or post-effective amendment such information as a Holder requests to be included therein, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering; (ii) as soon as practicable make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) as soon as practicable, supplement or make amendments to any Registration Statement if reasonably requested by a Holder of such Registrable Securities.

3.11 The Company shall comply with all applicable securities laws and rules and regulations of the SEC and the ISA.

4. OBLIGATIONS OF THE HOLDERS.

9.        Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in the first sentence of Section 3.5 or in Section 3.6, such Holder will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until such Holder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3.5 or receipt of notice that no supplement or amendment is required.

5. EXPENSES OF REGISTRATION.

10.         All expenses, other than: (i) underwriting discounts and commissions and (ii) if applicable, counsel(s) to Holders, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, fees and disbursements of counsel to the Companyshall be paid by the Company.

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6. INDEMNIFICATION.

11. In the event any Registrable Securities are included in a Registration Statement under this Agreement:

6.1 To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Holder, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls any Holder within the meaning of the 1933 Act or 1934 Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) incurred in defending any action, claim, suit, inquiry, proceeding, investigation by or before any court or governmental, administrative or other regulatory agency, body or the SEC or the ISA, whether pending or threatened, whether or not a Person to be indemnified is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement, preliminary prospectus, final prospectus or “free writing prospectus” (as such term is defined in Rule 405 under the 1933 Act) or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any violation by the Company of the 1933 Act, the 1934 Act, the Israel Securities Law or other federal or state or Israeli securities law applicable to the Company and relating to any action or inaction required of the Company in connection with such registration (“Violations”). Subject to Section 6.3, the Company shall reimburse the Indemnified Persons promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6.1: shall not apply: (i) to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for inclusion in any such Registration Statement, preliminary prospectus, final prospectus or free writing prospectus or any such amendment thereof or supplement thereto; (ii) to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld; and (iii) to the use of the Registration Statement or the related Prospectus following a Discontinuation Event, provided the Indemnified Person received prior notice of such Discontinuation Event; or (iv) if the Indemnified Person fails to deliver a prospectus, as then amended or supplemented, provided that the Company shall have delivered to the Indemnified Person such prospectus. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Holders pursuant to Section 9.

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6.2 In connection with any Registration Statement in which a Holder is participating, each such Holder agrees, severally and not jointly, to indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6.1, the Company, each of its directors, each of its officers who signs the Registration Statement, each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (each an “Indemnified Party”), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Holder expressly for inclusion in Registration Statement, preliminary prospectus, final prospectus or free writing prospectus and, subject to Section 6.3, such Holder will reimburse any legal or other expenses reasonably incurred by an Indemnified Party in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6.2 and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Holder; provided, further, however, that the Holder shall be liable under this Section 6 for only that amount of a Claim or Indemnified Damages as does not exceed the higher of: (i) the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement and (ii) the Purchase Amount (as defined in the Purchase Agreement) and the Exercise Price (as defined in the Warrant) paid by the applicable Holder for the Ordinary Shares and the Warrant Shares. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Holders pursuant to Section 9.

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6.3 Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. In the case of an Indemnified Person, legal counsel referred to in the immediately preceding sentence shall be selected by the Holders holding a majority in interest of the Registrable Securities included in the Registration Statement to which the Claim relates. The Indemnified Party or Indemnified Person shall cooperate with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or Claim. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action, but the omission to so notify the indemnifying party will not relieve such indemnifying party of any liability that it may have to any Indemnified Person or Party otherwise than under this Section 6.3, including under Section 6.5.

6.4 The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.

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6.5 The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

7. CONTRIBUTION.

12.         To the extent any indemnification by an indemnifying party is prohibited or limited by law or insufficient to hold an Indemnified Person or an Indemnified Party, as the case may be, harmless, then the indemnifying party, in lieu of indemnifying such Indemnified Person or Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Person or Indemnified Party as a result of such Claims and Indemnified Damages (each as defined in Section 6.1 above) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the Indemnified Person or Indemnified Party, as the case may be, on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the Indemnified Person or Indemnified Party, as the case may be, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the Indemnified Person or Indemnified Party, as the case may be, and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

13.         Notwithstanding the foregoing, (i) no Person involved in the sale of Registrable Securities, which Person is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection with such sale, shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities pursuant to such Registration Statement.

8. REPORTS UNDER THE 1934 ACT.

With a view to making available to the Holders the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the Holders to sell securities of the Company to the public without registration (“Rule 144”), the Company agrees to:

8.1 make and keep public information available, as those terms are understood and defined in Rule 144;

8.2 file with the SEC in a timely manner all reports and other documents required by the Company under the 1993 Act and the 1934 Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and

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8.3 furnish to each Holder so long as such Holder owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Holders to sell such securities pursuant to any rule or regulation of the SEC allowing the Holder to sell any securities without registration.

9. ASSIGNMENT OF REGISTRATION RIGHTS.

Subject to the prior approval of the Company, not to be unreasonably withheld, at any time prior to the time the Registration Statement was filed with the SEC, the rights under this Agreement shall be assignable by each Investor to any transferee of all or any portion of such Investor’s Registrable Securities or the Warrant if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; and (v) such transfer shall have been made in accordance with the applicable requirements of the Purchase Agreement and applicable securities laws.

10. MISCELLANEOUS

10.1 Amendments; Waivers. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the Company and the Investors.

10.2 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto pertaining to its subject matter, and supersedes and replaces all prior agreements and understandings of the parties in connection with such subject matter.

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10.3 Notices. All notices and other communications required or permitted hereunder to be given to a party to this Agreement shall be in writing and shall be faxed or mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger in accordance with the provisions of the Purchase Agreement.

10.4 Governing Law; Jurisdiction. This Agreement shall be governed by and construed according to the internal laws of the State of Israel without regard to the provisions relating to conflicts of law. Any dispute arising under or in relation to this Agreement shall be resolved exclusively by the competent courts of Tel-Aviv Jaffa district, and the parties hereto irrevocably submit to the exclusive jurisdiction of such court for such purposes.

10.5 Successors and Assigns. Except as otherwise expressly limited herein, the provisions of this Agreement shall inure to the benefit of, and shall be binding upon, the successors and permitted assigns of the parties hereto. This Agreement may not be assigned by any party without the prior written consent of the other party hereto.

10.6 Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable under applicable law, then such provision shall be excluded from this Agreement and the remainder of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms; provided, however, that in such event this Agreement shall be interpreted so as to give effect, to the greatest extent consistent with and permitted by applicable law, to the meaning and intention of the excluded provision as determined by such court of competent jurisdiction.

10.7 No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance.

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10.8 Headings. The section and paragraph headings in this Agreement are for convenience of reference only and are not intended to be a part of this Agreement or to affect the meaning or interpretation of this Agreement.

10.9 Counterparts. This Agreement may be executed in one or more counterparts (including facsimile counterparts), all of which taken together shall constitute one agreement.

10.10 Equitable Relief. The parties hereto agree that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

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        IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first set forth above.

B.O.S BETTER ON LINE SOLUTIONS LTD.
By:	____________________________
Name:	____________________________
Title:	____________________________
____________________________
By:	____________________________
Name:	____________________________
Title:	____________________________
____________________________
By:	____________________________
Name:	____________________________
Title:	____________________________

[SIGNATURE PAGE OF REGISTRATION RIGHTS AGREEMENT]

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THIS WARRANT AND THE ORDINARY SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE ORDINARY SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO B.O.S. BETTER ONLINE SOLUTIONS LTD. THAT SUCH REGISTRATION IS NOT REQUIRED.

Right to Purchase up to ________ Ordinary Shares of
B.O.S. Better Online Solutions Ltd.
(subject to adjustment as provided herein)

ORDINARY SHARES PURCHASE WARRANT

No. _________________ Issue Date: December 31, 2007 

        B.O.S. BETTER ONLINE SOLUTIONS LTD. a company incorporated under the laws of the State of Israel hereby certifies that, for value received, ___________, or assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company (as defined herein) from and after the Issue Date of this Warrant and at any time or from time to time before 5:00 p.m., New York time, through the close of business December 31, 2011 (the “Expiration Date”), up to _________ fully paid and nonassessable Ordinary Shares (as hereinafter defined), NIS 4.00 nominal value per share, at the exercise price of $2.76 per Ordinary Share (the “Exercise Price”). The number and character of such Ordinary Shares and the Exercise Price per share are subject to adjustment as provided herein.

        As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

    (a)        The term “Company” shall include B.O.S. Better Online Solutions Ltd. and any corporation which shall succeed, or assume the obligations of, B.O.S. Better Online Solutions Ltd. hereunder.

    (b)        The term “Other Securities” refers to any securities of the Company or any other person (corporate or otherwise) which the Holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Ordinary Shares, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Ordinary Shares or Other Securities pursuant to Section 3 or otherwise.

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        Capitalized terms used herein without definition shall have the meanings ascribed to such terms in that Securities Purchase Agreement dated as of the date hereof by and among the Company and the Investor (as defined therein).

14. Exercise of Warrant.

    14.1        Number of Shares Issuable upon Exercise. From and after the date hereof through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery of an original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the “Exercise Notice”) and payment in accordance with Section 2.2 below, Ordinary Shares of the Company (the “Warrant Shares”), subject to adjustment pursuant to Section 4.

    14.2        Company Acknowledgment. The Company will, at the time of the partial exercise of the Warrant, upon the request of the Holder hereof acknowledge in writing its continuing obligation to afford to such Holder any rights to which such Holder shall continue to be entitled after such partial exercise in accordance with the provisions of this Warrant. If the Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Holder any such rights.

15. Procedure for Exercise.

    15.1        Delivery of Share Certificates, Etc., on Exercise. The Company agrees that the Warrant Shares purchased upon exercise of this Warrant shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares in accordance herewith. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable Warrant Shares (or Other Securities) to which the Holder shall be entitled on such exercise.

    15.2        Exercise.

    15.2.1        Payment shall be made in cash, by wire transfer to a bank account the details of which shall have been provided by the Company to the Holder in writing or by certified or official bank check payable to the order of the Company, of the amount equal to the applicable aggregate Exercise Price for the number of Ordinary Shares specified in the Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of Warrant Shares issuable to the Holder per the terms of this Warrant) and the Holder shall thereupon be entitled to receive the applicable number of duly authorized, validly issued, fully-paid and non-assessable Warrant Shares (or Other Securities) determined as provided herein.

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    15.3        Fractional Shares. This Warrant may not be exercised for fractional shares. In lieu of fractional shares the Company shall make a cash payment therefor based upon the Exercise Price then in effect.

16.     Effect of Reorganization, Etc.; Adjustment of Exercise Price.

    16.1        Reorganization, Consolidation, Merger, Etc. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, including the sale of substantially all of the Company’s outstanding share capital to a corporate third party, in consideration for such third party’s securities, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Sections 1 and 2 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Ordinary Shares issuable on such exercise prior to such consummation or such effective date, the shares and Other Securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4.

    16.2        Extraordinary Events Regarding Ordinary Shares. In the event that the Company shall (a) issue additional Ordinary Shares as a dividend or other distribution on outstanding Ordinary Shares, (b) subdivide its outstanding Ordinary Shares, or (c) combine its outstanding Ordinary Shares into a smaller number of Ordinary Shares, then, in each such event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Exercise Price by a fraction, the numerator of which shall be the number of Ordinary Shares outstanding immediately prior to such event and the denominator of which shall be the number of Ordinary Shares outstanding immediately after such event, and the product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 3.2. The number of Ordinary Shares that the Holder of this Warrant shall thereafter, on the exercise hereof be entitled to receive shall be increased or decreased, as the case may be, to a number determined by multiplying the number of Ordinary Shares that would otherwise (but for the provisions of this Section 3.2) be issuable on such exercise by a fraction of which (a) the numerator is the Exercise Price that would otherwise (but for the provisions of this Section 3.2) be in effect, and (b) the denominator is the Exercise Price in effect on the date of such exercise.

    16.3        Good Faith. All determinations with respect to adjustments by the Company hereunder shall be made by the Board of Directors in good faith.

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        17.    Certificate as to Adjustments. In each case of any adjustment or readjustment in the Ordinary Shares (or Other Securities) issuable on the exercise of the Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.

        18.    Reservation of Shares, Etc., Issuable on Exercise of Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrant, Ordinary Shares (or Other Securities) from time to time issuable on the exercise of the Warrant.

        19.    Representations of the Company. The Company represents that (i) all corporate actions on the part of the Company, its officers, directors and shareholders necessary for the sale and issuance of the Warrant Shares pursuant hereto and the performance of the Company’s obligations hereunder were taken prior to and are effective as of the issue date of this Warrant; (ii) the Warrant Shares are duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and not subject to any preemptive rights, and (iii) the execution and delivery of this Warrant are not, and the issuance of the Warrant Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company’s Articles of Association, do not and will not contravene any law, governmental rule or regulation, or, to the Company’s knowledge, any judgment or order applicable to the Company, and, except for consents that have already been obtained by the Company or except as would not have a Material Adverse Effect, do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound, or require the consent or approval of, the giving of notice to, the registration with or the taking of any action in respect of or by any government authority or agency or other person.. as used herein, “Material Adverse Effect” means any material adverse effect on the business, properties, assets, operations, prospects, results of operations or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole.

        20.    Representations and Warranties by the Holder. The Holder represents and warrants to the Company as follows:

    20.1        Holder understands that the Warrant is being offered and sold pursuant to an exemption or exemptions from registration requirements of Israeli and US Federal and state securities laws and that the Company is relying upon the truth and accuracy of Holder’s representations contained in that Securities Purchase Agreement of even date herewith, including, without limitation, that the Holder is an “Accredited Investor” within the meaning of Regulation D under the Securities Act of 1933.

    20.2        Holder has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Holder is able to bear the economic risk of this investment.

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    20.3        Holder is acquiring the Warrant and the Ordinary Shares issuable upon exercise of the Warrant for its own account for investment only, and not as a nominee or agent and not with a view towards or for resale in connection with their distribution.

    21.        Assignment; Exchange of Warrant. Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred in whole by any registered Holder hereof (a “Transferor”) in whole or in part. On the surrender for exchange of this Warrant, with the Transferor’s endorsement in the form of Exhibit B attached hereto (the “Transferor Endorsement Form”) and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, which shall include, without limitation, a legal opinion from the Transferor’s counsel that such transfer is exempt from the registration requirements of applicable securities laws, the Company at its expense (but with payment by the Transferor of any applicable transfer taxes) will issue and deliver a new Warrant of like tenor, in the name of the transferee specified in such Transferor Endorsement Form (each a “Transferee”), calling in the aggregate on the face thereof for the number of Ordinary Shares called for on the face of the Warrant so surrendered by the Transferor. Notwithstanding the foregoing, no opinion of counsel or “no-action” letter shall be necessary for a transfer without consideration by a Holder to any other entity which controls, is controlled by or is under common control with the Holder.

    22.        Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.

    23.        Registration Rights. The Holder of this Warrant has been granted certain registration rights by the Company. These registration rights are set forth in a Registration Rights Agreement entered into by the Company and the Holder dated as of even date of this Warrant.

    24.        Rights of Shareholders. No Holder shall be entitled, in its capacity as a Warrant holder only, to vote or receive dividends or be deemed the holder of the Ordinary Shares or any Other Securities of the Company, which may at any time be issuable upon the exercise of this Warrant for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any other matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of shares, reclassification of shares, change of nominal value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised and the Ordinary Shares issuable upon the exercise hereof shall have become deliverable, as provided herein.

    25.        Transfer on the Company’s Books. Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.

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    26.        Notices, Etc. All notices and other communications from the Company to the Holder of this Warrant shall be deemed to have been sufficiently given and received for all purposes, (i) when delivered in writing by hand, upon delivery; (ii) if sent via facsimile, upon transmission and electronic confirmation of receipt (and if transmitted and received on a non-business day, on the first business day following transmission and electronic confirmation of receipt), (iii) seven (7) business days (and fourteen (14) business days for international mail) after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, or (iv) three (3) business days after being sent by internationally overnight delivery providing receipt of delivery, to the address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company an address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company.

    27.        Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be governed by and construed in accordance with the laws of the State of Israel without regard to principles of conflicts of laws. Any dispute arising under or in relation to this Agreement shall be adjudicated in the competent court of Tel Aviv-Jaffa district only, and each of the parties hereby submits irrevocably to the exclusive jurisdiction of such court. In the event that any provision of this Warrant is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision, which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Warrant. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS]

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        IN WITNESS WHEREOF, this Warrant is executed as of the date first written above.

B.O.S. BETTER ONLINE SOLUTIONS LTD. _______________________

By: _______________________ By: _______________________

Name: _______________________ Name: _______________________

Title: _______________________ Title:: _______________________

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EXHIBIT A

FORM OF SUBSCRIPTION
(To Be Signed Only On Exercise Of Warrant)

To:   B.O.S. Better Online Solutions Ltd.

Attention:   Chief Financial Officer

        The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):

________                                       ________ Ordinary Shares covered by such Warrant;

o     The undersigned herewith makes payment of the full Exercise Price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes):

o $__________ by wire transfer of lawful money of the United States; and/or

o $__________ by certified or official bank check payable to the order of the Company

        The undersigned requests that the certificate for such shares be issued in the name of, and delivered to ______________________________________________ whose address is __________________________________________________________________________________________________________.

        The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Ordinary Shares under the Securities Act of 1933, as amended (the “Securities Act”) or pursuant to an exemption from registration under the Securities Act.

    

Dated:  __________________ ____________________________________________________________________

(Signature must conform to name of
Holder as specified on the face of the Warrant)

Address:  _______________________________

                  _______________________________

A - 1

EXHIBIT B

FORM OF TRANSFEROR ENDORSEMENT
(To Be Signed Only on Transfer of Warrant)

For value received, the undersigned hereby sells, assigns, and transfers unto the person named below under the heading “Transferee” the right represented by the within Warrant to purchase the number of Ordinary Shares of B.O.S Better Online Solutions Ltd. into which the within Warrant relates and appoints each such person attorney-at-fact to transfer its respective right on the books of B.O.S. Better Online Solutions Ltd. with full power of substitution.

NAME OF TRANSFEREE ADDRESS

DATED: __________________________ ____________________________________________________
(SIGNATURE MUST CONFORM TO NAME
OF HOLDER AS SPECIFIED ON THE FACE
OF THE WARRANT)

ADDRESS:

__________________________

__________________________

ACCEPTED AND AGREED:

         [TRANSFEREE]

By:    ____________________________

Name:    ____________________________

Title:    ____________________________

B - 1

EX-4.10

Exhibit 4.10

ASSET PURCHASE AGREEMENT

        THIS ASSET PURCHASE AGREEMENT is dated as of the 29^th day of January, 2008 by and among, Dimex Systems (1988) Ltd., an Israeli company No. 51-128854-0, having its address at 3 Tvuot Ha’aretz Street, Tel Aviv 69546, Israel (Hereinafter “DS”), and Dimex Hagalil Ltd., an Israeli company No. 51-388460-1, having its address at 3 Tvuot Ha’aretz Street, Tel Aviv 69546, , Israel (hereinafter: “DHG”), (DS and DHG, each a Seller and shall be referred herein together as the “Sellers”) and B.O.S Better Online Solutions Ltd., an Israeli company No. 52-004256-5, having its address at 20 Freiman Street Rishon Lezion POB 198 75101, Israel, (the “Buyer”).

        WHEREAS, DS, an Israeli private company incorporated in 1988, is, together with its subsidiary DHG, a leading Israeli integrator of data collections solutions based on RFID and Barcode technology, and as such is providing in the Israeli market full solution that includes peripheral equipment, software application, integration and support (the “Business”); and

        WHEREAS, the Buyer desires to purchase, as of January 1, 2008 (hereinafter: the “Cut-Off Date”), from Sellers, for the Buyer or on behalf and for its subsidiary BOScom Ltd. an Israeli company No. 51-223643-1, (hereinafter: “BOScom”) and for its subsidiary Dimex Hagalil Projects (2008) Ltd, an Israeli Company No. 51-408384-9 (“DHP”), all of Sellers’ activity, assets and rights, tangible and intangible, relating to, or used in connection with, the Business, and certain obligations in connection with the Business, as more fully detailed in Section 1 below, all on the terms and conditions, and for the consideration, set forth herein.

NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, the Buyer and the Sellers agree as follows:

        1. PURCHASE AND SALE.

    1.1.        Acquired Assets. Subject to the terms and conditions set forth in this Agreement, as of the Cut-Off Date (subject to the occurrence of the Closing referred to in Section 4 hereof), the Sellers shall sell, assign or procure the assignment, transfer and deliver to the Buyer or to its order, and the Buyer, for itself or for or on behalf and for BOScom and DHP shall purchase, acquire and take assignment and delivery of, all of the assets and rights of the Sellers relating to, or used in connection with, the Business, together with those related obligations specifically detailed herein (all of which assets, rights and certain obligations are hereinafter referred to collectively as the “Acquired Assets”), including, without limitation, the following assets, rights and obligations:

     (a)        Any and all fixtures, machinery, installations, equipment (including, without limitation, all production equipment), hardware, software, furniture, tools, spare parts, supplies, materials, product lines, fixed assets, and other personal property relating to, or used in connection with, the Sellers’ Business and/or the Sellers’ conduct of the Business, as described on Schedule 1.1(a), and those certain related obligations thereto specified and detailed in said Schedule and all related rights thereto (the “Equipment”);

     (b)        All of Sellers’ rights under the purchase orders, service and support agreements and any other or additional contracts and agreements described on Schedule 1.1(b) hereto (which each Seller represents to constitute all of the purchase orders, service and support agreements of the Sellers related to the Business and their Business activity), and those certain related obligations under the contracts and agreements in Schedule 1.1(b), all of which are in force and effect as of the Cut-Off Date, and all rights and obligations under all other agreements, of the Sellers entered into in the ordinary course of business following the Cut-Off Date but prior to the Closing, consistent with the Sellers’ obligations under Section 8 hereof (the purchase orders, service and support agreements, and other contracts and agreements shall be referred to in this Agreement collectively as the “Assumed Contracts”).

As to the open purchase orders specified and identified as such on Schedule 1.1(b) it has been agreed as follows:

— All Sellers’ rights and obligations under open customers’ purchase orders for product, services or software which have not been supplied to customers shall be transferred in full to Buyer together with any deposit or advanced payments received by Sellers, in accordance with the provisions of Sections 3.7 and 3.8 below;

— All Sellers’ rights and obligations under open purchase orders from Sellers’suppliers for products or software which have not been supplied yet to Seller shall be transferred in full to Buyer which shall be obligated to pay for such purchase order upon receipt of the products so ordered, in accordance with the provisions of Sections 3.7 and 3.8 below. Any deposit or advanced payment made by Sellers on account of such orders shall be paid to Sellers by Buyer in accordance with Sections 3.7 and 3.8 below;

It is being emphasized that notwithstanding anything to the contrary, Buyer does not purchase any obligation not specifically detailed in this Agreement, including any of Sellers’ obligations under any of the Assumed Contracts, that was due before the Cut-Off Date and does not and will not assume or receive any obligation or liability resulting from any breach by Sellers, or any of them, of any of the Assumed Contracts, or from any omission under any of the Assumed Contracts, that occurred or accrued prior to the Cut-Off Date (hereinafter: “Non-assumed Liabilities”);

    (c)        All of Sellers’ standard warranty obligations with respect to any products sold by Sellers, as fully described in Schedule 1.1(c) hereto attached (“Warranty Obligation(s)”), provided however that for those Warranty Obligations for which Sellers do not have a back-to-back obligation from the respective seller, manufacturer or distributor of such product, Buyer shall provide the Warranty Obligation at the expense of Seller, that will reimburse Buyer for the cost of the product replaced and any out-of-pocket expenses born by Buyer in connection therewith, which reimbursement shall be made in accordance with the provisions of Section 3.8 below;

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    (f)        All of the Sellers’ trademarks, trade names (including the “Dimex” trade name), logos, trade secrets, domain names and sites, copyrights, designs, patents (all whether registered or not) and applications with respect to the foregoing, all to the extent such exist, production records, any records pertaining to know how, softwares, technical information, manufacturing know-how, trade secrets, inventions, product processes and techniques, research and development information, copyrightable works, mask works, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists, Sellers’ goodwill associated with the Business, and all other Sellers’ intangible assets of any kind, all to the extent that they relate to, enable and/or secure and/or facilitate the performance of, or are used in connection with, the Business, including, without limitation, those described on Schedule 1.1(f) hereto (the “Intangibles”);

    (g)        All of DS’s shares, rights and interests in Dimex Logic Systems Ltd. (DLS) and under the Agreement with Galuly the details of which are specified in Schedule 1.1(g);

    (h)        All of Sellers’ Inventory (as described in Section 1.2 hereinafter, and all Seller’s Accounts Receivables (as described in Section 1.3 hereinafter).

    1.2.        Acquired Inventory. Subject to the terms and conditions set forth in this Agreement, at the Closing referred to in Section 4 hereof, Sellers undertake to sell and assign to the Buyer, and the Buyer undertakes to purchase and acquire, the Inventory (as defined below) of the Sellers relating to, or used in connection with the Business as existed at the Cut-off Date. Inventory shall mean the Sellers’ inventory specified (together with its book value) in Schedule 1.2 hereto, and subject to adjustments under Section 3.7 herein.

The Inventory shall not include any inventory designated on Schedule 1.2 as obsolete, although transferred to Buyer, provided that a part of the proceeds from a sale of such designated obsolete inventory during the 18-month period beginning on the Closing Date, shall be delivered to DS, all in accordance with the provisions of Section 3.8 below.

A part of the proceeds received by Sellers from a sale of any item of the Inventory after the Cut-Off Date is the property of Buyer and shall be transferred to Buyer, all in accordance with the provisions of Section 3.8 below, except for such proceeds of obsolete inventory which belong to Sellers.

    1.3.        Accounts Receivables. Subject to the terms and conditions set forth in this Agreement, at the Closing referred to in Section 4 hereof) Sellers shall sell and assign to the Buyer, and the Buyer shall purchase and acquire, the Accounts Receivables (as defined below) of the Sellers relating to, or payable in connection with the Business, as existed on the Cut-Off Date. Accounts Receivables shall mean the Sellers’ accounts receivables as of the Cut-Off Date as specified in Schedule 1.3 hereto, subject to adjustments under Section 3.7 herein.

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Accounts Receivables shall not include any debt designated on Schedule 1.3 as “bad debt”, provided that any payment on account of such bad debt received by Buyer during the 18-month period beginning on the Closing Date, shall be delivered to DS in accordance with the provisions of Section 3.8 below.

Any payment of any Account Receivable received by Sellers from any customer after the Cut-Off Date, that is not on account of a bad debt, is the property of Buyer and shall be transferred to Buyer in accordance with the provisions of Section 3.8 below.

    1.4        ASSIGNMENT OF CONTRACTS. Without derogating from Section 4.2.1(i) below, and subject to the foregoing, it is the intention of the parties that the Sellers shall assign (or procure the assignment of) the Assumed Contracts to the Buyer and the Buyer shall accept such assignment and assume all of the rights and obligations of the Sellers under the Assumed Contracts (except for the Non-assumed Liabilities) and all of Sellers’obligations in connection with the Warranty Obligations as set forth in Sections 1.1 (b) & (c) above.

     (a)        Notwithstanding the foregoing, upon the occurrence of the Closing (i) whether or not the Seller has assigned (or procured the assignment of) each of the Assumed Contracts to the Buyer, the provisions of all the Assumed Contracts and all of Seller’s Warranty Obligations (with the exception of the Non-assumed Liabilities and the non-assumed Sellers’ Warranty obligations (to be paid to Buyer) as detailed in Sections 1.1(b) & (c) above); shall apply to the Buyer, as if the Buyer was party to the Assumed Contracts. The parties shall cooperate to determine which of the aforementioned contracts and obligations should be formally assigned to Buyer, and the parties shall cooperate to receive such assignments to the extent possible, provided that the provisions hereof shall not be altered as a result of any non-receipt of a any such formal assignment, or in the event a party to such contracts shall decide not to continue its relationship with Buyer.

     (b)        Without derogating from the generality of the foregoing, the Buyer will put in place the necessary support and infrastructure to enable it to fulfill its assumed obligations under the Assumed Contracts and Warranty Obligations, including with respect to warranties, service and support;

     (c)        With respect to each of the Assumed Contracts, and until such time as the assignment thereof is effected (or procured), the parties shall fully cooperate with the each other in all matters relating to the transfer of the Assumed Contracts and Warranty Obligations to Buyer (as well as any contracts relating to the Business which are not designated to be assumed by the Buyer, if so agreed by the parties). Without derogating from the aforesaid, for a period of 18 month from the Closing Date, Sellers shall take any action reasonably requested by the Buyer in connection with the exercise or enforcement of rights in connection with the Assumed Contracts, provided Buyer is aware of the fact that as of the Cut-Off date all of Sellers’ relevant personnel are working – until hired by Buyer, as Sellers’ employees mainly under the advance notice period, for Buyer and thereafter as Buyer employees, thereby limiting Sellers’ ability to actively provide any such assistance requiring the utilization of such personnel. The Buyer will reimburse the Sellers for any reasonably incurred costs approved in advance by the Buyer in this regard, and shall make available to Sellers the necessary workforce required to provide such assistance if applicable. Following such 18 month period such obligation of Sellers to assist Buyer shall lapse.

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     (d)       The Buyer shall indemnify the Sellers against every liability which the Sellers may incur to any other person whatsoever and against all claims, damages, costs and expenses made against or incurred by the Sellers by reason of any breach by the Buyer of any of the Assumed Contracts and/or any of the assumed Warranty Obligations after the Cut-Off Date, except to the extent that such breach results from Sellers’ non-compliance with a provision set forth herein.

     (e)        In the event that the Sellers receives any payment under the Assumed Contracts where such payments relate to deliveries or services provided following Cut-Off Date or that otherwise belongs to Buyer under the provisions of this Agreement, the Sellers shall transfer such funds to the Buyer in accordance with the provisions of Section 3.8 below. The same provision shall apply, mutatis mutandis, to any payment received by Buyer that belongs to Seller pursuant to the provisions hereof.

     (f)        In case the assignment of any Assumed Contract shall require the replacement of the Sellers’ guarantees with a new guarantee issued by Buyer, as specified in Schedule 1.1(b), the parties shall cooperate in accordance with the provisions of said Schedule, provided however that Buyer shall indemnify Seller for any realization of a guarantee issued by Seller as a result of any act or omission by Buyer.

        2. EXCLUDED ASSETS AND NO ASSUMPTION OF OBLIGATIONS

    2.1.        Excluded Assets. Notwithstanding the foregoing, the Sellers shall not sell and the Buyer shall not purchase, pursuant to this Agreement, and the term “Acquired Assets” shall not include, the following assets (the “Excluded Assets”):

(a) the consideration received by the Sellers pursuant to this Agreement and the rights of the Sellers under this Agreement.

(b) Sellers’ rights, obligations and undertakings with respect to Sellers’ employees.

(c) Sellers’ rights and obligations whatsoever which are not related to the Business;

(d) Sellers’ debts, warranties, guaranties or obligations to any financial institution or government authority including their banks, the customs, insurance companies etc., excluding those Business related guarantees specified in Schedule 1.1(b) hereto as being assumed by Buyer;

(e) Sellers’ debts, warranties, guaranties or obligations to third parties or for any third party, other than those assumed in connection with the provisions of Section 1.1(c) to this Agreement;

(f) Any warranty obligation of Sellers for which Sellers do not have a back-to-back obligation from the respective seller, manufacturer or distributor of such product, provided however that Buyer shall handle such warranty at Sellers’ expense in accordance with the provision of Section 1.1(c).

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    2.2.        Excluded Liabilities Except for the liabilities and obligations assumed by Buyer pursuant to the provisions of this Agreement, the Buyer shall not assume, and shall not be deemed to have assumed; (i) any liability or obligation of any of the Sellers or any liabilities for acts or omissions of Sellers prior to the Cut-Off Date, (ii) any liabilities or obligations of Sellers for Indebtedness or under guaranties, (ii) any liabilities or obligations of Sellers for Taxes including, without limitations, any tax liability of Sellers which may be accrued or levied as a result of the transactions contemplated hereunder (whether in conjunction with the Merger between Dimex Systems (1988) Ltd. and Intermec (Dimex Group) Ltd. or not), (iii) any liabilities or obligations relating to any of the Sellers’ employees, including any liability of Sellers to those of Sellers’ employees hired by the Buyer .after the termination of the employment of said Sellers’ employees with the Sellers; and (iv) Non-assumed Liabilities.

        3. PURCHASE PRICE.

    3.1        In consideration for the sale, assignment, transfer and delivery of all of the Acquired Assets, at the Closing referred to in Section 4 hereof, the Buyer will pay to Sellers an aggregate amount of NIS 44,380,000 (the “Purchase Price”) out of which NIS 17587,000 shall be paid for the Sellers’ goodwill and other intangible assets detailed in Schedule 3.1 herein (the “Intangible PP”) and NIS 26,793,000, subject to adjustments, shall be paid for Sellers’Inventory, Accounts receivables, fixed assets and other tangible assets detailed in Schedule 3.1 herein (the “Tangible PP”). Other than an amount of NIS 3,829,000 out of the Intangible PP which shall be paid, on the Closing, by issuing of 500,224 newly issued, fully paid, Ordinary Shares of Buyer, nominal value NIS 4.00 each, (which amount was determined by dividing the sum of NIS 3,829,000 by the average of the closing price of the shares of Buyer on the NASDAQ, over the period commencing on December 1, 2007 and ending 3 days prior to the date hereof), all in accordance with the terms and conditions specified hereinafter (the “Consideration Shares”), the balance of the Purchase Price shall be paid in cash (the “Cash Payment”) by 5 installments as follows:

(i) an amount of NIS 15,500,000 will be made on the Closing Date (the “1^st Installment”);

(ii) an amount of NIS 15,000,000 will be made 6 month after the Closing Date (the “2^nd Installment”) ;

(iii) an amount of NIS 3,500,000 will be made 12 month after the Closing Date (the “3^rd Installment”);

(iv) an amount of NIS 3,500,000 will be made 18 month after the Closing Date (the “4^th Installment”); and

(v) an amount of NIS 3,051,000 will be made 24 month after the Closing Date (the “5^th Installment”);

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    3.2        The Purchase Price will be allocated between the Sellers, and paid to each of them respectively in accordance with DS’s instructions specified in Schedule 3.1B.

The 2nd, 3rd, 4th & 5th Installments shall be subject only to the following adjustments and deductions (“Allowed Deductions”): (i) Buyer’s set-off right under Section 12.4 hereinafter; (ii) the adjustments provided under Section 3.7 below; (iii) Buyer’s right to deduct withholding tax in accordance with the provisions of Section 3.5 below and (iv) Buyer’s obligations or duty to withhold such payments pursuant to a judicial order of a competent court. Other than such specifically allowed deductions and adjustments, no deduction, adjustment, right of retention and/or set-off of any kind shall be made from the consideration due to Sellers hereunder.

Notwithstanding and without derogating from any right or remedy available to Sellers hereunder or pursuant to applicable law, upon an “Event of Default” (as defined below), without notice by Sellers to, or demand by Sellers of, Buyer, all of the Purchase Price which has not been yet paid to Seller (other than any un-paid amount as a result of an Allowed Deduction in accordance with this agreement) shall automatically become immediately due and payable by Buyer to Sellers.

An “Event of Default” shall mean: (i) Buyer shall fail to pay any payment on account of the Purchase Price (including any applicable VAT) in accordance with the provisions of this Agreement, and such failure continues for thirty (30) days or more following receipt by Buyer of notice of same from Sellers; and (ii) Buyer shall commence any insolvency or bankruptcy proceeding with respect to itself; an involuntary insolvency or bankruptcy proceeding shall be filed against Buyer, or a custodian, receiver, trustee, assignee for the benefit of creditors, or other similar official, shall be appointed to take possession, custody or control of all, or substantially all, of the assets of Buyer, and such proceedings, petition or appointment is acquiesced to by Buyer or is not dismissed within forty five (45) days, or Buyer shall take any corporate action for the purpose of effecting, approving, or consenting to any of the foregoing. For the removal of doubt it is hereby clarified that non-payment of any Allowed Deductions in accordance with the terms hereof, shall not be considered or deemed as an Event of Default.

        Without derogating from the forgoing, or from any right or remedy available to a party hereunder or pursuant to applicable law, any payment hereunder not paid when due shall bear interest at the rate of Prime + 2% per annum.

    3.3        The Consideration Shares. At the Closing referred to in Section 4 hereof, the Buyer will issue to Sellers a share certificate/s – in accordance with Sellers’instructions specified in Schedule 3.3 herein – representing theConsideration Shares free and clear from any claims, liens, charges, pledges, security interests, encumbrances and any third party rights.

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        The Consideration Shares shall not be registered for resale under the applicable U.S. laws and regulations and therefore may not be sold, transferred, assigned, offered for sale, pledged, hypothecated or otherwise disposed of for at least 6 months from the date of issuance. Thereafter, such shares may be sold in compliance with Rule 144 or pursuant to another applicable exemption under the U.S. Securities Act of 1933, as amended (the “Securities Act”). The Buyer represents, warrants and covenants that it has filed, and will continue to file, on a timely basis, at least for the first 12 months following the date of issuance of the Consideration Shares all reports required to be filed by the Buyer with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to the extent required for the sale of the Consideration Shares under Rule 144. Buyer has no obligation whatsoever to register the Consideration Shares under the Securities Act or other applicable securities laws or regulations. Notwithstanding the above and subject to any applicable law, Seller will be entitled to transfer the Consideration Shares or any part thereof to any of Seller’s currently existing shareholders provided that such transfer is permitted under any applicable law and that each transferee of said Consideration Shares shall be subject to abovementioned restrictions and shall confirm in writing that he undertakes to comply with such restrictions for as long as such restrictions shall be valid.

    3.4        The Cash Payment and the issuance of the Consideration Shares to the Sellers shall be the sole consideration, monetary or otherwise, to be paid by the Buyer and/or to which the Sellers may be entitled in connection with the transactions contemplated in this Agreement.

    3.5        Any tax liability, payment or demand sustained or incurred by the Sellers as a result of or in connection with the payment of the Purchase Price in accordance with this Agreement shall be the sole responsibility of the Sellers. Without derogating from the above and from the Sellers’ sole responsibility and liability for any tax payment or demand, the Buyer shall deduct, from each payment, and withhold any tax to be deducted under any applicable Israeli law and regulation and the Buyer shall pay said withheld amount in accordance with all applicable Israeli laws, unless, with respect to the taxes to be withheld, Sellers shall prior to the time of such payment provide Buyer with an approval from the Israeli Tax Authorities to act otherwise.

The Purchase Price shall bear VAT at the prevailing rates, which will be born and paid by Buyer to Sellers. Such VAT, for the entire amount of the Purchase Price, shall be paid to Sellers on the 13^th day of the calendar month following the Closing against receipt of a valid VAT invoice, unless prior to the Closing, Buyer shall provide Sellers with an approval from the Israeli VAT Authorities to act otherwise.

    3.6        Upon the consummation of the Closing, the Sellers shall have, as of the Cut-Off Date, no rights, of any nature, relating to or in connection with the Business and/or the Buyer, other than their holdings of the Consideration Shares and the rights attached to the Consideration Shares, as set out in the Buyer corporate documents, and those other rights as set forth herein.

        Without derogating from the generality of the above, Sellers undertake that following the consummation of the Closing and pursuant to the request of Buyer the Sellers, DH and Dimex Ltd shall not use in their name, or in any other name, form or business the name “Dimex”, and any of such entities that the word “Dimex” is currently part of its name shall change its name at Buyer’s first request and will issue a written confirmation to the Buyer in which it waives its/their right with respect to the name Dimex and transfer all its rights to such name to the Buyer. Buyer acknowledges that Sellers informed Buyer that currently Sellers has no capability to enforce this paragraph on Dimex Visual Systems (1996) Ltd. Seller in coordination with Buyer and at its request shall attempt to receive Dimex Visual System’s consent to the aforesaid, provided however that bona fide failure shall not be considered as breach of this Agreement.

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        Notwithstanding the above, Sellers shall be granted at the Closing, free of any charge, license to continue use the name “Dimex” for the exclusive purpose of fulfilling its obligation under this Agreement and/or assisting the Buyer, in each case as per Buyer’s request and approval in advance. Such license shall lapse upon written notice of Buyer, following which Sellers shall promptly take any action required to change their corporate name as aforesaid.

    3.7        The parties agree that the Purchase Price is subject to those specific adjustments detailed in Schedule 3.7 hereto attached. The parties shall determine the adjustments required within 45 days following the Closing, or within any such other period agreed upon by the parties. Following determination of the adjustment amount, the payments on account of the Purchase Price shall be adjusted in accordance with the principles specified in Schedule 3.7 herein.

    3.8        Within 30 days following the Closing the parties shall determine the amounts owed to each of them in connection with the operation of the Business between the Cut-Off Date and the Closing Date in accordance with the terms of this Agreement and in light of the understanding that any revenues, expenditures, receivables and payables in connection with the operation of Business during such intermediate period shall belong to Buyer. For the avoidance of doubt, Buyer shall invoice Sellers for liabilities accrued with respect to the Hired Personnel starting from the Recruiting Date (each term, as defined below) and until the Closing Date, and Sellers shall pay such invoice within 48 hours from the time such payments were actually made by Buyer. Such charges so invoiced shall be deemed part of the aforementioned expenditures.

        Payment of the respective amounts shall be made no later than 45 days following the Closing. Thereafter, in case a Party (the “Receiving Party”) shall receive a payment which upon receipt it is clear, to the Receiving Party, that under the terms of this Agreement said payment belongs to the other party, the Receiving Party shall transfer such amount to the other Party within 14 days. Once a month and not later than the 5^th day of each calendar month the parties shall determine the amounts owed to each of them in accordance with the provisions of this agreement, and any unpaid balance shall be paid to the relevant Party within 7 days from such monthly determination. For the purpose of the monthly determination and for a period of 18 months from the Closing Date, each Party shall provide the other Party with a report, no later than the 5^th day of each calendar month, detailing the amounts received and owed in connection with this Agreement.

        4. CLOSING.

    4.1.        Time and Place. The closing of the transactions contemplated by this Agreement (the “Closing”) shall be held at the offices of Amit, Pollak, Matalon & Co., NITZBA Tower, 19^th Floor, 17 Yitzhak Sadeh Street, Tel Aviv, 67775, Israel, at 11:00 a.m. local time on February 28^th, 2008 or on such other date and time mutually acceptable to all Parties (the “Closing Date”).

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    4.2        Delivery of Documents at Closing. At the Closing, the following Documents shall be delivered, and no document shall be deemed to have been delivered until all such required documents have been delivered:

4.2.1 The Sellers shall deliver, or procure the delivery, to the Buyer of the following documents:

a. A true and correct copy of resolutions of Sellers’ Board of Directors, approving this Agreement and the Transactions contemplated hereby;

b. A certificate, duly executed by an executive officer of each Seller, dated as of the date of the Closing, confirming that the representations and warranties made in Section 5 were true and correct in all material respects when made and are true and correct in all material respects on and as of the Cut Off Date and Closing Date, as though made on these Dates, and that each Seller has performed in all material respects all obligations required under this Agreement to be performed by it on or before the Closing;

c. Signed opinion of Shibolet & Co., Advocates, counsel to the Seller in the form to be attached hereto as Exhibits 4.2.1(c), dated as of the date of the Closing and addressed to the Buyer.

d. A duly executed confidentiality and non-compete agreement between the Buyer, each Seller, Gabi Jacobs, Dimex Ltd. and Dimex Holdings (1998) Ltd., to be attached hereto as Exhibit 4.2.1(d).

e. The consent of Bank Hapoalim, and the First International Bank to the sale of the Acquired Assets contemplated hereunder and to release their charges from the Acquired Assets and the consent of the State of Israel (The Investment Center) to the sale of the Acquired Assets by DHG; such lien discharges shall be in a form reasonably acceptable to the Buyer and its counsel;

f. A certificate duly executed by each employee of the Sellers, which Buyer intends to hire as its employee, confirming, among other issues that she/he has no claims whatsoever regarding his/her work with Seller and the receipt of all salary, payment in lieu of advance notice, severance and social payments and benefits up to the date of termination of such employees’ employment with Seller substantially in the form to be attached as Exhibit 4.2.1(f).

g. Such certificates of title or other instruments of assignment and transfer with respect to the Acquired Assets as the Buyer may reasonably request and as may be necessary to vest in the Buyer good and marketable title to all and ownership on all of the Acquired Assets, in each case not subject to any Encumbrance (as defined in Section 5.9).

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h. Those third party consents and assignments detailed in Exhibit 4.2.1(h), in a form to be agreed by the parties.

i. Notices from the Sellers, Dimex Holdings (1998) Ltd, an Israeli company No. 51-268566-0 (“DH”), and Dimex Ltd. to the Registrar of Companies informing the registrar about their respective resolutions to change their respective names to different names which do not include the word Dimex in a form to be agreed between the parties.

j. Confirmations from the Tax Authorities specifying the withholding tax rate, or the exemption from same, applicable to each Seller with respect to the Purchase Price to be paid by the Buyer under this Agreement, a copy of which attached as Exhibit 4.2.1(j);

k. Invoice for VAT purposes on the entire Purchase Price including for the Consideration Shares, unless waived pursuant to the provisions of Section 3.5.

l. The Sellers’ Audited Financial Statements for the fiscal year 2006 and reviewed financial statements for the 9 month period ending as of September 30, 2007, in both cases, in NIS, in English, in accordance with Israeli GAAP with notes including a note of reconciliation to US GAAP.

4.2.2 The Buyer shall deliver, or procure the delivery, to the Seller of the following documents:

a. A true and correct copy of resolutions of Buyer’s Board of Directors, approving this Agreement, the Transactions contemplated hereby and the issuance of the Consideration Shares pursuant to this Agreement;

b. Buyer shall pay Sellers the 1^st Installment by way of a banker’s check or as evidenced by a copy of a wire transfer in the amount of NIS 15,500,000. Wire transfers shall be made to the bank accounts details of which shall be provided by Sellers in writing prior to the Closing.

c. Buyer shall issue the Consideration Shares to DS and shall provide Sellers with a share certificate (or a copy of same as received by Buyer from its Transfer Agent) in DS’ name representing the Consideration Shares issued to DS, and a copy of the Shareholder Register of Buyer, dully signed by an executive officer of the Buyer, recording the Consideration Shares issued to DS hereunder.

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d. Signed opinion of Amit Pollak Matalon & Co., Advocates, counsel to the Buyer in the form to be attached hereto as Exhibits 4.2.2(d), dated as of the date of the Closing and addressed to the Sellers.

e. A certificate, duly executed by an executive officer of the Buyer, dated as of the date of the Closing, confirming that the representations and warranties of Buyer made in Section 6 were true and correct in all material respects when made and are true and correct in all material respects on and as of the Cut Off Date and Closing Date, as though made on these Dates, and that the Buyer has performed in all material respects all obligations required under this Agreement to be performed by it on or before the Closing.

    4.3.        Transactions as of Cut Off Date. At Closing, by delivery of all documents specified in Section 4.2 hereinabove, the sale, transfer and delivery to the Buyer of title to all and ownership on all of the Acquired Assets, in each case not subject to any Encumbrance (as defined in Section 5.9), shall be deemed to take place as of the Cut-Off Date.

        5. REPRESENTATIONS AND WARRANTIES OF THE SELLER. Acknowledging that the Buyer is relying on the representations and warranties set forth in this Section 5, each Seller hereby represents and warrants to the Buyer as follows:

    5.1.        Organization of Seller; Authority. Each of the Sellers is a corporation duly organized and validly existing under the laws of Israel, and has all requisite power and authority to own and hold its part of the Acquired Assets owned or held by it, to carry on the Business as such business is now conducted, and to execute and deliver this Agreement and the other documents, instruments and agreements contemplated hereby or thereby (collectively, the “Transaction Documents”) to which it is a party and to carry out all actions required of it pursuant to the terms of the Transaction Documents.

     5.2.        Corporate Approval; Binding Effect. Prior to the Closing Date, each Seller will obtain all necessary authorizations and approvals from its Board of Directors and its Shareholders required for the execution and delivery of the Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby. On the Closing Date each of the Transaction Documents will be duly executed and delivered by each relevant Seller.

     5.3.        Non-Contravention. The execution and delivery by each Seller of the Transaction Documents to which it is a party and the consummation by each Seller of the transactions contemplated hereby and thereby will not (a) violate or conflict with any provision of the Memorandum and Articles of Association of the relevant Seller, each as amended to date; or, to the Seller’s knowledge, except as set forth in Schedule 5.3 hereto (b) constitute a violation of, or be in conflict with, or constitute or create a default under, or, unless otherwise stipulated in Schedule 5.3, result in the creation or imposition of, any Encumbrance upon any of the Acquired Assets pursuant to (i) any agreement or instrument to which the Seller is a party or by which the Sellers or any of its/their properties (including any of the Acquired Assets) is bound or to which the Seller or any of such properties (including any of the Acquired Assets) is subject, or (ii) any statute, judgment, decree, order, regulation, ruling or rule of any court or governmental or regulatory authority, except with respect to (a) and (b) above, such violation which would not have a material adverse effect on the Seller or on the transactions contemplated herein.

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    5.4.        Governmental Consents. Except as set forth on Schedule 5.4, no consent, approval or authorization of, or registration, qualification or filing with, any governmental agency or authority is required for the execution and delivery by each Seller of the Transaction Documents to which it is a party or for the consummation by each Seller of the transactions contemplated hereby or thereby. Each Seller has and maintains, the permits listed on Schedule 5.4 hereto which include, all material licenses, permits and other material authorizations from all governmental authorities as to the best knowledge of the Sellers, are necessary for the conduct of the Business and/or in connection with the ownership or use of the Acquired Assets.

    5.5.        Financial Statements. The Sellers have delivered the following financial statements (the “Financial Statements”) to the Buyer, and they are attached as Schedule 5.5 hereto. The Financial Statements sets forth a true, correct and complete copy of the audited financial statement of the Sellers and for the fiscal year ended December 31, 2006 and of reviewed financial statements as of September 30, 2007 (collectively, the “Seller Financial Statements”). The Seller Financial Statements have been prepared in conformity with the Israeli generally accepted accounting principles (“GAAP”), applied on a consistent basis throughout the periods indicated therein. The Seller Financial Statements are consistent in all material respects with the books and records of the Seller and fairly present the financial position of the Seller as of the dates thereof and the results of operations and cash flows of the Seller for the periods shown therein, all as required under GAAP, subject, in the case of the unaudited financial statements only, to normal and recurring year end adjustments. No information has come to the attention of each Seller since such respective dates that would indicate that such financial statements are not true and correct in all material respects as of the dates thereof.

    5.6.        Absence of Certain Changes. Except as set forth on Schedule 5.6, since October 1^st, 2007, the Sellers have carried on their business only in the ordinary course, and there has not been (a) any material adverse change in the assets, liabilities, sales, income or business of each Seller or in its relationships with suppliers, customers or lessors, other than changes which were both in the ordinary course of business and have not been, either in any case or in the aggregate, adverse; (b) any acquisition or disposition by the Seller of any asset or property other than sales of inventory in the ordinary course of business; (c) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting, either in any case or in the aggregate, the Business or any of the Acquired Assets; (d) any mortgage, pledge (fixed or floating), lien, lease, security interest or other charge or encumbrance on any of the Acquired Assets; (e) any write-off of any right related to, or, in connection with the Business (f) any entry by the Seller into any material transaction in connection with the Business (except as set on Schedule 5.6), (g) any discharge or satisfaction of any lien or encumbrance related to or in connection with the Business or the Acquired Assets, except in the ordinary course of business.

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    5.7.        Litigation, Etc. Except as set forth on Schedule 5.7 hereto, no action, suit, proceeding or investigation is pending or, to its knowledge, threatened, relating to, connected with, or affecting any of the Acquired Assets or the Business, or which questions the validity of the Transaction Documents or challenges any of the transactions contemplated hereby or thereby, nor, to the best knowledge of the Seller, is there any basis for any such action, suit, proceeding or investigation.

    5.8.        Conformity to Law. Except as set forth on Schedule 5.8, to the best of their knowledge, the Seller has complied with, and is in compliance with all laws, statutes, governmental regulations applicable to the Business or the Acquired Assets and all judicial or administrative tribunal orders, judgments, writs, injunctions, decrees or similar commands applicable to the Seller and which pertain to the Business or any of the Acquired Assets (including any labor, environmental, occupational health, zoning or other law, regulation or ordinance) and Seller has not received any notice whereby any party or government agency claims Seller is not in compliance with any of the above except as would not have a material adverse effect on the Sellers, the Buyer, the Acquired Assets or on the transactions contemplated hereby. Except as set forth in Schedule 5.8 hereto, the Seller has not committed, been charged with, or, to their knowledge, been under investigation with respect to, nor does there exist, any violation of any provision of any applicable law or administrative regulation in respect of the Business or any of the Acquired Assets, except as would not have a material adverse effect on the Sellers, the Buyer, the Acquired Assets or on the transactions contemplated hereby.

    5.9.        Title to Acquired Assets. Each Seller is the lawful sole owner of and possesses all other rights in, and has good and valid record and marketable title to, all of the Acquired Assets, and to its knowledge, other than as described in Schedule 5.9. Each Seller has the full right to sell, convey, transfer, assign and deliver the Acquired Assets, without the need to obtain the consent or approval of any other party, other than the consents and approvals listed on Schedule 5.9. Except for liens described on Schedule 5.9 hereto which secure Indebtedness, all of the Acquired Assets (provided however that with respect to Assumed Contracts – only Sellers’ rights pursuant to such contracts) are entirely free and clear of any security interests, liens, attachments, claims (including claims of the Israeli government or any agency thereof), charges, options, mortgages, debts, leases (or subleases), conditional sales agreements, title retention agreements, encumbrances of any kind, defects as to title or restrictions against the transfer or assignment thereof (collectively, “Encumbrances”). Except as set forth in Schedule 5.9, all of the Equipment and Inventory are in good condition and repair (reasonable wear and tear excepted) and are adequate and sufficient to carry on the Business as presently conducted. At Closing and as of the Cut Off Date, the Sellers will convey the Acquired Assets to the Buyer by deeds, bills of sale, certificates of title and other instruments of assignment and transfer effective in each case to vest in the Buyer, and the Buyer will have, good and valid record and marketable title to all of the Acquired Assets (provided however that with respect to Assumed Contracts – only Sellers’ rights pursuant to such contracts), free and clear of all Encumbrances.

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    5.10.        Real Property; Safety, Zoning and Environmental Matters.

     (a)        The Sellers own no real property. DS leases its premises at 3 Tvuot Ha’aretz Street, Tel Aviv 69546, Israel, and DHG leases its premises at Kibutz Dafna (the “Real Property”) from Kibutz Dafna Aguda Haklahit Ltd., and Kvuzat Habealim Haresumim Shel Habinyan (Beit Mor), by proxy to Nischsei H.N. Ariel Nemanuyut Lemashkiey Hutz Ltd., respectively (the “Lessor(s)”) pursuant to a lease agreements dated January 1, 2007, and August 28, 2003 a true and correct copies of which has been provided to the Buyer (the “Lease Agreements”). The Lease Agreements together with the property management agreements relating thereto (detailed in Schedule 1.1(b) above) constitute the full and entire agreements relating to the Sellers’ lease of the Real Property. DS and DHG have fully complied with all of their material obligations, covenants and undertakings set forth in the Lease Agreements, and the Sellers reasonably believe that each of the Lessors has fully complied with all of its material obligations, covenants and undertakings set forth in the Lease Agreement. The Sellers have not received any notice that either the whole or any portion of the Real Property is to be condemned, requisitioned or otherwise taken by public authority. The Buyer shall be entitled to use the Real Property until the termination of each of the Lease Agreements, all subject to the terms and conditions of such Agreements, and further subject to the receipt of the consents required pursuant to Section 4.2.1(h).

     (b)        Except as set forth on Schedule 5.10:

    (i)        Each Seller is not in violation or alleged violation of any judgment, decree, order, law, license, rule, regulation or ordinance pertaining to health, safety or the environment in respect of the Business or relating to, or in connection with, any of the Acquired Assets, except as would not have a material adverse effect on the Sellers, Buyer, Acquired Assets or on any of the transactions contemplated hereunder (hereinafter “Environmental Laws”);

    (ii)        Each Seller has not received notice from any third party, including any federal, state or local governmental authority, (A) that any hazardous waste, any hazardous substance, any pollutant or contaminant or any toxic substance, oil or hazardous material or other chemical or substance regulated by any Environmental Laws (“Hazardous Substances”) which each Seller has generated, transported or disposed of has been found at any site at which any agency or other third party has conducted or has ordered that the Seller conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (B) that the Seller is or to its knowledge shall be a named party to any claim, action, cause of action, complaint, (contingent or otherwise) legal or administrative proceeding arising out of any third party’s incurrence of costs, expenses, losses or damages of any kind whatsoever related to, or in connection with, the release of Hazardous Substances;

    5.11.        Equipment. Schedule 1.1(a) hereto sets forth a complete and accurate list of all of the Equipment excluding items having a book or market value individually of less than $1,000, and includes all equipment and property owned by the Sellers used in the Business, with the exception of such excluded items.

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    5.12.        Inventories. The Inventories are fairly reflected on the books of account of the Sellers, stating items of Inventory at the lower of cost or market value in accordance with GAAP, consistently applied, with adequate allowance for excessive or obsolete inventories.

    5.13.        Insurance. Schedule 5.13 hereto lists all policies of fire, liability, workmen’s compensation, life, property and casualty and other insurance owned or held by the Sellers relating to, or connected with the Acquired Assets. Such policies of insurance are maintained with financially sound and reputable insurance companies, funds or underwriters and are of the kinds and cover such risks and are in such amounts and with such deductibles and exclusions as are consistent with customary business practice. All such policies (a) are in full force and effect, (b) are sufficient for compliance by the Seller with all agreements to which the Seller is a party in relation thereto, (c) provide that they will remain in full force and effect through the respective dates set forth in such Schedule. The Sellers is not in default in any material respects with respect to its obligations under any of such insurance policies and has not received any notification of cancellation of any such insurance policies.

    5.14.        Contracts. Schedule 5.14 sets forth a complete and accurate list of all contracts to which each Seller is a party or by which each Seller is bound with respect to any of the Acquired Assets, except contracts entered into in the ordinary course of business after the date hereof and prior to the Closing, which will be identified to the Buyer in writing prior to the Closing. As used in this Section 5.14, the word “contract” means and includes every agreement or understanding of any kind, written or oral, and specifically includes (a) contracts and other agreements with respect to the Acquired Assets with any current or former officer, director, employee, consultant or shareholder or any partnership, corporation, joint venture or any other entity in which any such person has an interest; (b) agreements with any labor union or association representing any employee whose employment duties relate to, or are connected with, the Business; (c) contracts and other agreements for the provision of services by the Seller related to, or connected with, the Business; (d) bonds or other security agreements provided by any party in relation to, or in connection with, the Business; (e) contracts and other agreements for the sale of any of the Acquired Assets other than in the ordinary course of business or for the grant to any person of any preferential rights to purchase any of the Acquired Assets; (f) joint venture agreements relating to, or connected with, the Acquired Assets or the Business or by or to which the Business or any of the Acquired Assets are bound or subject; (g) any contracts or other agreements with regard to Indebtedness relating to, or connected with, the Business; or (i) any other contract or other agreement whether or not made in the ordinary course of business. The Sellers have delivered to the Buyer true, correct and complete copies of all such contracts, together with all modifications and supplements thereto. Unless specifically stated otherwise on Schedule 5.14, each of the contracts listed on Schedule 5.14 hereto or any of the other Schedules hereto is in full force and effect, and to each Seller’s knowledge no party to any such contract has raised a claim that such contract is not in full force and effect, no party to any such contract indicated to Sellers a desire or a right to terminate such contract, each Seller is not in material breach of any of the provisions of any such contract, nor, to the knowledge of each Seller, is any other party to any such contract in material default thereunder, nor to Sellers’ knowledge does any event or condition exist which with notice or the passage of time or both would constitute a default thereunder. Each Seller has in all material respects performed all obligations required to be performed by it to date under each such contract. Subject to obtaining any necessary consents by the other party or parties to any such contract (the requirement of any such consent being reflected on Schedule 5.14), no contract includes any provision the effect of which may be to enlarge or accelerate any obligations of the Buyer to be assumed thereunder or give additional rights to any other party thereto or will in any other way be affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement.

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        5.15. Employment Matters.

     (a)        Schedule 5.15 hereto sets forth a full and accurate description, as of the date hereof, of the names, positions and ranks (if any), dates of commencement of employment, salaries and terms and conditions of employment, of all employees and officers of the Sellers , and the corresponding terms of engagement of sub- contractors which supply services to the Sellers in the ordinary course of business, that are primarily engaged in activities related to, or connected with, the Business. Except as set forth in Schedule 5.15 hereto, there is no person or entity (including “agents”, “distributors”, “independent contractors”, “consultants” or employees or manpower companies or other service providers) that may be deemed to be an employee of the Sellers who are engaged in activities related to, or connected with, the Business.

    (b)        To the Sellers’ knowledge, with respect to the employees listed on Schedule 5.15 hereto, individually and in the aggregate, no event has occurred and no condition or set of circumstances exists in connection with which the Sellers could be subject to any liability that could have an adverse effect on the Business or Acquired Assets, provided however that Buyer is aware that one of Seller’s employees is currently on maternity leave and can only be dismissed in accordance with applicable law.

    (c)        Except as set forth in Schedule 5.15 hereto, there is no labor strike, slowdown or stoppage pending (or any labor strike or stoppage threatened or contemplated) against or affecting the Seller, and there have been no disputes between the Seller and any number or category of employees listed on Schedule 5.15 hereto and there are no present circumstances to which the Seller is aware which are reasonably likely to give rise to any such dispute.

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    5.16.        Trademarks, Patents, Etc. Schedule 5.16 (1) hereto sets forth a complete and accurate list of all of the Sellers’ (i) trademarks, trade names, designs and patents; and (ii) the Software products of Sellers (except to the extent that they are third party’s off-the-shelf software), which are necessary for the operation of the Businesses as currently conducted (hereinafter collectively: “Seller’s I.P”). Except to the extent set forth in Schedule 5.16 (1), the Sellers own or have the sole, exclusive, unlimited and perpetual (subject to applicable law) right to use all Seller’s I.P., and have the right, without restrictions, to use all Seller’s I.P., used, and/or necessary for conducting the Business as presently conducted, and the consummation of the transactions contemplated hereby will not alter or impair any such right. Except as set forth in Schedule 5.16 (2), to their knowledge and without conducting any patent search, Sellers have not misappropriated any intellectual property of any third party, no claims have been asserted, and no claims are pending, by any person regarding the use of any Seller’s I.P. or challenging or questioning the validity or effectiveness of the Seller’s I.P. or any part thereof, and, to the knowledge of the Sellers (without conducting any patent search), there is no basis for such claim. The use of the Seller’s I.P. by the Sellers (and after the Cut-Off Date by the Buyer) in the ordinary course of the Business (as currently conducted) does not, and will not, to their best knowledge (without conducting any patent search), infringe on the rights of any person or third party. With respect to each item of Seller’s I.P. that the Sellers uses pursuant to a license, sublicense, franchise, agreement, or permission: (i) the license, sublicense, agreement, or permission covering the item is legal, valid, binding, enforceable, and in full force and effect; (ii) the license, sublicense, agreement, or permission will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the Closing, all subject to assignment thereof pursuant to the provisions of this Agreement; (iii) to Sellers’ knowledge, no party to the license, sublicense, agreement, or permission is in material breach or default, and no event has occurred which with notice or lapse of time would constitute a material breach or default or permit termination, modification, or acceleration thereunder; (iv) no party to the license, sublicense, agreement, or permission has repudiated any provision thereof; (v) the underlying item of Seller’s I.P. is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge against the Sellers; and (vi) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or, to the knowledge of Sellers is threatened which challenges the legality, validity, or enforceability of the underlying item of Seller’s I.P. The Sellers did not grant any sublicense or similar right with respect to any such license, sublicense, agreement, or permission, other than in the ordinary course of business.

    5.17.        Suppliers and Customers. Schedule 5.17 hereto sets forth the suppliers and customers of the Business as of the date hereof. Except as set forth on Schedule 5.17, during the last twelve (12) months no Material Supplier, as detailed in Schedule 5.17 or Customer of Material Importance to the Business (i.e. any customer whose business with Sellers in 2006 or in 2007 amounted to no less than NIS 500,000, excluding VAT) has cancelled or otherwise terminated, or threatened to cancel, decrease or otherwise to terminate, its relationship with the Sellers. Schedule 5.17 sets forth the volume of sales to each Customer of Material Importance in 2006 and 2007. The Sellers have no knowledge that any such Material Supplier or Customer of Material Importance intends to cancel or otherwise substantially modify its relationship with the Sellers or to decrease materially or limit its services, supplies or materials supplied to the Sellers, or its usage or purchase of the Sellers’ services or products, and the Sellers have not received any formal notice that the consummation of the transactions contemplated hereby will adversely affect the relationship with any such Customer of Material Importance.

    5.18.        Acquired Assets Complete. Except as set forth in Schedule 5.18, the Acquired Assets, when utilized with a labor force substantially similar to that currently employed by the Sellers who are engaged in the Business, are adequate and sufficient to conduct the Business as currently conducted by Sellers.

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        The Acquired Assets, constitute, collectively, in all material respects, all of the assets and rights used by the Sellers in the conduct of the Business, as well as all of the material rights and assets needed in order to conduct the Business in the manner conducted to date.

    5.19.        No Undisclosed Liabilities. Except to the extent (a) incurred in the ordinary course of business, or (b) described on any Schedule hereto, the Sellers have no material liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise (including as guarantor or otherwise with respect to obligations of others) related to, or in connection with, the Business or the Acquired Assets.

    5.20.        Taxes. The Sellers have duly filed with the appropriate government agencies all of the income, sales, use, employment and other Tax returns and reports required to be filed by them, to the extent that they are connected with the Business or any of the Acquired Assets. No waiver of any statute of limitations relating to Taxes relating to, or in connection with, the Business or any of the Acquired Assets has been executed or given by the Sellers. All Taxes, assessments, fees and other governmental charges upon any of the Acquired Assets, revenues, income and franchises in relation thereto with respect to any period ending on or before the Cut-Off Date have been paid, other than those currently payable without penalty or interest, except where failure to do so, would have a material adverse effect on the Sellers. The Sellers have withheld and paid all Taxes required to be withheld or paid in relation to, or connection with, the Business and/or the Acquired Assets, except where failure to do so, would not have a material adverse effect on the Sellers. To the Sellers’ knowledge, neither the Income Tax Authority of the State of Israel nor any other taxing authority is now asserting or threatening to assert against the Sellers any deficiency or claim for additional Taxes or interest thereon or penalties in relation thereto, or in connection therewith, or any adjustment that would have an adverse effect on the Business.

    5.21.        Broker. The Seller has not retained, utilized or been represented by any broker, agent, finder or intermediary in relation to, or connection with, the negotiation or consummation of the transactions contemplated by this Agreement.

    5.22.        Potential Conflicts of Interest. To the Sellers’ knowledge, no officer, director or shareholder of each Seller or of DH (a) engage, anywhere in the world, in any business organization that is engaged or becomes engaged in activities which are directly competitive with the Business or is an officer, director, employee or consultant of any Person which is a competitor, lessor, lessee, customer or supplier of the Seller; (b) owns, directly or indirectly, in whole or in part, any tangible or intangible property which the Sellers are using or the use of which is necessary for the Business; or (c) has any cause of action or other claim whatsoever against, or owes any amount to, the Sellers.

    5.23. and 5.24 intentionally reserved.

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    5.25.        Disclosure. No representation or warranty by the Sellers in this Agreement or in any exhibit, schedule, written statement, certificate or other document delivered or to be delivered to the Buyer pursuant hereto or in connection with the consummation of the transactions contemplated hereby contains or will contain any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements contained therein, not misleading or necessary in order to provide the Buyer with proper and complete information as to the identity and usability of the Acquired Assets. The Sellers have provided the Buyer with all material information requested by the Buyer and true and complete answers to those questions and inquiries raised by the Buyer.

    5.26.        Government Grant Programs. Subject to the provisions of Section 11.4 below and other than as set forth in Schedule 5.26, the Buyer does not purchase and does not assume any liability whatsoever, if any, which each Seller has, or shall have as a result of the implementation of the Transactions hereunder, including those due to any pending or outstanding grants, tax benefits, incentives and subsidies from the Government of the State of Israel or any agency thereof related or not, or connected or not with, the Business or the Acquired Assets.

    5.27        Schedules. The parties agree that any and all schedules called for under this Agreement and not provided on the date of execution hereof shall be provided until the Closing Date, which schedules shall reflect substantially the same information previously provided to the Buyer, with the required updates resulting from the ordinary course of business.

        6. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and warrants to the Seller as follows:

    6.1.        Organization of Buyer; Authority. The Buyer is a corporation duly incorporated and validly existing under the laws of the State of Israel. The Buyer has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out all of the actions required of it pursuant to the terms of such Transaction Documents.

    6.2.        Corporate Approval; Binding Effect. The Buyer has obtained all necessary authorizations and approvals from its Board of Directors required for the execution and delivery of the Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby. Each of the Transaction Documents to which the Buyer is a party has been duly executed and delivered by the Buyer and constitutes the legal, valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms, except as enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency or other laws affecting creditors’ rights generally or by general principles of equity.

    6.3.        Non-Contravention. The execution and delivery by the Buyer of the Transaction Documents to which it is a party and the consummation by the Buyer of the transactions contemplated hereby and thereby will not (a) violate or conflict with any provisions of the Memorandum and Articles of Association of the Buyer, each as amended to date; or to the Buyer’s knowledge (b) constitute a material violation of, or be in conflict with, constitute or create a default under, or result in the creation or imposition of any lien upon any property of the Buyer pursuant to (i) any material agreement or instrument to which the Buyer is a party or by which the Buyer or any of its properties is bound or to which the Buyer or any of its properties is subject, or (ii) to its knowledge, any statute, judgment, decree, order, regulation or rule of any court or governmental authority to which the Buyer is subject, other than any such violations, conflicts, defaults or rights that individually or in the aggregate have not had and would not be expected to prevents the parties from consummating the transaction under this Agreement.

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    6.4.        Governmental Consents. Other than as specified in Schedule 6.4 hereunder, no consent, approval or authorization of, or registration, qualification or filing with, any governmental agency or authority is required for the execution and delivery by the Buyer of the Transaction Documents to which it is a party or for the consummation by the Buyer of the transactions contemplated hereby or thereby and the Buyer undertakes to receive all such consent, approvals and authorizations or to make such filings as specified in such Schedule.

    6.5.        Broker. The Buyer has retained a broker, agent, finder or other intermediary in relation to, or in connection with, the negotiation or consummation of the transactions contemplated by this Agreement. Buyer shall pay said Broker’s fees at Buyer’s sole responsibility and expense.

    6.6        Information and Experience. Buyer confirms that it has reviewed and inspected such data provided to it by the Sellers regarding the Sellers as it deemed appropriate, and has been afforded the opportunity to ask questions and receive answers, information, documents and data regarding the Sellers and their business and is acquiring the Acquired Assets following such inspection. In addition, Buyer confirms that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Acquired Assets contemplated hereunder. The foregoing, however, does not derogate from the representations and warranties made under Section 5 to this Agreement.

    6.7        Disclosure. No representation or warranty by the Buyer in this Agreement or in any exhibit, schedule, written statement, certificate or other document delivered or to be delivered to the Sellers by Buyer pursuant hereto or in connection with the consummation of the transactions contemplated hereby contains or will contain any untrue statement of a material fact or omits to state a material fact required to be stated therein and necessary to make the statements contained therein not misleading.

    6.8        SEC Reports. Since January 1, 2006, the Buyer has filed all reports, schedules, forms, statements and other documents required to be filed by the Buyer as a foreign private issuer under the Securities Act and the Exchange Act (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis. As of their respective dates, and subject to any amendments or supplements in later filings, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The audited consolidated financial statements of the Buyer included in the SEC Reports as amended fairly present in all material respects the financial position of the Buyer and its consolidated subsidiaries as of and for the dates thereof and for the periods then ended.

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    6.9        Securities Act Exemption. Assuming the accuracy of Sellers’ representations and warranties herein, the offer and sale of the Consideration Shares are exempt from registration under the Securities Act and other applicable securities laws.

        7. REPRESENTATIONS AND UNDERTAKINGS REGARDING THE CONSIDERATION SHARES

    7.1        Information and Advice. Each Seller confirms that it has received or has had access to the information it considers necessary or appropriate to make an informed decision with respect to this Agreement and the Consideration Shares received by it hereunder. The Sellers further confirm that each has had an opportunity to ask questions and receive answers from the Buyer regarding the Buyer’s business, management and financial affairs and to obtain additional information (to the extent the Buyer possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the Sellers or to which the Sellers had access.

    7.2        Availability of Exemptions. The Buyer hereby represents to the Sellers that the Consideration Shares are being offered pursuant to an exemption or exemptions from registration requirements of Israeli and U.S. Federal and state securities laws. The Sellers understand that the Buyer is relying upon the truth and accuracy of each Seller’s representations, warranties, agreements, acknowledgments and understandings set forth herein in order to determine the applicability of such exemptions and the suitability of such Seller to receive the Shares.

    7.3        Legends. The Sellers acknowledges and agrees that certificates representing the Consideration Shares will contain one or more legends to the effect that transfer of such securitiesis prohibited except pursuant to registration under the Securities Act or pursuant to an available exemption from registration:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR PURSUANT TO ANY OTHER AVAILABLE EXCEPTION FROM SUCH REGISTRATION UNDER SAID ACT. IN ADDITION, THESE SHARES ARE SUBJECT TO A NO SALE COMMITMENT AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, BEFORE [6 months following the Closing Date] WITHOUT THE PRIOR WRITTEN CONSENT OF B.O.S. BETTER ON-LINE SOLUTIONS LTD. ANY PURPORTED SALE OR DISPOSITION IN CONTRIVANCE OF THE ABOVE SHALL BE DEEMED VOID AND HAVE NO EFFECT “

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    7.4        Restrictions on Transferability and Hedging.

    7.4.1        Each Seller understands that (i) the Consideration Shares have not been registered under the Securities Act, or under the laws of any other jurisdiction; (ii) such Consideration Shares are deemed to be “restricted securities” as defined in Rule 144 promulgated under the Securities Act, and cannot be sold, transferred or otherwise disposed of unless they are registered under the Securities Act and, where required, under the laws of other jurisdictions or unless an exemption from registration is then available; (iii) there is no registration statement on file with the SEC with respect to the Consideration Shares to be received by such Seller.

    7.4.2        Each Seller acknowledges that the Buyer will not register any transfer of Consideration Shares not made pursuant to registration under the Securities Act, or pursuant to an available exemption from registration.

    7.4.3        Each Seller acknowledges, agrees and covenants not to engage in hedging transactions with regard to the Consideration Shares offered pursuant to this Agreement.

    7.5        Offshore Transaction. Each Seller is not a “U.S. Person”, as such term is defined in Regulation S under the Securities Act, its principal address is outside the United States and it has no present intention of becoming a resident of (or moving its principal place of business to) the United States. Each Seller was located outside the United States at the time any offer to sell and any other action in connection with such offer and sale was made to it and at the time that the buy order was originated by the Sellers. The Consideration Shares are being acquired solely for such Seller’s own account, and in no event and without derogating from the foregoing, for the account or the benefit of a U.S. person.

     7.6        Investment Purposes. The Consideration Shares are being acquired for investment purposes. The Consideration Shares are not being purchased with a view to, or for sale in connection with, any distribution or other disposition thereof. Each Seller has no present plans to enter into any contract, undertaking, agreement or arrangement for any such resale, distribution or other disposition and it will not divide its interest in the Consideration Shares with others, resell or otherwise distribute the Consideration Shares in violation of U.S. federal or state securities laws or the Israeli securities Laws.

     7.9        No solicitation. At no time was the Seller presented with or solicited by any leaflet, public promotional meeting, newspaper or magazine article, radio or television advertisement or any other form of general advertising or general solicitation in connection with the Consideration Shares and the transaction contemplated hereby.

    7.10        Broker-Dealer. The Seller is not a broker-dealer, nor is it an affiliate of any broker-dealer.

    7.11        Disclosure. The representations and warranties of the Sellers contained in this Section 7 as of the date hereof and as of the Closing, do not contain any untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary to make the statements herein, not misleading. Each Seller understands and confirms that the Buyer will rely on the foregoing representations in effecting the issuance of the Consideration Shares hereunder.

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        8. CONDUCT OF BUSINESS AFTER CUT OFF DATE.

        Commencing on the Cut Off Date Buyer shall conduct the Business acquired hereunder. Therefore Seller covenants and agrees that from the Cut Off Date, except as otherwise specifically consented to or approved by the Buyer in writing:

    8.1.        Full Access. The Buyer shall have full access to all properties, books, records, licenses and sub-licenses, research and development agreements, vendor contracts and consulting agreements, contracts and documents of the Sellers relating to, or in connection with, the Business and/or the Acquired Assets, and the Sellers shall furnish or cause to be furnished to the Buyer and its authorized representatives all assistance and information with respect to the Acquired Assets and/or the Business as may be reasonably requested.

    8.2.        Carry on in Regular Course. From the Cut-Off Date and until the Closing Date each Seller shall assist Buyer to operate the Business and to carry on the Business diligently and substantially in the same manner as heretofore, in the ordinary course consistent with past practice and to maintain the Acquired Assets and Inventory in good operating condition and repair, and make all necessary renewals, additions and replacements thereto. The aforesaid does not derogate from the provisions of Section 1.4(c) above. Buyer shall bear all costs and expenses related to the Business and shall receive all payments (including accounts receivables accrued prior to Cut-Off Date) to the account specified in Schedule 8.2 herein, and shall be entitled to hold those amounts which belong to Buyer in accordance with the provisions of Section 1.1. Buyer shall be entitled to use any of Sellers’ trade names (including Dimex) as shall be determined between the parties. Upon Buyer’s request each Seller shall give its consent and approval to any Authority or Registrar in order to enable Buyer to register a company, or trade name, as the case may be, using the name Dimex or any similar name.

    8.3        Employees.

        Schedule 8.3 states the period of the advance notice that each of Sellers’ employees is entitled to receive pursuant to their employment terms with the relevant Seller. Seller represents that on Cut-Off Date Seller gave all their employees an advance notice notifying them that their employment with the Sellers shall terminate at the end of each employee’s respective advanced notice period and instructing them to work and to fulfill all their duties and obligations as Sellers’ employees during the advance notice period at the disposal and under supervision of Buyer.

        Buyer hereby represents that it is interested in employing the employees listed on Schedule 8.3A; those who have accepted its offer for employment engagement are referred to herein as the “Hired Personnel”. Buyer may elect to engage the consultant listed on Schedule 5.15.

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        Each Seller undertakes to retain all Hired Personnel until the lapse of each Hired Personnel’s advance notice period (the “Recruiting Date”), on which date such Hired Personnel employment with Sellers shall be terminated by the respective Seller and begin to be employed or retained by Buyer on terms to be agreed (but not less than similar to the terms enjoyed by such persons prior to the Cut Off Date (except with respect to options to purchase shares of the Buyer which, unless provided otherwise in the employment agreements of the particular Hired Personnel, shall not bind the Buyer and shall not be issued). Notwithstanding, Buyer is aware that one of Sellers’ employees is currently on maternity leave and can only be dismissed in accordance with applicable law.

        It is expressly agreed that the Sellers, jointly and severally, alone shall be liable for and shall pay to each of their respective Hired Personnel, on or before the Recruiting Date, any and all payments due to them with respect to the period up to the Recruiting Date (including, without limitation, payment of salary or consultancy fees, any advance notice payment (if applicable under the law or by any agreement), redemption of unused vacation days, any commission or bonus payments and any other liability, existing or contingent, to the extent applicable to such employee or consultant). The Sellers, jointly and severally shall fully indemnify and hold Buyer harmless, from and against any demand or claim brought against Buyer by any employee (including the Hired Personnel) with respect to its engagement by any Seller prior to the Recruiting Date, including by way of claiming for accumulation of rights based on alleged continuation of employment of any of the Hired Personnel by Buyer and Sellers together; provided, however, that Sellers’ liability under this Section 8.3 shall be limited in any case to such rights or amounts arising in connection with or as a result of such Hired Personnel’s employment with the Sellers on or prior to the Recruiting Date. Sellers shall notify the Hired Personnel of the transfer of the Acquired Assets to the Buyer and reasonably cooperate with Buyer in all respects relating to any actions to be taken pursuant to this section and in achieving an orderly transition.

The Buyer shall fully indemnify and hold Sellers harmless, from and against any demand or claim brought against any Seller by any Hired Personnel with respect to its engagement by Buyer after the Recruiting Date, including by way of claiming for accumulation of rights based on alleged continuation of employment of any of the Hired Personnel by Buyer and Seller together; provided, however, that Buyer’s liability under this Section 8.3 shall be limited in any case to such rights or amounts arising in connection with or as a result of such Hired Personnel’s employment with the Buyer after the Recruiting Date.

Seller will not take any action that is intended to interfere with Buyer’s efforts to retain any of the Hired Personnel.

During the 36-months period following the Closing, neither Seller, DH nor any affiliate controlled by or under the control of any of them (“First Party”), shall directly or indirectly solicit or encourage or employ any officer, employee or consultant of Buyer (including Hired Personnel) or any of its Affiliates or subsidiaries (“Second Party”) to leave its employment/engagement for employment/engagement by or with such First Party or any competitor of the Second Party.

        Sellers shall not, at any time during the three -year period immediately following the Cut-Off Date, directly or indirectly, own, manage, control or participate in the ownership, management or control of, any business which competes with the Buyer’s business as conducted as of Closing.

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    8.4.        Insurance. With respect to the Acquired Assets and Real Property and until the Closing Date the Sellers shall not terminate the insurance policies described on Schedule 5.13.

    8.5.        No Default. The Parties shall not do any act or omit to do any act, or permit any act or omission to act, which will cause a material breach of any contract, commitment or obligation of the Sellers or Buyer with respect to the Acquired Assets, or otherwise related to, or in connection with, the Business and the Sellers shall use their best commercial efforts to assist Buyer with the assignment of all the Assumed Contracts from Sellers to Buyer, in accordance with the provisions of Section 1.

    8.6.        Consents of Third Parties. The Sellers will employ their best commercial efforts to secure the consents, in form and substance reasonably satisfactory to the Buyer to the consummation of the transactions contemplated by this Agreement by each party to any of the Assumed Contracts and any governmental authority described in Schedule 5.4. Sellers shall not be liable for failure to obtain such consents and approvals by the Closing, provided they have complied with their obligation in this Section 8.6.

        9. CONDITIONS PRECEDENT TO BUYER’S OBLIGATIONS. The obligation of the Buyer to consummate the Closing shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (to the extent noncompliance is not waived in writing by the Buyer):

    9.1.        Representations and Warranties True at Cut-Off Date and Closing. The representations and warranties made by the Seller in or pursuant to this Agreement shall be true and correct at and as of the Cut-Off Date and Closing Date (subject to normal adjustments as a result of conducting the ordinary course of business until the Closing) with the same effect as though such representations and warranties had been made or given at and as of the Cut-Off Date and the Closing Date.

    9.2.        Compliance with Agreement. The Sellers shall have performed and complied with all of their obligations and covenants under this Agreement to be performed or complied with by each on or prior to the Closing Date.

    9.3.        Approvals. Buyer’s Board of Directors has approved the number of the Consideration Shares contemplated hereunder (in excess of the number of Consideration Shares previously approved by the Board) and Buyer has obtained all applicable regulatory approvals in connection with the issuance of the Consideration Shares (including, without any limitations, Tel-Aviv Stock Exchange, NASDAQ and Investment Center). Buyer undertakes to use best commercial efforts to obtain such required regulatory approvals by the Closing Date.

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        All corporate and other approvals in relation to, or connection with, the transactions contemplated by this Agreement and the form and substance of all certificates and other documents delivered hereunder shall be reasonably satisfactory in form and substance to the Buyer and its counsel and Sellers shall deliver to Buyer a true and correct copy of a resolution of the Board of Directors of each Seller, approving this Agreement and the transactions contemplated hereby.

    9.4.        No Litigation. No restraining order or injunction shall prevent the transactions contemplated by this Agreement and no action, suit or proceeding shall be pending or threatened before any court or administrative body: (a) in which it will be or is sought to restrain or prohibit or obtain damages or other relief relating to, or in connection with, this Agreement or the consummation of the transactions contemplated hereby or (b) relating to, or in connection with, any claim for damages against the Sellers which would have a material adverse implications on the transactions contemplated hereby.

    9.5        Consents of Third Parties. The Seller shall have obtained the consent, in form and substance satisfactory to the Buyer and the Buyer’s counsel, as required under Section 4.2.1(e) and (h) hereto.

    9.6.        Proceedings and Documents Satisfactory. All proceedings relating to, or in connection with, the transactions contemplated by this Agreement and all certificates and documents delivered to the Buyer which relate to, or are in connection with, the transactions contemplated by this Agreement shall be to the reasonable satisfaction in all respects to the Buyer and the Buyer’s counsel, and the Buyer shall have received the originals or certified or other copies of all such records and documents as the Buyer may reasonably request.

    9.7        Employment Agreement with Yuval Viner. Buyer shall enter into an employment agreement with Yuval Viner in a form to Buyer’s reasonable satisfaction.

        10. CONDITIONS PRECEDENT TO SELLER’S OBLIGATIONS. The obligation of the Sellers to consummate the Closing shall be subject to the satisfaction, at or prior to the Closing, of each of the following conditions (to the extent noncompliance is not waived in writing by the Seller):

    10.1.        Compliance with Agreement. The Buyer shall have performed and complied with all of its obligations and covenants under this Agreement that are to be performed or complied with by it at or prior to the Closing.

    10.2        Approvals. Buyer’s Board of Directors has approved the transactions contemplated hereunder. Buyer has obtained all applicable regulatory approvals (including, without any limitations, Tel-Aviv Stock Exchange, NASDAQ). All corporate and other approvals in relation to, or connection with, the transactions contemplated by this Agreement and the form and substance of all certificates and other documents delivered hereunder shall be reasonably satisfactory in substance to the Seller and its counsel and Buyer shall deliver to Seller a true and correct copy of a resolution of the Board of Directors of the Buyer, approving this Agreement and the transactions contemplated hereby.

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    10.3        Proceedings and Documents Satisfactory. All proceedings relating to, or in connection with, the transactions contemplated by this Agreement and all certificates and documents delivered to the Sellers which relate to, or are in connection with, the transactions contemplated by this Agreement shall be to the reasonable satisfaction in all respects to the Sellers and the Sellers’ counsel, and the Sellers shall have received the originals or certified or other copies of all such records and documents as the Sellers may reasonably request.

    10.4.        No Litigation. No restraining order or injunction shall prevent the transactions contemplated by this Agreement and no action, suit or proceeding shall be pending or threatened before any court or administrative body: (a) in which it will be or is sought to restrain or prohibit or obtain damages or other relief relating to, or in connection with, this Agreement or the consummation of the transactions contemplated hereby or (b) relating to, or in connection with, any claim for damages against the Buyer which would have a material adverse implications on the transactions contemplated hereby.

        11. CERTAIN COVENANTS AND ARRANGEMENTS.

    11.1.        Confidential Information. Subject to the occurrence of the Closing, each Seller and each of their respective officers, directors and shareholders hereby agree to keep in strict confidence any and all information of a confidential nature which is related to, or connected with, the Business and/or any of the Acquired Assets (“Confidential Information”), including, without limitation, financial information, customers, suppliers, sales representatives. Each Seller agrees and covenants not to use any Confidential Information for any purpose whatsoever, and not to disclose any Confidential Information to any third party, other than to the extent that such use or disclose are necessary in order to comply with the provisions of this Agreement. Notwithstanding the aforesaid, no provision of this Agreement shall be construed to preclude such disclosure of Confidential Information as may be required by court order or applicable law, provided that: (i) prior notice of such contemplated disclosure (including reasonable details relating thereto) is provided to the Buyer as early as practicably possible; and (ii) such disclosure is effected only to the minimum extent required. To the extent the Closing has not occurred, the above obligations regarding confidentiality shall apply, mutatis mutandis, to Buyer and to Sellers with respect to Buyer’s confidential information.

    11.2.        Non-Competition. Each Seller shall not: (i) engage, anywhere in the world, in any business organization that is engaged or becomes engaged in activities which are directly competitive with the Business, or (ii) divert to any competitor of the Buyer, BOScom or a subsidiary thereof any customer of the Buyer BOScom or a subsidiary thereof. This Section 11.2 shall apply during the period commencing upon the Closing Date and terminating upon the expiration of 60 months from the Closing Date.

        As used herein the following terms not otherwise defined have the following respective meanings:

        “Affiliate”: As applied to any Person (as defined in this Section 14), any Person controlling, controlled by or under common control with such Person.

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        “Control”: With respect to any Person, the direct or indirect ownership of more than 50% of the voting or income interest in such Person or the possession otherwise, directly or indirectly, of the power to direct the management or policies of such Person.

        “Person”: A corporation, an association, a partnership, a limited liability company, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency.

    11.3.        Enforceability. If at any time the provisions of Section 11.1 or Section 11.2 shall be determined to be invalid or unenforceable, by reason of being vague, unreasonable as to area, duration or scope of activity or similar reasons, the applicable Section shall be considered divisible and shall become and be immediately amended to only such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter; and it is hereby agreed that such Section as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included therein.

    11.4        Investment Center. DHG hereby warrants that it is an “Approved Enterprise” under the Law for Encouragement of Capital Investments, 1959, with respect to the following approved investment plans and corresponding certificate of approval: investment plan no. 99-1506-0-10553, and is in material compliance with the terms and provisions of such plan. As the Buyer is interested in assuming the rights and obligations of DHG under this plan as part of the transactions contemplated under this Agreement, the parties shall cooperate in order to receive any approvals required to be received from the Investment Center of the Israeli Ministry of Trade & Industry (“Investment Center”) for such transfer and assignment, to the extent possible (“Investment Center Approval”). Sellers shall bear all costs and expenses related to the assignment of its Approved Enterprise to the Buyer. Notwithstanding the aforesaid, DS and/or DHG shall be responsible for any breach by them of the terms and conditions of the aforementioned plan, including as a result of the transactions contemplated hereunder. It is hereby clarified that failure to obtain such approval shall not be deemed as a breach of this Agreement by DHG or by any Seller and shall not entitle Buyer to any remedies whatsoever.

        12. INDEMNIFICATION AND SET OFF RIGHTS.

    12.1.        Indemnity by the Sellers. Without derogating from any section herein imposing upon Seller a specific duty to indemnify Buyer which indemnity shall be subject to the provisions of this Section 12, the Sellers, jointly and severally, hereby agree to indemnify and hold the Buyer harmless from and with respect to any and all claims, liabilities, losses, damages, costs and expenses, including the reasonable fees and disbursements of counsel (collectively, the “Losses”), resulting from or arising out of any of the following:

(a) any breach by the Sellers, or any of them, of this Agreement (including the Schedules and Exhibits hereto);

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(b) any claim, liability, obligation or damage to Buyer with respect to the Excluded Liabilities.

(c) any falsity or inaccuracy of any of the representations and warranties of the Sellers, or any of them, contained in this Agreement, or in any of the Transaction Documents.

(d) any third party’s claim against Buyer of any nature whatsoever with respect to the Acquired Assets that occurred or accrued prior to the Cut-Off Date;

(e) any claim by a former employee of Sellers, or any of them, related to its employment with Sellers, or any of them.

Indemnity by the Buyer. Without derogating from any section herein imposing upon Buyer a specific duty to indemnify Sellers which indemnity shall be subject to the provisions of this Section 12, the Buyer hereby agrees to indemnify and hold the Sellers harmless from and with respect to any and all Losses, resulting from or arising out of any of the following:

(a) any breach by the Buyer of this Agreement (including the Schedules and Exhibits hereto);

(b) any claim, liability, obligation or damage to Sellers with respect to the Acquired Assets;

(c) any falsity or inaccuracy of any of the representations and warranties of the Buyer contained in this Agreement, or in any of the Transaction Documents;

(d) any claim by a former employee of Sellers, or any of them, related to its employment with Buyer or any of its subsidiaries.

    12.2.        Claims.

    (a)        Notice. A party seeking indemnification from the other party hereunder (the “Indemnified Party”) shall promptly notify the other party in writing (the “Indemnifying Party”) of any action, suit, proceeding, demand or breach (a “Claim”) with respect to which the Indemnified Party claims indemnification hereunder, provided that failure of the Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations under this Section 12 except to the extent, if at all, that such Indemnifying Party shall have been prejudiced thereby.

    (b)        Third Party Claims. If such Claim relates to, or is in connection with, any action, suit, proceeding or demand instituted against the Indemnified Party by a third party (a “Third Party Claim”), the Indemnifying Party shall be entitled to participate in the defense of such Third Party Claim. Within thirty (30) days after receipt of notice of a particular matter from the Indemnified Party, the Indemnifying Party may elect to assume the defense of such Third Party Claim, in which case only the Indemnifying Party shall have the authority to negotiate, compromise and settle such Third Party Claim, if and only if the following conditions are satisfied:

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    (i)        there exist no conflict of interest which makes separate representation by the Indemnified Party’s own counsel advisable; and

    (ii)        such Third Party Claim does not seek an injunction or other similar equitable relief against the Indemnified Party that if granted would adversely affect the Indemnified Party or any of its Affiliates.

    (c)        The Indemnified Party shall retain the right to employ its own counsel and to participate in the defense of any Third Party Claim, the defense of which has been assumed by the Indemnifying Party pursuant hereto, but the Indemnified Party shall bear and shall be solely responsible for its own costs and expenses relating to, or in connection with, such participation.

    (d)        Where the Indemnifying Party has assumed the defense of the claim in accordance with the above, the Indemnified Party shall not be entitled to settle or compromise such claim without the consent of the Indemnifying Party.

    (e)        No claim shall be settled or compromised by the Indemnifying Party without the written consent of the Indemnified Party (which consent shall not be unreasonably withheld), if such settlement or compromise requires the Indemnified Party to make any payment (other than the payment of money which the Indemnifying Party undertakes to pay in full) or to take or refrain from taking any action or enjoins the Indemnified Party or subjects it to other equitable relief that adversely affects the Indemnified Party, or subjects it to any potential criminal law, claim or liability.

    12.3        Limitation of Liability

    (a)        Notwithstanding anything to the contrary herein and except for fraud or intentional misrepresentation: (i) all representations and warranties of the Sellers hereunder and under any Transaction Document, shall remain in full force and effect for a period of eighteen (18) months from the Closing Date, whereupon such representations and warranties and the Sellers’ liabilities with respect thereto, under this Agreement and any law, whether in contracts, torts, restitution or otherwise, shall expire and be of no further force and effect; and (ii) the aggregate liability of the Sellers , jointly and severally, towards Buyer, or otherwise in connection with this Agreement and/or under any law, whether in contracts, torts, restitution or otherwise, in connection with a breach of any representation or warranty hereunder and under any Transaction Documents: (x) shall arise only for sums which exceed US $50,000, at which point claims may be made back to the first dollar of Losses; and (y) shall not exceed, in the aggregate, the Purchase Price paid, or to be paid to the Sellers hereunder; and (iii) in no event shall the Sellers, or the Buyer be liable for any punitive, indirect or consequential damages regardless of the form of action through which such damages are sought.

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    (b)        To the extent applicable, the provisions of this Section 12.3 shall also be deemed to constitute a separate written legally binding agreement among the parties for the purpose of Section 19 of the Israeli Limitation Law 5718-1958.

    (c)        (i) All representations and warranties of the Buyer pursuant to Sections 6.7 and 6.8 above , shall remain in full force and effect for a period of eighteen (18) months from the Closing Date, whereupon such representations and warranties and the Buyer’s liabilities with respect thereto, under this Agreement and any law, whether in contracts, torts, restitution or otherwise, shall expire and be of no further force and effect; (ii) the aggregate liability of the Buyer towards Seller, or otherwise in connection with this Agreement and/or under any law, whether in contracts, torts, restitution or otherwise in connection with a breach of any representation or warranty hereunder and under any Transaction Documents: (x) shall arise only for sums which exceed US $50,000, at which point claims may be made back to the first dollar of Losses; and (y) shall not exceed, in the aggregate, the Purchase Price paid, or to be paid to the Sellers hereunder, provided however that with respect to any Losses in connection with the Consideration Shares such amount shall not exceed the amount of NIS 3,829,000.

    12.4       Set Off

    (a)        The obligation of the Buyer to pay the Instalment payments on account of the Purchase Price shall not be subject to set-off, other than specifically provided in this Section 12.4.

    (b)        Without derogating from the aforesaid, subject to the limitations set forth in Section 12.3 and only in accordance with the procedure set forth in this Section 12.4, if the Buyer is entitled to claim Losses or is otherwise entitled to any amounts from Sellers hereunder, it shall be entitled to reduce such amounts and Losses from the last Instalment, but not more than NIS 3,000,000, which amount shall be held in accordance with the provisions hereof, provided that such amount reduced shall in no event be more than the aggregate amounts for which indemnification may be sought hereunder. The aforementioned set-off limitation shall not be deemed to limit the Buyer’s right to indemnity hereunder.

    (c)        If the Buyer desires to reduce the last Instalment by the amount of any amounts or Losses as provided above, Buyer shall so notify the Seller in writing to this effect, stating in such notice its claims for Losses, the basis for such claim and the amount it desires to reduce and shall pay the balance of the respective Instalment to the Seller.

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    (d)        Buyer will have to pay to Sellers the amount so reduced, only upon reaching an agreement with Sellers to both parties satisfaction or upon final decision of any competent court (and subject to such decision).

    12.5        Notwithstanding anything to the contrary hereunder, all remedies whatsoever sought by an Indemnified Party against an Indemnifying Party under this Agreement (whether under this Section 12 or under any other section herein), any Transaction Document and under any law, whether in contracts, torts, restitution or otherwise, shall be subject to the limitations in this Section 12, from and after the Closing, provided however that the Indemnified Party shall be entitled (i) to seek injunctive relief to enjoin the breach, or threatened breach, of any provision of this Agreement and (ii) to seek specific performance of the provisions of this Agreement.

        13. The Seller and the Buyer will use their reasonable best efforts to effect the Closing and to receive all consents and approvals required therefor.

Unless otherwise agreed in writing by the parties, this Agreement may be terminated if one or more of the conditions required to effect the Closing hereunder is not met by March 31^st, 2008, or any other later date to be agreed by the parties, provided that a party that caused the closing condition not to be met shall not be entitled to effect such termination.

        14. (Left blank intentionally)

        15. GENERAL.

    15.1        Whenever a representation is made “to the Seller’s knowledge” or is qualified by any similar expression, reference is made to the knowledge of the Seller, and the following Officers of Seller: Gabi Jacobs, Yuval Viner, Uzi Prizat, Oded Engel and Oshrit Dinor and each of them shall be deemed: to have made due and careful inquiries about the facts stated in such Representation, with the assistance (as the case may be) of any knowledgeable person within the Seller, before making such a representation.

        A legal entity (including any of the Parties as applicable) shall be deemed to have knowledge of a particular fact if any of the directors, executive officers or other executives or officers of the legal entity has knowledge or should reasonably have knowledge of that fact.

    15.2.        Expenses. Each party shall bear its legal fees and any other fees incurred by it in connection with the transaction hereunder, including in connection with the negotiations, due diligence and preparation of this Agreement.

    15.3.        Notices. All notices, demands and other communications hereunder shall be in writing or by written telecommunication, and shall be deemed to have been duly given if delivered personally or if mailed by certified or registered mail, return receipt requested, postage prepaid, or if sent by overnight courier, or sent by written telecommunication, as follows:If to the Buyer, to:

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B.O.S. Better Online Solutions Ltd.
20 Freiman Street
Rishon Lezion POB 198 75101, Israel

Attention: Chief Financial Officer
Facsimile:    (972) 3 954-1000

with a copy to:

Amit, Pollak, Matalon & Co.
NITSBA Tower, 17 Yitzhak Sadeh Street,
19^th Floor
Tel Aviv 67775
Attention: Shlomo Landress, Adv.

Facsimile: (972) 3 568-9001

If to the Seller, to:

Dimex Systems (1998) Ltd
Ha'kidma 63, Hertzliya
Facsimile:    (972) 9-9571714
Attn: Gabi Jacobs

With a copy to:
Gabi Jacobs
Ha'kidma 63, Hertzliya
Facsimile:    (972) 9-9571714

and to;

Shibolet & Co.
Museum Tower, 4 Berkowitz St.
Tel-Aviv, 64238 Israel
T: +972-3- 777-8290
F: +972-3- 777-8444
Attention: Ofer Manor, Adv.

Any such notice shall be effective (a) if delivered personally, when received, (b) if sent by reputable courier, the date of delivery by such courier, and (c) if sent by facsimile, when transmitted with written confirmation of transmission having been received.

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    15.4.        Entire Agreement. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings relating to the subject matter hereof and shall not be amended except by a written instrument hereafter signed by both of the parties hereto.

    15.5.        Governing Law. The validity and construction of this Agreement shall be governed by and construed in accordance with the laws of the State of Israel. Any dispute arising under or in relation to this Agreement shall be resolved in the competent court of Tel Aviv-Jaffa district only, and each of the parties hereby submits irrevocably to the exclusive jurisdiction of such court.

    15.6.        Sections and Section Headings. The headings of sections and subsections are for reference only and shall not limit or control the meaning thereof.

    15.7.        Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. Neither this Agreement nor the obligations of any party hereunder shall be assignable or transferable by such party without the prior written consent of the other party hereto; provided, however, that nothing contained in this Section 15.7 shall prevent the Buyer, without the consent of the Sellers from: (i) transferring any of the Acquired Assets held by it, or by any of its subsidiaries, to an Affiliate of the Buyer, as long as such Affiliate undertakes towards Sellers in writing to guarantee Buyer’s obligations hereunder; and (ii) assigning all of its rights and liabilities hereunder in the framework of a merger or a transaction for the sale of all or substantially all of Buyer’s assets, provided that the surviving or purchasing entity assumes in writing all of Buyer’s obligations hereunder and provides Sellers with reasonably sufficient assurances for the payment of the outstanding Purchase Price to Sellers.

    15.8.        Severability. In the event that any covenant, condition, or other provision herein contained is held to be invalid, void, or illegal by any court of competent jurisdiction, the same shall be deemed to be severable from the remainder of this Agreement and shall in no way affect, impair, or invalidate any other covenant, condition, or other provision contained herein.

    15.9.        Further Assurances. The parties agree, without any additional consideration, to take such reasonable steps and execute such other and further documents as may be necessary or appropriate to cause the terms and conditions contained herein to be carried into effect.

    15.10.        Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

    15.11.        Best efforts to Satisfy Closing Conditions. The Seller and the Buyer will use their best efforts to effect the Closing, as set forth herein. In no event will either party bear any liability whatsoever (whether vis-à-vis the other party or any third parties) in the event that it will elect not to consummate the transactions contemplated herein if one or more of the conditions to effect the Closing hereunder is not fully satisfied in a timely manner.

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    15.12.        Publicity. Except as is necessary for governmental notification purposes or to comply with applicable laws and regulations or to enforce its rights under this Agreement, and except as otherwise agreed to by the parties hereto in writing, the Sellers shall (a) keep the material terms of this Agreement confidential and (b) until the Closing the parties will coordinate together any public announcement relating to the transactions contemplated by this Agreement, including the text and the exact timing of any such announcement.

        The Sellers acknowledges that the Buyer is a public company traded on NASDAQ and on the TASE and is subject to strict reporting requirements. On request, Seller shall fully and timely provide the Buyer (in addition to the financial statements specified in Section 4.2.1(l)) with all information in their possession or control required by the Buyer to meet all reporting requirements, including without limitation any and all financial information and financial statements.

    15.13        Interpretation. Words such as “herein”, “hereinafter”, “hereof” and “hereunder” refer to this Agreement as a whole and not merely to a section or paragraph in which such words appear, unless the context otherwise requires. The singular shall include the plural, unless the context otherwise requires. Whenever the word “include”, “includes” or “including”appears in this Agreement, it shall be deemed in each instance to be followed by the words “without limitation.”

    15.14        Rules of Construction. The parties agree that they have participated equally in the formation of this Agreement and that the language and terms of this Agreement shall not be construed against any party by reason of the extent to which such party or its professional advisors participated in the preparation of this Agreement.

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        IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Agreement to be duly executed and delivered as of the date and year first above written.

B.O.S BETTER ONLINE SOLUTIONS LTD.


By:
——————————————
Name:
Title: DIMEX SYSTEMS (1988) LTD.


By:
——————————————
Name:
Title:

DIMEX HAGALIL LTD.


By:
——————————————
Name:
Title:

Intermec (Dimex Group) Ltd. hereby represents that pursuant to a merger agreement with DS, all of its rights, assets and activities in connection with the Business or the Acquired Assets have been transferred to DS, and hereby agrees to guarantee all of Sellers’ undertakings and obligations hereunder, and to the extent required to take any action in order to allow Sellers to comply with their obligations herein and effect the aforementioned transactions.

——————————————
By: ____________
Title: ____________

BOScom Ltd. and Dimex Hagalil Projects (2008) Ltd. (jointly and severally) agree to guarantee all of Buyer’s undertakings and obligations hereunder, and to the extent required to take any action in order to allow Buyer to comply with its obligations herein and effect the aforementioned transactions.

——————————————
By: ____________
Title: ____________

——————————————
By: ____________
Title: ____________

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Dimex Holdings (1998) Ltd agrees to guarantee all of Sellers’ undertakings and obligations hereunder up to 87% of the Purchase Price actually received by the Sellers under this Agreement.

——————————————
By: ____________
Title: ____________

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EX-4.11

Exhibit 4.11

Summary of Economic Terms

Lender: Bank Leumi Le Israel

	Credit line	Long term*
Principal	10,455,000	6,879,000
Loan currency	NIS	NIS
Period	revolving	3 years
Interest payment	monthly	quarterly
Principal payment	revolving	quarterly
Interest rate	P+1.75%	P+2%
Charges due to early repayment	0.05%	0.05%
One time commission	$ 64,000	$ 2,500

* As of June 30, 2008 no amounts were drawn under this loan.

Form of Request to Allocate a Credit in Israeli Currency (unlinked)

To: Bank Leumi le-Israel B.M.

_________________ Branch Date: _________________

Re: Request to allocate Credit in Israeli Currency (Unlinked)

1. Advance and amount of the Credit

        Please allocate to us a credit, /we confirm receipt of a credit* in the sum of NIS ______ (hereinafter: “the Credit”) in our account number ___________ maintained with yourselves (hereinafter: “the Credit Account”) and, if no such account as above presently exists with yourselves, please open for us an account in our name and allocate the Credit therein. The General Conditions for Opening an Account for Receiving Credits signed by us in your favor (hereinafter: “the Terms of Operation”), in addition to the additional conditions hereinafter contained, will apply to the Credit Account and to the Credit. Please credit our Account with yourselves, Account No. __________ (the “the Master Account”) with the amount of the Credit.

2. Term of the Credit

The Credit will be for a term of ___________ (the “Term of the Credit”). The date of advancing the Credit will be ____________ (the “Date of Allocation of Credit”).

3. Interest

(a) The unpaid balance of the Credit will bear interest based upon the Bank’s preference, on the daily balance or will bear interest on a different period, as will be customary in the Bank, commencing from the date the Credit is advanced until the full and actual payment thereof to the Bank. The interest will be calculated according to the number of days which have actually elapsed divided by 365 or 366, depending on the number of years in that relevant period.

(b) Fixed interest

If this request, is a request to allocate credit with a fixed interest, then the rate of interest on the unpaid balance of the Credit will be _____% a (the “Interest Rate)” and the adjusted interest will be _________% (the “Adjusted Interest”). Notwithstanding the mentioned in section 3(a), if it is agreed that the repayment shall be made in the Spitzer method, the interest shall be calculated, from the date the credit is advanced until the full and actual payment thereof to the Bank based upon 360 days in a year and 30 days in a month.

(c) Variable interest

1. If this request, is a request to allocate credit with a variable interest, then the rate of interest mentioned in paragraph (a) above will be an interest rate in an amount that is higher/lower than ______ % (the “Interest Spread”) which is higher/lower than ______% above the prime rate of interest as defined below.

For the purposes hereof “the prime rate of interest” means interest at the basic rate customary in the Bank from time to time in overdraft accounts in Israeli currency.

2. We have taken note that a change in the prime rate of interest in the Bank will lead to a change in the interest on the Credit, by a percentage identical to such change in the basic interest, or at the Bank’s option, by the same ratio whereby the basic rate of interest has been changed against the basic rate as it existed prior to such change. In the event of repayment (credit with variable interest) using the Spitzer method, then the interest shall be calculated as detailed in Section 3(a) and if any change occurs in the prime rate of interest on a day not being an interest payment day, the new interest rate will apply as from the immediately succeeding interest payment date following the date of the change, or on the date of the change of interest, at the option of the Bank.

3. We are aware that the interest of _________% (the “Initial Interest Rate”) shall be the interest that shall commence on the date of grant of the Credit until the change of the prime rate of the interest, as aforementioned.

4. For the avoidance of doubt, it is hereby stated that the Bank will be entitled, from time to time, to change the interest rate as aforesaid even with respect to amounts of the Credit which have already been allocated to us in the Credit Account.

4. Repayment of Principal and Interest

(a) We hereby undertake to repay the Bank the principal of the Credit together with the interest thereon in______ consecutive equal monthly installments in the sum of approximately _________________ each, on each ______ of every calendar month, commencing on _______________ and terminating on ____________(the “Repayment of Principal”).

(b) We hereby commit to repay the interest of the unpaid balance of Credit in _________ consecutive installments in the sum of approximately _________________ each, on each ______ of every calendar month, commencing on _______________ and terminating on ___________(the “Repayment of Interest”.

In case that the Interest shall be repaid in one installment, the Interest shall be added to the principal and shall compound interest from commencing on _______________ and terminating on _______ (the “Accumulation Period”), from the date of allocation of the Credit.

(c) If the credit shall be paid under the Spitzer method, then instead of the detailed in sections (a) and (b) above, we hereby commit to the Bank to repay the Bank, the principal together with the interest with respect to the unpaid balance of the Credit in equal monthly sequential installments, in ______ consecutive equal monthly installments in the sum of approximately _________________ each, on each ______ of every calendar month, commencing on _______________ and terminating on ____________(the “Repayment using Spitzer Method (Principal and Interest)”). Notwithstanding the stated in this section, the monthly payments may be unequal due to the calculation method, based upon the number of days as detailed in section 3(a).

(d) We are aware that the total repayment schedule which includes the exact amount of each payment will be provided to us soon after the allocation of the Credit and we that the amount that shall bind us is the one set forth the in the repayment schedule or if amended, as detailed in the amended repayment schedule.

In the event of a change in the interest rates as provided by paragraph 3(c) above, the amount of the unpaid balance of the Credit will be adjusted and the amounts of the installments changed accordingly so that the amounts of the installments will be equal from the date of the change until the next succeeding date of change. An amended repayment schedule will be given to us promptly after the date of the change.

5. Mode of repaying the Credit

On the date of payment of each amount on account of the principal of the Credit, principal, interest or other charges, please debit our Master Account as mentioned above for the purpose of discharging such amounts.

If the credit balance in the Master Account shall be insufficient to cover the amount, in whole or in part, please grant us a credit in the amount required to discharge such sum, either through the Master Account or through any other account, thereby debiting the Master Account or such other account.

We are aware and agree that if, at the time the Master Account or the other account is debited with the credit as aforesaid, the balance in such account will be a debit balance or become overdrawn as a result of such debiting, the credit will bear interest at the Customary Rate at such time according to the Terms of Operation of such account. We are aware that if the credit advanced to us as above exceeds the Credit facility previously authorized, then such credit will bear Interest at the Maximum Rate according to the Terms of Operation of such account.

We are aware that the interest that shall be debited to us in the Master Account or any other account, might be higher than one or more of the options as to Interest specified in the Terms of Operation. If it transpires, either before or after such debiting, that the state of the Account does not or did not enable a debit in such amount to be effected, and you decide that you do not wish for any reason to advance us a credit, or any legal impediment will exist to the debiting of the Account, you will be entitled to debit a special account to be opened in our name with such amount, and such special account will bear interest as provided by Clause 5 or Clause 13.5, titled “Deficiency Interest” of the Terms of Operation.

6. We shall not be entitled to repay the Credit (principal and interest) before the agreed upon Repayment Date, except if we have a legal right to do so, that may not be conditioned, or that the Bank agrees to do so in advance, in writing. The Bank shall be entitled to condition any such early repayment, with certain terms, including an early repayment commission, in the maximum amount legally allowed. It is hereby agreed that section 13(b) to the Israeli Pledge Law 1967, and any section that shall replace it, shall not apply to the early repayment of credit.

7. We approve that we have received a copy of this document.

Customers' signatures: ____________________    ____________________

Form of Request to Allocate a Credit Framework in Debitory Account (unlinked)

Bank Leumi le-Israel B.M.

Branch_____________________________________	Account No_____________
Date:______________

Request to Allocate a Credit Framework In Israeli Currency Account No _________
(hereinafter referred to as “the Account”)

1. The Request

We hereby request from Bank Leumi le-Israel B.M. (the “Bank”) the allocation of a credit framework in account no. _______ ( the “Credit Framework”) in an amount of _______ (the “Credit Framework Amount”) in accordance with the detailed in this Request and in the terms and conditions for operation of the Account, as modified or as will be modified in the future (the “Terms and Conditions of Operation”).

2. Term of the Credit

2.1 The date of advancing the Credit will be _______________ (“Date of Credit Advancement”). If the Date of the Credit Advancement will not be stated, the date shall be the date stated on the Bank notice regarding the advancement of the Credit. The end of the term of the Credit shall be __________________ (the “Credit Expiration Date”).

2.2 We request that at each Credit Expiration Date, the Credit Framework shall be renewed for an additional year (or another time period), at the terms that shall be in force at such renewal date, including without limitation with respect to the interest rate, rate of Allocation of Credit Commission and additional commissions, which shall be in force at the renewal date. Each renewal of the Credit Framework shall be subject to the receipt from the Bank, at least 10 days prior to the end of the existing term of the Credit, a written notice stating the Bank’s approval for such renewal, which shall include the new terms of the Credit framework.

For the avoidance of doubt, it is hereby clarified that nothing in this Request derogates the Bank’s right to not renew the Credit Framework in whole or in part, or to renew it for a period of less than a year and/or to decrease or annul, at any time, any Credit Framework, as described in the Terms and Conditions of Operation.

3. Interest

We have noted that subject to the Terms and Conditions of Operation and for so long as you do not notify us otherwise-

3.1 Interest Rate for Debit Balances in the Credit Framework

The rate of interest on debit balances in the Credit Framework will be a changing rate, equal to the interest at the basic rate customary in the Bank from time to time in overdraft accounts in Israeli currency (the “Prime Rate”), as shall be from time to time, with a margin of ________________ (the “Interest Rate for Debit Balances in the Credit Framework”).

3.2 Maximum Interest Rate on Debit Balances

The maximum interest rate of debit balances shall be a changing rate, based upon the highest interest rate ____________ (the “Interest Rate for Debit Balances”), in addition to the interest rate of _________ (the “Maximum Interest Rate for Debit Balances”).

3.3 Term of Interest Calculation and Repayment Dates

3.3.1. The interest mentioned in paragraphs 3.1 and 3.2 above shall be computed based upon the number of days that there was been a debit balance in the Account; and it will be paid by us or will be credited as debt in our Account, on the last business day of March, June, September and December each year.

4. Credit Allocation Commission

The credit allocation commission in respect of the Credit Framework, for each quarter, will be in the amount of or at the rate of ______% (the “Quarterly Credit Allocation Commission”) and will be paid by us or it shall be credited to the Account in advance at the time of the determination or increase of any Credit Framework and thereafter it will be paid by us or it shall be credited to the Account on the first business day of every January, April, July and October each year .

In cases that the Credit Allocation Commission shall be stated in percentages, the calculation of the commission shall be made by multiplication of the amount of the of the Credit Framework by the stated percentage and the number of days until the end of the term or the end of the quarter (the earlier of the two), divided by the number of days in the quarter.

Notwithstanding the above, the Bank may determine a minimum or maximum Credit Allocation Commission.

5. Unilateral Credit Framework

5.1 We agree that the Bank may, but will not be obliged, at its sole discretion, to provide us with a unilateral credit framework, in the Account, with out our request. If the bank provides us with such unilateral credit framework, it shall not be interpreted as the Bank’s agreement, to repeat this in the future or to renew all or part of the unilateral credit framework it has provided.

In any case that the Bank shall provide us with a unilateral credit framework, it shall be deemed part of the Credit Framework and the terms of this document and the Terms and Conditions of Operation shall apply.

5.2 The debit balances in the unilateral credit framework, if the Bank shall agree to it, shall bear a changing interest rate equal to the Maximum Interest Rate for Debit Balances, in the highest rate stated under the most recent agreed upon Credit scale.

5.3 The time period of the unilateral credit framework may be different than the one set for the Credit Framework herein.

5.4 The unilateral credit framework shall not bear a Credit Allocation Commission.

5.5 The Bank will provide us a notice with respect to the unilateral credit framework, close to the time of its bestowal.

6. Amendments

6.1 We are aware that the Bank may, from time to time, amend the interest rates mentioned herein or any component of them (including the margin rate or the Maximum Interest Rate for Debit Balances), the Credit Allocation Commission rate (including the minimum and maximum rates), the term of Credit and their way of calculation.

Notwithstanding the abovementioned, as the interest in based upon the Prime Rate, any change in the Prime Rate shall cause a similar change in the interest. All such changes shall also be applicable to the unilateral credit framework mentioned in paragraph 5, if such credit framework shall be provided.

6.2 Such amendment shall apply to all debit balances existing at the time of the amendment and to all debit balances existing thereafter.

6.3 The notice with respect to any amendment shall be provided as required under applicable law.

6.4 Notwithstanding the aforementioned, we are aware that there may be a change in a certain component of the interest before the Bank provides the Credit Framework, and in such case the interest rate shall apply to the debit balances shall be at the new rate at that time and not in the rates detailed herein, that is given only for information purposes.

7. We confirm that we received a copy of this document.

Customers’ signature ______________

EX-4.12

Exhibit 4.12

PROMISSORY NOTE (GRID)

New York, N.Y. December 4, 2007 $2,500,000 

        For Value Received Summit Radio Corp. promise(s) to pay to the order of BANK LEUMI USA (the “Bank”), at its offices at 564 FIFTH AVENUE, NEW YORK, NEW YORK, 10036, the principal sum of TWO MILLION AND FIVE HUNDRED THOUSAND Dollars (“Maximum Principal Amount”) or, if less, the aggregate unpaid principal sum of all loans made by the Bank, in its sole discretion, to the maker of this Note from time to time. Te principal sum of each such loan shall be payable no later then December 2, 2009.

        Within the limits of the Maximum Principal Amount, the maker may borrow, prepay, and re-borrow in the manner provided herein.

        Each loan shall bear interest (from the date of such loan) at a rate per annum which shall be equal to 0.5% per annum above the rate of interest designated by the Bank, and in effect from time to time, as its “Reference Rate”, adjusted when said Reference Rate changes. (The maker acknowledges that the Reference Rate may not necessarily represent the lowest rate of interest charged by the Bank to customers.)

        The Bank is hereby authorized to enter on the schedule attached hereto the amount of each loan and each payment of principal thereon, without any further authorization on the part of the maker or any guarantor of this Note, but the Bank’s failure to make such entry shall not limit or otherwise affect the obligations of the maker or any guarantor of this Note. In the event that any other Liabilities (as hereinafter defined) of maker to the Bank are due at any time that the Bank receives a payment from maker on account of this Note or any such other Liabilities of maker, the Bank may apply such payments to amounts due under this Note or any such other Liabilities in such manner as the Bank, in its discretion, elects, regardless of any instructions from maker to the contrary.

        The maker and each guarantor of this Note acknowledges and agrees that the use of this form of note is for their convenience, and there is no obligation on the part of the Bank to make loans to the maker whatsoever.

        Interest shall be computed on the basis of a 360-day year and shall be payable at the end of each month and at maturity. In no event shall interest exceed the maximum legal rate permitted for the maker.

        Each maker authorizes (but shall not require) the Bank to debit any account maintained by the maker with the Bank, at any date on which the payment of principal or of interest on any of the Liabilities is due, in an amount equal to any unpaid portion of such payment. If the time for payment of principal or of interest on any of the Liabilities or any other money payable hereunder or with respect to any of the Liabilities becomes due on a day on which the Bank’s offices are closed (as required or permitted by law or otherwise), such payment shall be made on the next succeeding business day, and such extension shall be included in computing interest in connection with such payment. All payments by any maker of this Note on account of principal, interest or fees hereunder shall be made in lawful money of the United States of America, in immediately available funds.

        All Property (as hereinafter defined) held by the Bank shall be subject to a security interest in favor of the Bank or holder hereof as security for any and all Liabilities. The term “Property” shall mean the balance of every deposit account of the maker with the Bank or any of the Bank’s nominees or agents and al other obligations of the Bank or any of its nominees or agents to the maker, whether now existing or hereafter arising, and all other personal property of the maker (including without limitation all money, accounts, general intangibles, goods, instruments, documents and chattel paper) which, or evidence of which, are now or at any time in the future shall come into the possession or under the control of or be in transit to the Bank or any of its nominees or agents for any purpose, whether or not accepted for the purposes for which it was delivered. The term “Liabilities” shall mean the indebtedness evidenced by this Note and all other indebtedness, liabilities and obligations of any kind of the maker (or any partnership or other group of which the maker is a member) to (a) the Bank, (b) any group of which the Bank is a member, or (c) any other person if the Bank has a participation or other interest in such indebtedness, liabilities or obligations, whether (i) for the Bank’s own account or as agent for others, (ii) acquired directly or indirectly by the Bank from the maker or others, (iii) absolute or contingent, joint or several, secured or unsecured, liquidated or unliquidated, due or not due, contractual or tortuous, now existing or hereafter arising, or (iv) incurred by the maker as principal, surety, endorser, guarantor or otherwise, and including without limitation all expenses, including attorneys’ fees, incurred by the Bank in connection with any such indebtedness, liabilities or obligations or any of the Property (including any sale or other disposition of the Property).

        Upon the happening, with respect to any maker or guarantor of this Note or any assets of any such maker or guarantor, of any of the following events: death of the maker or guarantor or any member of the maker or guarantor (if a partnership); the failure to furnish the Bank with any requested information or failing to permit inspection of books or records by the Bank or any of its agents; the making of any misrepresentation to the Bank in obtaining credit for any of them; dissolution (if a corporation or partnership); the making of a mortgage or pledge; the commencement of a foreclosure proceeding; default in the payment of principal or interest on this Note or in the payment of any other obligation of any said maker or guarantor held by the Bank or holder thereof or in the performance or observance of any covenant or agreement contained in the instrument evidencing such obligation; default in the payment of principal of or interest on any indebtedness for borrowed money owed to any other person or entity (including any such indebtedness in the nature of a lease) or default in the performance or observance of the terms of any instrument pursuant to which such indebtedness was created or is secured, the effect of which default is to cause or permit any holder of any such indebtedness to cause the same to become due prior to its stated maturity (and whether or not such default is waived by the holder thereof); a change in the financial condition or affairs of any of them which in the opinion of the Bank or subsequent holder hereof materially reduces his, their or its ability to pay all of his, their or its obligations; the suspension of business; the making of an assignment for the benefit of creditors, or the appointment of a trustee, receiver or liquidator for the maker or guarantor or for any of his, its or their property, or the commencement of any proceedings by the maker or guarantor under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute (including, if the maker or guarantor is a partnership, its dissolution pursuant to any agreement or statute), or the commencement of any such proceedings without the consent of the maker or guarantor, as the case may be, and such proceedings shall continue undischarged for a period of 30 days; the sending of notice of an intended bulk sale; the entry of judgments or any attachment, levy or execution against any of his, their or its properties shall not be released, discharged, dismissed, stayed or fully bonded for a period of 30 days or more after its entry, issue or levy, as the case may be; or the issuance of a warrant of distraint or assertion of the lien for unpaid taxes, this Note, if not then due or payable on demand, shall become due and payable immediately without demand or notice and all other debts or obligations or the makers hereof to the Bank or holder hereof, whether due or not due and whether direct or contingent and howsoever evidenced, shall, at the option of the Bank or holder hereof, also become due and payable immediately without demand or notice. After this Note becomes due, at stated maturity or on acceleration, any unpaid balance hereof shall bear interest from the date it becomes due until paid at a rate per annum 3% above the rate borne by this Note when it becomes due or, if such rate shall not be lawful with respect to the undersigned, then at the highest lawful rate. The liability of any party to commercial paper held by the Bank or holder hereof, other than the makers hereof, shall remain unaffected hereby and such parties shall remain liable thereon in accordance with the original tenor thereof. Each maker agrees that if an attorney is retained to enforce or collect this Note or any other obligations by reason of non-payment of this Note when due or made due hereunder, a reasonable attorneys’ fee shall be paid in addition, which fees shall be computed as follows: 15% of the principal, interest and all other sums due and owing to the Bank or holder or the reasonable value of the attorneys’ services, whichever is greater.

        This Note shall be governed by the laws of the State of New York and shall be binding upon the maker and the maker’s heirs, administrators, successors and assigns. The maker hereby irrevocably consents to the jurisdiction of any New York State or Federal court located in New York City over any action or proceeding arising out of any dispute between the maker and the Bank, and the maker further irrevocably consents to the service of process in any such action or proceeding by the mailing of a copy of such process to the maker at the address set forth below. In the event of litigation between the Bank and the maker over any matter connected with this Note or resulting from transactions hereunder, the right to a trial by jury is hereby waived by the Bank and the maker. The maker also waives the right to interpose any set-off or counterclaim of any nature. The Bank or any holder may accept late payments, or partial payments, even though marked “payment in full” or containing words of similar import or other conditions, without waiving any of its rights. No amendment, modification or waiver of any provision of this Note nor consent to any departure by maker therefrom shall be effective, irrespective of any course of dealing, unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

        The rights and remedies of the Bank provided for hereunder (including but not limited to the right to accelerate Liabilities of maker and to realize on any security for any such Liabilities) are cumulative with the rights and remedies of the Bank available under any other instrument or agreement or under applicable law.

        The undersigned, if more than one, shall be jointly and severally liable hereunder.

——————————————
(Name of maker)


Summit Radio Corp
——————————————

1008 TEANECK Road
——————————————

TEANECK 07666, New Jersey
——————————————

——————————————
(Address)

EX-11

Exhibit 11

Statement of Computation of Earnings per Share (in thousands)

Following is the data relating to the weighted average number of shares used in the computation of diluted earning (loss) per share:

	Year ended December 31, 2007		Year ended December 31, 2006
Weighted average number of shares used in the
computation of basic earning (loss) per share		8,651		6,675
Add: Net additional shares from the anticipated
exercise of stock options		3,132		118
Weighted average number of shares used in the
computation of diluted earning per share		11,783		6,793
Options which were not included in the computation
of diluted earning (loss) per share due to anti
dilutive effect		173		2,199

EX-12.1

Exhibit 12.1

Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.

I, Shmuel Koren, certify that:

1. I have reviewed this annual report on Form 20-F of B.O.S. Better Online Solutions Ltd. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 30, 2008

/s/ Shmuel Koren
——————————————
Shmuel Koren,
President and Chief Executive Officer

EX-12.2

Exhibit 12.2

Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.

I, Eyal Cohen, certify that:

1. I have reviewed this annual report on Form 20-F of B.O.S. Better Online Solutions Ltd. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 30, 2008

/s/ Eyal Cohen
——————————————
Eyal Cohen,
Chief Financial Officer

EX-13.1

Exhibit 13.1

Certification Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934.

        In connection with the Annual Report on Form 20-F of B.O.S. Better Online Solutions Ltd., a company organized under the laws of the State of Israel (the “Company”), for the period ending December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to such officer’s knowledge, that:

1. the Report fully complies, in all material respects, with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

By: /s/ Shmuel Koren
——————————————
Shmuel Koren
President and Chief Executive Officer
By: /s/ Eyal Cohen
——————————————
Eyal Cohen
Chief Financial Officer

Date: June 30, 2008

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement on Form F-3 (File No. 333-130048) and related prospectus and in the Registration Statements on Form S-8 (Nos. 333-136957, 333-110696, 333-100971 and 333-11650) of B.O.S Better Online Solutions Ltd. (“BOS”) of our report dated March 31, 2008, with respect to the consolidated financial statements of BOS, included in this Annual Report on Form 20-F for the year ended December 31, 2007.

Tel Aviv Israel
June 29, 2008 /s/ KOST, FORER GABBAY & KASIERER
KOST, FORER GABBAY & KASIERER
A Member of Ernst & Young Global

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference into the Registration Statement on Form F-3 and related prospectus of B.O.S Better Online Solutions Ltd. (“BOS”) (File No. 333-130048) and into the Registration Statements of BOS on Form S-8 (Nos. 333-136957, 333-110696, 333-100971 and 333-11650) of our report dated March 31, 2008, with respect to the consolidated financial statements of Lynk USA Inc., included in this Annual Report on Form 20-F for the year ended December 31, 2007.

/s/ ARIK ESHEL, CPA & ASSOC., PC
ARIK ESHEL, CPA & ASSOC., PC

June 26, 2008