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, 2006

OR

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

OR

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

Commission file number 013012

I.I.S. Intelligent Information Systems Limited

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Israel

(Jurisdiction of incorporation or organization)

33 Jabotinsky Street, Ramat Gan, Israel
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Title of Each Class	Name of Each Exchange On Which Registered
NA	NA

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Ordinary Shares, NIS 0.003 par value per share
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

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:

11,576,539 Ordinary Shares, par value NIS 0.003 Per Share

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

o Yes x No

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

o Yes x No

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

o Yes x No

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 statements the registrant has elected to follow:

o Item 17 x Item 18

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

x Yes o No

TABLE OF CONTENTS

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	2
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE	2
Item 3. KEY INFORMATION	2
Item 4. INFORMATION ON THE COMPANY	7
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS	18
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	23
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	30
Item 8. FINANCIAL INFORMATION	32
Item 9. THE OFFER AND THE LISTING	32
Item 10. ADDITIONAL INFORMATION	34
Item 11. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	51
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	52
Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	52
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	52
Item 15. CONTROLS AND PROCEDURES	52
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT	53
Item 16B. CODE OF ETHICS	54
Item 16C. PRINCIPAL ACCOUNTING FEES AND SERVICES	54
Item 16D. EXEMPTIONS FROM THE LISTING REQUIREMENTS AND STANDARD FOR AUDIT COMMITTEE	55
Item 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATES AND PURCHASERS	55
Item 17. FINANCIAL STATEMENTS	55
Item 18. FINANCIAL STATEMENTS	55
Item 19. FINANCIAL STATEMENTS AND EXHIBITS	55

i

PART I

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

        Not applicable.

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

        Not applicable.

Item 3. KEY INFORMATION

A. Selected Financial Data.

        The following selected financial data of the Company as of December 31, 2006 and 2005 and for the three years ended December 31, 2006, are derived from the Company’s audited financial statements which are included in this Annual Report and have been prepared in accordance with U.S. GAAP. The selected financial data as of December 31, 2003 and 2002 and for the years then ended have been derived from audited financial statements not included in this Annual Report and have also been prepared in accordance with U.S. GAAP. The Selected Financial Data set forth below should be read in conjunction with and are qualified by reference to Item 5 (Operating and Financial Review and Prospects), and the Financial Statements included elsewhere in this Annual Report.

        Since December 2000, as a result of the decrease of the Company’s interest in StoreAge Networking Technologies Ltd. (“StoreAge”) to below 50%, the Company’s and StoreAge’s operations are no longer reported on a consolidated basis and the Company’s investment in StoreAge is accounted for in accordance with the hypothetical liquidation method. Investments in affiliates are investments in companies held to the extent of 20% or more (which is not a subsidiary), in which the Company can exercise significant influence over operating and financial policy. As the Company has not guaranteed obligations and not otherwise committed to provide further financial support for any of the associated companies, the Company discontinued applying the equity method when the investment account was reduced to zero.

2

Statement of Operations Data (in thousands, except per share data):

	Year Ended December 31,
	2006			2005			2004			2003			2002
Sales revenues		--			--			--			--		$	62
Revenues from research and development
services to an associated company														145
Total revenues														207
Cost of sales														38
Cost of revenues from research and
development services to an associated company														51
Total cost of revenues														89
Gross profit														118
Research and
development costs														548
Selling and marketing expenses														49
General and administrative expenses	$	91		$	103		$	200		$	441			577
Impairment of goodwill														186
Non recurring income														(122	)
Operating loss		(91	)		(103	)		(200	)		(441	)		(1,120	)
Financial income (expenses)- net		17			(3	)		(4	)		(3	)
Other income		4,713									330
Income (loss) before equity in losses of associated
companies		4,639			(106	)		(204	)		(114	)		(1,120	)
Equity in losses of associated companies											(20	)		(1,250	)
Minority interest in losses of subsidiary
Net income (loss)	$	4,639		$	(106	)	$	(204	)	$	(134	)	$	(2,370	)
Earnings (loss) per share - basic and diluted	$	0.40		$	(0.01	)	$	(0.03	)	$	(0.01	)	$	(0.21	)
Weighted average number of shares (in thousands) - basic
and diluted		11,577			11,577			11,577			11,577			11,485

3

Balance Sheet Data (in thousands):

	At December 31,
	2006		2005			2004			2003		2002
Working capital	$	4,444	$	(191	)	$	(86	)	$	113	$	198
Cash and cash equivalents		4,705		41			93		$	133	$	397
Total assets		4,713		43			105		$	335	$	549
Short-term bank credits											$	1
Shareholders' equity (capital deficiency)	$	4,447	$	(192	)	$	(86	)	$	118	$	252

B. Capitalization and Indebtedness.

        Not applicable.

C. Reasons for the Offer and Use of Proceeds.

        Not applicable.

D. Risk Factors.

        An investment in the Company involves a high degree of risk. The following risk factors should be considered carefully in evaluating an investment in the Company.

        Our contemplated merger with Witech Communications Ltd contains various risks. We have no operations and we are contemplating a merger with Witech Communications Ltd., an Israeli company (“Witech”), engaged in the development, sale, operation and support of wireless video transmission systems for use on roller coasters and thrill rides in amusement parks as well as other moving attractions. We are still conducting financial and legal due diligence investigations with respect to Witech and our board of directors and shareholders have no yet approved the merger. By June 30, 2007 we provided $2,350,000 in loans to Witech and we provided an additional loan of $650,000 to Witech during July 2007 and an additional loan of $200,000 during August 2007. There can be no assurance that the merger will be approved or consummated. If the merger is not consummated, Witech may have difficulty in repaying the loans provided by us and, if Witech is in default, we may not be able to recoup our loans through exercise of the charge on Witech’s assets. Our management and resources are currently focused almost entirely on due diligence of Witech and monitoring Witech’s business and development. In the event that the merger with Witech is not consummated for any reason, we will have to spend time and management resources in locating another suitable business opportunity.

        The merger, if consummated, will result in an immediate dilution to our existing shareholders as the shareholders of Witech will receive 50% of our issued and outstanding shares following the merger. Witech’s business is subject to various risks such as rapid technological changes in technology, competition, need for substantial working capital, dependence on amusement park seasonality, risks relating to expansion of its business and international operations, risk of lawsuits and liability and dependence on relationships with a relatively small number of companies who own and operate amusement parks worldwide.

        We have a history of substantial recurring operating losses and have no current prospects of revenues. We lost approximately $106,000 during the year ended December 31, 2005 and $204,000 during the year ended December 31, 2004. During the year ended December 31, 2006 we had an operating loss of $74,000, but showed a net income of $4,639,000 due to the sale of our holdings in StoreAge. Our operating costs have increased in 2007 due to the termination of our voluntary liquidation proceedings in April 2007. We currently have no assets other than a limited amount of cash and our ability to achieve any future revenues and to generate profits or gains depends entirely on our ability to find an attractive business to acquire or to merge into us.

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        We have very limited cash resources and any additional raising of capital may lead to significant dilution. If the merger with Witech is consummated, we anticipate that we will have to raise additional financing to grow the business in the last quarter of 2007 or the first quarter of 2008. If the merger with Witech is not consummated, we will have to find other business opportunities that will also require us to raise additional financing. Any additional financing may not be available when required or at acceptable terms and may result in significant dilution to our shareholders. If financing is not available when required or is not available on acceptable terms, Witech may be unable to take advantage of business opportunities or respond to competitive pressures.

        Anti-takeover provisions could negatively impact our shareholders. Provisions of Israeli law may delay, prevent or make difficult an acquisition of our Company, which could prevent a change of control and therefore depress the price of our stock. Israeli corporate law regulates mergers and acquisitions of shares through tender offers in certain circumstances, requires special approvals for transactions involving significant shareholders and regulates other matters that may be relevant to these types of transactions.

        Because our board of directors is classified, it could hinder a merger, proxy contest or tender offer, whether or not they would be beneficial to our shareholders. The classification of our board of directors could delay or impede the removal of incumbent directors and could therefore complicate a merger, tender offer or proxy contest involving us, even if such events would be beneficial to the interests of our shareholders, or could discourage a third party from attempting to acquire control of the Company.

        A substantial number of our shares can be sold in the future under Rule 144, which could lower the price of our shares. Existing shareholders may sell Ordinary Shares pursuant to Rule 144 promulgated under the Securities Act of 1933, or otherwise. Such sales could adversely affect the price of the Ordinary Shares. We cannot predict the effect that future sales of the Ordinary Shares, or the availability of the Ordinary Shares for future sales, will have on the market price of the Ordinary Shares. Prevailing market prices for the Ordinary Shares could drop if substantial amounts of the Ordinary Shares are sold, or if others perceive that such sales could occur.

        The delisting of our Ordinary Shares from the Nasdaq SmallCap Market has decreased the liquidity and increased the volatility of our Ordinary Shares. Our Ordinary Shares were delisted from the Nasdaq SmallCap Market effective January 23, 2003 and currently trade in the over-the-counter market. The delisting of the Company’s Ordinary Shares from The Nasdaq SmallCap Market has materially and adversely decreased the liquidity and market price of the Ordinary Shares, and may increase both volatility and the “spread” between bid and asked prices of the shares.

        Our share price may be volatile. The market price of our Ordinary Shares may fluctuate following the announcement of financial results or new product introductions by Witech or its competitors or other matters such as military, political or economic developments in the Middle East and the market for technology stocks generally.

        Our financial results may be adversely affected by inflation and currency fluctuations. Since our functional currency is the U.S dollar and we report our financial results in dollars, fluctuations in rates of exchange between the dollar and non-dollar currencies (including the NIS) may have a material adverse affect on our results of operations. We do not currently engage in any currency hedging transactions intended to reduce the effect of fluctuations in foreign currency exchange rates on our results of operations. We cannot guarantee that we will not enter into such transactions in the future or that such measures will adequately protect us from serious harm due to the impact of inflation in Israel.

        Our U.S. investors could suffer adverse tax consequences if we are characterized as a passive foreign investment company.

        Based on our current and projected income, assets and activities, we believe that, until we complete a merger with Witech or another operating business, we may be considered a passive foreign investment company (“PFIC”) We would be a PFIC if either (i) 75% or more of our gross income is passive income, or (ii) at least 50% of the average value of all of our assets for the taxable year produce or are held for the production of passive income. For this purpose, passive income includes dividends, interest, royalties, rents, annuities and the excess of gains over losses from the disposition of assets which produce passive income. If we were determined to be a PFIC for U.S. Federal income tax purposes, highly complex rules would apply to U.S. Holders owning Ordinary Shares. Accordingly, shareholders are urged to consult their tax advisors regarding the application of such rules. Additionally, our U.S. shareholders should review “Item 10. Additional Information – Taxation- U.S. Federal Income Tax Considerations-Passive Foreign Investments Companies” for a more detailed description of the PFIC rules and how they may affect their ownership of our Ordinary Shares.

5

Risk Factors Relating to Our Operations in Israel

        Conducting business in Israel entails special risks. We are incorporated under the laws of, and our executive offices and research and development facilities, and those of Witech are located in, the State of Israel. Although most of Witech’s sales are made to customers outside Israel, it is nonetheless directly affected by the political, economic and military conditions affecting Israel. Any of Witech’s manufacturing operations would be heavily dependent upon components imported from outside of Israel. Any major hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could have a material adverse effect on our business, financial condition and results of operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, as well as incidents of civil unrest. During the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. This conflict involved missile strikes against civilian targets in northern Israel that resulted in economic losses. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could adversely affect our operations. Since September 2000, terrorist violence in Israel has increased significantly and negotiations between Israel and Palestinian representatives have effectively ceased. The establishment of a government in the Palestinian Authority in early 2006 by representatives of the Hamas militant group has created additional unrest and uncertainty in the region. We can give no assurance that security and political conditions will not have an impact on our business in the future. Hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could adversely affect our operations and could make it more difficult for us to raise capital.

        Anti takeover provisions could negatively impact our shareholders. Some of the provisions of Israeli law could:

— discourage potential acquisition proposals;

— delay or prevent a change in control over us; and

— limit the price that investors might be willing to pay in the future for our Ordinary Shares.

Generally, under Israeli corporate law, a merger must be approved by the board of directors and the shareholders of each of the merging companies. If the share capital of the non-surviving company consisted of more than one class of shares, the approval of each class is also required. In certain cases, court approval is also required. Under the Companies Law, a merger may be completed only after 50 days have elapsed from the date all the necessary approvals and the merger proposals have been submitted to the Israeli Companies Registrar and at least 30 days have passed from the shareholders approval of each of the merging companies. The Companies Law also provides that an acquisition of shares of a public company must be made by means of a tender offer if, as a result of such acquisition, the purchaser would become a 25% or more shareholder of the company. This rule does not apply if there is already another 25% shareholder of the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of tender offer if, as a result of the acquisition, the purchaser would become a 45% shareholder of the company, unless someone else already holds a majority of the voting power of the company. These rules may not apply if the acquisition is made by way of a merger. The requirements of Israeli corporate law generally make these forms of acquisition significantly more difficult than under United States corporate laws. Other potential means of acquiring a public Israeli company might involve significant obstacles, such as a requirement for court approval for the acquisition. In addition, a significant body of case law has not yet developed with respect to many aspects of the new Companies Law. Until this happens, uncertainties will exist regarding its interpretation.

6

Service and enforcement of legal process on us and our directors and officers may be difficult to obtain. Service of process upon our directors and officers and the Israeli experts named herein, all of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore, all of our assets, and all of our directors and the Israeli experts named in this annual report are located outside the United States, any judgment obtained in the United States against us or these individuals or entities may not be collectible within the United States. There is doubt as to the enforceability of civil liabilities under the Securities Act and the Securities Exchange Act in original actions instituted in Israel. However, subject to certain time limitations and other conditions, Israeli courts may enforce final judgments of U.S. courts for liquidated amounts in civil matters, including judgments based upon the civil liability provisions of those acts. If a foreign judgment is enforced by an Israeli court, it generally will be payable in Israeli currency. Judgment creditors must bear the risk of unfavorable exchange rates.

Item 4. INFORMATION ON THE COMPANY

A. Entry into and Exit from Voluntary Liquidation

        As of December 31, 2003 we no longer engaged in any operational business activity other than managing our minority holdings in StoreAge and Enargis. On July 29, 2004 approximately 96% of our shareholders present and voting at a general meeting of shareholders, approved our voluntary liquidation and the appointment of Messrs. Robi Hartman and Aharon Jacobowitz as our joint liquidators. As of July 29, 2004 we had approximately $200,000 in cash and short-term investments and no foreseeable prospects of income and believed that it was in our best interests and those of our shareholders not to use our remaining cash to pay legal, auditing, listing fees, director fees, to maintain directors and officers liability insurance or for other ongoing company expenses which could be avoided or reduced by voluntary liquidation, without harming our ability to realize in the future the value of our minority holdings in StoreAge and Enargis. Our only remaining purpose was to achieve the greatest possible return on these assets and at that time believed that the realization value of such assets was not attractive. Consequently, we believed that it would be beneficial to us and our shareholders to continue to hold those assets until an attractive exit alternative presents itself and our voluntary liquidation would allow the Company to continue to manage this investment at the lowest possible cost until such time. Without voluntary liquidation, the financial resources of the Company would have been depleted by the end of 2004 or by early 2005. In addition, due to its financial situation, it had not been able to retain most of its directors or to locate new directors in order to comply with applicable legal requirements.

         The Board of Directors carefully reviewed our business affairs and in June 2004, all the directors were of the opinion that we could pay our debts within twelve months from the commencement of the voluntary liquidation. This was in part due to the fact that the directors and Mr. Robi Hartman, our current Chairman of the Board of Directors and CEO, who was not paid any compensation by us since April 2003 agreed that this compensation would be paid only from receipt of proceeds from the sale/exit of the Company’s holdings in StoreAge or Enargis or from raising additional financial resources. These payments were made in May of 2007.

        In June, 2004 all our directors of the Company filed the appropriate affidavit of solvency with the Israeli Registrar of Companies and, consequently, the voluntary liquidation was performed by the liquidators without court intervention.

        For a description of the fees payable to the liquidators, see Item 6. Directors, Senior Management and Employees - B. Compensation.

7

        Under Israeli law, upon approval of the voluntary liquidation by our shareholders no transfer of shares was permitted without the consent of the liquidators.

        In November 21 2006 LSI Logic Corporation acquired all the outstanding shares of StoreAge for cash and we received $5,416,692 in cash from the proceeds of such sale, of which $703,793 is being held in escrow according to an agreement between LSI Logic Inc. and all former holders of StoreAge securities for 18 months to satisfy any possible future claims.

The liquidators of our company proposed the following two options to our shareholders for consideration at an annual general meeting of shareholders held on April 17, 2007:

1. To terminate our voluntary liquidation and to thereby allow our executive management to seek to find and, subject to approval by our board of directors and shareholders in accordance with Israeli law, combine with another business enterprise in order to capitalize on our status as a publicly–traded company in the United States securities markets having some available cash, and thereby potentially increase our share price and possibly increase shareholder value; or

2. To complete the voluntary liquidation and distribute the remaining cash, less expenses, to all our shareholders as a liquidation dividend. In this scenario, each shareholder will have received the gross amount of approximately $0.42 less additional expenses per share, and less any applicable withholding taxes and assuming that the Company will receive the full $703,793 held in escrow. Since $703,793 of the our funds from the sale of its shares in StoreAge will be held in escrow until May 2008, we would have to continue the liquidation process (at an additional expense) for another 14 months at least.

        The liquidators proposed that the shareholders consider the first alternative and have reviewed certain potential businesses for this purpose. In the opinion of the liquidators, the most promising proposal received to date is a possible merger with Witech. Our shareholders resolved almost unanimously at our shareholders meeting held on April 17, 2007 to terminate our liquidation proceedings and these proceedings were terminated effective as of that date.

B. History and Development of the Company.

        We were incorporated in Israel on January 28, 1980.

        Until early 1999, we were engaged in the development, manufacture, marketing and service of data communication and intelligent peripheral products targeted at the International Business Machines (“IBM”) midrange, IBM mainframe and open systems computing environments. In late 1998, the Company implemented a restructuring plan (the “Restructuring”) which resulted in the disposition of most of the assets of the Company, substantial changes in the Company’s structure and a focus exclusively on storage area networking (“SAN”). For information regarding our products prior to completion (in early 1999) of the Restructuring, please refer to our Annual Report on Form 20-F for the fiscal year ended December 31, 1997.

        From 1999 through 2003 we engaged in the following transactions:

– In January 1999, StoreAge Networking Technologies Ltd., an Israeli company, (“StoreAge”) was organized as a wholly-owned subsidiary of IIS and commenced development and marketing of products based on its SAN Virtualization technology.

– In January 1999, we divested ourselves of our 62.3% equity interest in NetWiz Ltd., an Israeli development-stage company (“NetWiz”). In the transaction, it transferred its entire interest in NetWiz to a non-affiliated third party and such non-affiliated third party assumed all liabilities associated with such interest. The divestiture required us to expend $945,000. Net gain realized as a result of the sale of NetWiz amounted to $616,000.

8

– In February 1999, we disposed of our networking products and network integration services division, which was comprised of Adanet Communications, Ltd. (“Adanet”), an Israeli company which we acquired in June 1994, and I.I.S. Computer Maintenance and Services (1983) Limited (“I.I.S. Maintenance”), an Israeli company. We realized net proceeds of $1.506 million and net gain of $175,000 as a result of the sale of Adanet and I.I.S. Maintenance.

– In March 1999, we sold most of the assets and the buyer assumed most of the liabilities of our Decision Data Division (“Decision Data”), which comprised all of our United States, United Kingdom and German operations. We realized net proceeds of $2.487 million and net gain of $205,000 as a result of the sale of Decision Data.

– During November 2000, we acquired the assets of Eastek Embedded Systems (Meitav) Ltd. (“Eastek”), a private Israeli software company, to enhance our R&D capabilities in order to develop storage networking solutions for the SAN market with a focus on storage over Internet Protocol (IP) applications.

– In December 2000, we completed a private placement of $3 million in the issuance of convertible secured debentures and warrants to qualified investors. The net proceeds from the offering were used to fund our investment in StoreAge’s second round of financing.

– In January 2001, StoreAge completed its second round of financing, raising a total of $25 million from strategic and institutional investors in a private placement in two stages:

— In December 2000, StoreAge issued 4,259,268 Preferred B shares for a total consideration of $14 million. We invested $4,220,000, which included the conversion of a $543,000 loan by us to StoreAge in 1999, in exchange of 1,283,866 Preferred B shares. Consequently, our equity interest in StoreAge was reduced to 49%. Thus, StoreAge’s operations were de-consolidated and our investment in StoreAge was accounted for using the equity method of accounting.

— In January 2001 StoreAge issued an additional 3,346,567 Preferred B shares for a total consideration of $11 million. Our equity interest in StoreAge was further reduced to 38.9%

– In March 2003, we sold our iSCSI operations and related assets and liabilities on an “as-is” basis to Enargis, which is owned and controlled by Robi Hartman, our Chairman of the Board and Chief Executive Officer, and Danny Shavit, our previous Chief Technology Officer. Pursuant to the agreement, we received a 25% ownership interest in Enargis and were entitled to commissions of 3% of certain revenues derived from existing customers or customers with which we had an existing relationship prior to the transaction.

        On July 29, 2004 approximately 96% of our shareholders present and voting at a general meeting of shareholders, approved our voluntary liquidation (see the discussion above under “A. Entry into and Exit from Voluntary Termination” in this Item).

        In February 2005, StoreAge raised $5,900,000 in convertible bridge loan financing from its shareholders. We did not participate in that financing.

        In October 2005, in contemplation of an initial public offering of StoreAge on the Alternative Investment Market of the London Stock Exchange, all classes of preferred shares of StoreAge and outstanding bridge loans were converted into ordinary shares of StoreAge based on the amount actually invested in StoreAge and all preferential shareholder rights were cancelled. Following this conversion we held 13% of the issued and outstanding share capital of StoreAge (11.74% on a fully diluted basis). The proposed initial public offering of StoreAge was aborted in November 2005 due to the inability of StoreAge to meet its sales forecast and decreased expected sales forecast.

9

        On March 26, 2006, StoreAge received a loan in the amount of $4,000,000 from an Israeli venture lending fund. The loan principal was to be repaid in 24 equal monthly installments, beginning 12 months from the closing date. The loan bore annual interest of LIBOR +5%, to be repaid on a quarterly basis. In consideration, the lender received warrants to purchase shares of the StoreAge equal to 2.6% of its outstanding fully diluted share capital. A first-ranking floating charge and specific charge on the assets of StoreAge was registered on behalf of the lender to secure the loan.

        In October 2006 all shareholders of StoreAge, including us, signed a share purchase agreement with LSI Logic Corporation (“LSI”) for the sale of all issued and outstanding shares of StoreAge to LSI. In November 2006, the sale was closed and LSI paid us gross proceeds of $5,416,692 for all our shares, out of which $703,793 is held in escrow to satisfy certain possible future claims for a period of 18 months following the closing. At the time of this closing, we held 12.68% of the issued and outstanding share capital of StoreAge (10.89% on a fully diluted basis). This additional dilution resulted from the issuance of shares, the issuance of warrants to a the Israeli venture lending fund that provided the $4,000,000 to StoreAge in March 2006 (that was repaid by LSI) and the increase of shares reserved for options pursuant to StoreAge’s incentive share option plans. For a discussion of the agreement with LSI (see Item 4. “Information on the Company – Sale of StoreAge”).

        In February 2007, we signed an MOA with Witech Communications Ltd. (“Witech”) with respect to a contemplated merger between us and Witech, subject to numerous terms and conditions including the termination of our voluntary liquidation proceedings and the approval of our Board of Directors and of our shareholders at a general meeting of shareholders. Those of approvals have not yet been obtained.

        On April 17, 2007, our general meeting of shareholders duly approved by an almost unanimous vote of a majority of the shareholders present and voting at the meeting, the termination of our voluntary liquidation (see the discussion above under “A. Entry into and Exit from Voluntary Termination” in this Item). The shareholders were not presented with, and did not approve a merger transaction with Witech.

        On April 23, 2007 we provided a loan to Witech in the amount of $1,500,000, on May 29, 2007, we provided Witech with an additional loan of $750,000, in June 2007 we provided an additional loan of $100,000 and we provided additional loans of $650,000 and $200,000 during July and August, 2007, respectively. The total amount of loans provided to Witech as of August 31, 2007 is $3.2 million. For the status of the contemplated merger with Witech and the loans, see Item 4. “C. Business Overview – The Memorandum of Agreement for Contemplated Merger with Witech”.

        On May 15, 2007 the board of directors approved the future distribution of five-year warrants for no consideration on a pro-rata basis to all shareholders of the Company who were holders of record at the record date for the purpose of voting at the general meeting of shareholders of the Company to be convened to approve the merger with Witech, to purchase an aggregate of 2,300,000 of our shares, at an exercise price equal to the closing price of our shares on the date of closing of the Witech merger. These warrants will be issued following the closing date of the merger and will be non-transferable and non-exercisable until a registration statement covering their resale and exercise is filed and declared effective by the SEC.

        On May 23, 2007, we, together with all the other shareholders of Enargis, transferred all our shares in Enargis to West End Technology Investments Ltd. (an affiliate of our chief executive officer and principal shareholder) for no consideration other than the assumption by West End of all Enargis’ liabilities. (see Item 4. “C. Business Overview – Sale of Enargis” and Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions).

        Our executive offices are located at 33 Jabotinsky Street, Ramat Gan, Israel, its telephone number is (+972) 3-751-0007 and its facsimile number is (+972) 3-575-0595. Our agent in the United States is Thelen Reid Brown Raysman & Steiner LLP located at 875 Third Avenue, New York, New York 10022.

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C. Business Overview.

        For information on our business activities in 2004 and 2005, see “A. Entry into and Exit from Voluntary Liquidation” above in this Item 4.

        As of December 31, 2006 we had no operating business and our assets in total amount of $4,713,000 consisted mainly cash and cash equivalents from the sale of our shares in StoreAge.

        Sale of StoreAge

        In order to enable total focus on the new fast growing, large storage area networks (“SANs”) and fibre channel market, in January 1999, IIS formed StoreAge, a separate entity whose sole purpose is to concentrate on storage networking development, production and marketing activities.

        StoreAge was engaged in the development, marketing, sale and support of products and services in areas such as (i) Virtualization of storage networks for Open Systems (including Windows 2000, NT, Linux and UNIX), (ii) storage networking middleware (distributed RAID, volume management), (iii) storage management software, and (iv) storage related applications including disaster recovery and backup solutions, such as snapshot, remote mirroring and others.

        In February 2005, StoreAge raised $5,900,000 in convertible bridge loan financing from its shareholders. We did not participate in that financing.

        In October 2005, in contemplation of an initial public offering of StoreAge on the Alternative Investment Market of the London Stock Exchange, all classes of preferred shares of StoreAge and outstanding bridge loans were converted into ordinary shares of StoreAge based on the amount actually invested in StoreAge and all preferential shareholder rights were cancelled. Following this conversion we held 13% of the issued and outstanding share capital of StoreAge (11.74% on a fully diluted basis). The proposed initial public offering of StoreAge was aborted in November 2005 due to the inability of StoreAge to meet its sales forecast and decreased expected sales forecasts.

        In October 2006 all shareholders of StoreAge, including us, signed a share purchase agreement with LSI Logic Corporation (“LSI”) for the sale of all issued and outstanding shares of StoreAge to LSI. In November 2006, the sale was closed and LSI paid us gross proceeds of $5,416,692 for all our shares, out of which $703,793 is being held in escrow to satisfy certain possible future claims for a period of 18 months following the closing. At the time of this closing, we held 12.68% of the issued and outstanding share capital of StoreAge (10.89% on a fully diluted basis). This additional dilution resulted from the issuance of shares, the issuance of warrants to the Israeli venture lending fund that provided a $4,000,000 loan to StoreAge in March 2006 (that was repaid by LSI) and the increase of shares reserved for options pursuant to StoreAge’s incentive share option plans.

        Sale of Enargis

        Internet Small Computer Systems Interface (“iSCSI”) is a protocol that is expected to eventually replace the “Fibre Channel” protocol currently being used for SANs. The advantage of the iSCSI is that it works with standard Ethernet (Fast and Gigabit Ethernet), the existing enterprise networking infrastructure built over many years for a Local Area Network (“LAN”). iSCSI enables the implementation of cost-effective and high-performance storage solutions designed for the SAN over regular Ethernet offering management and transfer of storage data without sacrificing ease of access.

        IP storage is cheaper, easier to manage, and it removes the distance limitations of Fibre Channel. Microsoft’s backing of iSCSI, the adoption of standards and the appearance of iSCSI products, all pointed to the emergence of IP storage in the future.

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        Not even iSCSI’s most ardent supporters expected it to replace Fibre Channel for a long time. They predicted a period of coexistence where IP storage moves into low-end SANs and is used for secondary storage. Mainly, it will replace direct attached storage in smaller companies until, eventually IP-based storage networking takes over.

        Enargis offered a family of comprehensive IP iSCSI storage testing tools. In addition, Enargis provides solution software modules that enables the integration of iSCSI into existing storage devices, thus allowing vendors to provide IP storage networking features in their products. Enargis did not succeed in strengthening its position as an iSCSI based solutions provider or in securing cooperation with significant OEM manufacturers or other significant sales channels. The market for Enargis’ products is at the end of its life-cycle since the iSCSI Initiator and Target codes are available for free in the web. In addition, Microsoft’s acquisition of Stringbean, the largest independent iSCSI products provider, with the perceived (but unannounced) intention of including it as part of its storage offering significantly decreased the desire of the potential customers to purchase the software from Enargis. The only remaining product being sold sporadically by Enargis is the iSWAT testing tool. The revenues of Enargis in the years 2004, 2005 and 2006 were $344,339, $118,626 and $125,034, respectively and Enargis showed a profit of less than $20,000 for each of the years ended December 31, 2004 and 2005 and incurred a loss of $9,810 for 2006. Enargis has only one technician left, the sales have been less than $15,000 through the end of May 2007, and it has no significant pipeline of sales or sale leads. Enargis did not pay Robi Hartman for his services since its inception. Enargis had not paid rent to West End from October 2004 to May 2007 in the amount of approximately $69,000 (this is an off-balance sheet transaction and is not included in Enargis’ financial statements), and owed West End in excess of $30,000 for loans received. Enargis did not have the prospect to earn enough money to pay its debts to West End. West End has a lien on all of Enargis assets to secure this debt.

        In November 2005, Mr. Danny Shavit, the CTO of Enargis and the second largest shareholder, left the company. Since its inception, Enargis has paid Danny Shavit less then $30,000 for his services. He continues to advise Enargis as a consultant.

        On May 23, 2007, considering the bleak business prospects of Enargis and the costs involved of maintaining our shareholding in Enargis, we, together with all the other shareholders of Enargis, transferred all our shares in Enargis to West End Technology Investments Ltd. for no consideration other than the assumption by West End of all Enargis liabilities (see Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions).

        The Memorandum of Agreement for a contemplated Merger with Witech

        On February 20, 2007 we signed a Memorandum of Agreement (“MOA”) with Witech and shareholders holding 65% of the outstanding shares of Witech (the “Witech Shareholders”), subject to certain pre-conditions, with regards to the merger between IIS and Witech in accordance with the Israeli Companies Law, such that Witech would be merged with and into our company and we shall be the surviving company (the “Merger”).

        According to the MOA the parties intend to execute detailed and final agreements based on the principles set forth in the MOA no later than ninety (90) days from the date of the MOA. However, in the event that certain pre-conditions set forth in the MOA have not been fulfilled, at our option, the ninety-day period will be extended accordingly for another thirty (30) days. This period has been extended until August 31, 2007.

        Witech is an Israeli company, incorporated in February 2004, engaged in the field of video transmission using proprietary wireless communications technology. Witech’s first product is a wireless video transmission system for use on roller coasters and thrill rides in amusement parks as well as other moving attractions.

        Witech’s first product is a wireless video transmission system for use on roller coasters and thrill rides in amusement parks as well as other moving attractions. A small, digital video camera and a wireless transmitter are attached to each car of the roller coaster. The camera films the riders during the ride and transmit the video data to a wireless receiver and a computer. The video file is edited and written onto a DVD that the customer can purchase. In addition to a DVD, the rider can purchase a set of 4 printed pictures captured from various video frames during the ride. Witech installs the relevant equipment such as a computer server, wireless infrastructure, plasma screens and a point-of-sale for purchase of the DVD’s. Witech’s revenues derive from percentages of the purchases of the DVDs to visitors of the amusement parks or from sales of a complete system to the park.

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        As far as the Company is aware, Witech is the first company in the world to successfully introduce and install an on-ride video system. The major “competition” to its product in the market is ride photography in which a photograph is taken of riders at some point on the ride and offered to every rider for sale at the disembarkation point. Nevertheless, other companies are reported to be developing on-ride video products, but Witech believes it has a significant lead. As of May 31, 2007 Witech had already received orders for more than 29 new standard systems during 2007, all of which have been installed, thus bringing the total systems operating in 2007 to over 39 systems.. Witech believes it has a window of opportunity to get a large sufficient market share as the first player in this market of on-ride video.

        The goals of Witech are to integrate wireless and video technologies to create new applications. Wireless technology is advancing rapidly, and problems that were limited by technology as recently as 12 months ago can now be solved. Companies with expertise in this field will be well suited to take advantage of this technology.

        Witech’s core team combines expertise in the integration of multi-disciplinary technologies, related to the Witech’s products.

        Witech has received over $3.2 million in equity and loan funding as of February 28, 2006.

        There are currently about 2,100 roller coasters all over the world. Approximately 58 new roller coasters are planned for 2007. In addition, there are more than 1,000 water-coasters world-wide, and several thousand additional attractions on which Witech’s technology may be relevant. On-ride video has significant advantages over ride photography and it may be viewed as very attractive by many customers.

        In addition to roller coasters and amusement park thrill rides; there may be other potential applications for Witech’s technology in the leisure industry, such as, helicopter tours, go-kart attractions and schools for training racing car drivers. Witech has received interest from arcade game manufacturers who would like to record the competing players in arcade games.

        According to Witech, as of December 31, 2006, no competitor has managed to install even one successful video system on rides. According to Witech, as of Aug. 1, 2007, 2 European companies have installed their first systems on rides in European parks. Ridercam, a German company installed 2 systems on roller coasters in Port Aventura, a Spanish park near Barcelona. We have no information as to the number of DVD’s sold nor of the quality of the DVD’s. Another competitor is Coastercam, a Dutch company that has installed one system on a roller coaster in Germany, according to the information we have received from Witech, is due to install another system in Holland.

        Witech installed 2 beta-systems in 2005 and it started taking orders for delivery in 2006, which was Witech’s first year of commercial sales. As of February 28, 2007, Witech successfully installed 9 systems in 7 amusement park rides.

        The amusement park industry is largely seasonal and most parks operate from June through August. Many parks are also open for weekends in May and September.

        Witech’s sales model is one of revenue sharing. Typically, Witech installs the systems in the parks at Witech’s expense and it splits the revenue with the park. Each installation comprises on-ride video cameras and computers to store the recorded videos. The park usually provides a sales booth and sales personnel, One of the systems in 2006 was operated by Witech employees and generated significantly more revenues than systems operated by park personnel. Witech is planning to have 7 rides with its own employees for the 2007 season and to operate most of the parks with its own employees in 2008.

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        An average park season has approximately 104 days of operation (62 days in July and August and the equivalent of another 42 days by taking into account days, evenings and weekends in April, May, June, September and October). Many of the states require regulatory approval from the appropriate state agency in order to install a system on a roller coaster. Witech has gained experience from the 2006 season in working with state regulatory agencies. Witech is aware of all required State approvals in the US and has obtained the approvals already for the 2007 rides.

        Expected revenues are based on the level of sales currently obtained by the ride-photo industry. The numbers vary from park to park, but the revenues are largely dependent on 4 major factors:

1. The total park attendance

2. The ride capacity

3. The type of ride (kiddy, thrill etc.)

4. The age of the ride.

        The system cost is expected to be reduced significantly in the future due to integration of the various system components into a single board. Commencing 2008, the average system is expected to pay for itself in less than one season.

        In addition to the sale of DVD’s, Witech will be introducing new features to the CDRide System in 2007 and 2008. The customers will be offered a print of 4 photographs captured from the video. This feature is expected to be offered for an additional price. Witech will offer downloads of the videos to computers and uploads to MP4 players and PDA’s. Witech is currently working on a feature to send a video message to cell phones. All of these features are expected to lead to additional revenues.

        We believe that there is great potential for the CDRide System in applications other than amusement parks and roller coasters. Witech has received requests to install systems on airplanes, helicopters, go-karts and game arcades. These type of applications offer further sources of potential revenues.

        The MOA provides for various terms and conditions with respect to the Merger, as follows:

Merger Consideration

        As the full and exclusive consideration to the Shareholders in connection with the Merger, upon consummation of the Merger (the “Closing”) we would issue to the Witech Shareholders our Ordinary Shares equal (after such issuance) to fifty percent (50%) of the issued and outstanding shares of IIS immediately following the Closing (the “Merger Shares”).

        Prior to the consummation of the Merger, all outstanding options to the Witech Shareholders or the employees of Witech will be cancelled.

        In accordance with Israeli tax requirements, for a period of twenty four (24) months following the Closing (the “Restricted Period”) the Merger Shares and all our shares held by other shareholders of IIS holding five percent (5%) or more of our issued and outstanding shares immediately following the Closing (the “Current Shares” (currently only Robi Hartman and CDC Holdings Ltd.), and together with the Merger Shares, the “Restricted Shares”) could not be transferred or sold; except that up to ten percent (10%) of the Restricted Shares (the “Threshold Shares”) following the Merger could be sold during the Restrictive Period. The Witech Shareholders would have the right to determine sale of sixty percent (60%) of the Threshold Shares, provided that the senior management of Witech who will become IIS employees (Chip Moss, David Eluz, Eli Cohen and Ronen Segal (collectively, the “Designated Executives”) and their affiliates could not sell any shares during the Restricted Period. In order to ensure compliance with this restriction, all the Merger Shares and the Current Shares would be held in escrow by a mutually agreed escrow agent (the “Escrow Agent”) for during the Restricted Period.

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Limitation of Liabilities Assumed by US

        At the date of the Closing, unless waived by us (i) the aggregate total liabilities (of any kind or nature whatsoever) of Witech and CDRide Inc., its wholly owned subsidiary (the “Subsidiary”) to any of the Witech Shareholders or any of their affiliates and to any financial institutions or other lenders, on a consolidated basis, could not exceed $1,000,000 (ii) IIS would assume the net liability in respect of expenses of Witech incurred in the ordinary course of business prior to December 31, 2006, in the amount not to exceed $210,000, and (iii) there may be no outstanding loans or payments due to any of the Shareholders or their affiliates, except as set out in the MOA and except for unpaid salary and related benefits for the month preceding the Merger. At the Closing, all shareholders and option holders of Witech would sign a customary waiver and release letter except with respect certain liabilities set out in the MOA.

        The Witech Shareholders would indemnify and hold us and our shareholders, officers, directors, representatives or agents harmless from and against any of the liabilities and obligations in excess of the amounts specified above or that are not assumed by us (collectively, the “Excluded Liabilities”), provided however that the sole source of such indemnification would be the proceeds from the sale of twenty five percent (25%) of the Merger Shares (the “Escrow Shares”) except in the case of fraud and breaches of the Witech representations as to capitalization and ownership of assets for which the remedy would not exceed the aggregate monetary value of the Merger Shares at Closing. In the event of any Claims for such indemnification, the Escrow Agent may sell the Escrow Shares to satisfy such Claims.

Employee-Related Matters.

        Certain employees of Witech detailed in the MOA would undertake to work for us, and we shall undertake to employ such Witech employees, for time periods as specified in the MOA under their existing employment terms. We would not assume obligations related to the employment of the Designated Executives for the period prior to February 1, 2007.

        As soon as practical after the Closing, we would grant stock options to the Designated Executives and other executives designated by Witech and agreed by us to purchase an aggregate of 2,300,000 shares of IIS at an exercise price equal to the average trading price per share of the Merger Shares during the twenty (20) trading days prior to the Closing (the “Closing Price”), vesting in eight (8) semi- annual installments as long as each such executive continues to be employed by us. It is intended that these options will be issued according to the capital gains alternative under Section 102 of the Israeli Income Ordinance. In addition, we would increase the shares reserved for issuance to directors, employees and consultants of IIS and its subsidiaries pursuant to its incentive stock option plans by an additional 1,000,000 shares.

Non-Compete. All the Witech Shareholders which are employees or consultants of Witech or the Subsidiary, as well as officers and directors of Witech which shall be detailed in the Final Agreements would undertake not to compete, directly or indirectly, with Witech’s business for twenty four (24) months following the Closing.

No Shop

        Witech and the Witech Shareholders committed that during the Exclusivity Period, none of the Shareholders or Witech, or any of their officers, directors, representatives or agents will, directly or indirectly, (i) solicit, initiate, knowingly encourage or accept any other proposals or offers from any corporation, partnership, person, entity or group relating to any acquisition of any shares or assets of Witech and its subsidiary (other than products or services to be sold or licensed in the ordinary course of business consistent with past practice), in any manner whatsoever, including, without limitation, by merger or other business combination, or (ii) participate in any discussions or negotiations with any person (other than our company) regarding, or furnish to any Person (other than our company) any information with respect to, any of the foregoing. The Shareholders and Witech undertook to immediately cease any existing discussions or negotiations conducted by such person with respect to any of the foregoing.

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        During the Exclusivity Period and unless the MOA has been earlier terminated, none of our or any of our officers, directors, representatives or agents will, directly or indirectly, (i) solicit, initiate, knowingly encourage or accept any other proposals or offers from any corporation, partnership, person, entity or group (collectively “Person”) relating to any acquisition of any of our shares or assets or of another entity (other than purchase of short term investments of publicly traded securities or sale of our shares in Enargis), or (ii) participate in any discussions or negotiations with any Person (other than Witech) regarding, or furnish to any Person (other than Witech) any information with respect to, a merger. We undertook to immediately cease any existing discussions or negotiations conducted by such Person with respect to any of the foregoing.

Pre-Closing Covenants of Witech and the Shareholders.

Prior to the Closing, Witech and the Subsidiary shall conduct their business solely in the ordinary course of business Witech will not take, and the Shareholders will not cause Witech to take certain actions, without our prior written consent.

We shall be permitted to nominate a person who will have the right to observe the activities of Witech or the Subsidiary.

Conditions to Witech’s and the Witech Shareholders’ Obligations

        Witech’s and the Witech Shareholders’ obligations to consummate the Merger are subject to (i) IIS having cash or short-term investments (as of the date of the Closing or June 30, 2007 whichever is earlier) of at least $4,850,000 (including for this purpose the bridge loans provided by us to Witech and the funds in escrow from the sale of its shares in StoreAge Networking Technologies Ltd.); (ii) increase of our registered share capital to at least 30,000,000 Ordinary Shares; (iii) amendment of our Articles of Association to eliminate the casting vote of the Chairman of the Board of Directors according to Article 71(c) and the staggered Board of Directors according to Article 50; (iv) our Ordinary Shares being traded on the “Pink Sheets” or the OTCBB, and (v) there not being on the Closing date any judgment or order of a court of competent jurisdiction or any ruling, regulation, or order of any agency of the Israeli or U.S. federal, state or local government which would prohibit or have the effect of preventing consummation of the issuance of the Consideration Shares, and the transaction contemplated by the MOA shall not be prohibited or enjoined (temporarily or permanently) by any applicable law or governmental or other regulation.

        Following and subject to the termination of our voluntary liquidation proceedings, at the request of Witech and provided that IIS has not terminated the MOA, we were to provide a loan to Witech in the amount of up to $1,500,000 (the “Loan”) to fund its activities pending Closing in the ordinary course of business according to a budget approved by us and for repayment of the bridge loan in the amount of up to $600,000 on terms that was approved by us, that was provided to Witech prior to the receipt by Witech of the Loan. The Loan will bear interest at the annual rate of LIBOR plus 5% (subject to increase as set out in Section 9.4 below) and will be secured by a charge on all assets of Witech, subject only to the charge in favor of Mizrahi Tfahot Bank to secure its loan in the amount of $400,000. We have made the Loan, and additional loans to Witech.

Confidentiality and Publicity; Information.

        The Shareholders and Witech and their respective officers, directors, employees, representatives or agents and any other person acting on their behalf shall keep the MOA and related correspondence in strict confidence. We shall be allowed to make public release with respect to the MOA in accordance with the disclosure requirements of all applicable laws, including for the purpose of disclosure to our shareholders.

Binding Effect; Conditions Precedent.

        The MOA is binding on Witech and the Shareholders subject to the terms of this MOA. Closing of the transactions contemplated under the MOA is subject (i) to satisfaction, in our sole discretion, of our due diligence requirements, including technical, financial and legal diligence; (ii) receiving the approval of our applicable corporate bodies to the MOA and the Definitive Agreements, including without limitation our shareholders, including the approval of our shareholders to terminate the voluntary liquidation and all other approvals legally required, (iii) the signing of mutually acceptable Final Agreements containing additional provisions customary in transactions of this type, and (iv) satisfaction of the conditions precedent set forth in the MOA (and described above); (v) obtaining of a ruling from the Israeli Tax Authority confirming that the Merger will be tax-free subject to reasonable conditions set forth therein (the “Tax Ruling”), and (vi) the mutual execution of employment agreements between us and the Designated Executives. In addition, we shall not be obligated to consummate the contemplated transactions if at any time before the Closing there is any effect, change, event, circumstance or condition which, has or would reasonably be expected to have a material adverse effect on the business, assets, prospects, results of operations or financial condition of Witech and the Subsidiary taken together as a whole. If the Tax Ruling is subject to unreasonable conditions, the parties will negotiate in good faith an alternative structure for the transaction.

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        In addition if our shareholders do not approve the MOA or the termination of the voluntary liquidation of IIS within sixty (60) days of the MOA, we or Witech may terminate the MOA by written notice to the other Parties and no Party will have any claims or demands against the other Parties in connection with the MOA or termination thereof. If for any reason we decide not to enter into the Final Agreements, all loans that have been provided to Witech and accrued interest will be repaid to us within ninety (90) days of the termination of the MOA.

        In addition, in the event that the Merger is not consummated due to the failure of Witech and/or the Shareholders to receive a favorable tax ruling, without releasing Witech from its obligation to repay the loans that we have been provided to Witech according to its terms, in consideration for our efforts and investment of time and money in pursuing the Merger, Witech will issue to us five percent (5%) of the issued and outstanding share capital of Witech, on a fully diluted basis and the interest on the Loan will be increased to LIBOR plus 10% (or the maximum rate permitted by law, whichever is lower) retroactively to the date it was provided to Witech.

Consulting Agreement with Witech

        According to an agreement with Witech, effective as of April 17, 2007 we provide certain business management and consulting services to Witech, of up to 40 hours per month, in consideration for a monthly retainer of $6,000, plus applicable VAT. This agreement may be terminated by either us or Witech at any time and for any reason by 30 days prior notice.

D. Organizational Structure.

        We have one wholly-owned Israeli subsidiary, IIS Manufacturing Ltd., which has no assets and has been inactive since 1999.In November 2006, together with all other shareholders, we sold all our outstanding shares in StoreAge (see this item above, “Business Overview – Sale of StoreAge”).

        On May 23, 2007, we, together with all the other shareholders of Enargis, transferred all our shares in Enargis to West End Technology Investments Ltd. for no consideration other than the assumption by West End of all our liabilities (if any) with respect to Enargis (see Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions). Our investment in Enargis was written off in 2003.

E. Property, Plants and Equipment.

        Our executive offices are currently located at 33 Jabotinsky Street, Ramat Gan, Israel, where we lease premises of 60 square meters and conduct all of our business activities. For the years ended December 31, 2004, 2005 and 2006 our annual rent was approximately $12,000, with total annual additional occupancy costs, including local taxes, utilities, maintenance and other costs of approximately $8,400 (see Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions). The leased premises were increased from April 17 to 85 square meters and the annual rent to $17,340.

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Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Forward-Looking Statements

        Some of the information in this section contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “expect”, “anticipate”, “believe”, “seek”, “estimate” and similar words. Statements that we make in this section that are not statements of historical fact also may be forward looking statements. Forward-looking statements are not guarantees of our future performance, and involve risks, uncertainties and assumptions that may cause our actual results to differ materially from the expectations we describe in our forward looking statements. There may be events in the future that we are not accurately able to predict, or over which we have no control. You should not place undue reliance on forward-looking statements. We do not promise to notify you if we learn that our assumptions or projections are wrong for any reason. We disclaim any obligation to update our forward-looking statements. See “Risk Factors” for more information.

Critical Accounting Policies

        The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Under different assumptions or conditions, actual results may differ from these estimates.

        Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its financial statements.

Intangible Assets and Goodwill

        At December 31, 2002 the entire goodwill was impaired and was written off. Thus during the years 2003 through 2006 we had no goodwill or intangible assets impairment.

Investment in StoreAge and Enargis

        During 2002, our investment in StoreAge was reduced to zero. The Company’s investment in Enargis was reduced to zero in 2003. The Company has not guaranteed the obligations of StoreAge and Enargis and is not otherwise committed to provide further financial support to any of these companies. See Notes 2.a and 2.b to the Company’s Financial Statements included herewith.

Deferred Taxes

        The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

A. Operating Results.

General

        As of December 31, 2003, we were no longer engaged in any operating business activity other than managing the minority holdings in StoreAge and Enargis. The functional currency of the Company and its subsidiaries is the U.S dollar, as the U.S. dollar is the primary currency of the economic environment in which the Company and its subsidiaries have operated and expect to continue to operate in the foreseeable future. The majority of the Company’s operations are currently conducted in Israel and most of the Israeli expenses are currently paid in new Israeli shekels (“NIS”); however, most of the expenses are denominated and determined in U.S. dollars. Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into dollars in accordance with Statement of Financial Accounting Standard No. 52, “Foreign Currency Translation” (“SFAS No. 52”). All transaction gains and losses of the remeasurement of monetary balance sheet items are reflected in the statement of operations as financial income or expenses, as appropriate.

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Results of Operations

Years Ended December 31, 2006, 2005, and 2004

        The Company had no revenues in each of the years 2004, 2005 and 2006.

        In 2005 we incurred general and administrative (“G&A”) expenses of $103,000 compared to $200,000 in 2004. This reduction was due to a reduction in all expenses, due to cessation of our operating activities during 2003 and our entering into voluntary liquidation at the end of July 2004. The main reductions were in the directors’ fees and insurance expenses and the professional fees. During 2005 and 2006 the general and administrative expenses were $103,000 and $91,000, respectively, consisting mainly of liquidators’ and professional fees, rent and office maintenance and payroll related expenses. The expenses for 2006 also include approximately $13,000 paid to the Israeli tax authorities as a result of a VAT audit and related settlement.

        Our net financial expenses in 2004 and 2005 were $4,000 and $3,000, mainly due to exchange rate conversions and open bank balances. In 2006 we had financial income of $18,000 due to the interest received on the proceeds of the sale of our holdings in StoreAge in November 2006.

        We incurred non-recurring income of $4,713,000 in 2006, from the sale of all our holdings in StoreAge in November 2006. An additional amount of $703,793 is held in escrow to satisfy certain possible future claims for a period of 18 months following the closing.

        In 2004, we recorded a loss of approximately $204,000 and the 2005 loss approximately of $106,000 reflects no income and a continued reduction in expenses due to our being in voluntary liquidation.

        The $4,639,000 profit for 2006 primarily reflects the proceeds from the sale of our holdings in StoreAge in November 2006 and a continued reduction in general and administrative expenses due to our being in voluntary liquidation.

        The Company does not expect to be profitable in the near future.

Impact of Inflation and Exchange Rates

        The dollar cost of the Company’s operations in Israel is related to the extent to which the rate of inflation in Israel is offset by the devaluation of Israeli currency in relation to the dollar without significant timing delays. The Company’s dollar costs in Israel will increase if devaluation fails to keep pace with the rate of inflation. Conversely, those costs will decrease if the rate at which Israeli currency devalues against the dollar exceeds the rate of inflation in Israel on a relatively even basis.

        Periodically, dependent upon inflation and other considerations, both fiscal and monetary, the Bank of Israel resets the target (middle of the range) exchange rate of the NIS in relation to a weighted basket of foreign currencies of Israel’s major trading partners and allows the actual exchange rate to float within a range determined by the Bank of Israel. During 2004, 2005 and 2006, the NIS was devalued (appreciated) approximately 0.84%, 1.66% and (8.21%), respectively, against the currency basket, and approximately (1.62%), 6.85% and (8.21%), respectively, against the U.S. dollar. Our operations could be adversely affected if we are unable to guard against currency fluctuations in the future. We do not currently engage in any currency hedging transactions intended to reduce the effect of fluctuations in foreign currency exchange rates on our results of operations. We cannot guarantee that we will not enter into such transactions in the future or that such measures will adequately protect us from serious harm due to the impact of inflation in Israel.

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        The relationship between the Company’s assets and liabilities in Israeli currency and whether they are linked to a foreign currency or price index also affects the Company’s financial results. In the past IIS has managed its exposure in Israeli currency so that unlinked liabilities generally exceeded unlinked monetary assets in Israeli currency. The Company cannot predict whether it will be able to continue to manage its assets and liabilities in this manner in the future.

Effective Corporate Tax Rate

        The income tax obligations of IIS in Israel are based upon earnings determined for Israeli statutory purposes and not as determined from the amounts reported in dollars.

        As of December 31, 2006, the Company has carryforward tax losses in the amount of approximately $ 41 million, which may be carried forward and offset against taxable income in the future for an indefinite period. In addition, the Company has accumulated capital losses for tax purposes carryforward in a total amount of $ 38 million, which may offset against future capital gains for tax purposes for an indefinite period. These losses have not been audited and approved by the relevant tax authorities.

Quarterly Results

        The Company’s operating results in the near future may vary significantly from quarter to quarter, in part because of the substantial changes in the Company’s structure and its proposed merger with Witech. The Company’s operating results for any particular quarter are not necessarily indicative of any future results. The nature of the Company’s industry and business has changed, and the accelerated and unpredictable pace of new product introduction and market trends, which is expected to continue, limits management’s ability to accurately forecast short-term results of operations.

Governmental, Economic, Fiscal, Monetary or Political Factors

        Our principal offices and our principal facilities and those of Witech are located in Israel, and each of us is directly affected by the political, economic and military conditions to which that country is subject. Any of Witech’s manufacturing operations would be heavily dependent upon components imported from outside of Israel. Almost all of Witech’s sales will be made outside of Israel. Accordingly, our operations and those of Witech could be materially adversely affected if major hostilities involving Israel should occur or if trade between Israel and its present trading partners were interrupted or curtailed. In addition, termination or reduction of certain governmental grants, programs and tax benefits could have a material adverse effect on us and Witech.

Political Conditions

        Since the establishment of the State of Israel in 1948, a state of hostility has existed, varying in degree and intensity, between Israel and the Arab countries. While Israel has entered into peace agreements with both Egypt and Jordan and several other countries have announced their intentions to establish trade and other relations with Israel, Israel has not entered into any peace arrangement with Syria or Lebanon. During the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. This conflict involved missile strikes against civilian targets in northern Israel that resulted in economic losses. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could adversely affect our operations. Since September 2000, terrorist violence in Israel has increased significantly and negotiations between Israel and Palestinian representatives have effectively ceased. The establishment of a government in the Palestinian Authority in early 2006 by representatives of the Hamas militant group has created additional unrest and uncertainty in the region. We can give no assurance that security and political conditions will not have an impact on our business in the future. Hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could adversely affect our operations and could make it more difficult for us to raise capital.

        Despite the peace between Israel and Egypt and Jordan, some countries, companies and organizations continue to participate in a boycott of Israeli firms and others doing business with Israel or with Israeli companies. Although we are precluded from marketing our products to such countries, we believe that in the past the boycott has not had a material adverse effect on us.

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        All male adult citizens and permanent residents of Israel under the age of 48 are, unless exempt, obligated to perform up to 30 days of military reserve duty annually. Additionally, all such residents are subject to being called to active duty at any time under emergency circumstances. Many of our officers and employees and those of Witech are currently obligated to perform annual reserve duty. While we have operated effectively under these requirements since we began operations, we cannot assess the full impact of such requirements on our workforce or business if conditions should change, and we cannot predict the effect on us of any expansion or reduction of such obligations.

Economic Conditions

        Israel’s economy has been subject to numerous destabilizing factors, including a period of rampant inflation in the early to mid-1980s, low foreign exchange reserves, fluctuations in world commodity prices, military conflicts and civil unrest. The Israeli government has, for these and other reasons, intervened in various sectors of the economy, by utilizing, among other means, fiscal and monetary policies, import duties, foreign currency restrictions and control of wages, prices and foreign currency exchange rates. In 1998, the Israeli currency control regulations were liberalized significantly, as a result of which Israeli residents may deal in foreign currency and non-residents of Israel may purchase and sell Israeli currency and assets. The Israeli government has periodically changed its policies in all these areas. There are currently no Israeli currency control restrictions on remittances of dividends on ordinary shares or the proceeds from the sale of shares; however, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time. In addition, Israeli residents are required to file reports pertaining to specific types of actions or transactions.

B. Liquidity and Capital Resources.

        The Company had current assets of approximately $4,710,000 at December 31, 2006, $41,000 at December 31, 2005 and $103,000 at December 31, 2004. The ratio of current assets to current liabilities was 18.046 at December 31, 2006, 0.177 at December 31, 2005 and 0.545 at December 31, 2004. The decrease in the current ratio in 2004 and 2005 was mainly a result of a reduction in cash due to operating activities and the accumulation of Liquidators’ and directors’ fees payable. The increase in the current ratio in 2006 was primarily due to the receipt of $4,713,000 from the sale of our shares in StoreAge. For a discussion of the primary currency in which the operations of the Company are conducted see Item 5.A., “Operating Results,” above.

        In 2004, 2005 and 2006, the Company recorded a net negative cash flow from operations of approximately $88,000, $52,000 and $49,000, respectively. In January 2004 we received the final payment of the lawsuit settlement of 2003 in the amount of $110,000. Excluding this amount, the net negative cash flow from operations in 2004 would have been approximately $198,000.

        The Company currently has no available lines of credit or other credit facilities.

        We anticipate that our existing cash on hand, will be sufficient, at the business levels presently projected, to meet our working capital requirements, including normal capital expenditures, at least until December 31, 2007. However, in the event that the merger with Witech is consummated, we will need to raise additional financing by the first quarter of 2008 to maintain and expand our future operations.

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

        Since December 31, 2002 we have not carried out any research and development activities. We currently hold no patents, licenses and other intellectual property assets.

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D. Trend Information.

        As of December 31, 2006, we were no longer engaged in any operational business activity other than managing our minority holding in Enargis, which we disposes of in May 2007, and we have not yet consummated any merger transaction with Witech. As a result, there are no trends yet known to the Company that are likely to have a material effect on the Company’s revenues, income from continuing operations, profitability, liquidity or capital resources. For additional information please see the “Risk Factors” listed in Item 3 above.

E. Off-Balance Sheet Arrangements.

All of the Company’s directors prior to the commencement of our voluntary liquation proceedings in July 2004 had agreed that compensation for services due to them since April 1, 2003 would be paid only from receipt of proceeds from the sale/exit of our holdings in StoreAge, or Enargis or from raising additional financial resources. . In addition, the Company’s liquidators agreed that compensation for their services would be paid only from receipt of proceeds from the sale/exit of our holdings in StoreAge, or Enargis or from raising additional financial resources. As of December 31, 2006 the amount of this unpaid compensation was approximately $230,000, was included as a liability in our financial statements for December 31, 2004, December 31, 2005 and December 31, 2006 and was paid full in May 2007. See Notes 4.a and 4.b to the Company’s Financial Statements.

F. Tabular Disclosure of Contractual Obligations

Not applicable.

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Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management.

        When we entered into voluntary liquidation proceedings in July 2004, we only had three directors: Robi Hartman, Aharon Jacobowitz and Jonathan Nativ. Upon our entering into voluntary liquidation proceedings in July 2004 and the appointment of Messrs. Hartman and Jacobowitz as liquidators, all our affairs were managed by the liquidators. At the shareholders meeting held on April 17, 2007 at which our shareholders resolved to cancel the voluntary liquidation proceedings, five directors were nominated

        The Company’s executive officers and directors as of May 31, 2007 were as follows:

Name	Age	Expiration of office	Number of Shares Beneficially Owned
Robi Hartman
Chairman of the Board, Director, Chief Executive
Officer and Chief Financial Officer	46	2010	2,748,901
Aharon Jacobowitz
Director	59	2009	0
Alon Wulkan
Director	35	2008	0
Philip Stein
External Director*	53	2010	0
Iris Weller-Weiss
External Director	33	2010	0

* See note below regarding the proposal to replace Mr. Stein with Mr. Adrian Auman at our next shareholders meeting.

Robi Hartman has 23 years of experience as an entrepreneur in the field of technology and as an executive for leading technology companies, with wide experience in public markets, finance and accounting. He acted as a Director of the Company from September 1998 until its entering into voluntary liquidation in July 2004, Vice Chairman of the Board from October 1998 to March 2000, Acting Chief Financial Officer from December 1998 until July 2004, and Chairman of the Board and Chief Executive Officer of the Company from March 2000 until July 2004, and joint liquidator of the Company since July 2004. He serves as the Vice Chairman of the Board of Teledata Networks since the management buyout from ADC Telecommunications in February 2004. He has also served as Chairman of StoreAge Networking Technologies from its inception in 1999 until 2006.  Before joining the Company, from 1987 to 1996, Mr. Hartman was the manager of Teledata Communications Ltd., a leading supplier of advanced access solutions, beginning as a manager and progressing to the Chief Financial Officer and finally as Chief Executive Officer and President.  From 1996 to 1997, Mr. Hartman was the President of VCON Telecommunications, a pioneer in PC based teleconferencing.  Since 1997 he owns and manages West End Technology Investments Ltd. Mr. Hartman received his B.A. in Political Science and Economics from Bar Ilan University and his Masters in Business Administration (MBA) from Bentley College.

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Aharon Jacobowitz served as a director of the Company from May 1995 until its entering into voluntary liquidation in July 2004 and as a joint-liquidator of the Company since July 2004.  Since 1989, Mr. Jacobowitz has been a management consultant to large organizations on data processing and management issues.  In addition to his consultancy business, Mr. Jacobowitz served three periods as general manager of two high-tech start up companies and the Israeli branch of Coopers and Lybrand consultancy firm. Prior to 1989, Mr. Jacobowitz was employed for 14 years in various capacities in the marketing division of IBM Israel Ltd.  His main specialties are networking, midrange systems and project management. He holds a BSc in Mathematics and Physics and an MSc in computer sciences (with distinction) both from the Hebrew University of Jerusalem.

Alon Wulkan has served during the last five years in various positions in Kardan Israel Ltd. and its subsidiaries, including Vice President of Finance, economist and economic advisor and acts as a director of Kardan Trade and Retail Ltd., Tuxedo Holdings (1999) Ltd.; Kardan Securities Ltd. and Kardan Financial Holdings Ltd. Mr. Wulkan is the son-in-law of Mr. Schnur who is one of the beneficiaries of a trust that holds the shares of CDC Holdings Ltd. (the holder of approximately 11% of the issued and outstanding shares of the Company). Mr. Wulkan holds a BA in Social Sciences and Economics from the Open University in Israel and a Masters in Business Administration (MBA) from Tel Aviv University.

Philip Stein established the accounting firm of Philip Stein & Associates Ltd., an accounting firm situated in Jerusalem, Israel specializing in US taxation, in 1979 and has been engaged with this firm since then. Prior to that he worked a the predecessor of Ernst & Young in the Chicago office in their tax department. He has a BS in Accountancy from the University of Illinois and a MBA from the University of Michigan specializing in US taxation and has been a qualified CPA (State of Illinois) since 1976.

Iris Weller-Weiss, has been acting since January 2006 as the Legal Consultant & Personal Assistant to Mr. Avner Schnur. Mr. Schnur is one of the beneficiaries of a trust that holds the shares of CDC Holdings Ltd. (the holder of approximately 11% of the issued and outstanding shares of the Company) and a principal shareholder and director of Kardan NV, a company traded on the Amsterdam Euronext and Tel-Aviv Stock Exchange. Kardan NV is actively involved in real estate, financial services, infrastructure, communications & technologies, and automotive. From 2003- 2006, Mrs. Weller was a prosecutor with the District Attorney Office. Between the years 1999-2002, Mrs. Weller managed the Los Angeles branch of Kelly Law Registry, a leading American legal consulting and placement firm. Mrs. Weller received her LLB degree from Haifa University School of Law and her LLM degree from UCLA School of Law. She is a member of both the Israeli Bar Association and the State Bar of California.

Mr. Stein has informed us that due to his other commitments, he cannot properly devote the time required to serve as a member of our board of directors and audit committee and that he will resign and our next general meeting of shareholders. Consequently, at our next general meeting of shareholders we propose to elect another external director in his place. The candidate proposed by our board of directors is Adrian Auman. Mr Auman has been Corporate Vice President for Finance and Investor Relations of Orbotech (NASDAQ:ORBK) since May 2006, prior to which he had served, since January 2000, as Director of Finance and Investor Relations and, from July 1997, been Director of Finance. He was financial controller of the Company from October 1992 to July 1997 and was the financial controller of Orbot from 1988 until the Merger. Prior to joining Orbot, he was an audit supervisor at Kesselman & Kesselman, independent registered public accountants in Israel, from 1986 to 1988 and a tax manager at Goldstein, Golub, Kessler & Co., certified public accountants, from 1979 to 1985. Mr. Auman serves on the Board of Directors of Coreflow Ltd, which develops and sells aerochemical products and subsystems. Mr. Auman was among the founders and a member of the Board of Directors of Terem Emergency Medical Center Israel (Ltd.) which owns and runs 5 urgent care clinics throughout the Jerusalem region. He is certified public accountant both in Israel and the United States and has a master’s of science degree from Pace University in New York.

        There is no family relationship between any of the persons named above. Furthermore, there are no arrangements or understandings with any of the major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or member of senior management.

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B. Compensation. At our general meeting of shareholders held in July 2004, Messrs. Hartman and Jacobowitz were appointed as joint liquidators and the shareholders approved a fee of $1,000 per month (plus VAT, if applicable), to each of them commencing from the appointment of the liquidation and until distribution of all proceeds of the liquidation to our shareholders. These fees were paid in May 2007. The deferral of these fees represented a significant saving in cash expenses for the Company during 2004, 2005 and 2006. In addition, our shareholders in July 2004 approved that (i) Mr. Jacobowitz will receive an additional bonus as follows: $25,000 (plus VAT, if applicable) if the gross proceeds received by our shareholders is above $0.50 per share, $50,000 (plus VAT, if applicable) if the gross proceeds received by our shareholders is above $1.00 per share and $75,000 (plus VAT, if applicable) if the gross proceeds received by our shareholders is above $1.30 per share, and (ii) Mr. Hartman will receive an additional bonus $100,000 (plus VAT, if applicable) if the gross proceeds received by our shareholders is above $1.30 per share. Our shareholder further approved that (i) we will indemnify the liquidators for any liability, costs and expenses (including legal costs and expenses) relating to claims or demands against them in their capacity as liquidators to the fullest extent permitted by applicable law and subject to the same restrictions and qualifications as currently applicable to indemnification of our directors and officers, and (ii) we will waive any liabilities, claims, demands and causes of action against the liquidators in their capacity as liquidators to the fullest extent permitted by applicable law, with the exception only of actions constituting gross negligence or willful misconduct.

        Effective as of April 1, 2003, all of the directors of the Company agreed to suspend their compensation until the Company either received a settlement from an ongoing lawsuit which at that time was in mediation or received proceeds from the sale/exit of StoreAge or Enargis or the raising of additional financial resources. Following settlement of this lawsuit, the directors of the Company did not take this compensation and agreed that this compensation would be paid only from receipt of proceeds from the sale/exit of our holdings in StoreAge or Enargis or the raising of additional financial resources. The amount of compensation due but unpaid to our officers and directors as of December 31, 2006 and the liquidators according to this arrangement was approximately $230,000 (these amounts were paid in May 2007). However, until January 2006, Mr. Hartman continued to receive compensation from StoreAge for services he performed as Chairman of the Board of StoreAge in the mounts equal to approximately $60,000, $57,000, and $4,800 for the years 2004, 2005 and 2006, respectively. In addition, Mr. Hartman was entitled to compensation for services from Enargis which he has not drawn since its incorporation due to Enargis’ financial situation. This compensation is separate from and in addition to the shareholder loans owed by Enargis to West End Technology Investments Ltd., which is owned and controlled by Mr. Hartman. As of May 31, 2007 the amount of these loans were over $30,000. These loans are secured by charges on the assets of Enargis and are subject to repayment on demand. In addition, Enargis did not pay rent to West End Technology Investments Ltd. from October 2004. The rent due as of May 31, 2006 was $69,000.

        No options were granted to officers or directors during the fiscal years ended December 31, 2004, 2005 and 2006 and all options issued prior to such time have expired. For information on the Company’s stock option plan, see “Stock Option Plans” below.

        Effective as of April 1, 1999 StoreAge granted to Mr. Hartman in his capacity as Chairman of the Board, acting Chief Financial Officer and Secretary of StoreAge to purchase 310,000 non-voting ordinary shares of StoreAge at an exercise price of $0.1 per share. Effective as of January, 2006, Mr. Hartman received additional options to purchase 91,539 non-voting ordinary shares of StoreAge at an exercise price of $0.25 per share. These options constituted approximately 0.69% of the fully-diluted shares of StoreAge at the time of its sale to LSI. The net (pre tax) proceeds received by Mr. Hartman from the LSI transaction as a result of exercise of these options was approximately $314,000, out of which approximately $45,000 is deposited in escrow for 18 months following the closing of the sale.

        On April 17, 2007 our shareholders approved (i) a proposal that the compensation to our external directors, Mr. Philip Stein and Ms. Iris Weller, shall be equal to $12,000 per annum or, if greater, the lowest cash compensation paid to any other of our directors of who receives cash and who is not an employee, consultant, service provider or controlling shareholder (or office holder of such controlling shareholder) of our company (the “Other Directors”), but in any case, not to exceed the average cash compensation paid to the Other Directors, and (i) the proposal to grant to each such external director options to purchase 45,000 of our Ordinary Shares, as a part of an incentive option plan to be adopted for all directors who are not external directors and other officers of our company, or, if greater, the lowest option compensation granted to Other Directors who receive options from our company, but in any case, not to exceed the average option compensation granted to the Other Directors, all as determined in accordance with the Israeli Companies Law and regulations. The options shall vest annually in equal shares over three years following the grant date, and the exercise price shall be equal to the exercise price of the options first granted after April 17, 2007 to any Other Director, all as may be adjusted in accordance with the Israeli Companies Law and regulations.

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        On May 15, 2007 our board of directors and audit committee approved, subject to shareholders approval, the monthly compensation to Mr. Hartman as our CEO in the amount (total cost) of NIS 60,000 (approximately $14,000) (plus VAT) effective April 17, 2007. In addition, on May 15, 2007 our board of directors and audit committee approved, subject to shareholder approval, that (i) the compensation for any director who is not an employee, consultant, service provider to us shall be equal to $12,000 per annum, and (ii) all directors (unless they have already received options as an employee, consultant or service provider) will be granted 15,000 options per annum to purchase Ordinary Shares of the Company, as a part of an incentive option plan to be adopted by the Company at an exercise price equal to the average closing price of the shares during the 20 days preceding the closing of the Witech merger. This option plan has not yet been adopted.

Since our general meeting of shareholders resolved at its meeting held on April 17, 2007 to terminate the voluntary liquidation proceedings and consequently no proceeds will be distributed to the shareholders of the Company at this stage, no bonus is payable according to the shareholder resolution of July 2004. However, On June 17, 2007 our Audit Committee and Board of Directors approved and approved to recommend to the general meeting of shareholders that (i) we will pay Aharon Jacobowitz a cash bonus as follows: $25,000 (plus VAT, if applicable) if the PPS (as defined below) is above $0.50 per share, $50,000 (plus VAT, if applicable) if the PPS is above $1.00 per share and $75,000 (plus VAT, if applicable) if the PPS is above $1.30 per share, and (ii) we will pay Robi Hartman a cash bonus of $100,000 (plus VAT, if applicable) if the PPS is above $1.30 per share. For the purposes of this resolution “PPS” means the average closing price of our shares on the “Pink Sheets” (as quoted by Yahoo Financial or other similar service) during the twenty (20) trading days following the approval of this resolution by our general meeting of shareholders (if such approval is given).

        Board Practices.

        In August 1993 our articles of association were amended to provide, among other matters, for a classified board of directors. These provisions were retained with minor amendments, in the new articles of associations of the Company approved on November 19, 2000 (the “Articles of Association”).

        During our voluntary liquidation proceedings, from July 2004 until April 2007, our board ceased to function and was replaced by the liquidators and all powers of the board of directors were exercised by the liquidators in accordance with Israeli law. In April 2007, Mr. Jacobowitz was elected to hold office until the close of business of the 2008 Annual General Meeting and until his successor has been duly elected and qualified; Mr. Wulkan was elected to hold office until the close of business of the 2009 Annual General Meeting and until his successor has been duly elected and qualified; Mr. Hartman was elected to hold office until the close of business of the 2010 Annual General Meeting and until his successor has been duly elected and qualified; and Mr. Stein and Mrs. Weller-Weiss were elected as external directors (as defined below) pursuant to the Israeli Companies Law. Under Israeli Companies Law, the initial term of an external director is three years and may be extended for an additional three years.

        Officers serve at the discretion of the board of directors, subject to the terms of any agreement between them and the Company.

        There are no service contracts between the Company and any of its directors providing for benefits upon termination of employment.

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External and Independent Directors

Under the Israeli Companies Law, Israeli companies whose shares have been offered to the public in or outside of Israel are required to appoint two people to serve as external directors on the board of directors of a company.

Under the Companies Law:

— An external director must either be professionally eligible or have relevant accounting and financial expertise, buy at least one of the external directors must have relevant accounting and financial expertise.

— A director with accounting and financial expertise is a director who, due to his education, experience and skills, possesses capabilities relating to and understandings of business and accounting matters and financial statements, which enable him to understand in depth the company’s financial statements and to initiate a debate regarding the manner in which the company’s financial information is presented.

— A director who meets certain professional qualifications is a director who satisfies one of the following requirements: (1) the director holds an academic degree in either economics, business administration, accounting, law or public administration, (2) the director either holds another academic degree or has obtained other high education in the company’s primary field of business or in an area that is relevant to his position, and (3) the director has at least five (5) years of experience serving in one of the following capacities or an aggregate of at least five (5) years of experience in two or more of the following capacities (a) a senior business management position of a company with a substantial scope of business, (b) a senior position in the primary field of business of the company or (c) a senior public administration position.

— The board of directors should determine the minimum number of directors having financial and accounting expertise, in addition to the external director, and in making the determination as to a director’s accounting and financial expertise, the board of directors is required to consider, among other things, the education, experience and knowledge of such person with respect to (1) accounting and internal controls matters that are typical to the industry in which the company engages and to companies of similar size and complexity to those of the company, (2) the responsibilities of the company’s auditor and (3) the preparation and approval of financial statements under the Companies Law and the relevant Israeli securities law.

        The Companies Law provides that a person may not be appointed as an external director if the person or the person’s relative, partner, employer or any entity controlled by that person has at the date of appointment, or has had at any time during the two years preceding that date, any affiliation with the company, any entity controlling the company or any entity controlled by the company or by this controlling entity. The term “affiliation” includes:

— an employment relationship;

— business or professional relationship maintained on a regular basis;

— control; or

— service as an officer.

No person can serve as an external director if the person’s position or other business creates, or may create, conflict of interests with the person’s responsibilities as an external director or if such position or other business may impair such director’s ability to serve a director. No person who is a director in one company can serve as an external director in another company, if at that time a director of the other company serves as an external director in the first company. The Companies Law further provides that when, at the time of appointment of an external director, all members of the board of directors of the company are of one gender, then the external director appointed shall be of the other gender. From April 2003 until termination of the voluntary liquidation proceedings in April 2007, we did not comply with these requirements due to the resignation of certain directors and our inability to attract additional directors During our voluntary liquidation proceedings, from July 2004 until April 2007, our board ceased to function and was replaced by the liquidators and all powers of the board of directors were exercised by the liquidators in accordance with Israeli law. There is no assurance that we will be able to retain existing directors or attract new directors in order to continue to comply with the applicable statutory requirements.

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        External directors are appointed by a majority vote at a shareholders’ meeting, provided that either: (1) the majority of shares voted at the meeting, including at least one third of the shares of non-controlling shareholders voted at the meeting, vote in favor of appointment of the director or (2) the total number of shares of non-controlling shareholders voted against the election of the director does not exceed one percent of the aggregate voting rights in the company. The initial term of an external director will be three years and may be extended for an additional three-year period. Each committee of a company’s board of directors will be required to include at least one external director and all external directors must be members of the company’s audit committee.

        In addition, we are obligated under the Companies Law to establish an audit committee, at least a majority of whose members are independent of management. The audit committee should adopt a formal written audit committee charter to be reviewed annually.

        An external director is entitled to consideration and to the refund of expenses, only as provided in regulations adopted under the Companies Law and is otherwise prohibited from receiving any other consideration, directly or indirectly, in connection with service provided as an external director. Nevertheless, the grant of an exemption from liability for breach of fiduciary duty or duty of care, an undertaking to indemnify, indemnification or insurance under the provisions of the Companies Law shall not be deemed as consideration. Under the Companies Law, an external director cannot be dismissed from the office unless:

— the board of directors determines that the external director no longer meets the requirements for holding such office, as set forth in the Companies Law or that the director is in breach of his or her fiduciary duties to the company and the shareholders of the company 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;

— an Israeli court determines, upon a request of a director or a shareholder, that the director no longer meets the requirements for holding such office as set forth in the Companies Law or that the director is in breach of his or her fiduciary duties to the company; or

— the 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 certain crimes as specified in the Companies Law.

Audit Committee

The Israeli Companies Law requires public companies to appoint an audit committee. The responsibilities of the audit committee include identifying irregularities in the management of the company’s business and approving related party transactions as required by law. An audit committee must consist of at least three directors, including all of the external directors. The chairman of the board of directors, any director employed by or otherwise providing services to the company, and a controlling shareholder or any relative of a controlling shareholder, may not be a member of the audit committee. An audit committee may not approve an action or a 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 of the external directors was present at the meeting in which an approval was granted. From April 2003 until termination of the voluntary liquidation proceedings in April 2007, following the resignation of one of our two external directors we did not have a legally constituted audit committee under Israeli law. During our voluntary liquidation proceedings, from July 2004 until April 2007, our board ceased to function and was replaced by the liquidators and all powers of the board of directors were exercised by the liquidators in accordance with Israeli law. There is no assurance that we will be able to retain existing directors or attract new directors in order to continue to comply with the applicable statutory requirements.

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        The audit committee provides assistance to the board 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 meets 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. 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 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 provisions of the Sarbanes-Oxley Act of 2002, the audit committee will be 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 and their compensation require the approval of the shareholders of the Company. Pursuant to Israeli law, the shareholders may delegate the authority to determine the compensation of the external auditors to the board of directors. The compensation of the external auditors will be required to be approved by the audit committee and recommended to the shareholders or, if so authorized by the shareholders, the board and ratified by the shareholders or the board, as the case may be.

Internal Auditor

        Pursuant to the Israeli Companies Law, the board of directors must appoint an internal auditor, nominated by the audit committee. The role of the internal auditor is to examine, among other matters, whether the company’s actions comply with the law and orderly business procedure. Under the Israeli Companies Law, the internal auditor may be an employee of the company but not an office holder, or an affiliate, or a relative of an office holder or affiliate, and he or she may not be the company’s independent accountant or its representative. In 2002, we appointed an internal auditor. The last report provided by our internal auditor was for the first fiscal quarter of 2003 and the internal auditor was not active after that time. A new internal auditor was appointed during May 2007.

C. Employees.

        During most of 2004, we employed 2 people, one on a part-time basis, in general management and administration and since November 2004, we have employed only a part-time secretary.

D. Share Ownership.

        The following chart sets forth director and senior management share ownership in the Company as of June 30, 2007. Each shareholder listed below enjoys the same voting rights with respect to each share.

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Name	Title of Class	Number of Shares Beneficially Owned(1)		Percentage of Shares Beneficially Owned (%)(2)			Options(3)
Robi Hartman	Ordinary Shares		2,748,901		23.75	%		0
Aharon Jacobowitz	Ordinary Shares		0		0			0
Alon Wulkan	Ordinary Shares		0		0			0
Philip Stein	Ordinary Shares		0		0			45,000
Iris Weller-Weiss	Ordinary Shares		0		0			45,000

* Owns less than one percent of the Ordinary Shares outstanding.

(1) Beneficial ownership by a person assumes the exercise of all options and warrants held by such person that are currently exercisable or are exercisable within 60 days of such date.

(2) Percentage ownership is based on 11,576,539 shares outstanding as of June 30, 2007.

(3) All these options were granted in April, 2007 and vest in three equal annual installments commencing in April 2008 and are subject to the Company’s adoption of an incentive stock option plan. . Options have been granted, subject to shareholder approval and the Company’s adoption of an incentive stock option plan, to all our other directors to purchase 15,000 shares for each year in which they serve as a director of the Company, commencing April 2007 and vesting of such options will occur at the end of each such year. Subject to shareholder approval, the exercise price of all the above options will be the average closing price of the Company’s shares in the 20 trading days preceding the Witech merger.

Stock Option Plans

        In August 1993, the Company’s last employee share incentive plan (the “Plan”) was approved by the board of directors and later adopted by the Company’s shareholders. The Plan permitted the grant of options to purchase Ordinary Shares to officers, directors and key employees of, and consultants to, the Company or any subsidiary of the Company. No options were issued pursuant to the Plan during each of the years 2004, 2005 and 2006, no options were exercised during such years, all outstanding options issued under the Plan have expired and the Plan itself expired in 2003.

        We propose to adopt a new stock option plan that will be brought for shareholders approval at our next shareholder meeting in 2007.

Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders.

        During the period from January 1, 2004 through December 31, 2006, Mr. Hartman purchased an aggregate of 1,377,757 Ordinary Shares of the Company in open-market transactions,

        The following table sets forth, as of June 30, 2007, the number of Ordinary Shares of the Company owned by all persons known to the Company to beneficially own 5% or more of the Company’s Ordinary Shares. The Company’s major shareholders do not have different voting rights.

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Name and Address	Number of Ordinary Shares Beneficially Owned			Percentage of Ordinary Shares Beneficially Owned(1)
CDC Holdings Ltd		1,258,225	(2)		10.87	%
Robi Hartman		2,748,901	(3)		23.75	%

(1) Percentage ownership is based on 11,576,539 shares outstanding as of June 30, 2007.

(2) As reported on Schedule 13G filed with the Securities & Exchange Commission, dated January 14, 2002.

(3) As reported on Schedule 13D filed with the Securities & Exchange Commission, dated January 24, 2007.

        As of May 31, 2007, approximately 90% of the outstanding Ordinary Shares of the Company were held of record by approximately 50 holders registered on the books of the Company’s United States transfer agent with addresses in the United States. The Company believes that a majority of its Ordinary Shares are beneficially owned by non-United States persons. To the extent known to the Company, the Company is not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person.

        There are currently no arrangements known to the Company that may result in a change in control of the Company, except the contemplated merger with Witech. No agreement binding on us regarding this merger has been signed.

        Mr. Robi Hartman has notified us that in order to reduce future capital gains tax on sale of his shares he is considering selling approximately 5% of our issued and outstanding shares on the open market during the period between approval of the merger with Witech by our shareholders (if approved) and closing of the merger, in order to reduce is share ownership following the Witech merger to below 10% (after the dilution resulting from the merger). For a period of two years following the merger he will be restricted in the amount of shares that he can sell.

B. Related Party Transactions.

        In February 2001, a portion of our office space located in Ramat Gan, Israel was leased from West End, a company that is owned by Robi Hartman, the Company’s Chief Executive Officer and Chairman. . As of April 1, 2003, this lease was assumed by Enargis which sublet 35% of the premises to us at an annual cost of approximately $12,000 which was reduced by 50% to $6,000 per annum with effect from August 2004, following our entry into voluntary liquidation proceedings in July 2004 and the other 50%, $6,000, was postponed to until receipts of proceeds from the sale of StoreAge or Enargis. These amounts were paid only in May 2007 following termination of our voluntary liquidation proceedings. As of November 2005, we became a direct tenant of West End. Following termination of our voluntary liquidation proceedings in April 2007, our rent increased from 35% to 50% of the premises and annual cost according to the original agreement, amounting to $1,450 per month.

        Effective as of January, 2006, Mr. Hartman received additional options to purchase 91,539 non-voting ordinary shares of StoreAge at an exercise price of $0.25 per share bringing the amount of his options in StoreAge to a total of 401,359 shares, constituting approximately 0.69% of the outstanding shares of StoreAge on a fully diluted basis. See: “Item 6. Directors, Senior Management and Employees. B. Compensation”. These options were vested and exercised at the time of sale of StoreAge to LSI. For compensation due to the liquidators in the voluntary liquidation and our officers and directors, see “Item 8 – Directors, Senior Management and Employees”.

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        On May 23, 2007, considering the bleak business prospects of Enargis and the costs involved of maintaining our shareholding in Enargis (particularly audit costs), we, together with all the other shareholders of Enargis, transferred all our shares in Enargis to West End Technology Investments Ltd. for no consideration other than the assumption by West End of all other than the assumption by West End of all Enargis’ liabilities.

On June 17, 2007 our Audit Committee and Board of Directors approved and approved to recommend to the general meeting of shareholders]that (i) we will pay Aharon Jacobowitz a cash bonus as follows: $25,000 (plus VAT, if applicable) if the PPS (as defined below) is above $0.50 per share, $50,000 (plus VAT, if applicable) if the PPS is above $1.00 per share and $75,000 (plus VAT, if applicable) if the PPS is above $1.30 per share, and (ii) we will pay Robi Hartman a cash bonus of $100,000 (plus VAT, if applicable) if the PPS is above $1.30 per share. For the purposes of this resolution “PPS” shall mean the average closing price of our shares on the “Pink Sheets” (as quoted by Yahoo Financial or other similar service) during the twenty (20) trading days following the approval of this resolution by our general meeting of shareholders (if such approval is given).

C. Out of the initial $1,500,000 loan provided by us to Witech, $200,000 was used to repay a loan provided in February 2007 by a company whose beneficial shareholders are affiliated with the beneficial shareholders of CDC Holdings Ltd. which holds 10.87% of our issued and outstanding share capital. (see Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions).

Item 8. FINANCIAL INFORMATION

A. Statements and Other Financial Information.

        See pages F-1 – F-19 of the Company’s financial statements.

Legal Proceedings

        The Company is not a party to any litigation that would, individually or in the aggregate, have a material adverse effect on the Company or its business, and is not aware that any such litigation is threatened.

Dividends

        The Company has not declared or paid dividends on its Ordinary Shares since 1989, and does not intend to declare or pay any dividends to their shareholders in the foreseeable future.

B. Significant Changes.

        The board of directors of the Company has proposed to the shareholders, and the shareholders have approved, termination of the Company’s voluntary liquidation proceeding, and that proceeding was terminated in April 2007. The Company is considering a merger with another operating company. . See Item 3 – Key Information, D. Risk Factors “Our contemplated merger with Witech Communications Ltd. contains various risks” and Item 4 – Information on the Company, A. Entry into and Exit from Voluntary Liquidation. Except for this, there have been no significant changes since December 31, 2006, the date of the annual financial statements in this annual report.

Item 9. THE OFFER AND THE LISTING

        The Ordinary Shares of the Company have been traded in the over-the-counter market in the United States since the Company’s initial public offering on November 8, 1984. The Ordinary Shares originally traded under the symbol IISLF and now trade under the symbol IISLF.PK. From January 22, 1985 to March 17, 1999, the Ordinary Shares traded on the Nasdaq National Market (“Nasdaq”). From March 18, 1999 until January 22, 2003, the Ordinary Shares traded on the Nasdaq SmallCap Market. From January 23, 2003 until August 23, 2004, the Company’s Ordinary Shares traded on the OTC Bulletin Board. Since August 24, 2004, the Company’s Ordinary Shares have traded on the Pink Sheets Electronic Quotation Service (“Pink Sheets”).

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        The following table sets forth, for the periods indicated, the annual high and low closing sales price quotes of the Ordinary Shares as reported by Nasdaq, by the OTC Bulletin Board or by the Pink Sheets since January 23, 2003, for the five most recent full financial years and the quarterly high and low closing sales price quotes for the three most recent full financial years. The table also sets forth the high and low closing sales price quotes of the Ordinary Shares as reported by the Pink Sheet s for the most recent six months.

	High		Low
Year ended December 31, 2002	$	1.16	$	0.36
Year ended December 31, 2003	$	0.92	$	0.31
Year ended December 31, 2004	$	0.73	$	0.9
Year ended December 31, 2005	$	0.15	$	0.9
Year ended December 31, 2006	$	0.34	$	0.9
2004
First Quarter	$	0.73	$	0.39
Second Quarter	$	0.58	$	0.20
Third Quarter	$	0.25	$	0.103
Fourth Quarter	$	0.14	$	0.09
2005
First Quarter	$	0.15	$	0.09
Second Quarter	$	0.12	$	0.09
Third Quarter	$	0.14	$	0.10
Fourth Quarter	$	0.13	$	0.10
2006
First Quarter	$	0.22	$	0.10
Second Quarter	$	0.12	$	0.9
Third Quarter	$	0.11	$	0.9
Fourth Quarter	$	0.36	$	0.10
Most Recent Six Months
February 2007	$	0.41	$	0.32
March 2007	$	0.56	$	0.39
April 2007	$	0.85	$	0.51
May 2007	$	0.85	$	0.60
June 2007	$	0.65	$	0.51
July 2007	$	0.55	$	0.42

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        The foregoing prices reflect inter-dealer quotations without retail mark-ups, mark-downs or commissions and may not represent actual transactions.

Item 10. ADDITIONAL INFORMATION

A. Share Capital.

        Not applicable.

B. Memorandum and Articles of Association.

Objects and Purposes in the Company’s Articles of Association

        The Company’s objects and purposes are specified in its Memorandum of Association filed as Exhibit 3.2 to Registration Statement No. 33-62862 dated August 10, 1993 (the “Memorandum”).

Provisions Regarding Directors

        Pursuant to article 54(b) of our Articles of Association, a transaction entered into by the Company in which a director of the Company has a personal interest, directly or indirectly, will be valid in respect of the Company and the given director only if approved by the Company’s board of directors and, if such transactions are “irregular transactions” as defined in the Israeli Companies Law, only if approved in accordance with the requirements of the Israeli Companies Law.

        An “irregular transaction” pursuant to the Israeli Companies Law is defined as a transaction which is not in the ordinary course of business, a transaction which is not under ordinary market conditions or any transaction which might substantially affect the profitability of the Company, its assets and liabilities.

        The Israeli Companies Law provides that a director who has personal interest in a given transaction of the Company, brought to the approval of the board of directors, shall not be present and vote at that meeting. Article 55 of the Company’s Articles of Association, provides that a director who has a personal interest in a matter which is brought for discussion before the board of directors may participate in said discussion, provided that he shall neither vote in nor attend discussions concerning the approval of the activities or the arrangements. If said director did vote or attend as aforesaid, the approval given to the aforesaid activity or arrangements shall be invalid.

        Pursuant to article 72 of the Company’s Articles of Association, at any meeting of the board of directors at which a quorum is present, the board will have the authority to exercise all or part of the authorities, power of attorney and discretion invested at such time in the directors or regularly exercised by them. With respect to legal quorum at our board meetings, the Israeli Companies Law provides that, unless determined otherwise by the Company, a legal quorum at the board meetings shall consist of the majority of the board members. We have not decided otherwise and therefore, the legal quorum at our board meeting will consist of the majority of the board members.

        Any transaction concerning compensation to a director requires the approval by the board of directors, the audit committee and the shareholders of the Company.

        The board of directors may from time to time, in its discretion, cause the Company to borrow or secure the payment of any sum or sums of money for the purpose of the Company. Additionally, the Company may secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions in all respects as it sees fit and in particular, by the issuance of bonds, perpetual or redeemable debentures, debenture stock, or any mortgages, charges or other securities on the undertaking, or the whole or any part of the property of the Company, both present and future, including units uncalled or called but unpaid capital for the time being.

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        There is no mandatory retirement age for the directors under our Articles of Association or the Companies Law.

        There is no requirement concerning the number of shares one individual must hold in order to qualify him or her as a director under our Articles of Association or the Israeli Companies law.

Dividends

        Subject to any preferential, deferred, qualified or other rights, privileges or conditions attached to any special class of shares with regard to dividends, the profits of the Company available for dividend and resolved to be distributed shall be applied in payment of dividends upon the shares of the Company in proportion to the amount paid up or credited as paid up per the nominal value thereon respectively. Unless not otherwise specified in the conditions of issuance of the shares, all dividends with respect to shares which were not fully paid up within a certain period, for which dividends were paid, shall be paid proportionally to the amounts paid or credited as paid on the nominal value of the shares during any portion of the above-mentioned period.

        The board of directors may declare a dividend to be paid to the shareholders according to their rights and interests in the profits, and may fix the record date for eligibility and the time for payment.

        The directors may from time to time pay to the shareholders on account of the next forthcoming dividend such interim dividends as, in their judgment, the position of the Company justifies.

        A transfer of shares shall not pass the right to any dividend declared thereon after such transfer and before the registration of the transfer.

        There is no time limit after which dividend entitlement lapses according to our Articles of Association or the Companies Law.

        The board of directors may determine that, a dividend may be paid, wholly or partly, by the distribution of specific assets of the Company or by distribution of paid up shares, debentures or debenture stock or any other securities of the Company or of any other companies or in any one or more of such ways in the manner and to the extent permitted by the Companies Law.

Terms of Directors

        Pursuant to article 50 of our Articles of Association, except for external directors (as defined in the Companies Law) and the Chief Executive Officer of the Company who will automatically be a director of the Company (and his term of office as a director shall be vacated, ipso facto, when he ceases to serve as Chief Executive Officer of the Company), all directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, one class that currently holds for a term that expires at the 2008 annual meeting of the Company, another class that holds office for a term that expires at the 2009 annual meeting of the Company, and another class that holds office for a term that expires at the 2010 annual meeting of the Company, with the members of each class to hold office until their successors have been duly elected and qualified. The class of directors whose term expires at any annual meeting shall be elected to hold office for a term expiring at the annual meeting of the Company held in the third year following the year of their election and until their successors have been duly elected and qualified. Except for article 50 of the Company’s Articles of Association (described above) which may be amended only by the affirmative vote of 75% of our shareholders present (in person or by proxy) and voting on such resolution at a general meeting, all other articles of our Articles of Association may be amended by a majority vote of shareholders present and voting at a meeting of shareholders of the Company.

Votes of Shareholders

        Our shareholders have one vote for each share held on all matters submitted to a vote of shareholders. Except as otherwise provided in our Articles of Association, any resolution at a general meeting shall be deemed adopted if approved by the holders of a majority of the voting rights in the Company represented at the meeting in person or by proxy and voting thereon. In the case of an equality of votes, either on a show of hands or a poll, the chairman of the meeting shall not be entitled to a further or casting vote.

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        At all general meetings, a resolution put to a vote at the meeting shall be decided on a show of hands unless, before or upon the declaration of the result of the show of hands, a poll in writing be demanded by the chairman (being a person entitled to vote), or by at least two shareholders present, in person or by proxy, holding at least 5% of the issued share capital of the Company and, unless a poll be so demanded, a declaration by the chairman of the meeting that a resolution has been carried, or has been carried unanimously or by a particular vote, or lost, or not carried by a particular vote, shall be conclusive, and an entry to that effect in the minute book of the Company shall be conclusive evidence thereof, without proof of the number or proportion of the votes recorded in favor of or against such resolution.

        If a poll be demanded in manner aforesaid, it shall be taken forthwith, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. The demand of a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which a poll has been demanded.

        Any shareholder which is not a natural person may, by resolution of its directors or other governing body, authorize such person as it thinks fit to act as its representative at a general meeting, and the person so authorized to the satisfaction of the Company shall be entitled to exercise the same powers on behalf of such company, which he represents as the company could exercise if it were an individual shareholder.

        Subject to any rights or restrictions for the time being attached to any class or classes of shares, every shareholder shall have one vote for each share of which he is the holder, whether on a show of hands or on a poll. Our Articles of Association do not permit cumulative voting and it is not mandated by Israeli law. Votes may be given either personally or by proxy. A proxy need not be a shareholder of the Company. If any shareholder is a lunatic, idiot, or non compos mentis, he may vote by his committee, receiver, curator bonis or other legal curator, and such last mentioned persons may give their votes either personally or by proxy. If two or more persons are jointly entitled to a share then, in voting upon any question, the vote of the senior person who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other registered holders of the share and, for this purpose seniority shall be determined by the order in which the names stand in the shareholder register.

        The instrument appointing a proxy shall be in writing in the usual common form, or such form as may be approved by the board of directors, and shall be signed by the appointor or by his attorney duly authorized in writing or, if the appointor is a corporation, the corporation shall vote by its representative, appointed by an instrument duly signed by the corporation. The instrument appointing a proxy shall be deemed to include authorization to demand a poll or to vote on a poll on behalf of the appointor.

        A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal, or revocation of the proxy, or transfer of the share in respect of which the vote is given, unless an intimation in writing of the death, revocation or transfer shall have been received at the office before the commencement of the meeting or adjourned meetings at which the proxy is used.

        The instrument appointing a proxy shall be deposited at the registered office of the Company or at such other place or places, whether in Israel or elsewhere, as the board of directors may from time to time, either generally or in a particular case or class of cases prescribe, at least forty eight (48) hours before the time appointed for holding the meeting or adjourned meeting at which the person named in such instrument proposes to vote. Otherwise, the person so named shall not be entitled to vote in respect thereof, but no instrument appointing a proxy shall be valid after the expiration of twelve months from the date of its execution.

        Subject to the provisions of the Companies Law, a resolution in writing (approved by letter, telex, facsimile or otherwise) by all the shareholders, in person or by proxy, for the time being entitled to vote at a general meeting of the Company, shall be as valid and as effectual as a resolution adopted by a general meeting duly convened, held and constituted for the purpose of passing such resolution.

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        A shareholder will be entitled to vote at the meetings of the Company by several proxies appointed by him, provided that each proxy shall be appointed with respect to different shares held by the appointing shareholder. Every proxy so appointed on behalf of the same shareholder shall be entitled to vote as he sees fit.

Further Rights and Preferences of the Ordinary Shares

        In the event of sale or the undertaking of the Company, the board or the liquidator on a winding up, as the case may be, subject to the authorization by a majority vote at a meeting of shareholders, may distribute to our shareholders all assets remaining after payment of the Company’s liabilities.

        Our Articles of Association allow, subject to the Israeli Companies Law, the issue of redeemable shares and to redeem the same according to terms and conditions determined by the Company. Our Articles of Association do not include provisions related to sinking funds.

        According to our Articles of Association no person shall be entitled to vote at any general meeting (or be counted as a part of the quorum thereof) unless all calls then payable by him in respect of his shares in the Company shall have been paid. The Israeli Companies Law provides that a company is entitled to determine within its articles a provision allowing the board to place call on shares, in event the consideration for such shares, in full or in part, have not been paid on time and in accordance with the agreeable terms set out in the given agreement or the articles of association of the company.

        According to our Articles of Association, there are no discriminating provisions against any existing or prospective holders of shares of the Company as a result of a shareholder holding a substantial number of shares.

Modification of Class Rights

        If, at any time, the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issuance of the shares of that class) may be varied with the consent in writing of the holders of all the issued shares of that class, or with the sanction of a majority vote at a meeting of the shareholders passed at a separate meeting of the holders of the shares of the class. The provisions of our Articles of Association relating to general meetings shall apply, mutatis mutandis, to every such separate general meeting. Any holder of shares of the class present in person or by proxy may demand a secret poll.

        Unless otherwise provided by the conditions of issuance, the enlargement of an existing class of shares, or the issuance of additional shares thereof, shall not be deemed to modify or abrogate the rights attached to the previously issued shares of such class or of any other class. These conditions provide for the minimum shareholder approvals permitted by the Israeli Companies Law.

General Meetings

        General meetings shall be held at least once in every calendar year at such time, not being more than fifteen months after the holding of the last preceding general meeting, and at such time and place as may be determined by the board of directors.

        The board of directors may, whenever it deems necessary, and shall upon such requisition in writing as is provided by Section 63(b) of the Companies Law, convene a general meeting. Any such request must state the purposes for which the meeting is to be called, be signed by the requesting shareholders, and must be deposited at the registered office of the Company. Such request may consist of several documents in like form, each signed by one or more requesting shareholder.

        Unless a longer period for notice is prescribed by the Companies Law, at least ten (10) days and not more than sixty (60) days notice of any general meeting shall be given, specifying the place, the day and the hour of meeting and, in the case of special business, the nature of such business, shall be given in the manner hereinafter mentioned, to such shareholders as are under the provisions of the Company’s Articles of Association, entitled to receive notices from the Company. Notices shall be given by mail or by personal delivery to every registered shareholder of the Company, to his address as described in the shareholders register of the Company or such other address as designated by him in writing for this purpose. Provided that the accidental omission to give such notice to, or the non receipt of such notice by, any such shareholder shall not invalidate any resolution passed or proceeding held at any such meeting and, with the consent of all the shareholders for the time being entitled to receive notice of meetings, a meeting may be convened upon a shorter notice or without notice, and generally in such manner as such shareholders may approve. Such consent may be given at the meeting or retrospectively after the meeting. If the shareholder did not provide the Company any address for the delivery of notices, the shareholder shall be deemed to have waived his right to receive notices.

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        Only shareholders of record as reflected on the Company’s share register at the close of business on the date fixed by the board of directors as the record date determining the then shareholders who will be entitled to vote, shall be entitled to notice of, and to vote, in person or by proxy, at a general meeting and any postponement or adjournment thereof.

Quorum at General Meetings

        No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business. The quorum at any Meeting shall be two shareholders present in person or by proxy, holding or representing at least twenty five percent (25%) of the total voting rights in the Company. A company being a shareholder shall be deemed to be personally present for the purpose of the Company’s Articles of Association if represented by its representative duly authorized in accordance with article 42 of the Company’s Articles of Association.

        If, within half an hour from the time appointed for the holding of a general meeting, a quorum is not present, the meeting shall stand adjourned to the same day in the next week at the same time and place, or any time and hour as the board of directors shall designate and state in a notice to the shareholders entitled to vote at the original meeting, and if, at such adjourned meeting, a quorum is not present within half an hour from the time appointed for holding the meeting any two shareholders present in person or by proxy shall constitute a quorum. Notwithstanding the aforesaid, if a general meeting was convened at the demand of shareholders as permitted by Section 63(b) of the Companies Law, then a quorum at such adjourned meeting shall be present only if one or more shareholders are present who held in the aggregate at least 5% of the issued share capital of the Company and at least 1% of the voting rights in the Company or one or more shareholders who hold in the aggregate at least 5% of the voting rights in the Company.

Restrictions on Shareholders Rights to Own Securities

        The Memorandum and Articles of Association of the Company do not restrict in any way the ownership of Ordinary Shares by residents or nonresidents, except with respect to subjects of countries which are in a state of war with Israel, and neither the Memorandum and Articles of Association nor Israeli law restricts the voting rights of residents or nonresidents.

Potential Issues that Could Delay a Merger

        The classification of our board of directors could delay or impede the removal of incumbent directors and could therefore complicate a merger, tender offer or proxy contest involving us, even if such events would be beneficial to the interests of our shareholders, or could discourage a third party from attempting to acquire control of the Company.

        A merger of the Company requires the approval of the board of directors and the general meeting of shareholders, in accordance with the provisions of the Israeli Companies Law. See also “Anti-Takeover Provisions; Merger and Acquisitions under Israeli Law”.

Requirement of Disclosure of Shareholder Ownership

        There are no provisions of our Memorandum or Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.

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Approval of Related Party Transactions Under Israeli Law

        The Companies Law codifies the fiduciary duties that “office holders,” including directors and executive officers, owe to a company. An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. 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. The duty of loyalty includes avoiding any conflict of interest between the office holder’s position in the company and his personal affairs, avoiding any competition with the company, avoiding exploiting any business opportunity of the company in order to receive personal gain for the office holder or others, and disclosing to the company any information or documents relating to the company’s affairs which the office holder has received due to his position as an office holder. Each person listed as a director or executive officer in the table under “Directors, Senior Management and Employees – Directors and Senior Management” above is an office holder. Under the Companies Law, all arrangements as to compensation of office holders who are not directors require approval of our board of directors, and the compensation of office holders who are directors must be approved by our audit committee, board of directors and shareholders.

        The Companies Law requires that an office holder promptly disclose any personal interest that he or she may have and all related material information known to him or her, in connection with any existing or proposed transaction by us. In addition, if the transaction is an extraordinary transaction, that is, a transaction other than in the ordinary course of business, other than on market terms, or likely to have a material impact on the company’s profitability, assets or liabilities, the office holder must also disclose any personal interest held by the office holder’s spouse, siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of any of the foregoing, or by any corporation in which the office holder or a relative is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager. Some transactions, actions and arrangements involving an office holder (or a third party in which an office holder has an interest) must be approved by the board of directors or as otherwise provided for in a company’s articles of association, as not being adverse to the company’s interest. In some cases, such a transaction must be approved by the audit committee and by the board of directors itself (with further shareholder approval required in the case of extraordinary transactions). An office holder who has a personal interest in a matter, which is considered at a meeting of the board of directors or the audit committee, may not be present during the board of directors or audit committee discussions and may not vote on this matter, unless the majority of the members of the board or the audit committee have a personal interest, as the case may be.

        The Companies Law also provides that some transactions between a public company and a controlling shareholder, or transactions in which a controlling shareholder of the company has a personal interest but which are between a public company and another entity, require the approval of the board of directors and of the shareholders.

        Once the officer or controlling shareholder complies with these disclosure requirements, the company may approve the transaction in accordance with the provisions of the Companies Law and its articles of association. Generally, the approval of the majority of the disinterested members of the audit committee and the board of directors is required. If audit committee approval is required for a transaction with an interested party, an officer or a controlling shareholder, such approval may not be given unless, at the time the approval was granted two members of the audit committee were external directors and at least one of them was present at the meeting at which the audit committee decided to grant the approval. Shareholder approval may also be required if the transaction is an exceptional transaction. An exceptional transaction is a transaction other than in the ordinary course of business, otherwise than on market terms or that is likely to have a material impact on the company’s profitability, assets or liabilities. In such event, the principal terms of such transaction must be disclosed in a notice to the shareholders which will include all substantive documents relating to the transaction.

        Moreover, an extraordinary transaction with a controlling shareholder or the terms of compensation of a controlling shareholder must be approved by the audit committee, the board of directors and shareholders. The shareholder approval for an extraordinary transaction must include at least one-third of the shareholders who have no personal interest in the transaction and are present at the meeting. The transaction can be approved by shareholders without this one-third approval, if the total shareholdings of those shareholders who have no personal interest and voted against the transaction do not represent more than one percent of the voting rights in the company.

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        If the transaction is with an officer or with a third party in which the officer or the controlling shareholder has a personal interest, the approval must confirm that the transaction is not adverse to the company’s interest. Shareholders must also approve all compensation paid to directors in whatever capacity, company’s undertaking to indemnify a director or indemnification under a permit to indemnify and any transaction in which a majority of the board members have a personal interest. An officer with a personal interest in any matter may not be present at any committee or board of directors meeting where such matter is being approved, and may not vote thereon, unless the majority of the members of the committee or of the board of directors have a personal interest in such approval.

        However, under the Companies Regulations (Relief From Related Party Transactions), 5760-2000, promulgated under the Companies Law and amended in January 2002, certain transactions between a company and its controlling shareholder(s) do not require shareholder approval. In addition, pursuant to the recent amendment to these regulations, certain directors’ compensation and employment arrangements do not require the approval of the shareholders if both the audit committee and the board of directors approve that such arrangements are for the benefit of the company.

        If the director or the office holder is a controlling shareholder of the company then the employment and compensation arrangement of such director or office holder does not require the approval of the shareholders if it meets certain criteria.

        The above relief shall not apply if one or more shareholders, holding at least 1% of the issued and outstanding share capital of the company or of the company’s voting rights objects to the grant of such relief, providing that such objection is submitted to the company in writing not later than seven (7) days from the date of the filing of a report regarding the adoption of such resolution by the company pursuant to the requirements of the Israeli Securities Law. If such objection is duly and timely submitted then the compensation arrangement of the directors will require shareholders’ approval as detailed above.

Indemnification of Directors and Officers

        The Companies Law provides that an Israeli company cannot exculpate an office holder from liability with respect to a breach of his duty of loyalty, but may exculpate in advance an office holder from his liability to the company, in whole or in part, with respect to a breach of his duty of care. Our articles of association provide that, subject to any restrictions imposed by corporate law, we may enter into a contract for the insurance of the liability of any of our office holders with respect to:

— a breach of his duty of care to us or to another person;

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

— a financial liability imposed upon him in favor of another person in respect of an act performed by him in his capacity as an office holder.

In addition, we may indemnify an office holder against:

— a financial liability imposed on him in favor of another person by any judgment, including a settlement or an arbitrator’s award approved by a court in respect of an act performed in his capacity as an office holder; and

— reasonable litigation expenses, including attorneys’ fees, expended by such office holder or charged to him by a court, in proceedings we institute against him or instituted on our behalf or by another person, or in a criminal charge from which he was acquitted, all in respect of an act performed in his capacity as an office holder.

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        These provisions are specifically limited in their scope by the Companies Law, which provides that a company may not indemnify an office holder, nor enter into an insurance contract which would provide coverage for any monetary liability incurred as a result of certain improper actions.

        Pursuant to the Companies Law, indemnification of, and procurement of insurance coverage for, our office holders must be approved by our audit committee and our board of directors and, in specified circumstances, by our shareholders.

        Since April 1, 2004, we do not maintain directors and officers liability insurance due to the costs involved. At an annual general meeting of shareholders in April 2007, the shareholders authorized the procurement of directors and officers liability coverage of up to $5 million per event and up to $5 million per annum, with an annual premium not to exceed $50,000. We procured an insurance policy, effective until April 16, 2008 with the above coverage for an annual premium of $25,000. The premium is expected to increase if we close the Witech merger. We intend to propose to our shareholders at the next shareholders’ meeting to approve indemnification and exculpation agreements with our directors and office holders.

Anti-Takeover Provisions; Mergers and Acquisitions under Israeli Law

        Pursuant to the Companies Law, if following any acquisition of shares of a public company or of a class of shares of a public company the acquiror will hold 90% or more of the company’s shares or 90% of any class of the company’s shares, respectively, then the acquiror must make a tender offer for all of the remaining shares or the particular class of shares of the company. In the event that 5% or more of the shareholders have not responded favorably to a tender offer, the offeror may not purchase more than 90% of that class of shares. Furthermore, the Companies Law 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, such shareholder shall be precluded from purchasing any additional shares of that type.

        The Companies Law further provides that if following the tender offer such acquiring shareholder holds more than 95% of the outstanding shares of any class, the holders of all the remaining shares will be obligated to transfer such shares to the acquiror at the tender offer price. This entails the possibility of additional delay and the imposition of further approval requirements at the court’s discretion. The Companies Law requires that each company that is party to a merger approve the transaction by a vote of the board of directors and by a vote of the majority of its outstanding shares, generally excluding shares voted by the other party to the merger or any person holding at least 25% of the other party to the merger, at a shareholders’ meeting called for this purpose. In addition, in certain cases court approval of a merger may be required. Upon the request of a creditor to either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, a merger may not be completed unless at least 50 days have passed from the time that a proposal for approval of the merger has been filed with the Israeli Registrar of Companies, certain notification and information have been provided to debtors and at least 30 days have passed from the shareholders approval of the merging companies.

        The Companies Law also provides that an open market 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% of the voting rights in the company. This rule does not apply if there already is another holder of 25% of the voting rights in the company. Similarly, the Companies Law provides that an open market 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 the holder of 45% of the voting rights in the company. This rule does not apply if another party already holds more than 45% of the voting rights in the company. Regulations promulgated under the Companies Law provide that these tender offer requirements do not apply to companies whose shares are listed for trading on a stock exchange outside of Israel only if, according to the laws in the country in which its shares are traded there is either a limitation on the acquisition of a specified percentage of control in the Company or the acquisition of a specified percentage of control requires the purchaser to also make a tender offer to the public.

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        The Companies Law extends the disclosure requirements applicable to an officer of the Company to a shareholder that holds 25% or more of the voting rights in a public company, including an Israeli company that is publicly traded outside of Israel such as on the OTC Bulletin Board. Certain transactions between a public company and a 25% shareholder, or transactions in which a 25% shareholder of the company has a personal interest but which are between a public company and another entity, require the approval of the board of directors and of the shareholders. Moreover, an extraordinary transaction with a 25% shareholder or the terms of compensation of a 25% shareholder must be approved by the audit committee, the board of directors and shareholders. The shareholder approval for an extraordinary transaction must include at least one third of the shareholders who have no personal interest in the transaction and are present at the meeting; the transaction can be approved by shareholders without this one third approval, if the total share holdings of those who vote against the transaction do not represent more than 1% of the voting rights in the company.

        The Israeli Companies Ordinance requires that certain transactions, actions and arrangements be approved as provided for in the Company’s Articles of Association, by the Company’s board of directors, by the audit committee and/or by the Company’s shareholders. The vote required by the audit committee and the board for approval of such matters, in each case, is a majority of the disinterested directors participating in a duly convened meeting.

Changes in Capital

        The Company’s Memorandum and Articles of Association do not impose any conditions governing changes in capital that are more stringent than required by the Israeli Companies Law.

C. Material Contracts.

        In October 2006 all shareholders of StoreAge, including us, signed a share purchase agreement (the “SPA”) with LSI for the sale of all issued and outstanding shares of StoreAge to LSI. In November 2006, the sale was closed and LSI paid us gross proceeds of $5,416,692 ($0.862 per share) for all our shares, out of which 13%, $703,793 or $0.112 per share is held in escrow to satisfy certain possible future claims for a period of 18 months following the closing (see below in this Item). At the time of this closing, we held 12.68% of the issued and outstanding share capital of StoreAge (10.89% on a fully diluted basis). This additional dilution resulted from the issuance of warrants to the Israeli venture lending fund that provided a $4,000,000 loan to StoreAge in March 2006 (that was repaid by LSI) and the increase of shares reserved for options pursuant to StoreAge’s incentive share option plans. See “Item 4C. Business Overview – Sale of StoreAge”.

        In the framework of the SPA, were did not make any representations and warranties regarding StoreAge and its subsidiaries, these representation and warranties were made only by StoreAge. We were required to make certain representations and warranties regarding ourselves and the ownership of our shares. The representations and warranties of StoreAge and the sellers, including ourselves, contained in the SPA shall survive the closing for 18 months after the closing , that is, until May 21, 2008; provided, however, that (i) the representations and warranties made with respect to capitalization and ownership of shares shall survive indefinitely, and (ii) the representations and warranties with respect to tax liabilities shall survive until the expiration of the applicable statute of limitations with respect to the liabilities in question.

        In the event of any breach of any representation, warranty or covenant by StoreAge or a seller, including ourselves, the liability of the sellers is limited to their pro-rata share of the funds in escrow; with the exception of representations and warranties regarding capitalization, taxation and due ownership of the shares in which case the total liability of each seller will not exceed the aggregate consideration received by such seller for such seller’s shares sold pursuant to the SPA.

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        The SPA provides that the Seller will have no liability for breaches of representations and warranties (until the aggregate amount of all losses to the purchaser as a result of such breaches equals or exceeds $500,000 (the “Threshold”), whereupon LSI shall be entitled to indemnification with respect to all such losses including the amount of the Threshold; except that (i) the Threshold shall not apply with respect to losses arising from or resulting from breaches of the representations and warranties regarding due ownership of the shares, and (ii) the threshold for tax liabilities is $50,000.

        To date no claim has been made against the funds in escrow.

        On April 23, 2007 we provided a loan to Witech in the amount of $1,500,000 and on May 29, 2007, we provided Witech with an additional loan of $750,000, in June 2007 we provided an additional loan of $100,000 and we provided a further loan of $650,000 and $200,000 during July and August 2007, respectively. For the status of the contemplated merger with Witech and the loans, (see Item 4. “C. Business Overview – The Memorandum of Agreement for a Contemplated Merger with Witech”).

        On May 15, 2007, our board of directors approved the future distribution of five-year warrants for no consideration on a pro-rata basis to all shareholders of the Company who were holders of record at the record date for the purpose of voting at the general meeting of shareholders of the Company to be convened to approve the merger with Witech, to purchase an aggregate of 2,300,000 of our shares, on a pro-rata basis, at an exercise price equal to the closing price of our shares on the date of closing the Witech merger. These warrants will be issued following the closing date of the merger and will be non-transferable and non-exercisable until a registration statement covering their resale is filed and declared effective by the SEC.

        On May 23, 2007, considering the bleak business prospects of Enargis and the costs involved of maintaining our shareholding in Enargis, we, together with all the other shareholders of Enargis, transferred all our shares in Enargis to West End Technology Investments Ltd. for no consideration other than the assumption by West End of all Enargis’ liabilities (see Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions).

D. Exchange Controls.

        The Memorandum and Articles of Association of the Company do not restrict in any way the ownership of Ordinary Shares by nonresidents, except with respect to subjects of countries which are in a state of war with Israel, and neither the Memorandum and Articles of Association nor Israeli law restricts the voting rights of nonresidents. The Israeli Currency Control Law, 1978 imposes certain limitations concerning foreign currency transactions and transactions between Israeli and non-Israeli residents, which limitations may be regulated or waived by the Controller of Foreign Exchange at the Bank of Israel, through “general” and “special” permits. In May 1998, a new “general permit” was issued pursuant to which substantially all transactions in foreign currency are permitted. Any dividends or other distributions paid in respect of Ordinary Shares and any amounts payable upon the dissolution, liquidation or winding up of the affairs of a company, as well as the proceeds of any sale in Israel of the company’s securities to an Israeli resident are freely repatriable into non-Israeli currencies (including U.S. dollars) at the rate of exchange prevailing at the time of conversion, provided that any Israeli income tax owing has been paid on (or withheld from) such payments. Because exchange rates between the NIS and most foreign currencies fluctuate continuously, non-Israeli shareholders will be subject to any such currency fluctuation during the period from when such dividend is declared through the date payment is made in U.S. dollars.

E. Taxation.

        The following is a summary of the current tax structure applicable to companies in Israel which may be relevant to us and our shareholders. To the extent that the summary is based on new tax legislation yet to be judicially or administratively interpreted, we cannot be sure that the views expressed will accord with any future interpretation by the Israeli tax authorities or courts.

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        The discussion is not intended, and should not be taken, as legal or professional tax advice and is not exhaustive of all possible tax considerations. Accordingly, you should consult your tax advisor as to the particular tax consequences of an investment in our Ordinary Shares.

General Corporate Tax Structure

        On July 24, 2002, the Israeli Knesset enacted income tax reform legislation, commonly referred to as the “2003 Tax Reform”. The 2003 Tax Reform has introduced fundamental and comprehensive changes into Israeli tax laws. Most of the legislative changes took effect on January 1, 2003. The 2003 Tax Reform has introduced a transition from a primarily territorial-based tax system to a personal-based system of taxation with respect to Israeli residents. The 2003 Tax Reform has also resulted in significant amendments to the international taxation provisions, and new provisions concerning the taxation of capital markets. Under the 2003 Tax Reform legislation the Ordinary Shares are no longer regarded and defined as “foreign traded securities” and thus certain associated Israeli tax aspects will accordingly be subject to change as discussed below.

        A relatively short time after the 2003 Tax Reform, the Knesset approved on July 25, 2005, the second and third readings of the Income Tax Ordinance Amendment (No. 147 and Ad Hoc Provision) Law, 2005 (hereafter – the 2005 Amendment). The 2005 amendment was an additional update of corporate tax rates that were previously determined in the 2003 Tax Reform, and determines that the rate of corporate tax will be reduced as from January 1, 2006. Consequently income not eligible for “Approved Enterprise” benefits was taxed in 2006 at the regular corporate rate of 31% and in 2007 is taxed at a regular corporate tax rate of 29%. The tax rate will be reduced in subsequent tax years as follows: in 2008 27%, in 2009 26% and in 2010 and thereafter 25%.

        However, the effective tax rate payable by a company that derives income from an “Approved Enterprise” may be considerably less. We currently have no facilities which have received Approved Enterprise status.

        The tax reform also substantially changed the system of taxation of capital gains. Capital gains tax is reduced to 25%, except with respect to capital gains from marketable securities, with transitional provisions for assets acquired prior to January 1, 2003. For further discussion see below “Capital Gains Tax”.

Tax Benefits Under the Law for the Encouragement of Industry (Taxes), 1969

        Pursuant to the Law for the Encouragement of Industry (Taxes), 1969, also known as the Industry Encouragement Law, an Industrial Company is a company resident in Israel, if at least 90% of the income of which, in a given tax year, determined in Israeli currency (exclusive of income from some government loans, capital gains, interest and dividends), is derived from an Industrial Enterprise owned by it. An “Industrial Enterprise” is defined as an enterprise whose major activity in a given tax year is industrial production activity.

        Under the Industry Encouragement Law, Industrial Companies are entitled to the following preferential corporate tax benefits:

— amortization of purchases of know-how and patents over an eight-year period for tax purposes;

— the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli Industrial Companies; and

— accelerated depreciation rates on equipment and buildings.

        Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority. We no longer qualify as an Industrial Company.

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Taxation Under Inflationary Conditions

        The Income Tax Law (Inflationary Adjustments), 1985, generally referred to as the Inflationary Adjustments Law, represents an attempt to overcome the problems presented to a traditional tax system by an economy undergoing rapid inflation. The Inflationary Adjustments Law is highly complex. Its features which may be material to us can be summarized as follows:

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

— Subject to specific limitations, depreciation deductions on fixed assets and losses carried forward are adjusted for inflation based on the increase in the consumer price index (“CPI”).

Capital Gains Tax

        Capital gains tax is imposed on the disposal of capital assets by an Israeli resident, and on the disposal of such assets by a non- Israel resident if those assets are: (i) located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation; or (iii) rights in a foreign corporation the majority of whose assets is directly or indirectly, rights to assets located in Israel (with respect to the applicable portion of the capital gain). The Israeli Tax Ordinance distinguishes between “Real Gain” and the “Inflationary Surplus”. Real Gain is the excess of the total capital gain over Inflationary Surplus computed generally on the basis of the increase in the Israeli CPI between the date of purchase and the date of disposal.

        The capital gain accrued by individuals on the sale of an asset purchased on or after January 1, 2003 will be taxed at the rate of up to 20%. However, if the individual shareholder is a “Controlling Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with others, 10% or more of one of the Israeli resident company’s means of control at the time of sale or at any time during the preceding 12-month period) such gain will be taxed at the rate of 25%. In addition, capital gain derived by an individual claiming deduction of financing expenses in respect of such gain will be taxed at the rate of up to 25%. The real capital gain derived by corporation will be generally subject to tax at the rate of 25%. However, the real capital gain derived from the sale of securities, as defined in Section 6 of the Inflationary Adjustment Law, by a corporation, which was subject upon December 31, 2005 to the provisions of Section 6 of the Inflationary Adjustment Law, will be taxed at the corporate tax rate (29% in 2007).

        The capital gains accrued at the sale of an asset purchased prior to January 1, 2003 will be subject to tax at a blended rate. The marginal tax rate for individuals (up to 48% in 2007) and the regular corporate tax rate for corporations (29% in 2007) will be applied to the gain amount which bears the same ratio to the total gain realized as the ratio which the holding period commencing at the acquisition date and terminating on January 1, 2003 bears to the total holding period. The remainder of the gain realized will be subject to capital gains tax at the rates applicable to an asset purchased after January 1, 2003 (see aforementioned). With respect to traded securities detailed rules apply. Individual and corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (in 2007 – 29% tax rate for a corporation and a marginal tax rate of up to 48% for an individual).

Notwithstanding the foregoing, if the shareholder is a non-Israeli resident, then such taxation is subject to the provisions of any applicable double tax treaty. Moreover, capital gains derived from the sale of the Ordinary Shares by a non-Israeli shareholder may be exempt under the Israeli income tax ordinance from Israeli taxation provided the following cumulative conditions are met: (i) the Shares were purchased upon or after the registration of the Ordinary Shares at the stock exchange, (ii) the seller does not have a permanent establishment in Israel to which the derived capital gain is attributed, and (iii) if the seller is a corporation, less than 25% of its means of control are held by Israeli resident shareholders. In addition, the sale of the Shares may be exempt from Israeli capital gains tax under an applicable tax treaty. Thus, the U.S.-Israel Double Tax Treaty (“the US Treaty”) exempts U.S. resident from Israeli capital gain tax in connection with such sale, provided that: (i) the U.S. resident controlled, either directly or indirectly, less than 10% of an Israeli resident company’s voting power at any time within the 12–month period preceding such sale; (ii) the seller, if being an individual, is present in Israel for a period or periods of less than 183 days during the taxable year; and (iii) the capital gain from the sale was not derived through a permanent establishment of the U.S. resident in Israel.

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        Either the seller, the Israeli stockbrokers or financial institution through which the sold securities are held is obliged, subject to the above mentioned exemptions, to withhold tax upon the sale of securities from the real capital gain at the rate of 25% in respect of a corporation and 20% in respect of an individual

        Generally, a detailed return, including a computation of the tax due, should be submitted to the Israeli Tax Authority, within 30 days of the completion of a transaction and advanced payment amounting to the tax liability arising from the capital gain is due. At the sale of traded securities, detailed rules apply, by which, inter alia, the aforementioned detailed return, upon fulfillment of certain conditions, may not be submitted and the advanced payment should not be paid if all tax due was withheld at the source according to applicable provisions of the Israeli income tax ordinance and regulations promulgated thereunder. Capital gains are also reportable on the annual income tax return.

Dividends

        The following Israeli tax consequences shall apply in the event of actual payment of any dividends on ordinary shares.

        Income from dividends in 2007 and thereafter, other than bonus shares (stock dividends), to Israeli residents who purchased our Shares will generally be subject to income tax at a rate of 20% for individuals, or 25% if the dividends recipient is a Controlling Shareholder (as defined above) and will be exempt from income tax for Israeli corporations (as long as the corporation did not generate income from an approved enterprise)..

        Non-residents of Israel (both individuals and corporations) are subject to income tax on income accrued or derived from sources in Israel, including dividends from Israeli corporations. The distribution of dividend, other than bonus shares (stock dividends), sourced from non-Approved Enterprise income, to non-residents of Israel will generally be subject to income tax at a rate of 20% (or 25% for a shareholder that is considered a Controlling Shareholder (as described above) by way of a tax withholding, unless a lower rate is stipulated by a treaty between Israel and the shareholder’s country of residence.

        Generally, under the US Treaty the maximum rate of withholding tax on dividends paid to a shareholder who is a resident of the United States (as defined in the US Treaty) will be 25%. Due to the fact that a tax rate of 25% is higher than the maximum Israeli tax rate on dividends pursuant to the 2005 Amendment, the maximum tax rate should be 20%. However, when a U.S. tax resident corporation is the recipient of the dividend, the rate on a dividend out of regular (sourced from non-Approved Enterprise income) profits may be reduced to 12.5% under the treaty, where the following conditions are met:

(a) the recipient corporation owns at least 10% of the outstanding voting rights of the Company for all of the period preceding the dividend during the Company’s current and prior tax year; and

(b) generally not more than 25% of the gross income of the paying corporation for its prior tax year consists of certain interest and dividend income components.

        Otherwise, the usual rates as described above would apply.

        In addition, if an Individual shareholder is considered a Controlling Shareholder (as defined above) at any time during the 12-month period preceding such sale, the tax rate on the dividend (not source from Approved Enterprise income) will be 25%. The withholding tax by the Company on such dividend would remain 20%.

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United States Federal Income Tax Consequences

        TO ENSURE COMPLIANCE WITH THE REQUIREMENTS IMPOSED BY THE INTERNAL REVENUE SERVICE, WE INFORM YOU THAT ANY TAX STATEMENT HEREIN IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY TAX-RELATED PENALTIES UNDER THE UNITED STATES INTERNAL REVENUE CODE. ANY TAX STATEMENT HEREIN WAS WRITTEN IN CONNECTION WITH THE MARKETING OR PROMOTION OF THE TRANSACTIONS OR MATTERS TO WHICH THE STATEMENT RELATES. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON THE TAXPAYER’S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

        The following is a summary of certain material U.S. Federal income tax consequences that apply to U.S. Holders (as defined below) who hold Ordinary Shares as capital assets. This summary is based on the United States Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder, judicial and administrative interpretations thereof, and the U.S.-Israel Tax Treaty, all as in effect on the date hereof and all of which are subject to change either prospectively or retroactively. This summary does not address all tax considerations that may be relevant with respect to an investment in Ordinary Shares. This summary does not account for the specific circumstances of any particular investor, such as:

— broker dealers,

— financial institutions,

— certain insurance companies,

— investors liable for alternative minimum tax,

— tax exempt organizations,

— non-resident aliens of the U.S. or taxpayers whose functional currency is not the U.S. dollar,

— persons who hold the Ordinary Shares through partnerships or other pass-through entities,

— investors that actually or constructively own 10 percent or more of our voting shares,

— investors holding Ordinary Shares as part of a straddle, hedge, conversion transaction, or other integrated investment; and

— regulated investment companies.

        This summary does not address the effect of any U.S. Federal taxation other than U.S. Federal income taxation. In addition, this summary does not include any discussion of state, local or foreign taxation.

        Shareholders are urged to consult their tax advisors regarding the foreign and United States Federal, state and local tax considerations of an investment in Ordinary Shares.

        For purposes of this summary, a “U.S. Holder” is a shareholder which is:

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

— a corporation (including any entity treated as a corporation for U.S. Federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof;

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— an estate whose income is subject to U.S. Federal income tax regardless of its source; or

— a trust if:

(a) a court within the United States is able to exercise primary supervision over administration of the trust;

(b) one or more United States persons have the authority to control all substantial decisions of the trust; or

(c) it has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.

Taxation of Dividends

        The gross amount of any distributions received with respect to Ordinary Shares, including the amount of any Israeli taxes withheld therefrom, will constitute dividends under U.S. Federal income tax purposes, to the extent of our current and accumulated earnings and profits as determined for U.S. Federal income tax principles. Shareholders will be required to include this amount of dividends in gross income as ordinary income. Subject to the discussion below under the heading “Passive Foreign Investment Companies”, distributions in excess of our earnings and profits will be treated as a non taxable return of capital to the extent of a shareholder’s tax basis in the Ordinary Shares and any amount in excess of such shareholder’s tax basis, will be treated as gain from the sale of Ordinary Shares. See “Disposition of Ordinary Shares” below for the discussion on the taxation of capital gains. Dividends will not qualify for the dividends received deduction generally available to corporations under Section 243 of the Code.

        Dividends that we pay in NIS, including the amount of any Israeli taxes withheld therefrom, will be included in a shareholder’s income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day such dividends are received. A U.S. Holder who receives payment in NIS and converts NIS into U.S. dollars at an exchange rate other than the rate in effect on such day may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss. U.S. Holders should consult their own tax advisors concerning the U.S. tax consequences of acquiring, holding and disposing of NIS.

        Any Israeli withholding tax imposed on such dividends will be a foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability, subject to certain limitations set out in the Code (or, alternatively, for deduction against income in determining such tax liability). The limitations set out in the Code include computational 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. Dividends generally will be treated as foreign source passive income or financial services income for United States foreign tax credit purposes. Foreign income taxes exceeding the credit limitation for the year of payment or accrual may be carried back for two taxable years and forward for five taxable years in order to reduce U.S. federal income taxes, subject to the credit limitation applicable in each of such years. Other restrictions on the foreign tax credit include a prohibition on the use of the credit to reduce liability for the U.S. individual and corporation alternative minimum taxes by more than 90%. A U.S. Holder will be denied a foreign tax credit with respect to Israeli income tax withheld from dividends received on the Ordinary Shares to the extent such U.S. Holder has not held the Ordinary Shares for at least 16 days of the 30-day period beginning on the date which is 15 days before the ex dividend date or to the extent such U.S. Holder is under an obligation to make related payments with respect to 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 16-day holding period required by the statute. The rules relating to the determination of the foreign tax credit are complex, and shareholders should consult with their personal tax advisors to determine whether and to what extent they would be entitled to this credit.

48

        Dividends received by an individual shareholder from U.S. corporations and certain qualified foreign corporations are taxed at the same rate applicable to net capital gain income. As such, the maximum rate applicable to dividend income received by an individual shareholder from a U.S. corporation and certain qualified foreign corporations has generally been reduced to 15%. However, an individual shareholder will not qualify for this lower rate if such shareholder does not hold a share of stock for more than 60 days during the 120 day period beginning 60 days before the ex-dividend date. Additionally, the reduced rate is not available for dividends to the extent that the individual shareholder is obligated to make related payments (whether pursuant to a short sale or otherwise) with respect to positions in substantially similar or related property. Special rules will apply in determining an individual shareholder’s foreign tax credit limitation in the case of dividends which qualify for the lower rate.

        A foreign corporation is a “qualified foreign corporation” if it is not a foreign personal holding company, a foreign investment company or a passive foreign investment company for the taxable year of the corporation in which the dividend is paid, or the preceding taxable year and either (i) is eligible for the benefits of a comprehensive income tax treaty with the United States which the United States Treasury Department determines is satisfactory for purposes of the new provision and which includes an exchange of information program, or (ii) the stock of the foreign corporation is readily tradable on an established securities market in the United States.

        The reduced rate applicable to dividend distributions shall not apply to taxable years beginning after December 31, 2008.

Dispositions of Ordinary Shares

        If a shareholder sells or otherwise disposes of Ordinary Shares, such shareholder will recognize gain or loss for U.S. Federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other disposition and the adjusted tax basis of such Ordinary Shares. Subject to the discussion below under the heading “Passive Foreign Investment Companies,” such gain or loss generally will be capital gain or loss and will be long term capital gain or loss if a shareholder has held the Ordinary Shares for more than one year at the time of the sale or other disposition. In general, any gain that a shareholder recognizes on the sale or other disposition of Ordinary Shares will be U.S. source for purposes of the foreign tax credit limitation; losses, will generally be allocated against U.S. source income. Under the U.S.-Israel Treaty, gain on the disposition of Ordinary Shares may be treated as Israeli source, if the shareholder has held 10% or more of the voting power of the company at any time during the 12 months preceding the date of disposition. Deduction of capital losses is subject to certain limitations under the Code.

        In the case of a cash basis U.S. Holder who receives NIS in connection with the sale or disposition of Ordinary Shares, the amount realized will be based on the U.S. dollar value of the NIS received with respect to the Ordinary Shares as determined on the settlement date of such exchange. A U.S. Holder who receives payment in NIS and converts NIS into United States dollars at a conversion rate other than the rate in effect on the settlement date may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss.

        An accrual basis U.S. Holder may elect the same treatment required of cash basis taxpayers with respect to a sale or disposition of Ordinary Shares, provided that the election is applied consistently from year to year. Such election may not be changed without the consent of the Internal Revenue Service (the “IRS”). In the event that an accrual basis U.S. Holder does not elect to be treated as a cash basis taxpayer (pursuant to the Treasury regulations applicable to foreign currency transactions), such U.S. Holder may have a foreign currency gain or loss for U.S. federal income tax purposes because of differences between the U.S. dollar value of the currency received prevailing on the trade date and the settlement date. Any such currency gain or loss would be treated as ordinary income or loss and would be in addition to gain or loss, if any, recognized by such U.S. Holder on the sale or disposition of such Ordinary Shares.

49

Passive Foreign Investment Companies

        For U.S. Federal income tax purposes, we will be considered a passive foreign investment company (“PFIC”) for any taxable year in which either (i) 75% or more of our gross income is passive income, or (ii) at least 50% of the average value of all of our assets for the taxable year produce or are held for the production of passive income. For this purpose, passive income includes dividends, interest, royalties, rents, annuities and the excess of gains over losses from the disposition of assets which produce passive income. If we were determined to be a PFIC for U.S. Federal income tax purposes, highly complex rules would apply to U.S. Holders owning Ordinary Shares. Accordingly, shareholders are urged to consult their tax advisors regarding the application of such rules.

        Based on our current and projected income, assets and activities, we believe that, until we complete a merger with Witech or another operating business, we may be considered a PFIC.

        If we are treated as a PFIC for any taxable year, then, unless a shareholder elects either to treat such shareholder’s investment in Ordinary Shares as an investment in a “qualified electing fund” (a “QEF election”) or to “mark to market” such shareholder’s Ordinary Shares, as described below:

— the shareholder would be required to allocate income recognized upon receiving certain dividends or gain recognized upon the disposition of Ordinary Shares ratably over the holding period for such Ordinary Shares;

— the amount allocated to each year during which we are considered a PFIC other than the year of the dividend payment or disposition would be subject to tax at the highest individual or corporate tax rate, as the case may be, and an interest charge would be imposed with respect to the resulting tax liability allocated to each such year;

— gain recognized upon the disposition of Ordinary Shares would be taxable as ordinary income; and

— the shareholder would be required to make an annual return on IRS Form 8621 regarding distributions received with respect to ordinary shares and any gain realized on such shareholder’s Ordinary Shares.

        If a shareholder makes either a timely QEF election or a timely mark to market election in respect of such shareholder’s Ordinary Shares, the shareholder would not be subject to the rules described above. If a shareholder makes a timely QEF election, the shareholder would be required to include in such shareholder’s income for each taxable year such shareholder’s pro rata share of our ordinary earnings as ordinary income and such shareholder’s pro rata share of our net capital gain as long term capital gain, whether or not such amounts are actually distributed to the shareholder. A shareholder would not be eligible to make a QEF election unless we comply with certain applicable information reporting requirements.

        Alternatively, if a shareholder elects to “mark to market” such shareholder’s Ordinary Shares, the shareholder will generally include in income any excess of the fair market value of the Ordinary Shares at the close of each tax year over such shareholder’s adjusted basis in the Ordinary Shares. If the fair market value of the Ordinary Shares had depreciated below the shareholder’s adjusted basis at the close of the tax year, the shareholder may generally deduct the excess of the adjusted basis of the Ordinary Shares over its fair market value at that time. However, such deductions generally would be limited to the net mark to market gains, if any, that the shareholder included in income with respect to such Ordinary Shares in prior years. Income recognized and deductions allowed under the mark to market provisions, as well as any gain or loss on the disposition of Ordinary Shares with respect to which the mark to market election is made, is treated as ordinary income or loss. For these purposes, stock will be treated as “marketable stock” for which a “mark-to-market” election can be made if (i) it is a class of stock which trades on a national securities exchange that is registered with the Securities and Exchange Commission or on a national market system established pursuant to Section 11A of the Securities Exchange Act of 1934 and (ii) which is regularly traded on such exchanges or markets, other than in de minimis quantities, on at least 15 days during each calendar quarter. However, it is unclear under current law whether shares being traded in the over-the-counter market qualify as “marketable stock” for these purposes. Shareholders are urged to consult their own tax advisors concerning their ability to make a “mark-to-market” election.

50

Backup Withholding and Information Reporting

        Payments in respect of Ordinary Shares may be subject to information reporting to the IRS and U.S. backup withholding tax. Under the backup withholding rules, a shareholder may be subject to backup withholding at the rate of 28%. Backup withholding will not apply, however, if a shareholder (i) is a corporation or falls within certain exempt categories, and demonstrates the fact when so required, or (ii) furnishes a correct taxpayer identification number and makes any other required certification. Any amount withheld under these rules may be credited against a shareholder’s federal income tax liability.

        Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s U.S. tax liability, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS.

        Any U.S. Holder who holds 10% or more in vote or value of our Ordinary Shares will be subject to certain additional United States information reporting requirements.

U.S. Gift and Estate Tax

        An individual U.S. Holder of Ordinary Shares will be subject to U.S. gift and estate taxes with respect to Ordinary Shares in the same manner and to the same extent as with respect to other types of personal property.

F. Dividends and Paying Agents.

        Not applicable.

G. Statements by Experts.

        Not applicable.

H. Documents on Display.

        The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, accordingly, it files reports and other information with the Securities and Exchange Commission (the “SEC”). Individuals can inspect and copy those reports and other information at the public reference facilities maintained by the SEC at 100 F. Street, N.E., Room 1580, Washington, D.C. 20549 and at the SEC’s regional offices. For more information on its public reference facilities, you can call the SEC at 1-800-SEC-0330. You can obtain copies of such material at prescribed rates from the Public Reference Section of the SEC. Individuals can also obtain reports and other information from the Internet site maintained by the SEC at http://www.sec.gov.

        In addition, documents referred to in this 20-F filing are available, at no cost, upon request from Robi Hartman, Chief Executive Officer, I.I.S. Intelligent Information Systems Limited, 33 Jabotinsky Street, Ramat Gan, Israel (Tel. 972-3-751-0007).

I. Subsidiary Information.

        Not applicable.

Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        In the normal course of business, the financial position of the Company is routinely subjected to a variety of risks, including market risk associated with interest rate movements and currency rate movements on non-U.S. dollar denominated assets and liabilities. The Company regularly assesses these risks and has established policies and business practices to protect against the adverse effects of these and other potential exposures. As a result, the Company does not anticipate material losses in these areas.

51

        For purposes of specific risk analysis, the Company uses sensitivity analysis to determine the impacts that market risk exposures may have on the fair values of the Company’s financial instruments. The financial instruments included in the sensitivity analysis consist of all of the Company’s cash and cash equivalents.

        To perform sensitivity analysis, the Company assesses the risk of loss in fair values from the impact of hypothetical changes in interest rates and foreign currency exchange rates on market sensitive instruments. The market values for interest risk are computed based on the present value of future cash flows as impacted by the changes in rates attributable to the market risk being measured. The discount rates used for the present value computations were selected based on market interest rates in effect at December 31, 2006. The market values for foreign exchange risk are computed based on spot rates in effect at December 31, 2006. The market values that result from these computations are compared to the market values of these financial instruments at June 30, 2006. The differences in this comparison are the hypothetical gains or losses associated with each type of risk.

        The results of the sensitivity analysis are as follows:

        Interest Rate Risk: A 10% decrease or a 10% increase in the levels of interest rates with all other variables held constant would not materially affect the earnings, cash flow and fair value of the Company’s near-term financial condition or results of operations.

        Foreign Currency Exchange Rate Risk: A 10% movement in levels of foreign currency exchange rates against the U.S. dollar with all other variables held constant would not materially affect the earnings, cash flow and fair value of the Company’s near-term financial condition or results of operations.”

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

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 20F. Based on that evaluation, our chief executive officer and chief financial officer has concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (“Exchange Act”) was recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act was accumulated and communicated to our management, including chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

52

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a reasonable possibility that a material misstatement of our annual financial statements would not be prevented or detected. As of the end of the period covered by this Annual Report on Form 20F, we have concluded that our internal control over financial reporting was ineffective and that we had material weaknesses as set out below in this Item 15.

1. Disclosure Controls
From July 2004 until April 2007, the Company was placed in voluntary liquidation and had no functioning board of directors or board-related committees as an outside liquidator managed all of the Company’s affairs. During this period, we ceased preparing audited financial statements which resulted in the Company being delinquent with respect to its annual report filing obligations with the SEC. Consequently, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including chief executive officer and chief financial officer, as appropriate to allow timely decisions.

2. 2003 Restatement
In connection with the preparation and filing of the Annual report on Form 20F in June 2004, the Company’s controls over period end reporting were not operating effectively due to the imminent commencement of liquidation proceedings at that time. These ineffective controls lead to certain errors at the date of the filing. These errors resulted in the need for restatements as described in Note 1(a)(2) to the financial statements.

Changes in Internal Control over Financial Reporting 

Following the cancellation of our voluntary liquidation proceedings in April 2007, we have taken certain actions to remediate our material weaknesses including:

— Re-establishing a board of directors including an audit committee; and

— Creating an internal audit function; and

— Hiring a professional services firm to perform accounting and financial reporting functions.

As a result of these and other measures we have taken to date, we believe the material weaknesses related to the financial statement close process reported in this Annual Report on Form 20F, have been remediated, as of the date of this filing.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

        For the year 2004, as we entered voluntary liquidation in July 2004, we did not have a properly functioning audit committee. None of the members of our audit committee met the definition of an audit committee financial expert, as defined in Item 16A (a) of Form 20-F. This was due to our inability to attract a director with the requisite financial knowledge and experience.

        From July 2004 until April 2007 we were in involuntary liquidation and had no functioning board of directors or board of directors’ committees.

53

        Following the termination of our voluntary liquidation proceedings in April 2007 we have an Audit Committee consisting of Iris Weller-Weiss, Philip Stein, Alon Wulkan and Rony Jacobowitz. Our Board has determined that each of Philip Stein as well as Adrian Auman who is recommended to replace him effective as of our next shareholders meeting, meets the definition of an audit committee financial expert, as defined in Item 16A(a) of Form 20-F.

ITEM 16B. CODE OF ETHICS

        As of December 31, 2006 the Company has not adopted a written code of ethics for its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Ethical oversight and actual or apparent conflicts of interest have historically been handled informally by senior management and the Board of Directors. The Company intends to address the adoption of such a code with the Board of Directors in the future.

ITEM 16C. AUDIT FEES AND SERVICES

Fees Paid to Independent Public Accountants

        The following table sets forth, for each of the years indicated, the fees paid to our independent public accountants.

	Year Ended December 31,
	2004		2005		2006
Services Rendered	Fees		Fees		Fees
Audit (1)	$	43,000	$	43,000	$	54,000
Audit-related (2)	$	0	$	0	$	20,000
Tax (3)	$	2,000	$	2,000	$	2,000
Other
Total	$	45,000	$	45,000	$	76,000

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

(2) Audit-related fees relate to assurance and associated services that traditionally are performed by the independent accountant, including: attest services that are not required by statute or regulation; accounting consultation and audits in connection with mergers, acquisitions and divestitures; employee benefit plans audits; and consultation concerning financial accounting and reporting standards.

(3) Tax fees relate to services performed by the tax division for tax compliance, planning, and advice.

Pre-Approval Policies and Procedures

As of December 31, 2006 our board of directors had not adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent public accountants, Kesselman & Kesselman, a member of PricewaterhouseCoopers International Limited. No issue regarding these services has arisen in the last two fiscal years. The board of directors will deliberate these matters as and when they arise, on a case-by-case basis. Commencing April 17, 2007, the Company’s audit committee charter provides that the audit committee shall approve in advance all audit services and all non-audit services provided by the independent registered public accounting firm based on a policy attached to the charter.

54

        Under the policy, proposed services either (i) may be pre-approved by the audit committee without consideration of specific case-by-case services as “general pre-approval”; or (ii) require the specific pre-approval of the Audit Committee as “specific pre-approval”. The appendices to the policy set out the audit, audit-related and tax services that have received the general pre-approval of the audit committee, including those described in the footnotes to the table, above. These services are subject to annual review by the audit committee.

        All other audit, audit-related, tax and other services not mentioned in the appendices to the charter must receive a specific pre-approval from the audit committee. Requests or applications to provide services that require specific approval by the audit committee are submitted to the audit committee by the Chief Executive Officer.

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

        Not applicable.

ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATES AND PURCHASERS

        Not applicable.

PART III

Item 17. FINANCIAL STATEMENTS

        Not applicable.

Item 18. FINANCIAL STATEMENTS

        Attached. See Item 19(a).

Item 19. FINANCIAL STATEMENTS AND EXHIBITS

(a) Index to Financial Statements of the Company: Page

Report of Independent Auditors on
Financial Statements of the Company	F-2
Balance Sheets at December 31, 2006 and 2005	F-3
Statements of Operations for the years ended
December 31, 2006, 2005 and 2004	F-4
Statements of Changes in Shareholders' Equity (capital deficiency)
for the years ended December 31, 2006, 2005 and 2004	F-5
Statements of Cash Flows for the years ended
December 31, 2006, 2005 and 2004	F-6
Notes to the Financial Statements	F-7 - F-19

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

55

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.

I.I.S. INTELLIGENT INFORMATION
SYSTEMS LIMITED
(Registrant)


By: /s/ Robi Hartman
——————————————
Robi Hartman, Chief Executive Officer

Date: August 29, 2007

56

Index to Exhibits:

Exhibit No.:

1.1 Memorandum of Association of the Company.*

1.2 Articles of Association of the Company, Amended and Restated as of November 19, 2000.**

4.1 Summary English Translation from the original Hebrew of a Lease Agreement entered into between the Company and West End Technology Investments Ltd., for office space located at 33 Jabotinsky Street, Ramat Gan, Israel, dated January 30, 2001.**

4.2 Share Purchase Agreement between LSI Logic Corporation, StoreAge Networking Technologies Ltd. and the Purchasers listed therein dated as of October 25, 2006

4.3 Memorandum of Agreement dated February 20, 2007 between the Company, Witech Communications Ltd. and certain shareholders of Witech.

8.1 List of significant subsidiaries of the Company.

12.1 Certification by Chief Executive Officer and Acting Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

13.1 Certification by Chief Executive Officer and Acting Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement No. 33-62862 dated August 10, 1993.
** Incorporated by reference to the corresponding exhibit to the Company’s Annual Report on Form 20-F for the year ended December 31, 2000.
*** Incorporated by reference to the corresponding exhibit to the Company’s Annual Report on Form 20-F for the year ended December 31, 2001.

57

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2006

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2006

TABLE OF CONTENTS

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2
FINANCIAL STATEMENTS:
Balance sheets	F-3
Statements of operations	F-4
Statements of changes in shareholders' equity (capital deficiency)	F-5
Statements of cash flows	F-6
Notes to financial statements	F-7-F-19

The amounts are stated in U.S. dollars ($) in thousands.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders of

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED

We have audited the balance sheets of I.I.S. Intelligent Information Systems Limited (the “Company”) as of December 31, 2006 and 2005 and the statements of operations, of changes in shareholders’ equity (capital deficiency) and of cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s Board of Directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 the Company’s Board of Directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion the financial statements referred to above, present fairly, in all material respects, the financial position of the Company as of December 31, 2006 and 2005 and the results of its operations and cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

Tel-Aviv, Israel	Kesselman & Kesselman
August 29, 2007	Certified Public Accountant (Isr.)
	A member of PricewaterhouseCoopers
	International Limited

F - 2

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
BALANCE SHEETS
(U.S. dollars in thousands)

	December 31
	2006			2005
A s s e t s
Current assets:
Cash and cash equivalents	$	4,705		$	41
Accounts receivable - related parties		5
T o t a l  current assets		4,710			41
Funds in respect of employee rights upon retirement		3			2
T o t a l   assets	$	4,713		$	43
Liabilities and shareholders' equity
(net of capital deficiency)
Current liabilities -
accounts payable and accruals	$	261		$	232
Long-term liabilities -
liability for employee rights upon retirement		5			3
T o t a l  liabilities		266			235
Commitments and contingent liabilities, note 4
Shareholders' equity (capital deficiency):
Ordinary shares of NIS 0.003 par value at
December 31, 2006 and 2005:
Authorized - 16,666,667 shares;
Issued and outstanding - 11,576,539 shares		55			55
Additional paid-in capital		41,417			41,417
Accumulated deficit		(37,025	)		(41,664	)
T o t a l   shareholders' equity (capital deficiency)		4,447			(192	)
T o t a l   liabilities and shareholders' equity
(net of capital deficiency)	$	4,713		$	43

——————————————	——————————————
Robi Hartman	Aharon Jacobowitz
Chairman of the Board,	Director
Chief Executive Officer
and Chief Financial Officer

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

F - 3

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except share and per share data)

	Year ended December 31
	2006			2005			2004
General and administrative expenses	$	(91	)	$	(103	)	$	(200	)
Capital gain from disposal of investment		4,713
Financial income (expenses) - net		17			(3	)		(4	)
Net income (loss)	$	4,639		$	(106	)	$	(204	)
Net income (loss) per share of ordinary shares -
Basic and diluted
	$	0.40		$	(0.01	)	$	(0.02	)
Weighted average number of ordinary shares used in
computing income (loss) per ordinary shares
(in thousands) -
Basic and diluted		11,577			11,577			11,577

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

F - 4

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
STATEMENTS OF SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(U.S dollars in thousands, except share data)

	Ordinary shares
	Number of shares		Amount		Additional paid-in capital		Accumulated deficit			Total shareholders' equity (capital deficiency)
Balance as of January 1, 2004		11,576,539	$	55	$	41,417	$	(41,354	)	$	118
Change during 2004 -
Net loss								(204	)		(204	)
Balance as of December 31, 2004		11,576,539		55		41,417		(41,558	)		(86	)
Change during 2005 -
Net loss								(106	)		(106	)
Balance as of December 31, 2005		11,576,539		55		41,417		(41,664	)		(192	)
Change during 2006 -
Net income								4,639			4,639
Balance as of December 31, 2006		11,576,539	$	55	$	41,417	$	(37,025	)	$	4,447

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

F - 5

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
STATEMENTS OF CASH FLOWS
(U.S dollars in thousands)

	Year ended December 31
	2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	4,639		$	(106	)	$	(204	)
Adjustments required to reconcile net income (loss) to net cash
used in operating activities:
Write-off of fixed assets								9
Changes in accrued liability for employee rights
upon retirement		2			1			(7	)
Loss (gain) on amounts funded in respect of employee
rights upon retirement		(1	)					3
Capital gain from disposal of investment		(4,713	)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		(5	)		10			130
Increase (decrease) in accounts payable and accruals		29			43			(19	)
Net cash used in operating activities		(49	)		(52	)		(88	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of investment		4,713
Proceeds from a restricted deposit								48
Net cash provided by investing activities		4,713			-,-			48
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		4,664			(52	)		(40	)
BALANCE OF CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR		41			93			133
BALANCE OF CASH AND CASH EQUIVALENTS
AT END OF YEAR	$	4,705		$	41		$	93

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

F - 6

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
NOTES TO FINANCIAL STATEMENTS

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES:

a. General:

1) Operations

Through December 2002, I.I.S. Intelligent Information Systems Limited. (“the Company”) designed, developed and provided enterprise storage solutions for the Internet Small Computer Systems Interface (“iSCSI”). The Company’s products were customized software implementation projects for the development and integration of iSCSI interface into existing storage devices and a family of comprehensive IP storage testing tools, for iSCSI protocol analysis of SAN devices. Due to the slow down associated with the iSCSI revenues resulting from the delays in the adoption of the iSCSI protocol, the Company decided to cease its iSCSI operations in December 2002.

As of December 31, 2003, the Company is no longer engaged in any operational business activity other than managing its holdings in StoreAge Networking Technologies Ltd. (“StoreAge”) and Enargis Storage Solutions Ltd. (“Enargis”) (see below).

On July 29, 2004, the Company’s shareholders resolved to place the Company in a voluntary liquidation.

On April 17, 2007, the Company’s general meeting of shareholders duly approved the termination of the Company’s voluntary liquidation.

Since the voluntary liquidation was not considered imminent, these financial statements are presented on a going-concern basis.

2) Accounting principles

The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

3) Functional currency

The currency of the primary economic environment in which the operations of the Company are conducted is the U.S. dollar (“dollar”; “$”). Most of the Company’s expenses are incurred in dollars. The Company’s deposits are mostly in dollars. Thus, the functional currency of the Company is the dollar.

Transactions and balances originally denominated in dollars are presented at their original amounts. Balances in non-dollar currencies are translated into dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. Non-dollar transactions reflected in the statements of operations are translated into dollars using exchange rates at the transaction dates or average rates. Currency transaction gains or losses are carried to financial income or expenses, as appropriate.

F - 7

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED

(An Israeli corporation)NOTES
TO FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

4) Use of estimates in preparation of financial statements

The preparation of financial statements in conformity with generally accepted accounting policies (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

b. Cash equivalents

The Company considers all highly liquid investments, which are comprised of short-term bank deposits with an original maturity date of up to three months) that are not restricted as to withdrawal or use, to be cash equivalents.

c. Deferred income taxes

The Company accounts for income taxes in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. Deferred taxes are determined utilizing the asset and liability method, based on the estimated future tax effects of differences between the financial accounting and tax bases of assets and liabilities under the applicable tax laws. Deferred tax balances are computed using the tax rates expected to be in effect at time when these differences reverse.

Valuation allowances in respect of the deferred tax assets are provided when it is more likely than not that all or a portion of the deferred income tax assets will not be realized. The Company has provided a full valuation allowance with respect to its deferred tax assets.

d. Investments in associated companies

Investments in associated companies are investments in companies held to the extent of 20% or more which the Company can exercise significant influence over operating and financial policy.

As the Company has not guaranteed obligations and not otherwise committed to provide further financial support for any of the associated companies, the Company discontinued applying the equity method when the investment account was reduced to zero.

F - 8

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

e. Net income (loss) per share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during the year.

Diluted net income (loss) per share are computed by dividing net income (loss) by the weighted average number of shares outstanding during the year, taking into account the potential dilution that could occur upon the exercise of options granted under employee stock option plans, using the treasury stock method. In the years ended December 31, 2006, 2005 and 2004 all outstanding stock options have been excluded from the calculation of the diluted net income (loss) per share since their effect was anti-dilutive.

The diluted loss per share does not include options of the Company in the amount of 372,671, 406,550 and 406,550 for the years 2006, 2005 and 2004, respectively.

f. Accounting for stock based compensation

Prior to January 1, 2006, the Company accounted for employee share-based compensation under the intrinsic value model in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. Under APB 25, compensation expense is based on the difference, if any, on the date of the grant of a stock option, between the fair value of the shares underlying the option and the exercise price of the option. The Company did not disclose pro forma data, as required by SFAS 123, “Accounting for Stock-Based Compensation”(“SFAS 123”), as amended by FAS 148, assuming it had accounted for employee share option grants using the fair value-based method defined in SFAS 123, since the effect on net loss and net loss per share assuming it had applied the fair value recognition provisions is immaterial.

The Company adopted SFAS No. 123 (Revised 2004), “Shared-Based Payment” (“SFAS 123R”) as of January 1, 2006, using the modified prospective application transition method, as permitted by SFAS 123R. Under such transition method, the Company’s financial statements for periods prior to the effective date of SFAS 123R have not been restated. The adoption of SFAS 123R, for the year ended December 31, 2006 had no effect on the financial statements of the Company.

g. Concentration of credit risks

Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents, which are deposited in major financial institutions.

F - 9

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

h. Newly issued and recently adopted accounting pronouncements:

In June 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes –an interpretation of FAS 109". This financial interpretation clarifies the accounting for uncertainty in income taxes, and prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on various related matters such as de-recognition, interest and penalties and disclosure. The provisions of FIN 48 are effective for fiscal years beginning January 1, 2007. The Company is currently evaluating the impact of adopting FIN 48 on its financial statements and results of operations.

In September 2006, the FASB issued FAS 157, “Fair Value Measurements”. This standard establishes a framework for measuring fair value and expands related disclosure requirements; however, it does not require any new fair value measurement. The provisions of SFAS 157 are effective for fiscal years beginning January 1, 2008. The Company is currently evaluating the impact of adopting of SFAS 157 on its financial statements and results of operations.

In September 2006, the SEC issued Staff Accounting Bulletin (SAB) 108, which expresses the Staff’s views regarding the process of quantifying financial statement misstatements. The bulletin was effective as of the year beginning January 1, 2006. The implementation of this bulletin is not expected to have an impact on the Company’s financial statements.

In February 2007, the FASB issued FAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This standard permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The provisions of SFAS 159 are effective for fiscal years beginning January 1, 2008. The Company is currently evaluating the impact of adopting SFAS 159 on its financial position, cash flows and results of operations. The Company does not expect the impact to have a material effect on its financial position, cash flows and results of operations.

i. Impairment in value of long-lived assets

Under FAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”(“FAS 144”), the Company reviews long-lived assets, to be held and used, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Under FAS 144, if the sum of the expected future cash flows (undiscounted and without interest charges) of the long-lived assets is less than the carrying amount of such assets, an impairment loss would be recognized, and the assets are written down to their estimated fair values.

During the fiscal year 2004, the Company abandoned some of its office furniture and equipment. Accordingly, the Company recorded an impairment charge in the amount of $9.

F - 10

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 2 – CERTAIN TRANSACTIONS AND INVESTMENTS

a. Investment in Enargis

On March 31, 2003, the Company transferred iSCSI activities to a newly formed company –Enargis. Following such transfer, the Company held 25% in Enargis. The carrying amount of the investment in Enargis following the transaction amounted to approximately $20,000, equaling the carrying amount of assets transferred, and was subsequently reduced to zero during the year ended December 31, 2003 due to the Company’s share in Enargis losses.

On May 15, 2007, the Company, together with all the other shareholders of Enargis, transferred all of its 25% holdings in Enargis to West End Technology Investments Ltd. a company controlled by the CEO and Chairman of the Board) for no consideration.

b. Investment in StoreAge

As of January 1, 2004 and through October 2005, the Company held 38.9% of StoreAge. StoreAge is an Israeli company, which is engaged in the development and marketing of products based on its SAN Virtualization technology.

In October 2005, all classes of preferred shares of StoreAge and outstanding bridge loans were converted into ordinary shares of StoreAge. Following this conversion the Company held 13% of the issued and ordinary shares of StoreAge.

The carrying amount of the investment in StoreAge was reduced to zero during the year ended December 31, 2002 due to the Company’s share in StoreAge’s losses.

In March 2006, the Company’s holdings in Storage were diluted to 12.68% due to share issuance by StoreAge to a third party.

In October 2006 all the shareholders of StoreAge, including the Company, signed a share purchase agreement with LSI Logic Corporation (“LSI”) for the sale of all issued and outstanding shares of StoreAge to LSI. The Company’s share of the proceeds received upon the closing of the transaction in November 2006, was $5,416,692.of which $703,793 is held in escrow to satisfy certain possible future claims for a period of 18 months following the closing.

The Company recognized the cash portion received in the amount of $4,712,899 as a gain on the sale.

F - 11

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 2 – CERTAIN TRANSACTIONS AND INVESTMENTS (continued):

c. Memorandum Of Agreement (“MOA”) with Witech Communications Ltd. (“Witech”)

On February 20, 2007, the Company signed a MOA with Witech with respect to a contemplated merger between the Company and Witech, under which the Company is to acquire full control and ownership of Witech, in consideration of 50% of the Company’s shares. In addition, the Company is to provide certain loans to Witech (see below). The closing of the merger with Witech is subject to numerous terms and conditions, among others: satisfaction, in the sole discretion of the Company, the Company’s due diligence requirements, including technical, financial and legal diligence, the signing of mutually acceptable Final Agreements containing additional provisions customary in transactions of this type, obtaining of a ruling from the Israeli Tax Authority confirming that the Merger will be tax-free subject to reasonable conditions set forth therein, the mutual execution of employment agreements between the Company and the senior management of Witech who will become the Company’s employees, the termination of the Company’s voluntary liquidation proceedings, the approval of the Company’s Board of Directors and general meeting of shareholders. In addition and without derogating from the aforesaid, the Company shall not be obligated to consummate the contemplated transaction if at any time before the consummation of the merger of Witech with and into the Company there is any effect, change, event, circumstance or condition which, when considered with all other effects, changes, events, circumstances or conditions, has or would reasonably be expected to have a material adverse effect on the business, assets (including intangible assets), prospects (including due to the loss or resignation, or notice of loss or resignation, of key employees of Witech and its subsidiary), results of operations or financial condition of Witech and its subsidiary taken together as a whole. If the Tax Ruling is subject to unreasonable conditions, the Company and Witech will negotiate in good faith an alternative structure for the transaction.

From April 2007 through August 2007, according to the MOA, the Company provided loans to Witech in the total amount of $3,200,000. The above mentioned loans bear an annual interest rate of LIBOR plus 5%, whilst in the event that the merger is not consummated, the interest on the loans will be increased to LIBOR plus 10% (or the maximum rate permitted by law, whichever is lower) retroactively to the date it was provided to Witech.

If the merger is not consummated, Witech may have difficulty in repaying the loans provided by the Company and, if Witech is in default, the Company may not be able to recoup its loans through exercise of the charge on Witech’s assets.

F - 12

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 3 – EMPLOYEE RIGHTS UPON RETIREMENT

Israeli law generally requires payment of severance pay and/or pensions upon dismissal of an employee or upon termination of employment in certain other circumstances. The severance pay liabilities are fully provided for in these financial statements, as if it was payable at each balance sheet date on an undiscounted basis, based upon the number of years of service and the most recent monthly salary of the Company’s employee.

NOTE 4 – COMMITMENTS AND CONTINGENT LIABILITIES:

a. Effective as of April 1, 2003, all of the directors of the Company agreed to suspend their compensation until the Company either received a settlement from an ongoing lawsuit which at that time was in mediation or received proceeds from the sale/exit of StoreAge or Enargis or the raising of additional financial resources. Following settlement of the lawsuit, the directors of the Company did not take this compensation and agreed that this compensation would be paid only from receipt of proceeds from the sale/exit of its holdings in StoreAge or Enargis or the raising of additional financial resources. The amount of compensation due but unpaid to the Company’s officers and directors as of December 31, 2006 according to this arrangement is approximately $172,000. This amount was accrued in the financial statements in “accounts payable and accruals” and was paid in May 2007.

b. At the Company’s general meeting of shareholders held in July 2004, Messrs. Hartman and Jacobowitz were appointed as joint liquidators and the shareholders approved a fee of $1,000 per month (plus VAT, if applicable), to each of them commencing from the appointment of the liquidation and until distribution of all proceeds of the liquidation to the Company’s shareholders. The amount of compensation due but unpaid to the Company’s liquidators as of December 31, 2006 according to this arrangement is approximately $58,000. This amount was accrued in the financial statement in “accounts payable and accruals” and was paid in May 2007.

c. In addition to (b) above, the Company’s shareholders approved that (i) Mr. Jacobowitz will receive an additional bonus as follows: $25,000 (plus VAT, if applicable) if the gross proceeds received by the Company’s shareholders as a result of the liquidation of the net assets of the Company (hereinafter – the “Gross Proceeds”) are above $0.50 per share, $50,000 (plus VAT, if applicable) if the Gross Proceeds are above $1.00 per share and $75,000 (plus VAT, if applicable) if the Gross Proceeds are above $1.30 per share, and (ii) Mr. Hartman will receive an additional bonus of $100,000 (plus VAT, if applicable) if the Gross Proceeds are above $1.30 per share.

Since the Company terminated its voluntary liquidation, the Company’s audit committee and board have approved on June 17, 2007, subject to shareholder approval, that these bonuses will be calculated and paid based on the share price of the Company’s shares in the twenty trading days following the approval of this resolution by the general meeting of the shareholders of the Company (if such approval is given).

The Company has not included any provision for the additional bonus to the liquidators in its financial statements.

F - 13

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 4 – COMMITMENTS AND CONTINGENT LIABILITIES (continued):

d. In February 2001, a portion of the Company’s office space located in Ramat Gan, Israel was leased from West End Technology Investments Ltd. (“West End”), a company that is owned by Robi Hartman, the Company’s Chief Executive Officer and Chairman of the Board. As of April 1, 2003, this lease was assumed by Enargis which sublet 35% of the premises to the Company at an annual cost of approximately $12,000. As of December 31, 2005, an amount of $14.5 thousands was postponed until receipts of proceeds from sale of StoreAge or Enargis, and was paid in May 2007, following the termination of the Company voluntary liquidation proceedings. The financial statements include provisions for the aforesaid postponed rent payments. As of November 2005, the sub-lease was transferred back to West End. Following termination of the voluntary liquidation proceedings in April 2007, the Company increased its sublease from 35% to 50% of the premises. The annual cost increased, proportionally, based on the original agreement, with a cap of $3,000 per month (on an average) and will be valid until the later of (1) the merger with Witech or (2) December 31, 2007.

e. A claim was filed against NetWiz Ltd. (a former subsidiary of the Company) in respect of a breach of a lease agreement. As part of the agreement for the sale of NetWiz, the Company agreed to assume the liabilities in respect of the above claim.

On June 8, 2004, the Company reached a settlement agreement with the plaintiff in terms of which the Company accepted to pay a final and conclusive payment of $39,000 to the plaintiff, in consideration for the mutual waiver of all claims between the parties. The Company recorded a provision in the amount of $39,000 in respect of this claim in the year ended December 31, 2003.

F - 14

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 5 – SHAREHOLDERS’ EQUITY:

a. Share capital:

The Company’s shares are traded on the OTC Bulletin Board in the United States.

The ordinary shares confer upon the holders the right to receive notices of, participate and vote in the general meetings of the Company, the right to receive dividends, if and when declared by the board of directors and the right to receive, upon liquidation, a pro rata share of any remaining assets.

b. Stock Option Plan:

Under the Company’s 1993 Stock Option Plan (“the Plan”), options may be granted to officers, directors, employees and consultants of the Company. Pursuant to the Plan, the Company reserved for issuance 1,192,929 ordinary shares. The exercise price of the options granted under the plan may not be less than 85% of the fair market value of the Company’s ordinary shares on the date of grant. The options vested primarily up to 3-4 years.

No options were exercised during the years ended December 31, 2006, 2005 and 2004. The Plan expired in 2003. The options of the liquidators of the Company expired during 2006; all other outstanding options issued under the Plan have either been expired or forfeited in previous years.

Following is a summary of the status of the Company’s stock option plan and related information:

	Year ended December 31
	2006					2005				2004
	Amount of options			Weighted average exercise price		Amount of options		Weighted average exercise price		Amount of options			Weighted average exercise price
Outstanding at the beginning of
the year		406,550		$	3.63		406,550	$	3.63		781,762		$	4.67
Forfeited and cancelled		(406,550	)	$	3.63						(375,212	)	$	5.81
Outstanding at the end of the year		-;-					406,550	$	3.63		406,550		$	3.63
Exercisable at the end of the year		-;-					406,550	$	3.63		406,550		$	3.63

All of the outstanding and exercisable options at December 31, 2005 and 2004 expired in November 2006.

The intrinsic value of the outstanding and exercisable options at December 31, 2005 and 2004 is zero.

F - 15

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 6 – TAXES:

a) Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985 (the “inflationary adjustments law”)

Under the inflationary adjustments law, results for tax purposes are measured in real terms, having regard to the changes in the Israeli consumer price index (“CPI”). The Company is taxed under this law.

b) Tax rates

The income of the Company is taxed at the statutory rate. In July 2004, an amendment to the Income Tax Ordinance was enacted. One of the provisions of this amendment is that the corporate tax rate is to be gradually reduced from 36%to 30%, in the following manner: the rate for 2004 will be 35%, in 2005 – 34%, in 2006 – 32%, and in 2007 and thereafter – 30%. In August 2005, a further amendment (No. 147) was published, which makes a further revision to the corporate tax rates prescribed by Amendment No. 140. As a result of the aforementioned amendments, the corporate tax rates for 2004 and thereafter are as follows: 2004 – 35%, 2005 – 34%, 2006 – 31%, 2007 – 29%, 2008 – 27%, 2009 – 26% and for 2010 and thereafter – 25%.

Capital gains are taxed at a reduced rate of 25% of the capital gains derived after January 1, 2003 and at the regular corporate tax rate on the gains derived through the aforementioned date.

c) Deferred income taxes

The deferred income taxes are composed as follows:

	December 31
	2006			2005
Provided for:
Operating loss carryforward	$	10,308		$	9,397
Capital loss carryforward		9,390			8,628
In respect of investments		5			1,060
Total		19,703			19,085
Less - valuation allowance		(19,703	)		(19,085	)
		-;-			-;-

The deferred tax assets are computed at the tax rates of 25% as of December 31, 2006 and 2005.

F - 16

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 6 – TAXES (continued):

d) Taxes included in the statement of operations in year ended December 31, 2004 are in respect of previous years.

e) Tax loss carryforward

As of December 31, 2006, the Company has carryforward tax losses in the amount of approximately $41 million which may be carried forward and offset against taxable income in the future for an indefinite period (December 31, 2005 – $38 million).

In addition, as of December 31, 2006, the Company has accumulated carryforward capital losses in a total amount of approximately $38 million, which may be offset against future capital gain for tax purposes (December 31, 2005 – $35 million).

Under the inflationary adjustments law (see a. above), carryforward losses are linked to the Israeli CPI.

f) Tax assessments

Tax assessments for the Company are considered final through the year ended December 31, 2001.

g) Reconciliation of the theoretical tax expenses to actual tax expenses:

	Year ended December 31
	2006			2005			2004
	U.S. dollar in thousands
Income (loss) before taxes, as reported in the
statements of operations	$	4,639		$	(106	)	$	(211	)
Theoretical income on taxes (tax benefit) at the
statutory rate (31%, 34%, 35% for the years ended
December 31, 2006, 2005 and 2004, respectively)	$	1,438		$	(36	)	$	(74	)
Utilization of tax losses carryforward		(1,375	)		14			104
Difference between the basis of measurement of
loss reported for tax purposes and the basis of
measurement of loss for financial reporting
purposes		(66	)		23			21
Special allowance, net of non deductible expenses					(1	)		(50	)
Other		3						(1	)
		-;-			-;-			-,-

F - 17

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 7 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:

Balance sheets:

		December 31
		2006		2005
		U.S. dollar in thousands
a.	Accounts payable and accruals:
	Payroll and related expenses	$	1	$	1
	Accrued expenses		254		226
	Other		6		5
		$	261	$	232

Statement of operations:

		Year ended December 31
		2006			2005			2004
		U.S. dollar in thousands
b.	General and administrative expenses:
	Liquidators fees	$	24		$	24		$	10
	Directors fees								71
	Payroll and related expenses		12			12			32
	Rent and office maintenance		19			16			19
	Professional fees		7			23			42
	Capital loss from write-off of fixed assets								9
	Other		29			28			17
		$	91		$	103		$	200
c.	Financial income (expenses) - net:
	Interest income	$	19		$	1		$	3
	Other		(2	)		(4	)		(7	)
		$	17		$	(3	)	$	(4	)

F - 18

I.I.S. INTELLIGENT INFORMATION SYSTEMS LIMITED
(An Israeli corporation)
NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 8 – RELATED PARTIES – TRANSACTIONS AND BALANCES:

a. Transactions with related parties:

	Year ended December 31
	2006		2005		2004
	U.S. dollar in thousands
Rent and office maintenance (1)	$	19	$	16	$	19
Administrative expenses (2)		-,-	$	8	$	16

(1) See note 4d.

(2) To Storage, in respect of services received until April 2005.

b. Related party balances:

	December 31
	2006		2005
	U.S. dollar in thousands
Accounts receivable	$	5		-,-

c. Under the Company’s 1993 Stock Option Plan (see note 4b), the Company granted the CEO of the Company, on November 30, 2000, 356,550 options with exercise price of $3.63 as follows:

55,600 of the options had no vesting terms, the remaining options vested annually in four equal batches, from March 22, 2001 until March 21, 2004. All options expired on November 30, 2006.

F - 19

EX-8.1

Exhibit 8.1

Significant Subsidiaries of I.I.S. Intelligent Information Systems Limited

List of Significant Subsidiaries	Jurisdiction of Incorporation or Organization	Business Name
None

EX-12.1

Exhibit 12.1

CERTIFICATION

Certification by Principal Executive Officer and Principal Accounting Officer Pursuant to Section 302 of theSarbanes-Oxley
Act of 2002

I, Robi Hartman, certify that:

1. I have reviewed this Annual Report on Form 20-F of I.I.S. Intelligent Information Systems Limited (the “Registrant”);

2. Based on my knowledge, this Annual 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 Annual Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Annual 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 Annual 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)) 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 Annual Report is being prepared;

b) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; and

c) disclosed in this Annual Report any change in the Registrant’s internal control over financial reporting that occurred during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

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 controls over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial ; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls over financial reporting.

By: /s/ Robi Hartman
——————————————
Robi Hartman,
Chief Executive Officer and Acting Chief Financial Officer

Date: August 29, 2007

EX-13.1

Exhibit 13.1

CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

        I, Robi Hartman, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the accompanying this Annual Report on Form 20-F of I.I.S. Intelligent Information Systems Limited (the “Company”) for the fiscal year ended December 31, 2006, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robi Hartman
——————————————
Robi Hartman
Chief Executive Officer and Acting Chief Financial Officer

Date: August 29, 2007

        This certification shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.

        A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.