-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FPLH1QW9Y6TI+OiJSFwG3K5rR+A/wZJ6xEC7M5fPM7YFKbzuHRVE/ZfJn5wjRxBs TCmUs1EkUAY29798/biqvQ== 0001178913-07-002035.txt : 20070924 0001178913-07-002035.hdr.sgml : 20070924 20070924152240 ACCESSION NUMBER: 0001178913-07-002035 CONFORMED SUBMISSION TYPE: F-3/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20070924 DATE AS OF CHANGE: 20070924 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Pointer Telocation Ltd CENTRAL INDEX KEY: 0000920532 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 000000000 STATE OF INCORPORATION: L3 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: F-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-143399 FILM NUMBER: 071131466 BUSINESS ADDRESS: STREET 1: 1 KORAZIN STREET CITY: GIVATAYIM STATE: L3 ZIP: 53583 BUSINESS PHONE: 97235723111 MAIL ADDRESS: STREET 1: 1 KORAZIN STREET CITY: GIVATAYIM STATE: L3 ZIP: 53583 FORMER COMPANY: FORMER CONFORMED NAME: NEXUS TELOCATION SYSTEMS LTD DATE OF NAME CHANGE: 19980623 FORMER COMPANY: FORMER CONFORMED NAME: NEXUS TELECOMMUNICATIONS SYSTEMS LTD DATE OF NAME CHANGE: 19980112 F-3/A 1 zk74251.htm F-3/A

As filed with the Securities and Exchange Commission on September 24, 2007

Registration No. 333-143399


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 1
ON

FORM F-3

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

Israel Not Applicable
(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer Identification
No.)

1 Korazin Street
Givatayim 53583 Israel
972-3-572-3111

(Address and telephone number of Registrant’s principal executive offices)

Puglisi & Associates
850 Library Avenue, Suite 204
Newark, DE  19711
302-738-6680

(Name, address and telephone number of agent for service)

Copies of all Correspondence to:

ADRIAN DANIELS, ADV.
Yigal Arnon & Co.
1 Azrieli Center
Tel Aviv, 67021 Israel
Tel: 972-3-608-7851

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.

If only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. o

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x



If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a registration statement pursuant to General Instruction I.C. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. o

If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.C. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. o

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION
Dated September 24, 2007

PROSPECTUS

Pointer Telocation Ltd.
1,207,500 Ordinary Shares


        This prospectus relates to the resale, from time to time, by the selling shareholders named in this prospectus of up to 1,207,500 ordinary shares (including 402,500 ordinary shares issuable upon the exercise of warrants). The registration of these shares does not necessarily mean that any of the selling shareholders will offer or sell their shares.

        The selling shareholders may sell all or any portion of these shares from time to time in (i) open market transactions in the over-the-counter market through the Nasdaq Capital Market or the Tel-Aviv Stock Exchange; (ii) in privately negotiated transactions or otherwise; (iii) directly to purchasers or through agents, brokers, dealers or underwriters; (iv) at market prices prevailing at the time of sale, at prices related to such prevailing market prices, or at negotiated prices; or (v) or any other means described in the section entitled “Plan of Distribution.”

        We will pay the costs of registering these shares under the prospectus, including legal fees.

         Our ordinary shares currently trade on the Nasdaq Capital Market under the symbol PNTR and on the Tel Aviv Stock Exchange, or TASE under the symbol PNTR. On September 21, 2007, the last reported sale prices of our ordinary shares on the Nasdaq Capital Market were $8.23.

        SEE “RISK FACTORS” BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.

        This prospectus does not offer to sell or solicit an offer to buy any security other than the ordinary shares offered by this prospectus. In addition, this prospectus does not offer to sell or solicit any offer to buy any securities to or from any person in a jurisdiction where it is unlawful to make this offer or solicit an offer from a person in that jurisdiction.

        NONE OF THE U.S. SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION HAVE APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is __________, 2007.

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TABLE OF CONTENTS

Page
 
Prospectus Summary
The Offering
Forward Looking Statements
Risk Factors 10 
Use of Proceeds 22 
Capitalization and Indebtedness 22 
Market Price Data 23 
Selling Shareholders 31 
Plan of Distribution 33 
Description of Share Capital 36 
Foreign Exchange Controls and Other Limitations 36 
Legal Matters 36 
Experts 36 
Material Changes 37 
Enforceability of Certain Civil Liabilities and Agent for Service of Process in the United States 37 
Where You Can Find More Information; Incorporation of Certain Information By Reference 37 


        When you are deciding whether to purchase the securities being offered by this prospectus, you should rely only on the information incorporated by reference or provided in this prospectus or any supplement. We have not authorized anyone to provide you with different information. We are not making any offer of the securities in any state where the offer is not permitted. You should not assume that the information in this prospectus or any supplement is accurate as of any date other than the date on the front of those documents.

        Our financial statements are prepared in accordance with generally accepted accounting principles in the United States. All references to “dollars” or “$” in this prospectus are to United States dollars, and references to “NIS” are to New Israeli Shekels.

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PROSPECTUS SUMMARY

Our Business

        Our company is a leading provider of services to insurance companies and car owners. We offer stolen vehicle recovery, or SVR, road-side assistance, towing, and car replacement services in case of stolen or damaged cars. We also supply fleet management and mobile resource management solutions.

Background

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

        Our new strategy was implemented through two acquisitions in Israel and the establishment of a subsidiary in Mexico.

        In June 2004 we purchased all of the outstanding and issued share capital of Shagrir Systems Ltd., or Shagrir, not already held by us. Shagrir was our local Israeli operator and service provider, which mainly provided stolen vehicle retrieval and other security value-added services mainly for vehicle owners through a communication network based on our technology.

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

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

        As a result of the implementation of our strategy, we currently provide a range of services to automobile owners and insurance companies.

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

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Corporate Information

        Pointer was founded in 1991 by BVR Technologies Ltd. At that time, we began developing specialized long-range wireless solutions for location and messaging applications, using Frequency Hopping Spread Spectrum technology. Our legal and commercial name is Pointer Telocation Ltd. Through December 1997 we operated under the name Nexus Telecommunication Systems, Ltd. and through January 2006 we operated under the name Pointer Telocation Ltd. We operate under the Israel Companies Law – 1999. Our shares are publicly traded on the Nasdaq Capital Market under the symbol PNTR and on the TASE under the same symbol. Our executive offices and research and development main facilities are located in 1 Korazin Street, Givatayim, 53583, Israel, telephone number 972-3-572-3111. The headquarters of our subsidiary, Shagrir, are located in Holon, Israel. The headquarters of our subsidiary, Pointer Argentina, are located in Buenos Aires, Argentina. The headquarters of our subsidiary, Pointer SA, are located in Mexico City, Mexico. In January 2005, our subsidiary, Pointer (Eden Telecom Group) Ltd., was renamed Shagrir Systems Ltd. Our Web site is www.pointer.com. Information on our web site is not incorporated by reference in this annual report.

Recent Developments

        Since January 1, 2007, the following important events have occurred to us:

Private Placements with U.S. Institutional Investors

        On April 2, 2007, we entered into and consummated a share purchase agreement, or the April Investment, with a group of United States institutional investors for the purchase of 805,000 of our ordinary shares for an aggregate price of $8.5M. Pursuant to the transaction, the investors were also issued warrants to purchase 402,500 of our ordinary shares, such that for each one share purchased the investors were entitled to a warrant to purchase half a share. The warrants are exercisable into ordinary shares, at an exercise price per share of $12.6 and will be exercisable for a period of five years. Following the transaction two of the investors, individually, hold more than 5% of our issued and outstanding share capital.

Acquisition of Cellocator Ltd and Matan Y. Communication and Tracking Systems Ltd.

         On September 18, 2007, we consummated an agreement with Cellocator Ltd., or Cellocator, a private Israeli company active in the field of cellular location-based services and technology, its affiliate, Matan Y. Communication and Tracking Systems Ltd., or Matan, a private Israeli company, and its founder, Mr. Amnon Duchovna Naveh, (who together with Cellocator and Matan shall be referred to in this registration statement as, the Sellers), for the purchase of substantially all of the tangible and intangible assets of  Cellocator and Matan (excluding cash and cash equivalents and owned vehicles) and assumed certain liabilities. The consideration for the purchase of the assets was comprised as follows: (i) an aggregate of 160,000 of our ordinary shares was issued to the Sellers; (ii) a 36-month convertible debenture in the amount of $1,921,668 was issued to Cellocator, which may be converted into 160,000 of our ordinary shares; (iii) NIS 55,657,984 was paid to Cellocator plus a further NIS 1,500,000 representing profits embodied in its inventory; (iv) NIS 4,200,000 was paid to Matan plus NIS 500,000 representing profits embodied in its inventory; and (v) the difference between the tangible assets of Cellocator and Matan and their undertakings as reflected in their financial statements for the year ended December 31, 2006, which amount may be adjusted within 30 days of the closing of the transaction on the basis of updated financial statements which will be prepared and dated as of the date of the closing of the transaction. Should the debenture be converted, the Sellers will hold approximately 5.71% of our issued and outstanding share capital (on a fully diluted basis) in the aggregate.

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MOU with a leading provider of Road Side Assistance in Argentina

        In March 2007, we also executed a binding Memorandum of Understanding, or MOU, with a leading provider of roadside assistance in Argentina, or the Argentinian Provider, to cooperate in offering location based services and stolen vehicle retrieval services. The closing of the transaction is subject to the success of the Argentinian Provider in reaching an agreement with a leading automotive manufacturer in Argentina. Based on the MOU, upon closing, the Argentinian Provider shall transfer to Pointer Argentina all of its location based services and SVR business in consideration for 11% of the outstanding share capital of Pointer Argentina. Thereafter, contingent upon the success of the project during the two years following the closing, the Argentinian Provider will increase its holdings in Pointer Argentina, and we will provide Pointer Argentina with certain of our products, free of charge, during these two years.

Potential acquisition of the Argentinian Road Side Assistance Provider

        In March 2007, we executed a non-binding Letter of Intent to acquire controlling ownership of the Argentinian Provider, in consideration for $9 million.

Grant of Options to Employees

        On January 28, 2007, our board of directors resolved to issue to our employees options to purchase 63,000 of our ordinary shares, pursuant to our 2003 Employee Share Option Plan, which will vest in four equal annual installments over a period of four years, commencing as of the date of the grant, at an exercise price of $11.24 per share.

        On March 5, 2007 our board of directors resolved to modify the terms of the options granted to our former CFO on November 23, 2005, by accelerating the vesting of all of the options and extending the exercise period until June 30, 2008.

        On February 15, 2007, our board of directors resolved to extend the Warrants granted to Bank Hapoalim, Shagrir Towing Services and ADACH Property Ltd., formerly Shagrir (1985) Ltd., until June 30, 2007.

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Private Placements with Israeli Institutional Investors

        On December 28, 2006 we entered into a Share Purchase Agreement with a group of Israeli institutional investors for the purchase of 425,000 of our ordinary shares for an aggregate price of $4.7M, out of which, an amount of $2.586 million was received by December 31, 2006. The transaction was consummated on January 12, 2007. Pursuant to the transaction, the investors were also issued warrants to purchase 212,500 of our ordinary shares, such that for each one share purchased the investors were entitled to a warrant to purchase half an ordinary share. The warrants are exercisable into ordinary shares, at an exercise price per share of $13 and will be exercisable for a period of four years. None of the investors were, or following the transaction have since become, our affiliates.

Potential Claim

        In February 2002, we executed (i) an agreement with Sino Telocation Ltd., or Sino, pursuant to which we were to provide Sino with a car localization system, or the System, in consideration for $900,000; and (ii) an agreement with Sino and the China National Electronics Import Export Beijing Company, or CEIEC, for the funding of the acquisition of the System. Pursuant to the agreements we received a down payment of $300,000 from CEIEC against a bank guarantee in favor of CEIEC from Bank Hapoalim B.M. We requested that CEIEC issue a letter of credit to insure the shipment of the System. CEIEC did not issue the letter of credit and as a result the System was not provided. As the System was unique and adapted for the Chinese market, we were not able to sell the System to others. CEIEC and Sino’s breach of the agreements caused us extensive damages, in particular due to the failure to pay the remainder of consideration, in the amount of $600,000.

        On November 26, 2002, we filed a claim with the Tel-Aviv Magistrate’s Court for a permanent injunction against Bank Hapoalim B.M. and CEIEC requesting that the court prohibit Bank Hapoalim from paying CEIEC any amount, pursuant to the guarantee. The Court ruled in our favor. CEIEC commenced proceedings in China, against Bank Hapoalim, to which we are not a party, for the payment of the guarantee. In August 2004, Bank Hapoalim informed us that it may pay to CEIEC the guaranteed amount plus interest at a rate of 0.5% per week, commencing March 2002 and, in such an event, will request that we indemnify it for the amount paid.

        In March 2005, we filed a claim against CEIEC and against Sino, with the China International Economic and Trade Arbitration Commission Beijing, China, or CIETAC, for approximately $557,000 representing the damages caused to us by the breach of the contract by CEIEC and Sino in respect of the China transaction.

        As a result of the filing of the claim with CIETAC, the proceedings which had been initiated by CEIEC against Bank Hapoalim, in China, for payment of the guarantee, were suspended.

        In January 2006, CIETAC provided a ruling in our favor, pursuant to which CEIEC and Sino are to pay us $557,000 representing most of the damages caused to us plus interest rate of 6% per annum from April 2003 and additional costs incurred by us.

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        In February and in June 2006, Sino and CEIEC, respectively, petitioned the Beijing No. 2 Intermediate People’s Court to overturn the ruling of CIETAC.

        In December, 2006 the Beijing No. 2 Intermediate People’s Court ruled that CIETAC should issue a new ruling and grant a new arbitration award accordingly. No grounds were given. As a result of the Court’s decision CIETAC issued a Notice of Re-arbitration.

        In March, 2007 CEIEC petitioned the CIETAC for the replacement of the arbitration panel, on the grounds that the previous decisions was biased and against the interests of the state. An objection to the petition was filed. The petition and objection have yet to be addressed.

         As of September 18, 2007, no dates have been set and no further information has been received from CIETAC.

THE OFFERING

Securities offered by the selling shareholders 1,207,500

NASDAQ Capital Market symbol "PNTR"

Use of proceeds We will not receive any proceeds from the sale of the ordinary shares offered hereby.

Ordinary shares outstanding as of September 18, 2007 4,612,875

Risk factors Prospective investors should carefully consider the Risk Factors beginning on Page 10 before buying the ordinary shares offered hereby.

FORWARD-LOOKING STATEMENTS

        This prospectus and the documents incorporated in it by reference contain forward-looking statements which involve known and unknown risks and uncertainties. We include this notice for the express purpose of permitting us to obtain the protections of the safe harbor provided by the Private Securities Litigation Reform Act of 1995 with respect to all such forward-looking statements. Examples of forward-looking statements include: projections of capital expenditures, competitive pressures, revenues, growth prospects, product development, financial resources and other financial matters. You can identify these and other forward-looking statements by the use of words such as “may,” “will,” “should,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential” or the negative of such terms, or other comparable terminology.

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        Our ability to predict the results of our operations or the effects of various events on our operating results is inherently uncertain. Therefore, we caution you to consider carefully the matters described under the caption Risk Factors and certain other matters discussed in this prospectus, the documents incorporated by reference in this prospectus, and other publicly available sources. Such factors and many other factors beyond the control of our management could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied

Any forward-looking statement speaks only as of the date on which that statement is made. We will not update any forward-looking statement to reflect events or circumstances that occur after the date on which such statement is made.

RISK FACTORS

        An investment in our securities is speculative and involves a high degree of risk. Therefore, you should not invest in our securities unless you are able to bear a loss of your entire investment. You should carefully consider the following factors as well as the other information contained in this prospectus before deciding to invest in our ordinary shares. Factors that could cause actual results to differ from our expectations, statements or projections include the risks and uncertainties relating to our business described below. This prospectus and statements that we may make from time to time may contain forward-looking information. There can be no assurance that actual results will not differ materially from our expectations, statements or projections. The information in this prospectus is complete and accurate as of this date, but the information may change after the date of this prospectus. We undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that may arise or develop after the date of this prospectus.

General Risks Factors Relating to Our Company

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

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        We have a history of net losses.

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

        The majority of our business operations are based in Israel

        Due to our purchase of Shagrir in 2004 and the acquisition by Shagrir of the business activities of Shagrir Towing Services in February 2005, the majority of our operations are located in Israel, and Shagrir accounts for the majority of our revenues. Consequently, certain events in Israel which may or may not be directly connected with our business may have a disproportionate effect on our operations. For instance, major public transportation projects, changes in vehicle related taxes, a proposed increase in the imputed value of vehicles provided as a part of employee compensation and other macroeconomic changes in Israel may reduce the number of vehicle owners. Although to date we have not seen a drop in private vehicle users as a result of such factors, current projects including high-speed rail systems could lead to such a drop in the future, thereby reducing the volume of our operations in Israel. We also rely on the renewal and retention of several operating licenses issued by certain Israeli regulatory authorities. Should such authorities fail to renew any of these licenses, suspend existing licenses, or require additional licenses, we may be forced to suspend or cease certain services that we provide. Additionally, a sustained downturn in the Israeli economy could have a significant impact on our business.

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

We have historically financed our operations through public and private placements of equity and debt securities, cash generated from the sales of our systems, grants for research and development projects and bank credit lines. We cannot assure you that if we are required to raise additional financing in the future that we will be able to obtain such financing on satisfactory terms, if at all, and if we are able to raise financing through the issuance of shares, this may result in the dilution of the interests of our current shareholders. In a series of investments, since March 2003 to date, we raised $35 million, and in February 2005 our subsidiary Shagrir received approximately NIS 200 million in loans and convertible debt as part of Shagrir’s acquisition of the road-side assistance and towing services of Shagrir Towing Services. In June 2004, as part of the purchase of all of the securities of Shagrir not already held by our Company at such time, we issued further shares and warrants to purchase our shares. We believe that our current assets, together with anticipated cash generated from operations and outstanding bank credit lines, will sufficiently allow us to continue our operations as a going concern for the foreseeable future. We have registered for resale securities issued and issuable in connection with these transactions. In this registration statement we are registering, pursuant to the April Investment, 1,207,500 of our ordinary shares (including 402,500 ordinary shares issuable upon the exercise of warrants issued in connection with that transaction). As a result of the registration statements that we currently have outstanding and are currently filing, many or all of our investors who recently purchased our securities may elect to sell some or all of our securities. Should such sales be significant in volume or take place over a short period of time, our share price may decline significantly, and we may find it difficult to raise additional funding through the issuance of equity or convertible debt securities. If our future capital requirements are greater than the cash we obtain from our business and available financing, if any, we may, among other things, be required to significantly reduce our research, development, product commercialization, marketing or other activities or even cease operations.

        Shagrir has significant loans which it is required to repay in accordance with a strict schedule

        In order to finance Shagrir’s acquisition of the road-side assistance and towing services of Shagrir Towing Services, it received a NIS 100 million credit facility from Bank Hapoalim, a NIS 40 million loan from Shagrir Towing Services and approximately NIS 50 million was loaned to it from a group of investors led by Gandyr Investments Ltd. and Egged Holdings Ltd., of which NIS 87 million as of March 31, 2007 remained payable. Nevertheless, Shagrir still has substantial outstanding loans and, despite the fact that we are cash positive, should Shagrir fail to repay the loans in accordance with the repayment schedule pertaining to each loan and should a lender refuse to amend the relevant repayment schedule, such lender may realize certain liens that were created in its favor by Shagrir. This could result in Shagrir having to divest itself of parts of its business and may result in the cessation of its operations. This may have a material adverse affect on our financial condition.

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

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

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

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

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

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

        We depend on a small number of customers.

        We depend on a small number of customers located mainly in Israel and South America, for a significant part of our revenues, and our future depends on our ability to maintain our existing customers and attract new customers. As a result of our acquisition of the activities of Shagrir Towing Services, the customers which account for a major part of our revenues in future years are Israeli insurance companies, which offer our road-side assistance and towing services as part of their vehicle insurance policy packages which they sell to their customers. While in 2006 only one customer comprised over 10% of our revenues, since our business model relies on a relatively low number of customers the loss of even a small number of customers could materially affect our financial condition.

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

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

        We rely on operators to provide services for our Location Based Solution systems.

        In certain countries we rely on third party operators and police forces to provide our stolen vehicle retrieval services. This requires us to maintain good relationships with these third party operators to ensure that they continue to work with us and provide a good service to our customers. Since we do not own these operators, we have little or no control over their effectiveness or methods of operation. The implementation of the operators’ business plans depends mainly on factors unrelated to our interests such as their marketing strategies, their financial stability and the specific requirements and circumstances in their territories. Our consecutive end unit sales, future system upgrades, future infrastructure extensions and revenues from other sources, where applicable, from such territories is dependent on their penetration rate and successful sale growth as well as on the operators’ continuous success and their continuous decision to offer these services and products in their respective territories. Should we fail to maintain relationships with these third party operators, or these operators fail to successfully market and service our products, our business would be adversely affected.

        We use fixed price contracts with our customers

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

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

14



        We rely on a single-source supplier to manufacture end units for our Location Based Solution systems

        While we have commenced diversifying our product base through our combination of cellular units together with GPS devices in our location based services, we are still principally reliant on our traditional Pointerware suite of products, formerly known as Nexusphere, which we do not manufacture ourselves. Most of the components of our LBS end unit devices are manufactured for us by independent manufacturers abroad and are assembled by a turn-key subcontractor located in Israel, and there is no certainty that this subcontractor will be able to continue to provide us with manufacturing and assembly services in the future. Furthermore, while cellular, GPS and car alarm devices are manufactured by several sub-contractors located in Israel, we currently only use the services of one such company. Our reliance on independent contractors, especially those located in foreign countries, involves a number of risks, including:

  reduced control over delivery schedules, quality assurance, manufacturing yields and cost;
  reduced manufacturing flexibility due to last moment quantity changes;
  transportation delays;
  political and economic disruptions;
  the imposition of tariffs and export controls on such products;
  work stoppages;
  the loss of molds and tooling in the event of a dispute with a manufacturer; and
  changes in government policies.

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

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

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

15



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

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

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

        Although during 2006 we introduced the Cellular / GPS Monitoring Unit as one of our products we cannot give any assurance that we will timely or successfully introduce or develop new or enhanced products, which will effectively compete with new products. Our business will be negatively impacted if we do not introduce or develop technologically competitive products that respond to customer needs and are priced competitively.

        Our Location Based Solution products employ proprietary technology, which is difficult to protect and which may infringe on the intellectual property rights of third parties.

        Our success and our ability to compete in the LBS sector depend on our proprietary technology. We rely on a combination of patent and trade secret laws, together with non-disclosure agreements and licensing arrangements to establish and protect proprietary rights in our products. We were granted certain patents in the United States and elsewhere; however, we have not invested significant resources to constantly update and maintain our proprietary technology. We cannot assure you that these efforts will successfully protect our technology because:

16



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

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

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

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

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

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

17



         Our major shareholders may be considered to have a controlling stake in our company.

         Pursuant to a series of investments in our company since March 2003, and the exercise of certain warrants, DBSI Investments Ltd., or DBSI, currently owns approximately 21%, of our issued and outstanding shares or 17% on a fully-diluted basis. Additionally, Ramius Capital Group LLC, or Ramius (the investment advisor of Portside Growth and Opportunity Fund, one of our selling shareholders), currently owns approximately 14% of our issued and outstanding shares or 13%, on a fully-diluted basis (based on information contained in a Form 13F and filed by Ramius on June 30, 2007). As a result, each of DBSI and Ramius may be considered to have the ability to control material decisions requiring the approval of our shareholders.

Risk Factors Relating to our Ordinary Shares

        We do not expect to distribute cash dividends.

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

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

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

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

18



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

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

         Our ordinary shares are traded on the Nasdaq Capital Market and the Tel Aviv Stock Exchange, or TASE. Trading in our ordinary shares has been limited and there can be no assurance that an active trading market for our ordinary shares will develop. As a result, this could adversely affect our shareholders' ability to sell our ordinary shares in short time periods, or possibly at all. Thinly traded ordinary shares can be more volatile than ordinary shares traded in an active public market. The average daily trading volume of our ordinary shares from January 1, 2007 to September 18, 2007, on the Nasdaq Capital Market was 66,520 shares and on the TASE was 4,439 shares. The high and low bid price of our ordinary shares from January 1, 2007 to September 18, 2007, has been $14.55 and $7.49, respectively on the Nasdaq Capital Market and between NIS 58 and NIS 31 during the same period on the TASE. Our ordinary shares have experienced, and are likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our ordinary shares without regard to our operating performance.

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

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

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Risk Factors Relating to Our Operations in Israel

        Political and Military Conditions in Israel affect our operations.

        We are incorporated under the laws of the State of Israel. Our headquarters, the headquarters of Shagrir, our operations and the operations of Shagrir, are located in Israel. We are directly affected by the political, economic and military conditions affecting Israel. Any major hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could materially adversely affect our business, financial condition and results of operations. Israel’s economy has been subject to numerous destabilizing factors, including a period of rampant inflation in the early to mid-1980‘s, low foreign exchange reserves, fluctuations in world commodity prices, military conflicts and civil unrest. Since the establishment of the State of Israel in 1948, hostility has existed, varying in degree and intensity, between Israel and the Arab countries. In addition, Israel and companies doing business with Israel have been subject to an economic boycott by the Arab countries. Although Israel has entered into agreements with some Arab countries and the Palestinian Authority, and various declarations have been signed in connection with efforts to resolve some of the economic and political problems in the Middle East, there has been a significant increase in violence since September 2000 which continued with varying levels of severity through 2004. Since the death of Yasser Arafat in 2004, low-level negotiations between Israel and Palestinian representatives have been renewed. Nevertheless, the political and security situation in Israel may result in certain parties with whom we have contracts claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions. In addition, the election of representatives of the Hamas militant group in January 2006 to a majority of seats in the Palestinian Legislative Council as well as the war with the Islamic militant group Hezbollah in Lebanon in July and August 2006 may create additional unrest and uncertainty in the region. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could adversely affect our operations and could make it more difficult for us to raise capital. Furthermore, many of our employees and subcontractors are located in Israel, which could still face a renewal of civil unrest, terrorist activity and military action. Since we do not have a detailed disaster recovery plan that would allow us to quickly resume business activity, we could experience serious disruptions if acts associated with this conflict result in any serious damage to our facilities. Our business interruption insurance may not adequately compensate us for losses that may occur and any losses or damages incurred by us could have a material adverse effect on our business. We cannot give any assurance that security and political conditions will not have such an effect in the future. Any future armed conflicts or political instability in the region would likely negatively affect business conditions and harm our results of operations.

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

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        The Israeli rate of inflation may negatively impact our costs if it exceeds the rate of devaluation of the New Israeli Shekel against the U.S. Dollar.

        A large part of our costs in Israel is not denominated in dollars and may be influenced by the rate of devaluation of the New Israeli Shekel. Should inflation in Israel impact our costs at a rate that exceeds the rate of devaluation of the New Israeli Shekel against the U.S. dollar our dollar costs in Israel will increase, thus reducing our profitability. In the twelve months ended December 31, 2006, the Israeli economy recorded deflation of approximately 0.1% and the NIS devalued against the U.S. Dollar by approximately 0.8%. However, in the last 15 years the Israeli economy recorded inflation of approximately 115% and the U.S. dollar devalued against the NIS by approximately 85%. There can be no assurance that we will not incur losses from such fluctuations in the future

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

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

        Service and enforcement of legal process.

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

21



        The recent issuance of shares and warrants and the conversion of our outstanding convertible notes dilutes the ownership interest of existing shareholders

        Through the issuance of 805,000 ordinary shares in connection with the transaction described above under “Recent Developments – Private Placements with U.S. Institutional Investors”, the ownership interests of existing shareholders have been diluted by 18% based on 3,647,875 shares outstanding immediately prior to that transaction. Further, should the Warrants described above under “Recent Developments – Private Placement with U.S. Institutional Investors” be fully exercised and 402,500 shares be issued, the ownership interest of the shareholders before that transaction will be diluted by approximately an additional 8%.

        If the registration statement of which this prospectus forms a part is not filed and declared effective within certain time limits, we may face significant penalties.

         Pursuant to a Registration Rights Agreement with the investors in the private placement described above under “Recent Developments - Private Placement with U.S. Institutional Investors”, we were obligated to file a registration statement with the Securities and Exchange Commission no later than June 1, 2007, covering the public resale of all of the ordinary shares issued to the investors on April 2, 2007, or issuable upon exercise of the Warrants. This prospectus forms part of such registration statement. The registration statement has to be declared effective by the Commission by October 29, 2007 (except that this deadline will be extended with respect to ordinary shares which cannot be registered on the registration statement because the Commission would characterize the offering as a primary offering if such ordinary shares were included). If the registration statement is not declared effective timely, we must pay liquidated damages up to 1% of the purchase price paid by the affected investors plus up to 1% for each month after such event and as long as the registration statement is not declared effective.

         If the registration statement for the resale of the shares to the sellers in connection with theacquisition of Cellocator is not declared effective within certain time limits, we may facesignificant penalties.

         Pursuant to a Registration Rights Agreement with Cellocator entered into in connection with the acquisition of Cellocator’s and Matan’s business described above under “Recent Developments – Acquisition of Cellocator Ltd. and Matan Y. Communication and Tracking Systems Ltd.”, we are obligated to file a registration statement with the Securities and Exchange Commission covering the resale of the 160,000 ordinary shares issued to the sellers no later than 95 calendar days after effectiveness of the registration statement of which this prospectus forms a part. If registration statement is not declared effective within 270 calendar days after the effectiveness of the registration statement of which this prospectus forms a part, we will be required to pay liquidated damages of 2% per month of the aggregate amount of the convertible note issued to Cellocator.

         In addition, under the Registration Rights Agreement, we are obligated to file a registration statement for the ordinary shares issuable under the convertible debenture no later than December 18, 2008. That registration statement needs to be declared effective within 60 days of filing. Although no liquidated damages are due under the Registration Rights Agreement for any late filing or effectiveness of the registration statement, in the event that we breach our obligations under the Registration Rights Agreement, we may be liable for damages based on breach of contract.

USE OF PROCEEDS

We will not receive any of the proceeds from the sale of ordinary shares by our selling shareholders. We have agreed to bear all expenses relating to the registration of the ordinary shares registered pursuant to the registration statement, of which this prospectus is a part. In the event any of the warrants or options are exercised we would receive the gross proceeds from such exercise (provided the exercise is for cash) and such proceeds will be used for general corporate purposes including working capital.

CAPITALIZATION AND INDEBTEDNESS

         The following table sets forth our short-term debt, long-term debt and capitalization as of June 30, 2007, in U.S. dollars on an actual basis:

June 30, 2007
(in thousands)
Short-term debt       29,055  
Long term debt       24,753  
Total shareholders' equity       28,669  

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MARKET PRICE DATA

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

Period
High
Low
 
2007 August       8.7     7.49  
2007 July       9.4     7.8  
2007 June       8.89     7.52  
2007 May       11.9     8.63  
2007 April       11.31     10.36  
2007 March       13.1     10.17  
2006 Fourth Quarter       25     5.2  
2006 Third Quarter       8.7     6.01  
2006 Second Quarter       7.36     7.1  
2006 First Quarter       8.3     6.9  
2005 Fourth Quarter       10.79     6.75  
2005 Third Quarter       14     4.9  
2005 Second Quarter       17     10  
2005 First Quarter       22     11  
     
2006       25     5.2  
2005       22     4.9  
2004       65     8  
2003       33.5     6.5  
2002       235     0.8  

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

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Period
High
Low
 
2007 August       36     32  
2007 July       36     36  
2007 June       34     33  
2007 May       37     35  
2007 April       43     42  
2007 March       46     44  

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF
POINTER TELOCATION LTD., CELLOCATOR LTD. AND MATAN Y.
COMMUNICATION AND TRACKING SYSTEMS LTD.

         The following unaudited pro forma condensed consolidated balance sheet and statement of operations have been prepared to give effect to our acquisition of the substantially all of the tangible and intangible assets of Cellocator Ltd., or Cellocator, and Matan Y. Communication and Tracking Systems Ltd., or Matan, (excluding cash and cash equivalents and owned vehicles) and assumed certain liabilities under the purchase method of accounting after giving effect to the pro forma adjustments described in the accompanying notes.

         The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2006, gives effect to the acquisition of the assets and the assumption of substantially all of the liabilities of Cellocator and Matan as if it had occurred on January 1, 2006 and combine our historical statements of operations and Cellocator and Matan for these periods. The pro forma balance sheet combines our historical balance sheets as of December 31, 2006 and the combined balance sheet of Cellocator and Matan as of December 31, 2006 as if the acquisition had occurred on December 31, 2006.

         This pro forma information should be read in conjunction with our consolidated historical financial statements (including notes thereto) that are incorporated by reference in this prospectus and the combined historical financial statements (including notes thereto) of Cellocator and Matan that are included elsewhere in this prospectus.

         Unaudited pro forma consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have actually been reported had the transaction occurred at the beginning of the period presented, nor is it necessarily indicative of future results of operations.

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         The unaudited pro forma consolidated financial statement of operations and balance sheet are based upon our historical financial statements and the combined historical financial statements of Cellocator and Matan, which have been prepared in accordance with generally accepted accounting principles, or GAAP, in the United States, or U.S. GAAP. The unaudited pro forma consolidated financial statement of operations and balance sheet do not incorporate, nor do they assume, any benefits from cost savings or synergies of the combined company. The pro forma adjustments are based on available financial information and certain estimates and assumptions that we believe are reasonable and that are set forth in the notes to the unaudited pro forma consolidated financial statement of operations and balance sheet. In the opinion of management, all adjustments have been made that are necessary to present fully the unaudited pro forma data.

Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2006

(all amounts are in thousands, except per share data)

Actual
Pointer Telocation Ltd.
and its Subsidiaries

Cellocator
and Matan

Pro Forma
Adjustments

References
Pro Forma
as Adjusted

$
$
$
$
 
ASSETS                        
CURRENT ASSETS:    
Cash and cash equivalents       5,850     4,944     (6,582 )   a     4,212  
Short-term investments       -     248     (248 )   d     -  
Trade receivables (net of
allowance for doubtful accounts)
      8,315     1,138     (192 )   d   9,261  
Other accounts receivable and
prepaid expenses
      1,368     432     (401 )   d     1,399  
Inventories       1,447     943                 2,390  
     
Total current assets       16,980     7,705                 17,262  



     
LONG-TERM ASSETS:    
Long-term accounts receivable       183                       183  
Severance pay fund       3,794     18                 3,812  
Property and equipment, net       7,346     346     (171 )   d     7,521  
Goodwill       38,707                       38,707  
Goodwill -cellocator                   8,632     e     8,632  
Other intangible assets, net       8,612                       8,612  
Other intangible assets, net -
cellocator
                  10,511     e     10,511  
Deferred income taxes       777     63     (63 )   a     777  
Total long-term assets       59,419     427                 78,755  



Total assets       76,399     8,132                 96,017  



     
LIABILITIES AND SHAREHOLDERS'    
EQUITY (DEFICIENCY)    
CURRENT LIABILITIES:    
Short-term bank credit and current
maturities of long-term bank loans
      11,801                       11,801  
Trade payables       5,378     967     (2 )   a     6,343  
Other accounts payable and accrued
expenses
      4,091     1,529     (1,045 )   d     4,575  
Deferred revenues       6,584                       6,584  
     
Total current liabilities       27,854     2,496                 29,303  



     
LONG-TERM LIABILITIES:    
Long-term loans       23,323           5,000     a     28,323  
Accrued severance pay       4,650     207                 4,857  
Convertible Bond                   1,939     b     1,939  
        27,973     207                 35,119  



     
MINORITY INTEREST:       1,142                       1,142  


     
SHAREHOLDERS' EQUITY (DEFICIENCY):       19,430     5,429     5,594     a     30,453  




     
Total liabilities and    
shareholders' deficiency       76,399     8,132                 96,017  




See accompanying notes to unaudited pro forma combined financial statements.

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Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2006

(all amounts are in thousands, except per share data)

Actual
Pointer Telocation Ltd.
and its Subsidiaries

Cellocator
and Matan

Pro Forma
Adjustments

References
Pro Forma
as Adjusted

$
$
$
$
Revenues:                        
Products       9,701     8,094                 17,795  
Services       32,211                       32,211  
Total revenues       41,912     8,094                 50,006  



     
Cost of revenues:    
Products       5,602     4,116                 9,718  
Services       20,786                       20,786  
Amortization of intangible assets                   977     e     977  
Total cost of revenues       26,388     4,116                 31,481  



     
Gross profit       15,524     3,978                 18,525  



     
Operating expenses:    
Research and development, net       1,170     247     59     f     1,476  
Selling and marketing       3,927     303                 4,230  
General and administrative       4,749     494     173     f     5,416  
Amortization of intangible assets       1,740     -     622     e     2,362  
Other income, net       (1,292 )   -                 (1,292 )
Impairment of long lived assets       372     -                 372  
Total operating expenses       10,666     1,044                 12,564  



     
Operating profit       4,858     2,934                 5,961  



     
Financial expenses, net       2,577     (165 )   419     c     2,831  
Other (income) expenses, net       (14 )   -                 (14 )
     
income before taxes on income       2,295     3,099                 3,144  



Taxes on income       82     603     (603 )   d     82  
Net income before Minority interest       2,213     2,496                 3,062  



Minority interest       1,044     -                 1,044  
Net income after Minority interest       1,169     2,496                 2,018  



     
Basic net earnings (loss) per share     $ 0.39   $ 0.031               $ 0.68  
     
Diluted net earnings (loss) per    
share     $ 0.31   $ 0.031               $ 0.59  

See accompanying notes to unaudited pro forma combined financial statements.

26



Notes to Unaudited Pro Forma Condensed Combined Statement of Operations

(All amounts are in thousands except per share data)

NOTE 1 – BASIS OF PRO FORMA PRESENTATION

         On September 18, 2007, we completed the acquisition of all of the assets and assumed substantially all of the liabilities of Cellocator and Matan in return for consideration consisting of (i) NIS 61,857,984 approximately $15.1 million; (ii) 160,000 of our ordinary shares; and (iii) a non-tradable debenture with a face value of $1,921,668 convertible into 160,000 of our ordinary shares (with a current fair value of $ 1,939,937). In addition, Cellocator and Matan will be entitled to an amount equivalent to the difference between the acquired tangible assets and the undertakings of the Sellers being transferred in accordance with their value as presented in the financial statements of the Sellers, as of the closing date.

We funded the acquisition as follows:

  1. On December 28, 2006 we entered into a Share Purchase Agreement with a group of Israeli institutional investors for the purchase of 425,000 of our ordinary shares for an aggregate price of $4.7 million. The transaction was consummated on January 12, 2007. Pursuant to the transaction, the investors were also issued warrants to purchase 212,500 ordinary shares, such that for each one share purchased the investors acquired a warrant to purchase half an ordinary share. The warrants are exercisable into ordinary shares, at an exercise price per share of $13.00 and are exercisable for a period of four years.

  2. On April 2, 2007, we entered into and consummated a share purchase agreement, or the April Investment, with a group of U.S.-based institutional investors for the purchase of 805,000 of our ordinary shares for an aggregate price of $8.5 million. Pursuant to the transaction, the investors were also issued warrants to purchase 402,500 ordinary shares, such that for each one share purchased the investors acquired a warrant to purchase half an ordinary share. The warrants are exercisable into ordinary shares, at an exercise price per share of $12.60 and are exercisable for a period of five years.

27



  3. $ 5 million was funded by a seven year loan provided to the Company by Bank Hapoalim B.M. The loan bears interest at the rate of Libor +2%. Under the credit facility from Bank Hapoalim B.M., we are required to meet certain financial covenants.

         The consideration is comprised of the following:

U.S. dollars
in thousands

 
Cash     $ 15,534  
Stock payment.       1,428  
Convertible debenture       1,939  
Transactions costs       700  

       
Total consideration - purchase price     $ 19,601  


         The application of purchase accounting under FAS 141 requires that the total purchase price be allocated to the fair value of assets acquired and liabilities assumed at the acquisition date, with amounts exceeding the fair values being recorded as goodwill. The assets and liabilities of Cellocator and Matan have been included in the balance sheet based on our assessment of their fair value as of the date of the acquisition. Long-lived assets such as property and equipment were recorded using the estimated replacement cost fair market value which takes into account changes in technology, usage, and relative obsolescence and depreciation of the assets. In addition, assets and liabilities that would not normally be recorded in ordinary operations will be recorded at their acquisition values (i.e., customer relationships that were developed by the acquired company). Other assets and liabilities are valued based on the acquiring company’s estimates. After all values have been assigned to assets and liabilities, the remainder of the purchase price is recorded as goodwill.

         The allocation process requires an analysis of acquired property and equipment, contracts, customer lists and relationships, contractual commitments, legal contingencies and brand value to identify and record the fair value of all assets acquired and liabilities assumed. In valuing acquired assets and assumed liabilities, fair values were based on, but not limited to: future expected discounted cash flows for customer relationships; current replacement cost for similar capacity and obsolescence for certain property and equipment; comparable market rates for contractual obligations and certain investments and liabilities; expected settlement amounts for litigation and contingencies; and appropriate discount rates and growth rates.

28



         The purchase price allocation for the Cellocator and Matan acquisition is preliminary and is subject to revision as more detailed analyses are completed and additional information on the fair value of assets and liabilities becomes available. Any change in the fair value of the net assets of Cellocator and Matan will change the amount of the purchase price allocable to goodwill. We anticipate finalizing the purchase price allocation process and updating the changes in our financial statement of December 31, 2007.

The following table summarizes the preliminary estimated fair values of the Cellocator and Matan assets acquired and liabilities assumed as of the acquisition date:

U.S dollars in
thousands

Net working capital     $ 472  
Property and equipment       175  
Accrued severance pay       (189 )
Customer relationship       3,876  
Developed technology       4,886  
Brand name       1,749  
Goodwill       8,632  

Total purchase price     $ 19,601  


The customer relationships will be amortized over a seven year period according to the economic benefit expected from those customers each period. The developed technology is being amortized over a five year period. The brand names are being amortized over a nine year period.

         Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but instead tested for impairment at least annually and between annual tests in certain circumstances in accordance with the provisions of FASB SFAS No. 142 “Goodwill and Other Intangible Assets”

NOTE 2 – PRO FORMA ADJUSTMENTS

         Pro forma adjustments are necessary to reflect the estimated purchase price, to adjust amounts related to Cellocator’s and Matan’s net tangible and intangible assets to a preliminary estimate of the fair values of those assets and to reflect the amortization expense related to the estimated amortizable intangible assets.

         The unaudited pro forma combined financial statements do not include adjustments for liabilities relating to Emerging Issues Task Force No. 95-3 (“EITF 95-3”), “Recognition of Liabilities in Connection with a Purchase Business Combination.” Management is in the process of assessing what, if any, future actions are necessary. However, liabilities ultimately may be recorded for severance or relocation costs, or other costs associated with the elimination of duplicate facilities and capital expenditures.

29



         We have not identified any material pre-acquisition contingencies where the related asset, liability or impairment is probable and the amount of the asset, liability or impairment can be reasonably estimated. Prior to the end of the purchase price allocation period, if information becomes available which would indicate it is probable that such events have occurred and the amounts can be reasonably estimated, such items will be included in the purchase price allocation.

The pro forma adjustments included in the unaudited pro forma consolidated financial statements are as follows:

  a. Cash and cash equivalents:

  We paid $15.1 million to Cellocator and Matan (the cash consideration) and a total amount of $ 0.5 million for the excess value of the net tangible assets that were acquired.

  To fund the acquisition we raised $ 12.1 million (net of expenses) in 2007 pursuant to two share purchase agreements, and Bank Hapoalim B.M. provided us with a $5 million loan. We did not purchase the cash and cash equivalents held by Cellocator and Matan.

  b. Convertible debenture:

  Part of the total consideration is a non tradable debenture convertible into 160,000 ordinary shares of the Company, nominal value NIS 3.00 each in the total amount of $1,921,668 with a current fair value of $1,939,937

  c. Financial expenses incurred in connection with the loan provided to finance the acquisition and the interest incurred on the convertible debenture.

  d. Elimination of tangible assets which were not included in the acquisition agreement and were not transferred to our company.

  e. Allocation of the total cost of the acquisition and depreciation of intangibles assets which were recognized in the context of the purchase price allocation.

  f. Additional salary expenses with respect to the acquisition.

NOTE 3 – PRO FORMA NET INCOME PER SHARE

         The unaudited pro forma basic and diluted earnings per share for 2006 are based on the basic and diluted weighted average of our shares during the period, which were retroactively adjusted to reflect shares issued whose proceeds will be used to fund the acquisition.

30



SELLING SHAREHOLDERS

        In accordance with the terms of a registration rights agreement among the Company and the selling stockholders, this prospectus generally covers the resale of the sum of (i) the number of Ordinary Shares issued, and (ii) the aggregate number of Ordinary Shares issued or issuable upon exercise of the related warrants as of the trading day immediately preceding the date the registration statement is initially filed with the SEC.  Because the exercise price of the warrants may be adjusted, the number of shares that will actually be issued may be more or less than the number of shares being offered by this prospectus.

        The table below sets forth:

  the names of each of the selling shareholders;
  the number of ordinary shares beneficially owned by the selling shareholders, as of September 18, 2007;
  the percentage of our outstanding ordinary shares beneficially owned by each of the selling shareholders as of September 18, 2007;
  the number of ordinary shares that each selling shareholder is offering under this prospectus;
  the number of ordinary shares that each selling shareholder will beneficially own assuming the sale of all of the ordinary shares offered by this prospectus; and
  the percentage of our outstanding ordinary shares that each selling shareholder will beneficially own assuming the sale of all of the ordinary shares offered by this prospectus.

        All of the shares registered hereunder (including 402,500 ordinary shares issuable upon the exercise of warrants) may be sold by certain selling shareholders who acquired their shares pursuant to the Purchase Agreement and subsequent investment agreement. The selling stockholders may sell all, some or none of their shares in this offering.  See “Plan of Distribution.”

        Except as noted below, none of these selling shareholders has held any position or office or had a material relationship with us or any of our affiliates within the past three years, other than as a result of the ownership of our ordinary shares.

Names
Securities Beneficially Owned
Prior to Offering

Securities
Being Offered

Securities Beneficially Owned
upon completion of offering

Number
Percentage1
Number
Number
Percentage
 
LB I Group Inc.2       570,000 3   11.87 %   570,000 3   -     -  
Portside Growth and Opportunity Fund4       135,000 5   2.9 %   135,000 5   -     -  
Fort Mason Master, LP6       471,897 7   9.87 %   471,897 7   -     -  
Fort Mason Partners, LP6       30,603 8   0.66 %   30,603 8   -     -  

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(1) Percent of shares beneficially owned prior to and after this offering has been determined based on 4,612,875 shares outstanding as of September 18, 2007. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. The number of shares beneficially owned by a person includes ordinary shares subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days, notwithstanding the Issuance Limitation as defined in footnote 3 below. Such shares issuable pursuant to such options or warrants are deemed outstanding for computing the percentage ownership of the person holding such options but not deemed outstanding for the purposes of computing the percentage ownership of any other person. To our knowledge, the persons named in this table have sole voting and investment power with respect to all ordinary shares shown as owned by them.

(2) LB I Group Inc. is an affiliate of Lehman Brothers Inc., a registered broker-dealer. This selling stockholder has represented to us that it (i) purchased the securities in the ordinary course of business and (ii) did not have an agreement or understanding, directly or indirectly, with any person to distribute the securities at the time it purchased the securities. Lehman Brothers Holdings Inc., a public reporting company, is the ultimate parent company of this selling stockholder.

(3) Includes 190,000 ordinary shares issuable upon the exercise of a warrant. The warrants provide that in no event shall they be exercisable to the extent that the issuance of shares upon their exercise would result in the beneficial ownership by LB I, of more than 4.99% of our outstanding shares. This mechanism is termed the Issuance Limitation. LB I has the express right to waive the Issuance Limitation upon sixty-one (61) days written notice to us.

(4) Ramius Capital Group, L.L.C. (“Ramius Capital”) is the investment adviser of Portside Growth and Opportunity Fund (“Portside”) and consequently has voting control and investment discretion over securities held by Portside. Ramius Capital disclaims beneficial ownership of the shares held by Portside. Peter A. Cohen, Morgan B. Stark, Thomas W. Strauss and Jeffrey M. Solomon are the sole managing members of C4S & Co., L.L.C., the sole managing member of Ramius Capital. As a result, Messrs. Cohen, Stark, Strauss and Solomon may be considered beneficial owners of any shares deemed to be beneficially owned by Ramius Capital. Messrs. Cohen, Stark, Strauss and Solomon disclaim beneficial ownership of these shares.

  The investment advisor to Portside Growth and Opportunity Fund is Ramius Capital Group, L.L.C. An affiliate of Ramius Capital Group, L.L.C. is a NASD member. However, this affiliate will not sell any shares to be offered by Portside Growth and Opportunity Fund through the prospectus and will receive no compensation whatsoever in connection with sales of shares by Portside Growth and Opportunity Fund through the prospectus.

32



(5) Includes 45,000 ordinary shares issuable upon the exercise of a warrant. The warrants provide that in no event shall they be exercisable to the extent that the issuance of shares upon their exercise would result in the beneficial ownership by Portside Growth and Opportunity Fund, or Portside, of more than 4.99% of our outstanding shares. This mechanism is termed the Issuance Limitation. Portside has the express right to waive the Issuance Limitation upon sixty-one (61) days written notice to us.

(6) Fort Mason Capital, LLC serves as the general partner of each of Master and Partners (collectively the “Fort Mason Funds”) and, in such capacity, exercises sole voting and investment authority with respect to ordinary shares owned by the Fort Mason Funds. Mr. Daniel German serves as the sole managing member of Fort Mason Capital, LLC. Fort Mason Capital, LLC and Mr. German each disclaim beneficial ownership of shares owned by the Fort Mason Funds, except to the extent of its or his pecuniary interest therein, if any.

(7) The number of shares listed as beneficially owned by Fort Mason Master, L.P. (“Master”) includes 167,500 shares of ordinary shares underlying warrants exercisable as of September 18, 2007. A provision in the warrants held by Master prevents it from exercising the warrants, if Master and its affiliates, which such affiliates include Fort Mason Partners, L.P. (“Partners”), would hold more than 4.99% of Pointer Telocation Ltd.’s ordinary shares (the “4.99% Master Blocker”). The 4.99% Master Blocker is waivable by Master with 61 days’ notice to Pointer Telocation Ltd.

(8) The number of shares listed as beneficially owned by Partners includes 10,201 shares of ordinary shares underlying warrants exercisable as of September 18, 2007. A provision in the warrants held by Partners prevents it from exercising the warrants, if Partners and its affiliates, which such affiliates include Master, would hold more than 4.99% of Pointer Telocation Ltd.’s ordinary shares (the “4.99% Partners Blocker”). The 4.99% Partners Blocker is waivable by Partners with 61 days’ notice to Pointer Telocation Ltd.

PLAN OF DISTRIBUTION

        Each selling shareholder of the ordinary shares and any of their pledgees (which are accredited investors (as defined in Regulation D under the Securities Act) or which are in connection with bona fide margin accounts with a registered broker-dealer or financial institution which is an accredited investor), assignees and successors-in-interest may, from time to time, sell any or all of their ordinary shares on the Nasdaq Capital Market or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed, prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or negotiated prices. A selling shareholder may use any one or more of the following methods when selling shares:

  ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

  block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

33



  purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

  an exchange distribution in accordance with the rules of the applicable exchange;

  privately negotiated transactions;

  settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

  broker-dealers may agree with the selling shareholder to sell a specified number of such shares at a stipulated price per share;

  through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

  a combination of any such methods of sale; or

  any other method permitted pursuant to applicable law.

        The selling shareholder may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus.

        Broker-dealers engaged by the selling shareholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.

        In connection with the sale of the ordinary shares or interests therein, the

        Selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the ordinary shares in the course of hedging the positions they assume. The selling shareholders may also sell shares of the ordinary shares short and deliver these securities to close out their short positions and to return borrowed shares in connection with such short sales, or loan or pledge the ordinary shares to broker-dealers that in turn may sell these securities. The selling shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

34



        The selling shareholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling shareholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the ordinary shares. In no event shall any broker dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

        We are required to pay certain fees and expenses incurred by us incident to the registration of the shares. We has agreed to indemnify the selling shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

        In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling shareholders.

        We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling shareholder without registration and without regard to any volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

        Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the ordinary shares for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the ordinary shares by the selling shareholders or any other person.

Expenses of the Offering

        We have incurred, or will incur, approximately $115,000 of expenses in connection with the sale of the ordinary shares covered by this prospectus. We have agreed to incur all of such costs on behalf of the selling shareholders.

35



DESCRIPTION OF SHARE CAPITAL

        The description of our share capital contained in Item 1 of our registration statement on Form 8-A filed with the SEC on March 17, 1994 under the Exchange Act is hereby incorporated by reference.

FOREIGN EXCHANGE CONTROLS AND OTHER LIMITATIONS

        Under Israeli law, non-residents of Israel who purchase ordinary shares with certain non-Israeli currencies (including dollars) may freely repatriate in such non-Israeli currencies all amounts received in Israeli currency in respect of the ordinary shares, whether as a dividend, as a liquidating distribution, or as proceeds from any sale in Israel of the ordinary shares, provided in each case that any applicable Israeli income tax is paid or withheld on such amounts. The conversion into the non-Israeli currency must be made at the rate of exchange prevailing at the time of conversion.

        Under Israeli law and our company’s Memorandum and Articles of Association both residents and non-residents of Israel may freely hold, vote and trade our ordinary shares.

LEGAL MATTERS

        Certain legal matters in connection with the offering with respect to Israeli law will be passed upon for us by Yigal Arnon & Co., Tel Aviv, Israel, our Israeli counsel. This opinion addresses the authorization and legality of the issuance of the securities registered hereunder.

EXPERTS

         The consolidated financial statements incorporated in this prospectus by reference from Amendment No. 1 to our Annual Report on Form 20-F/A for the year ended December 31, 2006 have been audited by Kost Forer Gabbay and Kasierer, a member firm of Ernst & Young Global, independent auditors, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

         The combined balance sheets of Cellocator Ltd. and Matan Y. Communication and Tracking Systems Ltd. as of December 31, 2006 and December 31, 2005 and the related combined statements of income, changes in shareholders’ equity and cash flows for each of the years ended December 31, 2006, 2005 and 2004 have been audited by Oren Horowitz & Co., Certified Public Accountants (Isr.), as set forth in its report thereon. The financial statements of Cellocator Ltd. and Matan Communication and Tracking Systems Ltd. are included elsewhere in this registration statement in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

36



MATERIAL CHANGES

         Except as otherwise described in Amendment No. 1 to our Annual Report on Form 20-F/A for the fiscal year ended December 31, 2006 and in the Reports on Form 6-K filed by us under the Exchange Act and incorporated by reference herein, no reportable material changes have occurred since December 31, 2006.

ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES AND
AGENT FOR SERVICE OF PROCESS IN THE UNITED STATES

        We are incorporated in Israel, most of our executive officers and directors and the Israeli experts named herein are nonresidents of the United States, and a substantial portion of the assets of such persons and of ours are located outside the United States. For further information regarding enforceability of civil liabilities against us and certain other persons, see “Risk Factors – Service of Process and Enforcement of Judgments.”

WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

        We are a “foreign private issuer” as defined in Rule 3b-4 under the Securities Exchange Act of 1934, or the Exchange Act. As a result, our proxy solicitations are not subject to the disclosure and procedural requirements of Regulation 14A under the Exchange Act, transactions in our equity securities by our officers and directors are exempt from Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.

        We make available annually to our shareholders an annual report containing financial statements that have been examined and reported on, with an opinion expressed by, an independent public or certified public accountant. We prepare our financial statements in United States dollars and in accordance with accounting principles generally accepted in the United States. All references to dollars or $ in this prospectus are to United States dollars, and all references to shekels or NIS are to New Israeli Shekels. You may read and copy any document we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our ordinary shares are listed on the Nasdaq Capital Market, under the symbol “PNTR” All documents that we have filed on the SEC’s EDGAR system are available for retrieval on the SEC’s website at www.sec.gov.

37



        Form F-3 Registration Statement. We have filed with the Securities and Exchange Commission a registration statement on Form F-3 under the Securities Act with respect to the ordinary shares offered in this prospectus. This prospectus, which is part of the registration statement, does not contain all of the information that you can find in the registration statement. Some parts of the registration statement are omitted from the prospectus in accordance with the rules and regulations of the Securities and Exchange Commission. The statements we make in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such document filed as an exhibit to the registration statement, you should refer to the exhibit for a more complete description of the matter involved. The registration statement may be read and copied at the SEC’s public reference rooms as indicated above.

        Incorporation of Certain Information by Reference. The SEC allows us to “incorporate by reference” the information we file with it. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this prospectus, except if it is superseded by information in this prospectus or by later information that we file with the SEC. Information that we file with the SEC after the date of this prospectus will automatically update and supersede the information contained or incorporated by reference in this prospectus. We incorporate by reference the documents listed below, and all amendments or supplements we may file to such documents, as well as any future filings we may make with the SEC on Form 20-F under the Exchange Act before the time that all of the securities offered by this prospectus have been sold or de-registered. In addition, we may incorporate by reference into this prospectus our reports on Form 6-K filed after the date of this prospectus (and before the time that all of the securities offered by this prospectus have been sold or de-registered) if we identify in the report that it is being incorporated by reference in this prospectus. These documents contain important information about us and our financial condition.

  Report on Form 6-K_filed on August 30, 2007.

  Report on Form 6-K_filed on August 23, 2007.

  Report on Form 6-K_filed on July 16, 2007.

  Amendment No. 1 to our Annual Report on Form 20-F/A for the fiscal year ended December 31, 2006, filed on July 31, 2007.

  The description of our securities contained in Item 1 of our Registration Statement on Form 8-A filed with the SEC on March 17, 1994 under the Exchange Act and any amendment or report filed for the purpose of updating that description.

38



        You may request, at no cost, a copy of any documents incorporated by reference herein, excluding all exhibits, unless we have specifically incorporated by reference an exhibit, by writing or telephoning us at:

  Pointer Telocation Ltd.
1 Korazin Street
Givatayim
Israel 53583
972-3-572-3111

39



CELLOCATOR LTD.

MATAN Y. COMMUNICATION AND TRACKING SYSTEMS LTD.

COMBINED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2006

IN U.S. DOLLARS

INDEX

Page
 
Report of Independent Public Accounting Firm F - 3
 
Combined financial statements:
 
Balance Sheets F-4 - F-5
 
Statements of Income F - 6
 
Statements of changes in Shareholders` Equity F - 7
 
Statements of Cash Flows F-8 - F-9
 
Notes to Financial Statements F-10 - F-32



REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of:
Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.

We have audited the accompanying combined balance sheets of Cellocator Ltd. and Matan Y. Communication and Tracking Systems Ltd. (Hereafter together – the “Company”) as of December 31, 2006 and 2005, and the related combined statements of income, changes in shareholders’ equity and cash flows for each of the years ended December 31, 2006, 2005 and 2004. These combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the combined financial statements referred to above, present fairly, in all material respects, the combined financial position of the Company as of December 31, 2006 and 2005, and the combined results of their operations, changes in the shareholders’ equity and their cash flows for the years ended December 31, 2006, 2005 and 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 B to the accompanying combined financial statements, the Company entered into a sale of business agreement with third party on July 16, 2007, whereby the Company will sell all of its tangible and intangible assets, net of certain liabilities to be assumed by the third party. The closing of the transaction is subject to completion of due-diligence examination and certain other closing conditions agreed upon by the parties. The accompanying financial statements do not include the effect of such sale of business.

As discussed in Note 8 D to the accompanying combined financial statements, the Company is defendant in a lawsuit by a former distributor of the Company, filed in the I.C.C International Arbitration Institute in Paris, France, for a compensation claim of $ 3.3 million. Management is of the opinion, based on a legal advice received, that the ultimate outcome of this claim can not be determined at this stage. Accordingly, no provision for liability that may result upon adjudication of this matter has been made in the accompanying financial statements.

Oren Horowitz & Co'
Certified Public Accountants (Isr.)

Ramat - Gan, September 16, 2007



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
COMBINED BALANCE SHEETS

U.S Dollars in Thousands

December 31,
December 31,
Note
2006
2005
 
ASSETS                
     
CURRENT ASSETS :    
     
Cash and cash equivalents           $ 4,944   $ 2,287  
Marketable securities       3     248     50  
Trade accounts receivable (net of allowance for doubtful accounts of    
$ 93 and $ 90 at December 31, 2006 and 2005, respectively)             1,138     978  
Other accounts receivable       4     313     289  
Related parties - shareholders       11     119     370  
Inventories       5     943     759  


     
Total current assets             7,705     4,733  


     
LONG-TERM ASSETS:    
     
Fund in respect of employee rights upon retirement             18     13  
Deferred taxes       10     63     44  
Property and equipment, net       6     346     260  


     
Total long-term assets             427     317  


     
Total assets           $ 8,132   $ 5,050  



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

F - 4



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
COMBINED BALANCE SHEETS (CONT.)

U.S Dollars in Thousands

December 31,
December 31,
Note
2006
2005
 
LIABILITES AND SHAREHOLDERS' EQUITY                
     
CURRENT LIABILITES:    
     
Trade accounts payable           $ 967   $ 809  
Other accounts payable and accrued expenses       7     1,529     564  


     
Total current liabilities             2,496     1,373  


     
Liability in respect of employee rights upon retirement             207     139  


     
COMMITMENTS AND CONTINGENT LIABILITIES       8              
     
SHAREHOLDERS' EQUITY:    
     
Share capital       9              
Ordinary shares of 1 NIS par value - Authorized: 84,900 shares at    
December 31, 2006 and 2005; Issued and outstanding: 80,400 shares    
at December 31, 2006 and 2005             25     25  
Management shares of 1 NIS par value - Authorized: 110 shares at    
December 31, 2006 and 2005; Issued and outstanding: 59 shares at    
December 31, 2006 and 2005             -     -  
Additional paid-in capital             31     31  
Accumulated other comprehensive income             14     7  
Accumulated earnings             5,359     3,475  


     
Total shareholders' equity             5,429     3,538  


     
Total liabilities and shareholders' equity           $ 8,132   $ 5,050  



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

September 16, 2007
——————————————
Date of approval of the
financial statements
 
——————————————
Amnon Duchovne-Nave
Director
 
——————————————
Medi Duchovne-Nave
Director

F - 5



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
COMBINED STATEMENTS OF INCOME

U.S Dollars in Thousands (except for number of shares)

Year ended December 31,
Note
2006
2005
2004
 
Revenues       12   $ 8,094   $ 5,774   $ 4,641  
     
Cost of revenues             4,116     3,011     2,394  



     
Gross profit             3,978     2,763     2,247  



     
Research and development costs             247     262     165  
     
Selling and marketing expenses             303     221     314  
     
General and administrative expenses             494     649     441  



     
Total operating expenses             1,044     1,132     920  



     
Operating income             2,934     1,631     1,327  
     
Financing income, net       13 A     165     (37 )   13  
     
Other income, net       13 B     -     3     -  



     
Income before income taxes             3,099     1,597     1,340  
     
Income taxes       10     (603 )   20     29  



     
Net income           $ 2,496   $ 1,617   $ 1,369  



     
 Basic and Diluted earnings per share           $ 0.031   $ 0.020   $ 0.017  



     
 Weighted average number of shares - basic and diluted             80,400     80,400     80,400  




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

F - 6



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S Dollars in Thousands (except for number of shares)

Ordinary shares
Management shares
Additional
paid-in
capital

Accumulated
other
comprehensive
income

Retained
earnings

Total
comprehensive
income

Total
shareholders'
equity

Number
Amount
Number
Amount
 
Balance as of January 1, 2004       80,400   $ 25     59   $  (* ) $ 31     -   $ 489         $ 545  
     
Comprehensive income:    
Net income       -     -     -     -     -     -     1,369     1,369     1,369  
Unrealized gain on available-for-sale    
securities, net of deferred taxes       -     -     -     -     -     4     -     4     4  









     
Total comprehensive income                                                 1,373        

     
Balance as of December 31, 2004       80,400     25     59     (* )   31     4     1,858           1,918  
     
Comprehensive income:    
Net income       -     -     -     -     -     -     1,617     1,617     1,617  
Unrealized gain on available-for-sale    
securities, net of deferred taxes       -     -     -     -     -     3     -     3     3  









     
Total comprehensive income                                                 1,620        

     
Balance as of December 31, 2005       80,400     25     59     (* )   31     7     3,475           3,538  
     
Comprehensive income:    
Net income       -     -     -     -     -     -     2,496     2,496     2,496  
Unrealized gain on available-for-sale    
securities, net of deferred taxes       -     -     -     -     -     7     -     7     7  
Dividend distribution       -     -     -     -     -     -     (612 )   -     (612 )









     
Total comprehensive income                                                 2,503        

     
Balance as of December 31, 2006       80,400   $ 25     59   $ -   $ 31   $ 14   $ 5,359           5,429  









(*) less than $ 1 thousand.

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

F - 7



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
COMBINED STATEMENTS OF CASH FLOWS

U.S Dollars in Thousands

Year ended December 31,
2006
2005
2004
 
Cash flows from operating activities:                
     
Net profit     $ 2,496   $ 1,617   $ 1,369  
     
Adjustments to reconcile net profit to net cash    
provided by operating activities :    
     
Depreciation       67     57     43  
Changes in accrued liability of employee rights upon retirement, net       63     29     (3 )
Provision for doubtful accounts       3     49     1  
Loss from the sale of property and equipment       (1 )   -     -  
Net increase in marketable securities       (191 )   (30 )   (28 )
Gain from sales of marketable securities       -     (3 )   -  
Deferred income taxes - net       15     (16 )   (29 )
     
Changes in assets and liabilities:    
Increase in trade accounts receivable       (163 )   (638 )   (252 )
(Increase) decrease in other accounts receivable       (58 )   (129 )   273  
Change in related parties - shareholders debt       251     (269 )   (87 )
Increase in inventories       (184 )   (258 )   (190 )
Increase in trade accounts payable       158     514     130  
Increase (decrease) in other accounts payable and accrued expenses       965     240     (184 )



     
Net cash provided by operating activities       3,421     1,163     1,043  



     
Cash flows used in investing activities :    
     
Proceeds from the sale of property and equipment       8     1     -  
Proceeds from the sale of available-for-sale securities       -     36     -  
Investment in property and equipment       (160 )   (75 )   (111 )



     
Net cash used in investing activities       (152 )   (38 )   (111 )



     
Cash flows used in financing activities :    
     
Dividend paid       (612 )   -     -  
Change in short-term bank credit       -     -     (63 )



     
Net cash used in financing activities       (612 )   -     (63 )




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

F - 8



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
COMBINED STATEMTNS OF CASH FLOWS (CONT.)

U.S Dollars in Thousands

Year ended December 31,
2006
2005
2004
 
Net cash provided by operating activities       3,421     1,163     1,043  
     
Net cash used in investing activities       (152 )   (38 )   (111 )
     
Net cash used in financing activities       (612 )   -     (63 )



     
Net increase in cash and cash equivalents       2,657     1,125     869  
     
Cash and cash equivalents at beginning of year       2,287     1,162     293  



     
Cash and cash equivalents at end of year     $ 4,944   $ 2,287   $ 1,162  



     
 Supplemental disclosure of cash activities:    
     
 Cash received (paid) during the year for:    
     
   Interest     $ 142   $ 25   $ (1 )



     
   Income taxes     $ (10 ) $ (7 ) $ (6 )




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

F - 9



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 1 Description of Business

  A. General

  Cellocator Ltd. and Matan Y. Communication and Tracking Systems Ltd. (the – “Group”), Israeli entities, are engaged in principally one business segment – Automatic Vehicle Location equipment, providing sophisticated, Original Equipment Manufactures (“OEM”) products for the vehicle security and fleet management service industry, as well as solutions for wireless M2M (machine to machine).

  B. Sale of business

  On July 16, 2007, subsequent to the balance sheet date, Cellocator Ltd. and Matan Y. Communication and Tracking Systems Ltd. And their controlling shareholder Mr. Ammon Duchovna-Naveh entered into a sale agreement (hereafter: “the Agreement”) with Pointer Telocation Ltd. (hereafter: “Pointer”), pursuant to which, Pointer shall acquire from the Group all of its business in the field of Automatic Vehicle Location equipment, certain intangible assets and all of its tangible assets (excluding cash and cash equivalents and owned vehicles), net of certain liabilities to be assumed by Pointer. Pursuant to the agreement, the Group will be solely the sole responsible for the outcome of any claims and litigations arise for events which occurred prior to the agreement closing date, and liabilities of the Group to its banks.

  In consideration for the Group’s intangible assets, the Group shall be entitled to the following: (1) a cash payment of 59,858 thousand NIS (approximately – $ 14,200), (2) 160,000 ordinary shares of 3 NIS par value each of Pointer, having a fair value of approximately $ 1,792 as of December 31, 2006, and (3) a convertible unregistered debenture, convertible into 160,000 ordinary shares of 3 NIS par value each of Pointer, at principal amount of $ 1,922. In consideration for the Group’s tangible assets, the Group shall be entitled to (1) an amount equal to the value of the net tangible assets at the closing date, and (2) a cash payment of 2 million NIS (approximately $ 480), attribute to the unrealized profit from the Group’s inventory.

  Pursuant to the agreement, the Group committed to indemnify the buyer against all claims, actions, losses incurred by the buyer, resulted from false representations by the sellers, if such claims exceeding $ 250 in the aggregate.

  The closing of the transaction is subject to the completion of certain conditions as agreed upon in the agreement. The allocation of proceed for the sold business, intangible assets and net tangible assets, will be computed based upon the fair value on the closing date.

F - 10



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 2 Summary of significant accounting principles

  The combined financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP").

  A. Financial statements in U.S. dollars

  The majority of the Group’s revenues are generated in U.S. dollars (“dollar”) and a substantial portion of the Group’s costs are incurred in dollars. In addition, the Group’s financing have been obtained in dollars. Accordingly, the dollar is the currency of the primary economic environment in which the Group operates and the functional and reporting currency of the Group is dollar.

  Transactions and balances denominated in dollars are presented at their dollar amounts. Non-dollar transactions and balances are remeasured into dollars in accordance with the principles set forth in Statement of Financial Accounting Standards (SFAS) No. 52, “Foreign Currency Translation”, of the Financial Accounting Standards Board of the United States. All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the combined statements of operations as financial income or expenses, as appropriate.

  B. Combined financial statements

  Cellocator Ltd. (“Cellocator”) and Matan Y. Communication and Tracking Systems Ltd. (“Matan”) are commonly controlled companies which operate under common management. Most of Matan sales are to Cellocator.

  In light of the dependency in the operations between Cellocator and Matan, and the agreement for the sale of the entire business of the companies, see Note 1 B, management believes that combined financial statements of Cellocator and Matan, as defined in Accounting Research Bulletin (ARB) No. 51, would be useful and more meaningful to present the financial position and the results of operations of the Group.

  In the combined financial statements, all material intercompany balances, transactions and profit from intercompany transactions, which were not realized outside the group, have been eliminated, in the same manner of as in consolidated financial statements.

F - 11



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 2 Summary of significant accounting principles (Continued)

  C. Disclosure of certain risks, uncertainties and use of estimates

  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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.

  The industry, in which the Group is involved, is competitive and is characterized by the risks of rapidly changing technologies and penetration into world markets. This requires the investment of considerable resources and continuous development efforts. The Group’s future success is dependent upon several factors including the technological quality and price/performance of its products relative to those of its competitors. Some of the Group’s competitors and potential competitors may have greater research, development, financial or other resources or more extensive business experience than the Group. There can be no assurance that the Group will be able to maintain the high technological quality of its products relative to those of its competitors or to continue to develop or market new products effectively.

  See Note 12 C in respect of dependency on customers.

  The Group is dependent upon certain vendors and subcontractors for the development of specific Sub-assemblies and components that are integrated into the Group’s products, mainly Cellular modems and GPS devices. Management is of the opinion that the level of component kept by the Group inventory, is adequate for the period of time which is required for the Group to establish, if necessary, a secondary source for such sub-assemblies and components.

  During the years ended December 31, 2006, 2005 and 2004, approximately 68%, 73% and 63% of total purchase of raw materials by the Group is attributable to the purchase of sub-assemblies and components from such suppliers.

  D. Cash equivalents

  Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less.

F - 12



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 2 Summary of significant accounting principles (Continued)

  E. Marketable securities

  Management determines the classification of its investments in debt securities with fixed maturities at the time of purchase and reevaluates such designations as of each balance sheet date. At December 31, 2005, all marketable securities covered by SFAS No. 115, “Accounting for Certain investments in Debt and Equity Securities” (SFAS No. 115), were designated as available-for-sale.

  Accordingly, these securities are stated at fair value, with the unrealized gains and losses, reported in accumulated other comprehensive income as separate component of shareholders’equity. The amortized cost of available-for-sale securities is adjusted for amortization of premiums to maturity. Such amortization and interest are included in financial income, net.

  Realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the combined statement of income, among “Other income, net”. According to Staff Accounting Bulletin No. 59, “Accounting for Non-current Marketable Equity Securities” (“SAB No. 59”) management is required to evaluate in each period whether a security’s decline in value is other than temporary. In all reported periods, the Group did not record other than temporary decline in the carrying value of its marketable securities.

  F. Inventories

  Raw materials, components, work in process and finished products are valued at the lower of cost or market.

  Cost is determined as follows:

  Raw materials and components – by the first in first out (“FIFO”) method.

  Work in process and finished products – on the basis of the manufacturing costs, which consist of raw materials and components using the FIFO method, labor and other manufacturing overhead expenses at actual costs.

  The Company writes down its inventory for estimated obsolescence and unmarketable inventory equal to the difference between the cost of inventory and estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those anticipated, inventory adjustments may be required. The Company believes that these estimates are reasonable and historically have not resulted in material adjustments in subsequent periods when the estimates are adjusted to actual amounts.

F - 13



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 2 Summary of significant accounting principles (Continued)

  G. Property and equipment

  Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The annual rates of depreciation are as follows:

%
 
Machinery and equipment       7-20  
Motor vehicles       15  
Office furniture and equipment       7-33  

  Leasehold improvements are amortized using the straight line method over the period of the lease contract, provided that this period does not exceed the useful life of the asset.

  Fixed assets not in use, held for resale, are stated at the lower of net cost or estimated realizable value.

  Expenditures for maintenance and repairs are charged to expense as incurred, while renewals and betterment of a permanent nature are capitalized.

  H. Impairment of long-lived assets

  The Group’s long-lived assets are reviewed for impairment in accordance with the provisions set fourth in Financial Accounting Standard Board Statement No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. As of December 31, 2006 and 2005 no impairment losses have been identified. See Note 1 B for sale of business.

  I. Revenue recognition

  Revenues from the sale of products to end users, service providers and resellers are recognized upon shipment of the products when title passes to the customer.

  In accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements”, revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, provided the collection of the resulting receivable is probable, the price is fixed or determinable and no significant obligation exists.

  The Group does not grant a right of return to its customers. If uncertainties exist, such as granting the customer a right of cancellation if the product is not technically acceptable, revenue is recognized when the uncertainties are resolve.

  Sales to OEM’s are recognized under the same terms mentioned above, since OEM orders from the Group are upon receipt of a purchase order from an end user.

F - 14



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 2 Summary of significant accounting principles (Continued)

  J. Warranty costs

  The Group generally provides one-year of warranty in respect of its products.

  Estimated costs for warranty liability are recorded at the time the product is shipped and revenue is recognized.

  Based on the assessment of past experience, the Group does not record any provision for warranties in respect of its products.

  K. Research and development

  Research and development expenses are charged to expenses as incurred. Participations received from the Government of Israel for development of approved projects are recognized as a reduction of expenses when the related costs are incurred. Development costs incurred subsequent to the establishment of technological feasibility are capitalized in accordance with the principles set forth in Financial Accounting Standard Board Statement No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed”. Based on the Group’s product development process technological feasibility is established upon completion of a working model i.e. only when all planning, designing, coding and testing have been completed according to design specifications. Costs incurred by the Group between completion of the working models and the point at which the products are ready for general release has been insignificant. Therefore, all research and development costs have been expensed.

  Participation by government departments for development of approved projects is recognized as a reduction of expenses, as the related costs are incurred.

  L. Allowance for doubtful accounts

  The financial statements include specific allowances for doubtful accounts that appropriately reflect, in management’s opinion, the inherent loss in collection of the debts. This provision has been based on the management’s assessment, among others, of the risk of the debt. This assessment relies on reviewing information in the management’s possession regarding the financial position of customers, the scope of their activities and evaluation of securities the Group has received from its customers.

  The allowance for doubtful accounts expenses for the years ended December 31, 2006, 2005 and 2004, was $ 3, $ 49 and $ 1, respectively.

F - 15



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 2 Summary of significant accounting principles (Continued)

  M. Income taxes

  Income taxes are accounted for in accordance with Financial Accounting Standard Board Statement No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). This statement prescribes the use of the liability method, whereby deferred tax assets and liability account balances are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and for tax loss carry forwards. Deferred taxes are measured using the enacted laws and tax rates that will be in effect when the differences are expected to reverse. The Group provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value, see Note 10 F.

  Results for tax purposes are measured and reflected in real terms in accordance with the changes in the Israeli Consumer Price Index (“CPI”). As explained in A above, the combined financial statements are presented in U.S. dollars. In accordance with paragraph 9(f) of SFAS No. 109, the Group has not provided deferred income taxes on the differences resulting from changes in exchange rate and indexing for tax purposes.

  Upon the distribution of dividends from the tax-exempt income of “Approved Enterprises” (see also Note 10 C), the amount distributed will be subject to corporate tax at the rate that would have been applicable had the Group not been exempted from payment thereof. The Group intends to permanently reinvest the amounts of tax exempt income and it does not intend to cause distribution of such dividends. Therefore, no deferred income taxes have been provided in respect of such tax-exempt income.

  Deferred tax assets and liabilities of Cellocator are not offset against Matan deferred tax assets and liabilities.

  N. Concentrations of credit risk

  Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities and trade receivables.

  Cash and cash equivalents, are deposited with major banks in Israel and the United States. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Group’s cash and cash equivalents and short-term bank deposits, are financially sound, and, accordingly, minimal credit risk exists with respect to these financial instruments.

  The Group’s marketable securities include investment in debentures, mutual funds and in shares. Management believes that the companies that issued the debentures and the shares are financially sound, the portfolio is well diversified, and accordingly, minimal credit risk exists with respect to the marketable securities.

F - 16



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 2 Summary of significant accounting principles (Continued)

  N. Concentrations of credit risk (Continued)

  The Group’s trade receivables are derived mainly from sales to customers in Europe and South America. This concentration of credit risk within geographical markets may be affected by changes in the economy, the financial position and other conditions which affected them and may accordingly, have an impact on the Group’s overall credit risk. See Note 12 A and D, in respect of revenues geographic information.

  The Group generally does not require collateral, however, in certain circumstances; the Group may require letters of credit. The Group performs ongoing credit evaluation of their customers’ financial condition. The allowance for doubtful accounts is determined with respect to specific debts that are doubtful of collection. As for allowance for doubtful accounts, see L above.

  The Group has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

  O. Severance pay

  The Group’s liability for severance pay to its employees pursuant to Israeli law and employment agreements is covered in part by managers’ insurance policies, for which the Group makes monthly payments. The value of these polices is recorded as an asset in the Group’s balance sheet. The Group may only make withdrawals from the managers’ insurance policies for the purpose of paying severance pay.

  The severance pay liability is calculated on the basis of one month’s salary for each year of service, based on the most recent salary of each employee.

The expenses in respect of severance pay for the years ended December 31, 2006 and 2005 were $ 63 and $ 29, respectively, and income of $ 3, for the year ended December 31, 2004.

  P. Fair value of financial instruments

  The estimated fair value of financial instruments has been determined by the Group using available market information and valuation methodologies. Considerable judgment is required in estimating fair values. Accordingly, the estimates may not be indicative of the amounts the Group could realize in a current market exchange.

  The carrying amounts of cash and cash equivalents, trade receivables, other accounts receivable, trade payables and other accounts payable approximate their fair values, due to the short-term maturities of such instruments.

  The fair value for marketable securities classified as available-for-sale is based on quoted market prices.

  The fair value of long-term liabilities is estimated by discounting the future cash flows, using the rate currently available for liabilities of similar terms and maturity. The carrying amount of the Group’s long-term liabilities approximates their fair value.

F - 17



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 2 Summary of significant accounting principles (Continued)

  Q. Basic and diluted Earnings per share

  Basic earnings per share is computed based on the weighted average number of ordinary shares outstanding during each year. Diluted net income per share includes the effect of stock option warrants outstanding during the year all, in accordance with SFAS No. 128, “Earnings Per Share” (“SFAS No. 128”), using the treasury stock method.

  R. Comprehensive income

  Other comprehensive income, presented in shareholders’ equity, represents unrealized gain on available-for sale securities, (accumulated balance at December 31, 2006 and 2005, is $ 14 and $ 7, respectively).

  S. Impact of recently issued Accounting standards

  1. On December 16, 2004, the Financial Accounting Standards Board issued Financial Accounting Standard Board Statement No. 123 (revised 2004), Share-Based Payment (“SFAS 123 (R)”), which is a revision of Financial Accounting Standard Board Statement No. 123, Accounting for Stock-Based Compensation. SFAS 123 (R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends Financial Accounting Standard Board Statement No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123 (R) is similar to the approach described in SFAS 123. However, SFAS 123 (R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The new standard was effective for the Group in the first interim period beginning after January 1, 2006.

  The Group implemented SFAS 123(R) using the modified prospective method starting January 1, 2006. Under this method, the Group will recognize compensation cost for equity-based compensation for all new and existing unvested share-based awards after the date of adoption. The adoption of the SFAS 123(R) did not have an impact on the combined results of operations, or to the overall combined financial position or combined cash flows.

  2. In November 2004, the FASB issued Financial Accounting Standard Board Statement No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (“SFAS No. 151”). SFAS No. 151 amends Accounting Research Bulletin (“ARB”) No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight handling costs and wasted materials (spoilage) should be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities. SAFS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Group adopted SFAS No. 151 on January 1, 2006, as required. The adoption of SFAS No. 151 did not have a material impact on the Group’s financial position or results of operations

F - 18



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 2 Summary of significant accounting principles (Continued)

  S. Impact of recently issued Accounting standards (Continued)

  3. In September 2006, the FASB issued Financial Accounting Standard Board Statement No. 155, “Accounting for Certain Hybrid Financial Instruments-an Amendment of FASB Statements No. 133 and 140,” (SFAS No. 155), to simplify and make more consistent the accounting for certain financial instruments. SFAS No. 155 amends Financial Accounting Standard Board Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to permit fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. SFAS No. 155 amends Financial Accounting Standard Board Statement No. 140, “Accounting for the Impairment or Disposal of Long-Lived Assets,” to allow for a qualifying special-purpose entity to hold a derivative financial instrument that relates to a beneficial interest other than another derivative financial instrument. SFAS No. 155 applies to all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006, with earlier application permitted. Accordingly, the Group adopted SFAS No. 155 on January 1, 2007. The adoption of SFAS No. 155 did not have any effect on the Group’s financial position and results of operations

  4. In September 2006, the FASB issued Financial Accounting Standard Board Statement No. 157, “Fair Value Measurements,” (“SFAS No. 157”). Among other requirements, SFAS No. 157 defines fair value and establishes a framework for measuring fair value and also expands disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 is effective beginning the first fiscal year that begins after November 15, 2006. The Group is currently evaluating the impact of SFAS No. 157 on its financial position and results of operations

  5. In September 2006, the FASB issued Financial Accounting Standard Board Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of F Financial Accounting Standard Board Statements No. 87, 88, 106, and 132(R) (“SFAS No. 158”). SFAS No. 158 requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position, to recognize changes in that funded status in the year in which the changes occur through comprehensive income as well as prescribing additional disclosure requirements. The provisions of this statement are effective for all other companies in fiscal years ending after June 15, 2007. In addition, a Group must now measure the fair value of its plan assets and benefit obligations as of the date of its year-end balance sheet. A Group is no longer permitted to measure the funded status of its plan by being able to choose a measurement date up to three months prior to year end. This provision within the Standards is effective for all companies in fiscal years ending after December 15, 2008. The Group does not anticipate the adoption of this new accounting principle will have a material effect on its financial statements

F - 19



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 2 Summary of significant accounting principles (Continued)

  S. Impact of recently issued Accounting standards (Continued)

  6. In February 2007, the FASB issued Financial Accounting Standard Board Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). This Statement provides companies with an option to report selected financial assets and liabilities at fair value. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. The Statement’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. This Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. The Group is currently evaluating the impact of adopting SFAS No. 159.

  7. In September 2006, the Securities and Exchange Commission released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”), which addresses how uncorrected errors in previous years should be considered when quantifying errors in current-year financial statements. SAB 108 requires registrants to consider the effect of all carry over and reversing effects of prior-year misstatements when quantifying errors in current-year financial statements. SAB 108 does not change the Staff’s previous guidance on evaluating the materiality of errors. It allows registrants to record the effects of adopting SAB 108 guidance as a cumulative-effect adjustment to retained earnings. This adjustment must be reported in the annual financial statements for the first fiscal year ending after November 15, 2006. The initial adoption of SAB 108 did not have a material impact on the Group’s financial condition and results of operation.

  8. In June 2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes”, an interpretation of Financial Accounting Standard Board Statement No. 109, “Accounting for Income Taxes”. FIN No. 48 clarifies the accounting for uncertain tax positions. FIN No. 48 prescribes a comprehensive model for how companies should recognize, measure, present and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under FIN No. 48, tax positions shall initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts. FIN No. 48 also revises disclosure requirements to include an annual tabular rollforward of unrecognized tax benefits. The provisions of this interpretation are required to be adopted for fiscal periods beginning after December 15, 2006. As applicable to the Group, the interpretation prescribed by FIN No. 48 will be effective commencing January 1, 2007. The Group is currently evaluating the impact that the adoption of FIN No. 48 would have on its combined financial statements.

F - 20



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 2 Summary of significant accounting principles (Continued)

  S. Impact of recently issued Accounting standards (Continued)

  9. In March 2007, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements (“EITF No. 06-10”). EITF No. 06-10 requires an employer to recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement in accordance with either Statement of Financial Accounting Standards Board No. 106 or Accounting Principles Board Opinion No. 12 if the employer has agreed to maintain a life insurance policy during the employee’s retirement or provide the employee with a death benefit. EITF No. 06-10 also requires an employer to recognize and measure an asset based on the nature and substance of the collateral assignment split-dollar life insurance arrangement. EITF No. 06-10 is effective for fiscal years beginning after December 15, 2007 with early adoption permitted. The Group is evaluating the impact that the adoption of EITF No. 06-10 will have on its financial statements.

Note 3 Marketable securities

  The following is a summary of available-for-sale marketable securities:

December 31, 2006
December 31, 2005
Amortized
cost

Gross
unrealized
gains

Estimated
fair
market
value

Amortized
cost

Gross
unrealized
Gains

Estimated
fair
market
value

 
Shares       22     1     23     6     4     10  
Mutual    
funds       208     12     220     4     -     4  
Debentures       4     1     5     33     3     36  






     
      $ 234   $ 14   $ 248   $ 43   $ 7   $ 50  







  Unrealized gain amounted to $ 14 and $ 7 on December 31, 2006 and 2005, respectively

F - 21



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 4 Other accounts receivable

  Composed of the following:

December 31,
2006
2005
 
Government institutes     $ 189   $ 183  
Prepaid expenses and advances to suppliers       31     31  
Deferred taxes (1)       41     75  
Others       52     -  


     
      $ 313   $ 289  



  (1) See Note 10 F.

Note 5 Inventories

  Inventories are composed of the following:

December 31,
2006
2005
 
Raw materials and components     $ 577   $ 559  
Work in progress       282     2  
Spare parts       16     10  
Finished goods       68     188  


     
      $ 943   $ 759  



Note 6 Property and Equipment, net

  Composition of assets, grouped by major classifications, is as follows:

December 31,
2006
2005
 
Cost:            
Machinery and equipment     $ 227   $ 137  
Motor vehicles       251     230  
Office furniture and equipment       37     36  
Leasehold improvements       72     69  


     
        587     472  
     
Less: Accumulated depreciation       241     212  


     
      $ 346   $ 260  



  Depreciation expenses amounted to $ 67, $ 57 and $ 43, for the years ended December 31, 2006, 2005 and 2004, respectively.

F - 22



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 7 Other accounts payable and accrued expenses

  Composition:

December 31,
2006
2005
 
Employees and payroll accruals     $ 110   $ 92  
Taxes on income       568     -  
Accrued debt to the Office of the Chief Scientist (1)       27     21  
Advances from customers       360     86  
Provision for professional service providers fees       419     320  
Other accrued expenses       45     45  


     
      $ 1,529   $ 564  



  (1) An outstanding debt to the Office of the Chief Scientist, for excess of grants received by the Group on the basis of costs incurred in a research and development project, on 2000. the outstanding amount is linked to the changes in the Israeli CPI and bearing an annual interest of 4%.

Note 8 Commitments and contingent liabilities

  A. The Group is committed to pay royalties to the Israeli government on proceeds from the sales of products, the research and development of which the Israeli government participated by way of grants. Under the terms of the Group’s funding from the Office of the Chief Scientist, royalty payments are computed on the portion of sales from such products at a rate of 3.5% – 5%. The commitment to the Office of the Chief Scientist is limited to the amount of the received grants (dollar linked) since January 1, 1999 – with the addition of an annual interest rate based on Libor.

  During the three years ended December 31, 2006, the Group did not generate revenues from products developed pursuant to research and development plans with the participation of the Chief Scientist. Therefore, the financial statements do not include royalty liability due by the Group to the Chief Scientist.

  B. The Group is committed to pay marketing commissions and finder fees at a range of 4.5% to 13.5% of proceed from sales which were received through promotion and distribution carried out by third parties. Commission expenses and finder fees costs were $ 145, $ 74 and $ 277, for the years ended December 31, 2006, 2005 and 2004, respectively.

F - 23



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 8 Commitments and contingent liabilities (Continued)

  C. The Group leases office facilities under a rental agreement in effect until February 28, 2008. Under this agreement the monthly rental payments, are at the amount of approximately $ 4.

  Minimum future payments due under the Group rental agreement are as follows:

2007     $ 50  
2008       8  

     
      $ 58  


  Total rent expenses for the years ended December 31, 2006, 2005 and 2004 were approximately $ 60, $ 43 and $ 31, respectively.

  D. Legal proceedings

  (1) A former distributor of the Group, Starcom Ltd. filed a lawsuit against the Group with the I.C.C International Arbitration Institute in Paris, France.

  Stracom Ltd. alleges that the Group violated a distribution agreement between the parties Starcom Ltd. seeks compensation for damages caused by the alleged breach of agreement, in the amount of $ 1,000.

  The I.C.C institute approved Starcom Ltd. request to increase the compensation damages claim to $ 3,300.

  A hearing is expected to take place during September 2007.

  In June 2007, subsequent to the balance sheet date, Starcom Ltd. filed an application for a temporary lien against the Group for $ 3,300, with the Tel-Aviv District Court. On July 22, 2007, the court approved a temporary attachment of $ 1,000, effective upon the closing of the sale of business transaction (See Note 1 B).

  The Group believes that the allegations against it in this proceeding are without merit. Nevertheless, based on a legal advice received, management is of the opinion that the ultimate outcome of this claim can not be determined at this stage. Accordingly, no provision for liability that may result upon adjudication of this matter has been made in the accompanying financial statements.

  (2) The Group is subject to additional claims from third parties, raised in the ordinary course of business. Based on its legal advisors opinion, the Group provided a total amount of $ 12 in its financial statements for such claims.

  The Group’s management is of the opinion, based on legal advice received that the financial statements as of December 31, 2006, include adequate provision to cover all the Group’s exposure, if any, that would arise from the settlement of such lawsuits and claims.

F - 24



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 9 Shareholders equity

  A. Share Capital

December 31, 2006 and 2005
Authorized
Issued and
outstanding

NIS
NIS
 
Ordinary shares, NIS 1 par value each       84,900     80,400  
Management shares, NIS 1 par value each       110     59  


     
        85,010     80,459  



  B. On October 1, 2006, Cellocator distributed a dividend in the amount of 2,633 thousand NIS (approximately – $ 612), representing 53 NIS per each ordinary and management share outstanding.

Note 10 Income taxes

  A. Measurement of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985

  In accordance with the above law results for tax purposes are measured and reflected in real terms in accordance with the changes in the Israeli CPI.

  B. Tax benefits under Israel’s Law for the Encouragement of Industry (Taxation), 1969

  The Group is an “industrial company”, as defined by the law for the Encouragement of Industry (Taxes), 1969, and as such, is entitled to certain tax benefits, which mainly consist of amortization of costs relating to know-how and patents over eight years, the right to claim public issuance expenses, and accelerated depreciation

F - 25



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 10 Income taxes (Continued)

  C. Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (“the Law”)

  A certain expansion plan of the Group has been granted an “Approved Enterprise”status, under the Law. The Group has elected to receive its benefits through the “alternative benefits track”, waiving grants in return for tax exemptions. Pursuant thereto, the increase in income from the date of commencement of the program which is the income of the Group derived from the following “Approved Enterprise” expansion programs is tax-exempt for the periods stated below and will be eligible for reduced tax rates thereafter (such reduced tax rates are dependent on the level of foreign investments in the Company), as described below.

  Income derived from the program, which commenced in 2004, will entitle the Group to a tax exemption for the two-year period ending December 31, 2005, and to a reduced tax rate of 25% for an additional five years ending December 31, 2010.

  The entitlement to the above benefits is conditional upon the Group fulfilling the conditions stipulated by the abovementioned law, regulations published thereunder and the letters of approval for the specific investments in “approved enterprises”. In the event of failure to comply with these conditions, the benefits may be canceled and the Group may be required to refund the amount of the benefits, in whole or in part, including interest. As of December 31, 2006, management believes that the Group is meeting all of the aforementioned conditions.

  The tax-exempt income attributable to the “Approved Enterprise” can not be distributed to shareholders without imposing tax liability on the Group other than in complete liquidation. If the retained tax-exempt income is distributed to shareholders, it would be taxed at the corporate tax rate applicable to such profits as if the Group had not elected the alternative tax benefits track (currently – 25%).

  Out of the Group’s retained earnings as of December 31, 2006, approximately $ 3,560 are tax-exempt under the law. If such tax-exempt income is distributed in a manner other than upon the complete liquidation of the Group, it would be taxed at the reduced corporate tax rate applicable to such profits (25%) and an income tax liability of up to approximately $ 890 would be incurred as of December 31, 2006. The Group’s management has determined that it will not distribute any amounts of its undistributed tax exempt income as dividend. See also Note 2 M.

  Income of the Group from sources other than the “Approved Enterprise” during the benefit period will be subject to tax at the effective standard corporate tax rate in Israel, see D below.

F - 26



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 10 Income taxes (Continued)

  C. Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (“the Law”) (Continued)

  On April 1, 2005, an amendment to the Investment Law came into effect (“the Amendment”) and has significantly changed the provisions of the Investment Law. The Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of the Approved Enterprise’s income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits.

  However, the Investment Law provides that terms and benefits included in any certificate of approval already granted will remain subject to the provisions of the law as they were on the date of such approval. Therefore, the Group’s existing Approved Enterprise will generally not be subject to the provisions of the Amendment. As a result of the amendment, tax-exempt income generated under the provisions of the new law, will subject the Group to taxes upon distribution or liquidation and the Group may be required to record deferred tax liability with respect to such tax-exempt income.

  As of December 31, 2006, the Group generated tax exempt income under the provision of the new law at the amount of approximately $ 660.

  D. Reduction of Israeli corporate tax rate

  Until December 31, 2003, the regular tax rate applicable to income of companies (which are not entitled to benefits due to “Approved Enterprise”, as described above) was 36%. In June 2004 and in July 2005, the “Knesset” (Israeli parliament) passed amendments to the Income Tax Ordinance (No. 140 and Temporary Provision), 2004 and (No. 147), 2005 respectively, which determine, among other things, that the corporate tax rate is to be gradually reduced to the following tax rates: 2004 – 35%, 2005 – 34%, 2006 – 31%, 2007 – 29%, 2008 – 27%, 2009 – 26% and 2010 and thereafter – 25%.

  E. Income tax assessments

  Cellocator and Matan received tax assessments considered as final through 2003.

F - 27



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 10 Income taxes (Continued)

  F. Deferred taxes

  Significant components of the Group’s deferred tax assets as of December 31, 2006 and 2005, are as follows:

December 31, 2006
Current
Non-current
Total
 
Severance pay       -     47     47  
Doubtful accounts       21     -     21  
Vacation pay       10     -     10  
Research and development       11     16     27  
Others       (1 )   -     (1 )



     
        41     63     104  




December 31, 2005
Current
Non-current
Total
 
Severance pay       -     32     32  
Doubtful accounts       21     -     21  
Vacation pay       12     -     12  
Research and development       23     12     35  
Losses carry forward       21     -     21  
Others       (2 )   -     (2 )



     
        75     44     119  




  As of December 31, 2006, the Group did not provide a valuation allowance in respect of deferred tax assets, since management currently believes that it is more likely than not that the deferred tax asset will be realized in the future.

  Deferred income taxes are computed using the effective rate applicable for the Group, in accordance with reduced tax rates for approved enterprises under the Law for the Encouragement of Capital Investments, 1959, as amended (see C above), and the reduction of Israeli corporate tax rate, which varies from 0% to 31%, based on management’s estimate the taxes rate for which the deferred taxes will be realized.

F - 28



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 10 Income taxes (Continued)

  G. Taxes on (expenses) income included in statement of operations

Year ended December 31,
2006
2005
2004
 
Current taxes     $ (588 ) $ 4 $ -  
Deferred taxes       (15 )   16     29  



     
Total     $ (603 ) $ 20   $ 29  




  H. Income tax reconciliation

  A reconciliation of the theoretical tax expense assuming all income is taxed at the statutory rate and the actual tax expense is as follows:

Year ended December 31,
2006
2005
2004
 
Income before taxes on income, as                
reported in the statement of    
operations     $ 3,099   $ 1,597   $ 1,340  
     
Statutory tax rate in Israel       31 %   34 %   35 %



     
Theoretical tax expense       961     543     469  
     
Additional tax (tax savings) in    
respect of:    
Non-deductible expenses       5     7     19  
Tax-exempt income and reduced tax
rates in companies which have
approved enterprises
      (301 )   (470 )   (461 )
Taxes in respect of previous years       (79 )   (70 )   (59 )
Effect of the Inflationary
Adjustments Law
      (14 )   (34 )   (2 )
Other       31     4     5  



     
Income taxes as reported in the
statements of operations
    $ 603   $ (20 ) $ (29 )




F - 29



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 11 Related parties

  A. Transactions with related parties

Year ended December 31,
No.
2006
2005
2004
 
Salaries and related                    
benefits of related
parties employed by the
Group
      5   $ 149   $ 144   $ 129  



     
Interest and linkage    
differences in respect of    
shareholders' debt           $ (21 ) $ (26 ) $ (9 )




  B. Balances with related parties

December 31,
2006
2005
 
Shareholders' debt     $ 119   $ 370  



  (1) Linked to the Israeli Consumer Price Index and bears an annual interest of 4%.

  (2) The outstanding debt as of January 1, 2006, was $ 478.

  C. Cellocator and Matan are conducting inter-company transactions, in the ordinary course of business, based upon transfer price policy established by companies’ management, on an arm’s length basis.

F - 30



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 12 Information on geographic area and major customers

  A. Revenues by geographic area

Year ended December 31,
2006
2005
2004
 
United Kingdom     $ 2,993   $ 1,756   $ 453  
CSI       1,318     1,442     530  
Turkey       1,132     270     -  
Mexico       968     761     311  
Rest of Europe (including Israel)       1,276     1,022     2,652  
Rest of the world       407     523     695  



     
Total     $ 8,094   $ 5,774   $ 4,641  




  B. Long-lived assets – substantially all of the Group’s long-lived assets are located in Israel.

  C. Major customers data (as percentage of total sales)

Year ended December 31,
2006
2005
2004
%
%
%
 
Customer A       35     30     10  
Customer B       16     24     11  
Customer C       14     5     -  
Customer D       4     9     4  

  D. Trade accounts receivable classified by major geographical markets are:

December 31,
2006
2005
 
United Kingdom     $ 470   $ 342  
CSI       18     82  
Turkey       -     73  
Mexico       396     31  
Rest of Europe (including Israel)       213     363  
Rest of the world       41     87  


     
Total     $ 1,138   $ 978  



F - 31



Cellocator Ltd.
Matan Y. Communication and Tracking Systems Ltd.
 
NOTES TO THE COMBINED FINANCIAL STATEMENTS

U.S Dollars in Thousands

Note 13 Selected income statement data

  A. Financial income (expenses), net

  Composition:

Year ended December 31,
2006
2005
2004
 
Bank charges     $ 15   $ 12   $ 13  
Interest on cash equivalents    
and bank deposits       158     25     1  
Interest and difference linkage on
shareholders' debt
      21     26     9  
Exchange loss - net       (29 )   (100 )   (10 )



     
      $ 165   $ (37 ) $ 13  




  B. Other income, net

  Relates to gain on sale of marketable securities classified as available-for-sale.

F - 32



Pointer Telocation Ltd.

1,207,500 ORDINARY SHARES


PROSPECTUS



  You should rely only on the information incorporated by reference or provided in this prospectus. We have not authorized anyone to provide you with different information. We are not making any offer to sell or buy any of the securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date that appears below.  

__________, 2007

40



INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 8. INDEMNIFICATION OF DIRECTORS AND OFFICERS

        The Israeli Companies Law-1999, or the Companies Law, provides that a company may include in its articles of association provisions allowing it to:

     1.        partially or fully, exempt in advance, an office holder of the company from his responsibility for damages caused by the breach of his duty of care to the company, except for damages caused to the Company due to any breach of such Office Holder's duty of care towards the company in a "distribution" (as defined in the Companies Law).

     2.        enter into a contract to insure the liability of an office holder of the company by reason of acts or omissions committed in his capacity as an office holder of the company with respect to the following:

     (a)        the breach of his duty of care to the company or any other person;

     (b)        the breach of his fiduciary duty to the company to the extent he acted in good faith and had a reasonable basis to believe that the act or omission would not prejudice the interests of the company; and

     (c)        monetary liabilities or obligations which may be imposed upon him in favor of other persons.

     3.        indemnify an office holder of the company for:

     (a)        monetary liabilities or obligations imposed upon, or actually incurred by, such officer holder in favor of other persons pursuant to a court judgment, including a compromise judgment or an arbitrator's decision approved by a court, by reason of acts or omissions of such officer holder in his or her capacity as an office holder of the company;

     (b)        reasonable litigation expenses, including attorney's fees, actually incurred by such office holder or imposed upon him or her by a court, in an action, suit or proceeding brought against him or her by or on behalf of us or by other persons, or in connection with a criminal action from which he or she was acquitted, or in connection with a criminal action which does not require criminal intent in which he was convicted, in each case by reason of acts or omissions of such officer holder in his or her capacity as an office holder; and

41



     (c)        reasonable litigation expenses, including attorneys' fees, actually incurred by such office holder due to an investigation or a proceeding instituted against such office holder by an authority competent to administrate such an investigation or proceeding, and that was finalized without the filing of an indictment against such office holder and without any financial obligation imposed on such office holder in lieu of criminal proceedings, or that was finalized without the filing of an indictment against such office holder but with financial obligation imposed on such office holder in lieu of criminal proceedings of a crime which does not require proof of criminal intent, in each case by reason of acts of such officer holder in his or her capacity as an office holder of the company.

        The Companies Law provides that a company's articles of association may provide for indemnification of an office holder post-factum and may also provide that a company may undertake to indemnify an office holder in advance, as described in:

        sub-section 3(a) above, provided such undertaking is limited to and actually sets forth the types of occurrences, which, in the opinion of the company's board of directors based on the current activity of the company, are, at the time such undertaking is provided, foreseeable, and to an amount and degree that the board of directors has determined is reasonable for such indemnification under the circumstances; and

        sub-sections 3(b) and 3(c) above.

        The Companies Law provides that a company may not indemnify or exempt the liabilities of an office holder or enter into an insurance contract which would provide coverage for the liability of an office holder with respect to the following:

        a breach of his fiduciary duty, except to the extent described above;

        a breach of his duty of care, if such breach was done intentionally, recklessly or with disregard of the circumstances of the breach or its consequences;

        an act or omission done with the intent to unlawfully realize personal gain; or

        a fine or monetary settlement imposed upon him.

        Under the Companies Law, the term "office holder" may include a director, managing director, general manager, chief executive officer, executive vice president, vice president, other managers directly subordinate to the managing director and any other person fulfilling or assuming any such position or responsibility without regard to such person's title.

        The grant of an exemption, an undertaking to indemnify or indemnification of, and procurement of insurance coverage for, an office holder of a company requires, pursuant to the Companies Law, the approval of our audit committee and board of directors, and, in certain circumstances, including if the office holder is a director, the approval of our shareholders.

        Our Articles of Association have been amended to allow for indemnification of, and procurement of insurance coverage for our officers and directors to the maximum extent provided for by the Companies Law. We have entered into an insurance contract for directors and officers.

42



ITEM 9. EXHIBITS

4.1* Memorandum of Association.

4.2** Amended Articles of Association, adopted August 26, 2003, as amended on May 24, 2004, February 1, 2005, and January 17, 2006.

4.3* Specimen of Certificate for Ordinary Shares

4.4*** Securities Purchase Agreement among the Company, and the investors signatories thereto, dated April 2, 2007

4.5*** Registration Rights Agreement, dated April 2, 2007

4.6*** Form of Ordinary Share Purchase Warrant

5.11 Opinion of Yigal Arnon & Co.

10.11 English translation of a Hebrew language Agreement between the Company, Cellocator Ltd., Matan Y. Communication and Tracking Systems Ltd., and Mr. Amnon Duchovna Naveh dated July 16, 2007.

23.11 Consent of Yigal Arnon & Co. (contained in their opinion constituting Exhibit 5.1)

23.21 Consent of Kost, Forer, Gabbay & Kasierer Certified Public Accountants (Israel)

23.31 Consent of Grant Thornton Argentina S.C. Certified Public Accountants (Argentina).

23.41 Consent of Salles, Sainz - Grant Thornton, S.C. Certified Public Accountants (Mexico).

23.51 Consent of Oren Horowitz & Co., Certified Public Accountants (Isr.)

24 Power of Attorney (included on signature page hereof)

43



1 Filed herewith             

  * Incorporated by reference to Registrant’s Registration Statement on Form F-1, File No. 33-76576, as amended, filed with the Commission on June 10, 1994.

  ** Incorporated by reference to Registrant’s Annual Report on Form 20-F, filed with the Commission on June 27, 2006.

  *** Incorporated by reference to Report of Foreign Issuer on Form 6-K, filed with the Commission on April 3, 2007.

ITEM 10. UNDERTAKINGS

    (a)        The undersigned Registrant hereby undertakes:

    (1)        To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:


(i)        To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii)       To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment hereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii)       To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this Registration Statement.

    (2)               That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.


44



    (3)        To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.


    (4)        To file a post-effective amendment to the Registration Statement to include any financial statements required by item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided, that the Registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to Registration Statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or rule 3-19 of Regulation S-X if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3.


    (b)        The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant’s annual reports pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

    (c)        Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in such Act and will be governed by the final adjudication of such issue.

45



SIGNATURES

         Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing Amendment No.1 to our Form F-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Givatayim, Israel, on September 24, 2007.

POINTER TELOCATION LTD.


By: /s/ Daniel Stern
——————————————
Daniel Stern
Chief Executive Officer

        Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:

Signature Title Date

* /s/ Yossi Ben Shalom
——————————————
Yossi Ben Shalom
Chairman of the Board of Directors September 24, 2007

* /s/ Daniel Stern
——————————————
Daniel Stern
President and Chief Executive Officer September 24, 2007

/s/ Zvi Fried
——————————————
Zvi Fried
Chief Financial Officer
(Principle Accounting Officer)
September 24, 2007

* /s/ Barak Dotan
——————————————
Barak Dotan
Director September 24, 2007

* /s/ Ken Lalo
——————————————
Ken Lalo
Director September 24, 2007

* /s/ Yoel Rosenthal
——————————————
Yoel Rosenthal
Director September 24, 2007

* /s/ Alicia Rotbard
——————————————
Alicia Rotbard
Independent Director September 24, 2007

46



* /s/ Ben Ami Gov
——————————————
Ben Ami Gov
Independent Director September 24, 2007

* By: /s/ Zvi Fried
Zvi Fried
ATTORNEY-IN-FACT

U.S. Authorized Representative:

/s/ Puglisi & Associates
By: Donald J. Puglisi
Title: Managing Director
September 24, 2007

47



EXHIBIT INDEX

4.1* Memorandum of Association.

4.2** Amended Articles of Association, adopted August 26, 2003, as amended on May 24, 2004, February 1, 2005, and January 17, 2006.

4.3* Specimen of Certificate for Ordinary Shares

4.4*** Securities Purchase Agreement among the Company, and the investors signatories thereto, dated April 2, 2007

4.5*** Registration Rights Agreement, dated April 2, 2007

4.6*** Form of Ordinary Share Purchase Warrant

5.11 Opinion of Yigal Arnon & Co.

10.11 English translation of Hebrew language Agreement between the Company, Cellocator Ltd., Matan Y. Communication and Tracking Systems Ltd., and Mr. Amnon Duchovna Naveh dated July 16, 2007

23.11 Consent of Yigal Arnon & Co. (contained in their opinion constituting Exhibit 5.1)

23.21 Consent of Kost, Forer, Gabbay & Kasierer Certified Public Accountants (Israel)

23.31 Consent of Grant Thornton Argentina S.C. Certified Public Accountants (Argentina).

23.41 Consent of Salles, Sainz - Grant Thornton, S.C. Certified Public Accountants (Mexico).

23.51 Consent of Oren Horowitz & Co., Certified Public Accountants (Isr.)

24 Power of Attorney (included on signature page hereof)

1 Filed herewith             

48



  * Incorporated by reference to Registrant’s Registration Statement on Form F-1, File No. 33-76576, as amended, filed with the Commission on June 10, 1994.

  ** Incorporated by reference to Registrant’s Annual Report on Form 20-F, filed with the Commission on June 27, 2006.

  *** Incorporated by reference to Report of Foreign Issuer on Form 6-K, filed with the Commission on April 3, 2007.

49



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Exhibit 5.1

YIGAL ARNON & CO.
ADVOCATES AND NOTARY

Tel Aviv   September 24, 2007

Direct Dial: 972-3-6087842
Direct Fax: 972-3-608-7713 or -7714
E-mail: orly@arnon.co.il

Pointer Telocation Systems Ltd.
1 Korazin Street
Givatayim
Israel

Ladies and Gentlemen:

         We have acted as Israeli counsel to Pointer Telocation Ltd. (the “Company”), a corporation organized under the laws of the State of Israel. As such, we have participated in the preparation of the Company’s Amendment No. 1 to the registration statement on Form F-3 (the “Registration Statement”) relating to the registration under the United States Securities Act of 1933, as amended, of 1,207,500 Ordinary Shares, par value NIS 3.00 per share (the “Shares”).

        As counsel to the Company in Israel, we have examined copies of the Memorandum of Association and the Articles of Association, as amended, of the Company and such corporate records, instruments, and other documents relating to the Company and such matters of law as we have considered necessary or appropriate for the purpose of rendering this opinion. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic originals of all documents submitted to us as copies.

        Based on the foregoing, we advise you that in our opinion the Shares, if and when paid for and issued, will be duly authorized, legally issued, fully paid and non-assessable.

        We are members of the Israeli bar, and the opinions expressed herein are limited to questions arising under the laws of the State of Israel, and we disclaim any opinion whatsoever with respect to matters governed by the laws of any other jurisdiction.

        We consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name in the Registration Statement under the caption “Service of Process and Enforcement of Judgment.”

Very truly yours,

/s/ Yigal Arnon & Co.



EX-10.1 5 exhibit_10-1.htm F-3/A

Exhibit 10.1

AGREEMENT

Made and executed in Tel Aviv on the 16th day of July 2007

Between: 1. Cellocator Ltd.
Private Company 51-293553-7
Of 12 Sapir Street, POB 093
Shaarei Tikvah 44810
(Hereinafter: “the Company” or “Cellocator”)

  2. Matan Y. Communication and Tracking Systems Ltd.
Private Company 51-1484644
Of 12 Sapir St., POB 093
Shaarei Tikvah 44810
(Hereinafter: “Matan”)

  3. Mr. Amnon Duchovna-Naveh
I.D. No. 053957569
Of 12 Sapir St., POB 093
Shaarei Tikvah 44810
(Hereinafter: “Amnon”)

  (The Company, Matan and Amnon shall
hereinafter be called jointly and
severally: “the Sellers”)

  The first party

And: Pointer Telocation Ltd.
Public Company 52-004147-6
Of 1 Korazin St.
Givatayim
(Hereinafter: “the Buyer”)

  The second party

WHEREAS Cellocator and Matan develop, produce, provide technical support for, market and sell hardware and software for communications and tracking of vehicles, for vehicle security, for the management of fleets of vehicles and for the assessment of vehicles (hereinafter: “the Activity”) and they have a good reputation in their field of business; and

WHEREAS The Sellers wish to sell all tangible assets and intangible assets, as defined herein below, and the Buyer wishes to purchase the intangible assets and tangible assets, all in accordance with the conditions and consideration as specified herein below in this agreement.



Accordingly, the parties have agreed, declared and stipulated as follows:

Preamble, Appendices and Section Headings

1.1 The preamble to this agreement and appendices thereof constitute an integral part thereof.

1.2 The section headings in this agreement are intended solely for the sake of convenience and no significance whatsoever is to be assigned thereto in the interpretation of this agreement.

1.3 Definitions

  The terms specified herein below shall have the meaning in this agreement that is stated alongside them as follows:

  The Intangible Assets of the Company” – The Company’s reputation and good name, including the intellectual property rights of the Company (as defined herein below), patents that have been registered in the Company’s name, insofar as such have been registered, the name “Cellocator,” the trademark of the Company, intangible rights and assets attendant thereon and the Company’s undertaking on the Date of Closing, inclusive of agreements (including leasing agreements), orders and agreements with customers, suppliers, third parties and employees in Israel and abroad, save for any claims and/or demands of any third party whatsoever against the Company, the cause of action whereof arose prior to the Date of Closing, inclusive of authorities and save for undertakings to banks, all up to the Date of Closing;

  The Intangible Assets of Matan” – The reputation and good name of Matan, inclusive of the Intellectual Property rights of Matan, patents registered in Matan’s name, insofar as such have been registered, intangible rights and assets attendant thereon, Matan’s undertaking on the Date of Closing, including agreements, orders and agreements with clients, suppliers, third parties, and employees in Israel and abroad, save for claims and/or demands of any third party whatsoever, the cause of action whereof arose prior to the Date of Closing, inclusive of authorities, but not including licenses from the Ministry of Communications, insofar as there are such, and save for undertakings to banks, all up to the Date of Closing and all, save for as specified in Appendix 1A to this agreement;



  The Intangible Assets” - The Intangible Assets of the Company and the Intangible Assets of Matan;

  The Tangible Assets of the Company” – All permanent property of the Company and current property of the Company, including customers’ debts to the Company (not including cash and cash equivalents, vehicles and equity capital but including leased vehicles), as well as current undertakings of the Company, all up to the Date of Closing;

  The Tangible Assets of Matan” – All permanent property of Matan and current property of Matan, inclusive of customers’ debts to Matan (not including cash and cash equivalents, vehicles and equity capital but including leased vehicles), as well as current undertakings of Matan, all up to the Date of Closing, save for as specified in Appendix 1A of this agreement;

  The Tangible Assets” - The Tangible Assets of the Company and the Tangible Assets of Matan;

  The Assets Being Transferred” - The Intangible Assets and the Tangible Assets jointly;

  The Conditions Precedent” – As specified in section 8 of this agreement herein below;

  The Date of Closing” – The date of closing of the transaction which will occur 5 days from the date of fulfillment of the last of the conditions precedent;

  Intellectual Property” – Intellectual property rights of any kind and type whatsoever, including proprietary rights in algorithms, binary codes, trademarks, commercial strategies, business plans, computer programs, Internet website, concepts, confidential information, developments, approval marks, collective marks, copyrights, data, customer lists, databases, designs, derivative creations, discoveries, lists of distributors, documents, site names and addresses, file structures, formulas, reputation and goodwill, ideas, improvements, samples (whether registered or not registered), information, innovations, inventions, knowledge, logo, methods, moral rights, machine code, patents, applications to register patents, patent rights; without derogating from the generality of the aforesaid, inclusive of all future requests, distribution requests, renewed production, retesting or extensions, plans, procedures, technology comprising a proprietary right, research data, research results, research notes, service signs, software, source code, sketches, statistical models, lists of suppliers, systems, techniques, technology, trade secrets, trade names and business names, trade styles, technical information, utility models, and any similar right to each of the aforesaid.



  Intellectual Property of the Company” – Any Intellectual Property of the Company or that is registered in its name, whether registered or unregistered;

  Intellectual Property of Matan” – Any Intellectual Property of Matan or that is registered in its name, whether registered or unregistered, and all, save for as specified in Appendix 1A to this agreement;

  Intellectual Property Being Transferred” – The Intellectual Property of the Company and the Intellectual Property of Matan;

2. The Sellers Declarations

  The Sellers hereby declare and undertake vis-à-vis the Buyer as follows:

2.1 The Company is a private company duly registered in Israel. The registration of the Company is fully valid and the Registrar of Companies is not conducting any proceedings for the removal of the Company. There are no liquidation proceedings against the Company, no receivership proceedings, no application for liquidation or receivership, as aforesaid, has been lodged, no notice or warning of the intent to open such proceedings, as aforesaid, has been received and the Company has no knowledge of any reason that is likely to lead to instituting such proceedings, as aforesaid.

2.2 M.S.Y. High-Tech Holdings Ltd., private company 51-2932138 (hereinafter: “Meshi Holdings”), holds 100 percent of the paid and issued share capital, on a fully diluted basis, of the Company. To date of the signature of this agreement, Ms. Medi Duchovna Naveh (hereinafter: “Medi”) holds 100 percent of the paid and issued share capital, fully diluted, of Meshi Holdings. On the Date of Closing, Amnon will hold 100 percent of the paid and issued share capital, on a fully diluted basis, of Meshi Holdings.

2.3 Matan is a private company duly registered in Israel. The registration of Matan is in full effect and the Registrar of Companies is not conducting any proceedings for its removal. No liquidations proceedings have been undertaken against Matan, no receivership proceedings, no application for liquidation or receivership, as aforesaid, has been lodged, no notice or warning of any intent to institute such proceedings, as aforesaid, has been received, and Matan has no knowledge of any reason likely to lead to instituting such proceedings, as aforesaid.

2.4 To date of the signature of this agreement, Amnon and Medi hold 100 percent of the paid and issued share capital, on a fully diluted basis, of Matan. On the Date of Closing, Amnon will hold 100 percent of the paid and issued share capital, on a fully diluted basis, of Matan.



2.5 The Company or Matan, as the case may be, are the sole owners of the Assets Being Transferred and the Assets Being Transferred are free and clear of any debt, lien, encumbrance or third party right whatsoever, save for debts appearing in the financial statements, as defined in section 2.7 herein below, and save for the undertakings pursuant to agreements specified in Appendix 2.13 to this agreement and debts that were formed commencing from January 1, 2007, as specified in section 2.8 herein below.

2.6 Save for the undertakings which appear in the financial statements and as aforesaid in section 2.5 above, the Sellers and/or Medi have no undertaking vis-à-vis any third party whatsoever to sell and/or transfer to a third party the Assets Being Transferred and/or parts thereof and the Sellers have not granted any third party any option and/or right of refusal for the purchase of the Assets Being Transferred or any part thereof.

  Financial Statements

2.7 The financial statements of the Company and Matan for the years ending on December 31, 2005 and December 31, 2006 (hereinafter: “the Financial Statements”) are attached hereto as Appendix 2.7A to this agreement. The financial statements are audited and have been prepared according to customary accounting principles in Israel that are consistently applied and reflect to date of their making fully and properly the financial situation of the Company or of Matan, as the case may be, the assets and undertakings of the Company and of Matan and the results of their activities for a period or to the date to which they relate. In addition, attached hereto as Appendix 2.7B to this agreement are the tax adjusting statements of the Company and of Matan for the year that ended on December 31, 2006.

2.8 Save for that which is specified in Appendix 2.8, following December 31, 2006 and until the date of signature of this agreement, no fundamental adverse changes have occurred in the Assets Being Transferred, and the Company and/or Matan did not perform any transactions that are not in the ordinary course of business and have not undertaken any undertakings that are not in the ordinary course of business; and until the Date of Closing the Sellers will not assume any undertakings whatsoever which are not in the ordinary course of business.



  Intellectual Property

2.9 The Sellers are the full and sole proprietors, free and clear, of the Intellectual Property Being Transferred. The Company and/or Matan hold the Intellectual Property Being Transferred (including by way of a user license), which constitutes all the Intellectual Property that has been used and/or is required to manage Company business and conduct Matan’s business in the field of Activity, as these are managed at the time of signature of this agreement. To the best of the Company’s and Matan’s knowledge, the Company’s use and/or Matan’s use of the Intellectual Property Being Transferred does not breach any right or license of the employees thereof or of former employees and such use, as aforesaid, does not breach any right or license of any others. The Sellers have not granted any others an exclusive right or any other right, save for rights of use to Company customers, to use or make use of the Intellectual Property Being Transferred. Appendix 2.9 to this agreement details the registered rights included in the Intellectual Property Being Transferred. Save for as detailed in Appendix 2.9 to this agreement, the Sellers are not obligated to make any payment whatsoever in relation to the use of the Intellectual Property Being Transferred, such as royalties, commissions or in any other manner to any owners or license holders or claimants of any patent, trademark, service mark, commercial name, copyright or any other proprietary right. Without derogating from the aforesaid and for the avoidance of doubt, it is clarified that the assets being transferred do not include information that has been developed within the context or as a result of the implementation of approved program No. 17808 of the chief scientist of the Ministry of Industry, Trade and Labor (in the context whereof systems to track ELS distress by way of DTOA technology jointly with the SPSP offices have been developed, which are not included as assets being transferred and are indicated in Appendix 1A to this agreement).

2.10 The Sellers duly use the Intellectual Property rights of others included in the Intellectual Property Being Transferred, inclusive of software required for the current activities of the Company and/or the current activity of Matan related to the activity, and the Company and/or Matan fail to breach any intellectual property rights of any third party whatsoever. A list of the intellectual property assets of the third parties that the Company and/or Matan make use thereof and the agreements of use are attached hereto as Appendix 2.10 to this agreement.

2.11 Save for as detailed in Appendix 2.10, there is no third party whatsoever who, following the signature of this agreement, maintains at its disposal any intellectual property right or other right whatsoever in matters with which the Company deals or has dealt and/or matters with which Matan deals or has dealt that are connected to the Activity. Without derogating from the aforesaid, it is clarified and agreed that the intellectual property of Matan specified in Appendix 1A to this agreement is not connected to the Activity. The Sellers are unaware of any breach of the Intellectual Property Being Transferred that are being transferred by any third party whatsoever.

2.12 Following the closing of this agreement, the Sellers will not retain any Intellectual Property right on matters connected to the Activity, which they held up until the date of signature of this agreement. Without derogating from the aforesaid, it is clarified and agreed that Matan retains the intellectual property detailed in Appendix 1A to this agreement, which is not connected to the Activity.



Agreements

2.13 A list of the material agreements to which the Company and Matan are a party to is attached hereto as Appendix 2.13 to this agreement (hereinafter: “the List of Material Agreements”). The Company and Matan have delivered copies of these agreements to the Buyer. To the best of the Company and Matan’s knowledge, the Company and Matan are not in any breach whatsoever of the aforesaid agreements that would fundamentally have an adverse effect on the value of the Assets Being Transferred, and their holdings in the rights pursuant thereto are valid. Apart from the undertakings specified in the List of the Material Agreements and the current undertakings to suppliers of the Company and Matan, the Company and/or Matan have no undertakings of any kind and type whatsoever, connected to the Activity, which in relation thereto or as a result thereof, following the date of this agreement, the Buyer is likely to undertake any obligation whatsoever in connection with the Activity that would have an essentially adverse effect on the value of the Assets Being Transferred.

Legal Proceedings

2.14 Amnon, Medi and the Company are not a party to any legal proceedings whatsoever, whether criminal or civil, whether in Israel or abroad, that are connected to the Activity, save for the proceedings specified in Appendix 2.14 to this agreement; other than as specified in Appendix 2.14 to this agreement, (a) the Company is not a plaintiff or defendant in any action against any third party whatsoever and Matan is neither a plaintiff or defendant against any third party whatsoever in all that is connected with the Activity and (b) the Sellers have no knowledge of any caution or demand of any third party whatsoever to take legal steps against (1) the Company or (2) Matan in connection with the Activity or (3) shareholders, employees or officers of the Company and/or Matan, in connection with the Activity.

2.15 In addition, save for as specified in Appendix 2.15 to this agreement, there are no judgments, arbitral awards or judicial decisions to which Matan and/or the Company is/are party and which are connected to the Activity.

2.16 Without derogating from the aforesaid in this agreement, the Sellers hereby undertake to assume full liability for any obligation of any kind and type that is connected to the claims, specified in Appendices 2.14 and 2.15, and any claim or other demand in connection with the Activity and/or the assets being sold, where the cause of action arose during the period prior to the Date of Closing; and they undertake to indemnify the Buyer in connection with any expense and/or damage and/or demand and/or contention vis-à-vis the Buyer in connection with these claims, subject to the provisions of section 13.8 herein below.



Employees

2.17 A list updated to the date of signature of this agreement of all employees of Matan and all employees of the Company (hereinafter jointly: “the Employees”) is specified in Appendix 2.17 to this agreement. The aforesaid Appendix also specifies the date of commencement of employment and details of the personal conditions of employment of each employee, entitlement to a vehicle (and details of the vehicle attached) and comprehensive salary (inclusive of social rights by virtue of any law, means for linking the salary, vacation days and attendant benefits) paid to each employee. The aforesaid Appendix also includes agreements of the Company and/or Matan with sub-contractors and consultants in connection with the Activity. The Company and Matan employ their employees while upholding all labor laws and there are no labor disputes whatsoever between the Company or Matan and their employees.

2.18 The Employees have no claims (which have been filed and a copy whereof has been delivered to the Company and/or Matan nor has the Company and/or Matan received any written or verbal demand in respect thereof) against the Company and/or Matan in respect of the period of their employment until the date of signature of this agreement, whether by virtue of employer – employee relations or by virtue of any other cause of action whatsoever, and the Company and/or Matan or their managers, has/have no concrete knowledge of the existence of proceedings, as aforesaid, or the existence of any cause of action, as aforesaid, against the Company and/or Matan.

Authorizations

2.19 The Sellers have received or by the Date of Closing will receive all authorizations required by law for entering into this agreement and, subject to meeting the conditions precedent, there is no impediment to entering into this agreement and the performance of their undertakings, pursuant thereto. Approval of the Board of Directors of the Company and approval of the Board of Directors of Matan for the transaction subject of this agreement is attached hereto to this agreement as Appendix 2.19.

2.20 The Sellers undertake that a condition precedent to the closing of the transaction is that their undertakings, as specified in section 2 above, shall be correct also to the Date of Closing, provided that each representation, which relates to a certain date, shall be correct solely for the same date to which it relates.

2.21 The Sellers hereby declare that they are aware that the agreement of the Buyer to enter into this agreement and under the conditions specified herein has been made in reliance on their declarations, representations and undertakings, as aforesaid, herein in this Agreement.



2A. The Sellers’ Undertakings

2A.1 The Sellers undertake to cooperate with the Buyer and transmit to the Buyer all information and/or financial statements and/or other pertinent data concerning the Company and Matan, which must be included in the prospectus/es submitted on May 31, 2007, in connection with the raising of capital for the Buyer from US investors and to be submitted, pursuant to the Registration Rights Agreement, as defined in section 3.7 herein below. Without derogating from the aforesaid, it is clarified that the financial statements of the Company and Matan for the years 2004, 2005 and 2006 are audited and prepared pursuant to U.S. auditing and reporting standards, as required by the U.S. Securities Exchange Commission, as well as any other financial statement of Cellocator and/or Matan that is required, insofar as such is required, by the U.S. Securities Exchange Commission (against payment of the cost involved in the preparation thereof) shall be prepared by the Sellers’ accountants (Horowitz office) and shall include, in addition to the unqualified opinion of the auditors, also a letter of agreement of the Sellers’ accountants to incorporate the financial statements in the Form F-3 Registration Statement that the Buyer submitted to register for trade the shares that were allocated to U.S. institutional investors, which was submitted on May 31, 2007, and the Form F-3 Registration Statement that is to be filed as detailed in the Registration Rights Agreement, as defined in section 3.7 herein below; and the Buyer and the Sellers shall sign them, and the completion of these statements is a condition for the closing of the transaction.

  The Buyer shall bear any costs and expenses to third parties (such as to the accountants) involved in the preparation of the statements and the transfer of information, as aforesaid, up to a total sum of USD 80,000.

  The Buyer shall bear the costs, as aforesaid, subject to the closing of the transaction subject of this agreement so that on the Date of Closing all costs and expenses shall also be paid, as aforesaid, against a statutory tax invoice; notwithstanding the aforesaid, the Buyer shall bear the foregoing costs also in the event that the transaction will not be completed, as a result of an act or omission of the Buyer.

2A.2 The Sellers undertake not to sell 5 percent or more of the issued share capital of the Buyer at the time of the sale, as aforesaid, to any person or to one isolated body, in one or several transactions, until the conclusion of twenty-four (24) months from the Date of Closing of the transaction, unless with the prior written approval of the Buyer.



2A.3 The Sellers hereby undertake to grant the Buyer the right of first refusal to purchase the Shares and/or Debenture Shares, as defined herein below, under the same conditions as the Sellers will offer them for sale. The Sellers shall send a written notice to the Buyer wherein shall be specified the number of Shares offered for sale, the conditions of sale and identity of the potential buyer. The Buyer will have to notify the Sellers within seven (7) days whether it wishes to purchase the shares offered for sale under the conditions of the sale notice. If the Buyer refuses to purchase the shares that were offered or failed to deliver any notice whatsoever to the Sellers on the matter of the right of refusal, the Sellers may sell the Shares and/or the Debenture Shares under conditions that will not be better for the purchaser than the conditions for purchase offered to the Buyer and this within 90 days of the date of provision of notice of the right of first refusal to the Buyer. It is agreed that the right of first refusal, as aforesaid in this section, shall not apply to the sale of Shares of the Buyer and/or Debenture Shares within the context of trade on the stock exchange wherein the Buyer’s shares are registered for trade, provided that the cumulative extent of the sale in one transaction or several related transactions does not exceed 5 percent of the issued share capital of the Buyer at that time and shall not apply to the sale of the Buyer’s Shares and/or the Debenture Shares to entities under the control of the Sellers, to shareholders of the Sellers, to their relatives and to entities under their control. In connection herewith the term “control” shall have the meaning ascribed to it in the Securities Law 5728-1968.

3. Declarations and Undertakings of the Buyer

  The Buyer hereby declares and undertakes vis-à-vis the Sellers as follows:

3.1 The Buyer is a public company, duly registered in Israel, whose securities are registered for trade in the United States (on the Nasdaq Capital Market) and on the Tel Aviv Stock Exchange. The registration of the Buyer is fully valid and there are no proceedings by the Registrar of Companies for the removal thereof. No liquidation proceedings and no receivership proceedings have been undertaken against the Buyer, and no application for liquidation or receivership, as aforesaid, has been lodged. No notice or warning of intent to open such proceedings has been received and the Buyer has no knowledge of a reason likely to cause the institution of such proceedings as aforesaid.

3.2 The Buyer undertakes that it has the means and resources at its disposal necessary for payment of the consideration to the Sellers as specified herein in this agreement.

3.3 The Buyer undertakes that the Shares, the Debenture and the Debenture Shares, as defined herein below, at the time of their issuance and registration in the Company books or in a registration company in the Sellers’ name, shall be duly issued, clear of all debt, encumbrance and/or lien and/or any right of any third party.



3.4 The Buyer undertakes that to the best of its knowledge it has not omitted any essential detail and/or included any misleading detail in its reports to the Securities Authorities in Israel and the United States.

3.5 The Buyer undertakes that it has obtained all necessary authorizations pursuant to law for entering into the agreement and, subject to the fulfillment of the conditions precedent, there is no preclusion to its entering into this agreement and the performance of its undertakings pursuant hereto, and all signatories to this agreement and the ancillary documents are authorized to sign on its behalf this agreement and the ancillary documents and/or required for the purpose of the execution hereof and to obligate the Buyer with their signatures; and this agreement with all its conditions binds the Buyer for all intents and purposes. Authorization of the competent organs of the Buyer for the transaction, subject of this agreement, is attached hereto to this agreement as Appendix 3.5.

  The Buyer has performed an examination of propriety (due diligence) to its satisfaction in respect of the Assets Being Transferred including, without derogating from the generality of the aforesaid, a legal and accounting examination in connection with the Activity and the Assets Being Transferred.

  The Buyer is entering into this agreement relying on the declarations of the Sellers in this agreement and nothing in the contents of this section above may derogate from its rights vis-à-vis the Sellers in the event that any of the representations are incorrect.

3.6 The Buyer undertakes that its undertakings, as specified in section 3 above and herein below, shall be accurate also to the Date of Closing.

3.7 The Buyer shall act to register for trade in the United States the Shares as defined in section 5.1.2 herein below and the shares that result from the conversion of the Debenture as defined in section 5.1.3 herein below (hereinafter: “the Debenture Shares”), and for this purpose the Buyer shall enter into with the Sellers on the Date of Closing into a Registration Rights Agreement in the form attached hereto as Appendix 3.7 (hereinafter: “the Registration Rights Agreement”), all as specified in the Registration Rights Agreement and shall act until the Date of Closing to obtain all other authorizations, insofar as required, for the purpose of the Shares and Debenture Shares issuance.

3.8 It is agreed that as long as any of the Sellers hold Shares and/or Debenture Shares, as defined herein in this agreement, the Sellers may appoint an observer on their behalf to the Board of Directors of the Buyer, subject to such observer signing a confidentiality agreement in the form attached hereto as Appendix 3.8.



3.9 In addition to the aforesaid in section 3.8, the parties agree that insofar as the matter will not limit the filing of a prospectus in respect of the Shares (as they are defined in section 5.1.2 herein below) and the Debenture Shares, pursuant to the Registration Rights Agreement and the registration for trade of the Shares and Debenture Shares pursuant thereto, and as long as the Sellers hold (inclusive of holdings that will result from the conversion of the Debenture, even if not yet converted, but as long as still convertible) at least five percent of the issued share capital of the Buyer at such time, the Sellers may appoint, in place of the observer, as aforesaid in section 3.8 above, a director on their behalf to the Board of Directors of the Buyer and the Buyer undertakes to take steps in support of the appointment of the director, as aforesaid.

3.10 The Buyer undertakes that, subject to obtaining authorization to assign the authorized enterprise of the Company to the Buyer, the Buyer shall fulfill the provisions of the conditions of assignment on time and shall continue to fulfill the conditions of the letter of authorization of the authorized enterprise in such manner and for a period that will not damage the tax benefits which the Company received prior to the Date of Closing (hereinafter: “the Buyer’s Undertakings in Respect of the Authorized Enterprise”) and this subject to the undertaking of the Sellers that (a) they take full liability for any obligation of any kind and type relating to the authorized enterprise for the period prior to the Date of Closing and that (b) they undertake to indemnify the Buyer, upon first demand, in connection with any expense and/or damage and/or demand and/or contention vis-à-vis the Buyer in connection with the authorized enterprise in the period that preceded the Date of Closing. The letters of authorization of the authorized enterprise are attached as Appendix 3.10 to this agreement.

4. The Transaction

  Subject to the fulfillment of the conditions precedent in this agreement, the Sellers transfer and assign to the Buyer and the Buyer purchases and receives by way of transfer on the Date of Closing all of the Intangible Assets and Tangible Assets, as defined above, clear of any debt, encumbrance and/or lien and/or third party right whatsoever, save for as specified in section 2 above, and this against the full payment of the Consideration, as defined herein below, by the Buyer to the Sellers.

5. The Consideration

5.1 In return for and against the transfer of the Intangible Assets to the Buyer, the Buyer shall pay the Sellers on the Date of Closing the Consideration as specified herein below (the Cash Consideration , the Shares and Debenture as defined herein below shall be called jointly hereinafter: “the Consideration”):



5.1.1 An amount in cash of NIS 59,857,984 (fifty-nine million eight hundred and fifty-seven thousand nine hundred and eighty-four New Israeli Shekels) shall be paid as follows: The amount of NIS 55,657,984 (fifty-five million six hundred and fifty-seven thousand nine hundred and eighty-four New Israeli Shekels) shall be paid to the Company and a cash sum of NIS 4,200,000 (four million two hundred thousand New Israeli Shekels) shall be paid to Matan (hereinafter together – “the Cash Consideration”); as well as

5.1.2 To the Company: 160,000 ordinary shares of the Buyer nominal value NIS 3.00 each;

5.1.3 To the Company: a non tradeable debenture convertible into 160,000 ordinary shares of the Buyer, nominal value NIS 3.00 each (hereinafter: "the Debenture") in the form attached hereto as Appendix 5.1.3 in the total amount of USD 1,921,668 (one million nine hundred and twenty-one thousand six hundred and sixty-eight U.S. dollars) (hereinafter: "the Debenture Amount").

5.2 In consideration and against the transfer of the Tangible Assets to the Buyer, the Buyer shall pay the Company on the Date of Closing the following payments as specified herein below:

5.2.1 An amount equivalent to the difference between the Tangible Assets (inclusive of customer debts to the Company and Matan as shall appear in the financial statements for 2006, and the sums of the advances the Company transferred to the leasing companies in connection with the leased vehicles to be transferred to the Buyer) and the undertakings of the Company and Matan being transferred in accordance with their value as presented in the financial statements of the Company, as of December 31, 2006, attached hereto as Appendix 2.6A, prepared in accordance with customary accounting principles (hereinafter: “the Advance on Account of the Tangible Assets”), and subject to adjustments to be implemented (following the Date of Closing), pursuant to an audited balance sheet of the Company as of the date of the closing of the transaction, as specified in section 5.3 herein below, the amount of the difference, as aforesaid, and the manner of calculation thereof, as of December 31, 2006, are specified in Appendix 5.2.1 to this agreement; as well as

5.2.2 An amount in cash of NIS 1,500,000 (one million five hundred thousand New Israeli Shekels), which constitutes the profit embodied in the inventory of the Company and a cash amount of NIS 500,000 (five hundred thousand New Israeli Shekels), which constitutes the profit embodied in the inventory of Matan (hereinafter: “the Consideration for Profit Embodied in Inventory”).

5.3 Adjusting the Consideration in Respect of the Tangible Assets



5.3.1 Within 30 days of the Date of Closing, the accountants of the Company and of Matan (Horowitz office) shall prepare audited financial statements of the Sellers as of the Date of Closing and prepared according to the customary principles of accounting in Israel (hereinafter: “the Updated Financial Statements”). In addition, the same accountants will also prepare audited financial statements of the Sellers as of the Date of Closing and prepared according to U.S. auditing and reporting standards. Preparation of all statements, as aforesaid, is subject to the Buyer bearing all expenses and expenditures up to a total amount of USD 25,000, for third parties (such as accountants) in respect of the preparation of the statements, solely in accordance with U.S. auditing and reporting standards.

5.3.2 The consideration for the Tangible Assets shall be in accordance with their value in the Updated Financial Statements.

5.3.3 The Updated Financial Statements, inclusive of details and supporting documents required for the purpose of auditing, pursuant to customary accounting principles, shall be transferred for inspection of the Buyer’s accountants, who may deliver their objections within 15 days of the date of receiving the Updated Financial Statements.

5.3.4 If disputes arise between the parties’ accountants in relation to the sums specified in the Updated Financial Statements, a decision in the dispute shall be made by Amnon and Yossi Ben-Shalom and, insofar as the dispute is not settled by them within 14 days, an agreed upon arbitrator shall be appointed (hereinafter: “the Arbitrator”) by Amnon and Yossi Ben-Shalom and, in the absence of agreement between them, one of the heads of the large accountants offices in Israel (the Big 4) shall be appointed as the Arbitrator, who does not represent the Buyer or the Sellers and this within 7 days of the date that either of the parties requests such appointment in writing. The decision of the Arbitrator shall be final and shall bind the parties to the agreement for all intents and purposes. The Sellers and the Buyer shall bear the expense of the Arbitrator in equal parts.

5.3.5 Insofar as the total of the amounts specified in section 5.3.2 above (insofar as they are amended pursuant to the procedures specified in section 5.3.4 above) will be higher or lower vis-à-vis the amount of the Advance on Account of the Tangible Assets (hereinafter: “the Differences in Value of the Tangible Assets”), the Difference in Value of the Tangible Assets shall be paid to the Company or the Buyer, as the case may be, within seven (7) business days from the Date of Closing of the inspection of the Updated Financial Statements by the accountants of the Buyer and/or the decision of Amnon and Yossi Ben-Shalom and/or the decision of the Arbitrator, whichever is the later of the three (hereinafter: “the Date of the Reckoning”).

5.4 To the Consideration (inclusive of Shares and the Debenture) for the Advance on Account of the Tangible Assets, the Difference in the Value of the Tangible Assets and Consideration for Profit Embodied in the Inventory, Value Added Tax (VAT) will be added in accordance with the law, against the issuing of a tax invoice by the Sellers, unless an authorization is obtained from the VAT Authorities, pursuant to section 20 of the Value Added Tax Law. Tax will be duly deducted by the Buyer, insofar as necessary, from the Consideration, unless authorization is obtained from the Income Tax authorities in respect of an exemption from the deduction of tax at source or an authorization that indicates the rate of tax to be deducted, in which case tax will be deducted in accordance with the provisions of the authorization.



6. The Interim Period

6.1 It is hereby agreed that commencing from the date of signature of this agreement and until the Date of Closing (hereinafter: “the Interim Period”), the Sellers undertake that without the agreement of the Buyers in advance and in writing:

6.1.1 The Sellers will not perform any act that is not in the ordinary and/or current course of business of the Company and/or Matan and no material change shall be implemented in the business of the Company and/or Matan.

6.1.2 The Sellers will not create any debt, undertaking, lien, encumbrance, trusts, or similar third-party rights, save undertakings vis-à-vis third parties in the ordinary course of business.

6.1.3 The Sellers will not perform any transactions and/or dispositions, which may materially affect the Transferred Assets.

6.1.4 Save for that which is required pursuant to law, no changes shall be made to the terms of employment of employees of the Company and/or change in the number of employees, save for a reduction in the number of employees as a result of the resignation of employees.

6.2 During the Interim Period, the Buyer shall take steps to obtain all licenses and permits required for the use of the Intangible Assets and the Tangible Assets, and which will enable the transfer of Intangible Assets and Tangible Assets in their entirety to the Buyer on the Date of Closing.

7. Transfer of Employees from the Company to the Buyer

7.1 The Company and Matan undertake to do their best so that their employees shall become employees of the Buyer on the Date of Closing and the Buyer undertakes to admit all employees of the Company and all employees of Matan who are interested in being employees of the Buyer on the Date of Closing (hereinafter: “the Employees Being Transferred”), with employment terms, wages and social conditions that are no less than the conditions of their employment with the Company or Matan, as the case may be. Save for as specified in section 7.8 herein below, the transferred employees shall cease being employees of the Company or employees of Matan, as the case may be, and shall become employees of the Buyer, while preserving the continuity of rights from the date of commencement of employment with the Company or Matan, as the case may be, so that the period of employment of each Employee Being Transferred from the Company or Matan shall be deemed, for the purpose of the continuity of rights, as an employment period with the Buyer.



7.2 It is hereby agreed and clarified that any debt, obligation, liability and/or duty of any kind and type whatsoever vis-à-vis any of the transferred employees that relates to the period until the Date of Closing and/or the date of its application is prior to the Date of Closing, save for (a) debts as aforesaid in respect whereof allocation were made in the financial statements and/or were made explicit in the financial statements correct to the Date of Closing and (b) causes of action that were created in connection with an act or omission of the Buyer and which created an obligation in respect of the period prior to the Date of Closing and which shall apply to the Buyer as specified in section 7.5 herein below, shall be the responsibility of the Company and/or Matan, as the case may be, and any such debt, obligation, liability and/or duty, in respect of the period from the Date of Closing and onward shall apply to the Buyer and shall be the liability thereof.

7.3 Without derogating from the generality of the aforesaid, until the Date of Closing, the Company and/or Matan, as the case may be, shall pay all current payments which they owe to Employees Being Transferred, to the authorities and any other entity pursuant to any law or agreement or custom in respect of the employment of the Employees Being Transferred during the period up until the Date of Closing, inclusive of, but without derogating from the generality of the aforesaid, salaries, income tax deductions, National Insurance fees and health tax.

7.4 In addition, until the Date of Closing, the Company and/or Matan, as the case may be, shall actually make all deposits and allocations required by law or agreement or custom in respect of the employment of the Employees Being Transferred during the period up until the Date of Closing, including, but without derogating from the generality of the aforesaid, allocations in respect of pensions, study funds, benefits, severance pay, recreation pay and vacation days.

7.5 Any obligation in respect of the Employees Being Transferred, as aforesaid, which arises and/or is created following the Date of Closing, including in respect of the period prior to the Date of Closing, as aforesaid in section 7.2 above, shall apply exclusively to the Buyer.

7.6 The parties shall take action to obtain authorization from the tax authorities for a successive arrangement of rights of the Employees Being Transferred.



7.7 The parties shall take action so that the accounts of the Employees Being Transferred in the aforesaid funds and accounts shall be transferred to the Buyer’s name as employer. Similarly, also with respect to insurance policies that relate to employees of the Company and employees of Matan, insofar as they are in the name of the Company and/or Matan (hereinafter jointly: “the Transferred Funds and Insurance Policies”).

7.8 Notwithstanding the aforesaid in this section, the parties agree that the Employees Being Transferred, whose names are added to the list attached hereto as Appendix 7.8 prior to the Date of Closing (hereinafter: “the Employees Without Continuity”) shall become employed by the Buyer, following the performance of a full final accounting with the Company and/or Matan, as the case may be, and payment of all that is owing to them in the event of the termination of employer-employee relations between them and the Company and/or Matan, as the case may be, inclusive of the release of all monies deposited on their behalf in funds and directors’ insurances; in such event, the funds and accounts of these employees shall not be transferred to the Buyer.

7.9 The Company and Matan shall be liable and undertake, jointly and severally, in respect of their Employees Being Transferred, to pay the Employees Without Continuity the full amounts owing them in connection with their work at the company and in connection with the termination of the employer-employee relations between them and the company until the Date of Closing. Any liability in respect of the Employees Without Continuity (exclusive of Amnon and Medi), which arises and/or is created following the Date of Closing, including in respect of the period prior to the Date of Closing, if such is created in connection with an act or omission of the Buyer, and which has created a liability in respect of the period up until the Date of Closing, shall apply exclusively to the Buyer.

7.10 All employees of the Company and/or Matan who are Employees Without Continuity and who, on the Date of Closing, will move to be employees of the Buyer shall sign a letter of waiver, to the effect that they confirm that they have received from the Company and/or Matan, as the case may be, all sums owing to them and they have no contentions and/or demands and/or claims against the Company and/or Matan in connection with their employment and in connection with the termination of employer-employee relations between them and the companies, in the form attached hereto as Appendix 7.10 to this agreement.

7.11 On the Date of Closing, Amnon and Medi will sign a letter of waiver of claims and an undertaking to indemnify the Buyer, in the form attached as Appendix 7.11 to this agreement.



8. Conditions Precedent

8.1 Closing of the transaction between the parties will be conditional on the cumulative fulfillment of all conditions precedent as follows prior to or on the Date of Closing:

8.1.1 Delivery to the Buyer of financial statements of the Company and Matan for the years 2004, 2005 and 2006 prepared and audited pursuant to accounting rules of U.S. GAAP signed by the Sellers’ accountants (Horowitz office) and by the Sellers, all as stated in section 2A1 above.

8.1.2 The Sellers shall confirm to the Buyer in writing that the representations made in this agreement are correct also to the Date of Closing (provided that each representation that relates to a certain date will be accurate for the date to which it relates) and that no substantial adverse changes in the Company’s situation have occurred from the date of signature of the agreement and until the Date of Closing.

8.1.3 Obtaining an authorization from the Investment Center for the transaction subject of this agreement, including the authorization to transfer the authorized enterprise or the beneficiary of the Company to the Buyer on the Date of Closing.

8.1.4 Amnon and Medi and the Buyer will sign the employment agreements attached as Appendices 8.1.4 (a) and 8.1.4(b) to this agreement respectively, as each agreement includes undertakings of Amnon and Medi to continue to be employed by the Buyer for a period of three (3) years from the Date of Closing, as specified in the employment agreements.

8.1.5 At least 20 of all Company employees, including Amnon, Medi and all key personnel listed in Appendix 8.1.5, have signed employment agreements with the Buyer, so that the terms of the employment agreements shall be no less than the current terms as of the date of this agreement.

8.1.6 Agreement has been obtained for the assignment of all agreements with customers, suppliers and third parties, which require agreement, as aforesaid, that are related to the Assets Being Transferred from the Company or from Matan, as the case may be, to the Buyer and specified in Appendix 8.1.6. In the event that all agreements required for assignment, as aforesaid, have not been received, the matter will not be deemed a condition precedent which was not fulfilled, provided that the Company or Matan, as the case may be, enters into “back to back” agreements with the Buyer, so that it is does not damage the full transfer of Assets Being Transferred from the Company to the Buyer.



  The “back to back” agreements, as aforesaid, shall be until the date of obtaining agreement for assignment or until the date of termination of each agreement, as aforesaid, whichever of the two is the earlier. The operation of the agreements shall be performed by the Buyer.

8.1.7 Sagi Duchovna Naveh, son of Amnon and Medi, will sign an undertaking for non-competition with Cellocator and Matan for a period of 36 months from the Date of Closing, in the form attached hereto as Appendix 8.1.7.

8.1.8 On the Date of Closing, Amnon will hold 100 percent of the issued and paid share capital, on a fully diluted basis, of Meshi Holdings and 100 percent of the issued and paid share capital, on a fully diluted basis, of Matan.

  Notwithstanding the aforesaid, the Buyer may, at its sole discretion, waive one or more of the conditions precedent specified above, save for the stipulation in section 8.1.3 above (in relation to the Investment Center) and Section 8.1.2 (in respect of representations), which it may waive solely with the agreement of the Sellers, and close the transaction even if the conditions were not fulfilled.

8.2 In any event, in which the conditions precedent and/or any one of them have/has not been fulfilled by September 20, 2007 or a later date agreed upon by the parties, this agreement shall be null and void. In such event, as aforesaid, and provided that the parties do their best to fulfill the conditions precedent on time, neither of the parties shall have any contention and/or claim vis-à-vis the other.

9. Date of Closing

  On the Date of Closing, the parties will convene in the offices of Yigal Arnon and Assoc., at 1 Azrieli Center, Tel Aviv, Round Tower, 46th floor, and all acts specified herein below will be performed at the same time, will be deemed to have been performed at the same time and no isolated act will be deemed as completed and no single document will be deemed as delivered until all the steps are completed and the documents delivered at that time.

9.1 The Sellers

9.1.1 The Sellers will transfer the Assets Being Transferred to the Buyer.

9.1.2 The Sellers will deliver to the Buyer a statutory tax invoice in respect of the Consideration for the Assets Being Transferred (inclusive of the Cash Consideration, the consideration in Shares and the consideration in the Debenture) in Advance on Account of the Tangible Assets, the Differentials in the Value of the Tangible Assets and for the Consideration of the Profit Embodied in the Iinventory, except if the Buyer received authorization, pursuant to section 20 of the Value Added Tax Law 5736-1975.



9.1.3 The Sellers will deliver to the Buyer irrevocable instructions in connection with the bank account, as stated in section 12.3 herein below.

9.1.4 The Sellers will deliver to the Buyer a copy of the Registration Rights Agreement, which they have signed.

9.2 The Buyer

9.2.1 The Buyer will pay the Sellers, pursuant to their instructions, the Cash Consideration and, unless an authorization from the Value Added Tax Authorities is obtained pursuant to section 20 of the Value Added Tax Law, the VAT in respect of the entire Consideration (inclusive of the Shares and the Debenture), as required by law.

9.2.2 The Buyer will issue the Shares to the Sellers, pursuant to their instructions, and will deliver to the Sellers, pursuant to their instructions, a copy of the registrar of the shareholders of the Company, testifying to the performance of the issuance and a share certificate duly signed in respect of the Shares or documents, indicating registration of the shares in the name of the Sellers with a registration company where the Buyer’s shares are registered.

9.2.3 The Buyer will deliver to the Sellers, pursuant to their instructions, the Debenture signed by the Buyer.

9.2.4 The Buyer will pay the Sellers, pursuant to their instructions, the Advance on Account of the Tangible Assets and the consideration for the Profit Embodied in the Inventory and, unless authorization from the VAT authorities pursuant to section 20 of the VAT Law is obtained, the VAT in respect of these amounts.

9.2.5 The Buyer will deliver to the Sellers a signed undertaking by D.B.S.I. Investments Ltd., controlling shareholder in the Buyer, in the form attached hereto as Appendix 9.2.5, to the effect that the Sellers will be able to attach their Shares in the Buyer to the sale of shares by D.B.S.I. Investments Ltd., as specified in Appendix 9.2.5.

9.2.6 The Buyer will deliver the Registration Rights Agreement it has signed to the Sellers.

9.3 For the avoidance of doubt, it is clarified that insofar as the Buyer or Sellers, as the case may be, is/are obliged to pay the Difference in Value of the Tangible Assets, the Difference in Value of the Tangible Assets will be paid with the addition of VAT (save if an authorization from the VAT authorities is obtained pursuant to section 20 of the VAT Law) and tax at source will be deducted, unless an exemption from the deduction is delivered on the dates determined in section 5.3 above.



10. Taxes and Payments

10.1 Each of the parties will bear the taxes that apply to it, pursuant to law, in connection with the transaction subject of this agreement.

10.2 Each party will bear its expenses in connection with the transaction, subject of this agreement, including the fees of its lawyers.

11. Non-Competition and Cessation of the Use of the Name Cellocator

11.1 The Sellers undertake that they will not establish, directly or indirectly, a competing business and will not join, directly or indirectly, an existing competing business, in the field of Activity as defined herein in this agreement, in the field of activity of the Buyer as it is currently and as it will be during the period between the date of this agreement and the termination of employer-employee relations between the Buyer and Amnon, and six months thereafter, and all this for the period of one year from the date of termination of Amnon’s employment with the Buyer or three years from the Date of Closing of the transaction, whichever is the later of the two.

  The aforesaid undertaking will also apply to Medi, with the necessary changes, and all this for a period of one year from the date of termination of her employment with the Buyer or three years from the Date of Closing of the transaction, whichever is the later.

11.2 Likewise, commencing on the Date of Closing, the Company will cease to make use of the name Cellocator as the brand name and/or trademark and/or name that serves in any other business and the Seller will see to it that, within 30 days of the Date of Closing, its name at the Registrar of Companies will be changed to a new name, which does not include the word “Cellocator.”

12. Cooperation Prior to Closing of the Transaction and Thereafter

12.1 The parties undertake to cooperate for the purpose of carrying out the provisions of this agreement on time, to sign every document, bill, petition, power of attorney and any other document required and to appear before the various authorities and/or lawyers to complete the acts required to execute this agreement.



12.2 Upon clsoing of the transaction, the Company and Matan undertake to give the Buyer the right of use, without any additional consideration, of all documents and databanks of the Company, inclusive of accounting information, in relation to the Intangible Assets and the Tangible Assets.

12.3 The parties further agree that the bank accounts of the Company and Matan, as specified herein below, will serve the Buyer for the purpose of collecting past debts from customers and to endorse checks that will arrive in the Company’s name. For the aforesaid purpose, irrevocable instructions will be given on the Date of Closing to banks, wherein the bank accounts are held, to transfer all monies collected from customers included in the Assets Being Transferred to the bank account of the Buyer.

  And these are the bank accounts:

  Cellocator - HSBC Private Banking, a division of HSBC Bank USA,
N.A.
Account Number: 0605128650
452 Fifth Avenue, New York, New York 10018

Cellocator
United Mizrahi Bank
Hafetz Haim Branch
Petach Tikva
Account Number: 211510
Branch Number: 065

Matan
United Mizrahi Bank
Hafetz Haim Branch
Petach Tikva
Account Number: 287282
Branch Number: 065

13. Indemnity

13.1 The Sellers will indemnify the Buyer in respect of any damage and/or loss and/or expense incurred by the Buyer in respect of inaccurate and/or incomplete declaration/s and/or presentation/s that the Sellers gave the Buyer and/or in respect of the failure to fulfill their undertakings pursuant to this agreement.

13.2 Notwithstanding the aforesaid in section 13.1 above, the indemnity shall not apply unless above a cumulative floor of indemnities in the amount of USD 250,000 (two hundred and fifty thousand dollars U.S.) (hereinafter: "the Floor Amount").



13.3 If the total of damages rises above the Floor Amount, any damage will be paid, inclusive of the Floor Amount, up to a cumulative amount that does not exceed the total of the Cash Consideration (hereinafter: "the Ceiling Limit").

13.4 Notwithstanding the aforesaid, it is clarified that in the event of a declaration or presentation that the Sellers gave and/or did not give in this agreement fraudulently, with intent to mislead or with malice, the limits determined in sections 13.2 and 13.3 above will not apply.

13.5 Without derogating from the generality of the aforesaid herein in this agreement, the Sellers undertake to assume and with full liability any undertaking and/or liability and/or expense to the Chief Scientist and the Investment Center that result from the activities of the Company and/or Matan prior to the Date of Closing and to indemnify the Buyer with full indemnity in respect of any expense and/or damage and/or demand on the part of the Chief Scientist and/or the Investment Center in connection with the Company and/or Matan prior to the Date of Closing, all this, save if it resulted from a breach of the Buyer’s Undertakings in Respect of the Authorized Enterprise (as defined above).

13.6 The parties agree that the Sellers will not be obligated to indemnity in respect of a demand, claim, damage and/or loss and/or expense, as aforesaid in section 13.1 above, for which notice in respect thereof was delivered to the Sellers following the expiration of a period of 24 months from the Date of Closing, other than in connection with the undertakings of the Sellers, as specified in section 13.5 above and, in the event of an incorrect and/or inaccurate representation in relation to the Intellectual Property, as specified in section 2.9 above, in connection with which the statutory limitation of action will apply.

13.7 The parties declare and agree that the provisions of indemnity pursuant to this section 13 shall be the sole relief for the Buyer vis-à-vis the Sellers in respect of an inaccurate and/or incomplete declaration/s and/or presentation/s, which the Sellers made and/or in respect of the failure to fulfill the undertakings of the Sellers, pursuant to this agreement, save for in the event of fraud, intent to mislead or malice on the part of the Sellers.

13.8 The Liability of the Sellers and the Liability of the Buyer

  Unless otherwise explicitly stated herein in this agreement, the Sellers will be liable in respect of claims or demands of third parties in connection with the Activity (as defined above) of the Sellers and/or the Assets Being Transferred, the grounds for which arose up to the Date of Closing (“A Claim under the Sellers’ Liability”), while the Buyer will be liable in respect of claims or demands of third parties in connection with the Activity (as defined above) and/or the Assets Being Transferred, the grounds for which arose commencing on the Date of Closing (“A Claim under the Buyer’s Liability”).



  The Sellers undertake to indemnify the Buyer in respect of any Claim Under the Sellers’ Liability, which is filed, if such is filed, against the Buyer. However, the Buyer will have no contention, demand and/or claim vis-à-vis the Sellers in respect of a claim in the Sellers’ liability, unless: (a) the Buyer notified the Sellers of the claim under the Sellers’ liability, as aforesaid, within 14 days following the Buyer’s learning thereof; (b) the Buyer agreed that the Sellers participate in the Defense and enabled them to do so, insofar as the matter is contingent on them, or, if the Sellers requested such, to conduct the Defense jointly in a claim of a third party, as aforesaid, by means of an attorney on behalf of the Sellers, all including by means of joining the Sellers to any proceeding; and (c) the Buyer will not agree to a settlement in connection with a third party’s claim, as aforesaid, other than with the advance and written agreement of the Sellers, which shall not be refused except on reasonable grounds.

  The Buyer undertakes to indemnify the Sellers in respect of any Claim under the Buyer’s Liability and which is filed, if such is filed, against the Sellers or any one of them. However, the Sellers will have no contention, demand and/or claim vis-à-vis the Buyer in respect of any claim under the Buyer’s liability unless: (a) the Sellers notified the Buyer of the claim under the Buyer’s liability, as aforesaid, within 14 days following the Sellers learning thereof; (b) the Sellers agreed that the Buyer would participate in the Defense and enabled it do so, insofar as the matter is dependent on them or, if the Buyer requested such, to jointly conduct the Defense against a third party claim, as aforesaid, by means of an attorney on behalf of the Buyer, all including by means of attaching the Buyer to any proceeding; and (c) the Sellers will not agree to a settlement in connection with a third party claim, as aforesaid, unless with the advance and written agreement of the Buyer which shall not be refused except on reasonable grounds.

14. Miscellaneous

14.1 The parties undertake to act jointly and in good faith for the correct, just and effective execution of this agreement and for this purpose the parties undertake to sign any document and appear before any authority, as necessary.

14.2 This agreement expresses the complete and exhaustive agreement between the parties in respect of the issues and matters discussed herein and it replaces and cancels any representation, memorandum, offers, summations, letters of intent and/or undertaking, and any other document, that prevailed or were exchanged (whether in writing or verbally) on the aforesaid subjects and matters, between the parties, prior to the signature of this agreement. Notwithstanding the aforesaid, a letter of confidentiality signed by the Company and the Buyer will continue to constitute a binding document between the parties and will expire solely on the Date of Closing of the transaction.



14.3 All that has been stated herein in this agreement in the singular also implies the plural and all that has been stated in the masculine gender also implies the feminine, and vice versa, and all as long as the opposite of that which is stated is not implied in the context of matters.

14.4 The agreement of any one of the parties to diverge from any condition whatsoever of this agreement, in a certain event or series of events, will be made in writing with the signature of the parties and will not constitute a precedent and no inference by analogy may be made to any other event in future.

14.5 If any of the parties does not exercise or exercised late any right whatsoever of the rights granted to it, pursuant to this agreement and/or by virtue of the law, in a specific event or a series of events, this will not be viewed as a waiver of the said right or any other rights whatsoever.

14.6 If a provision of this agreement is not valid or there is no possibility of enforcing it, the validity of the remaining provisions of this agreement will not be affected and the agreement will be fulfilled insofar as is possible to fulfill the original provisions, in accordance with the spirit of the agreement.

14.7 Any condition of the conditions of this agreement shall be amended solely on the basis of a written document signed by each of the parties to this agreement.

14.8 Erasures and amendments made to drafts of this agreement that were exchanged by the parties within the confines of negotiations for the signature of this agreement shall have no significance whatsoever for the interpretation thereof.

14.9 The undertakings and rights of any of the parties pursuant to this agreement are not transferable and/or given to assignment and/or encumbrance unless the other party have agreed thereto in advance and in writing.

14.10 The substantial law which applies to this agreement are the laws of the State of Israel and the jurisdiction for all matters pertaining to this agreement and/or ensuing from it are granted to the competent courts in Tel Aviv and solely thereto.

14.11 The parties undertake to coordinate among them for the form of notices to the press, which they will issue in connection with the transaction.



15. Notices and Addresses

  The addresses of the parties for the purposes of this agreement are as specified in the preamble thereto and any notice that is sent by registered mail by any party to the other, pursuant to its address as stated above or to any other address that it has provided written notice thereof to the other parties, shall be deemed to have arrived at its destination after three business days from the time of its delivery for mailing by registered mail and/or on the first business day after the day it was hand delivered in person.

In Witness Whereof the Parties Have Signed:

——————————————
Cellocator Ltd.
——————————————
Pointer Telocation Ltd.

——————————————
Matan Y. Communication and
Tracking Systems Ltd.
——————————————
Amnon Duchovna-Naveh



EX-23.2 6 exhibit_23-2.htm F-3/A

Exhibit 23.2

Consent of Independent Registered Public accounting Firm

We consent to the incorporation by reference in this Amendment No. 1 to the Registration Statement of Pointer Telocation Ltd. (the “Company”) on Form F-3, registration no. 333-143399, of our report dated May 31, 2007, with respect to the consolidated financial statements of the Company included in its Annual Report on Form 20-F/A for the year ended December 31, 2006, filed with the Securities and Exchange Commission on July 31, 2007.

Kost Forer Gabbay & Kasierer

A member of Ernst & Young Global

Tel Aviv, Israel
September 24, 2007



EX-23.3 7 exhibit_23-3.htm F-3/A

Exhibit 23.3

Grant Thornton

Consent of Independent Auditors

We have issued our report dated January 30, 2007 accompanying the financial statements of Pointer Localizacion Y Asistencia S.A. appearing in the Annual Report of Pointer Telocation Ltd. included in the Annual Report on Form 20-F/A for the year ended December 31, 2006, dated July 31, 2007, and hereby consent to their incorporation by reference in this Amendment No. 1 to the Registration Statement on Form F-3, registration no. 333-143399.

/s/ Grant Thornton Argentina S.C.

Buenos Aires, Argentina
September 24, 2007



EX-23.4 8 exhibit_23-4.htm F-3/A

Exhibit 23.4

SALLES, SAINZ – GRANT THORNTON, S.C.

Consent of Independent Auditors

We hereby consent to the incorporation by reference in this Amendment No. 1 to the Registration Statement of Pointer Telocation Ltd. (the “Company”) on Form F-3, of our report dated January 30, 2007 relating to the financial statements of Pointer Recuperación de México, S.A de C.V, for the year ended December 31, 2006 included in the Company’s Annual Report on Form 20-F/A, dated July 31, 2007, for the year ended December 31, 2006, filed with the Securities and Exchange Commission herewith.

/s/ SALLES, SAINZ - GRANT THORNTON, S.C.

Mexico City, Mexico
September 24, 2007



EX-23.5 9 exhibit_23-5.htm F-3/A

Exhibit 23.5

Ramat-Gan, September 24, 2007

Consent of Independent Auditors

We consent to the inclusion in this Amendment No. 1 to the Registration Statement on Form F-3 of Pointer Telocation Ltd., registration no. 333-143399, of our report dated September 16, 2007 with respect to the combined financial statements of Cellocator Ltd. and Matan Y. Communication and Tracking Systems Ltd. for the year ended December 31, 2006.

/s/ Oren Horowitz & Co’

Oren Horowitz & Co’
Certified Public Accountants (Isr.)



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