RETALIX LTD.

We market our software solutions to large and mid-sized supermarket and convenience store chains, major fuel retailers, and independent grocers, as
well as to large and mid-size foodservice, convenience stores and grocery distributors. In the supermarket and grocery sector, we market our solutions to
four tiers of food retailers that are generally characterized by revenue levels:
Tier 1 – annual revenues of over $2 billion;
Tier 2 – annual revenues of between $500 million and $2 billion;
Tier 3 – annual revenues of between $50 million and $500 million; and
Tier 4 – annual revenues of below $50 million.
We market our solutions to Tier 1 and Tier 2 food retailers, large convenience store chains and major fuel retailers, and large and mid-size
foodservice, convenience stores and grocery distributors through a worldwide direct sales force. Our direct selling efforts are augmented by a combination
of channel partners and resellers. Sales to Tier 1 and Tier 2 food retailers, large convenience store chains, major fuel retailers and large and mid-size
foodservice, convenience stores and grocery distributors have historically represented a substantial majority of our revenues. We target Tier 3 and Tier 4
food retailers through our StoreNext initiatives in the United States and Israel. For larger supermarket and convenience store chains, major fuel retailers,
and large and mid-size foodservice, convenience stores and grocery distributors, our professional services personnel provide our customers with project
management, implementation, application training and technical services. We also provide development services to customize our applications to meet
specific requirements of our customers and ongoing support and product maintenance services.
We believe that we are unique within the retail and distribution food and fuel software industries. We offer software solutions that can serve the
needs of the entire range of food and fuel retailers and U.S. grocery and convenience store distributors, from multi-national supermarket chains, major food
distributors and major fuel retailers to local independent grocers. We are able to serve such a diverse customer base because we have designed our
applications to include multiple levels of functionality that can be adapted to the various sizes and forms of retail operations of our customers. To date, our
software solutions have been installed at more than 34,000 sites in 50 countries. Our customers include leading supermarket and grocery chains such as
A&P, Hy-Vee, Kroger and Publix in the United States, Delhaize, Sainsbury’s and Tesco in Europe, and large convenience stores and major fuel retailers
such as Alon Fina, Casey’s and Pilot Oil in the United States and Husky Oil in Canada. Our annual worldwide sales have grown from $36.1 million in
2000 to $191.3 million in 2005.
In March 2006, we acquired additional 45% of StoreNext USA and increased our holdings in this entity to 95%. In February 2006, we acquired
substantially all of the assets of Base Products, Inc., d/b/a C&L Retail Solutions, which provides a suite of hardware and software products and services for
the food and consumer goods retailers. We believe that these acquisitions will strengthen our position, customer base, flexibility and exposure in the sector
of smaller and independent retailers in the United States.
In April 2005, we acquired IDS, a provider of ERP and distribution solutions for foodservice, convenience stores and grocery distributors. This
acquisition enabled us to extend the advantages that we achieve for retailers with the OMI International acquisition to the food distribution sector, by
providing additional critical functionality to distributors, such as customer and supplier relationship management as well as financial accounting and
business analytics. Furthermore, the combination of retailer and distribution solutions offers our customers a much more complete and diversified set of
applications, as many of our retail customers are supplied by our distribution customers and our software solutions will give them all better visibility into
the supply chain and a unique opportunity for collaboration.
Also in April 2005, we acquired TCI Solutions, a software provider for retailers in the area of store and headquarters management and operations.
TCI Solutions’ software facilitates management of price policies, competitive price policies, direct store delivery, or DSD, and receiving, ordering and
inventory for hundreds of retailers located mainly in North America. TCI Solutions’ software also controls the connection between the store operation
software and the point of sale, or POS, software, downloading price changes, managing shelf stock auditing and more. The acquisition of TCI Solutions
strengthens Retalix’s advantages in the store and at headquarters, establishes our presence in hundreds of new grocery retailers of various sizes, and
enhances our ability to support third party POS solutions as part of our total solution set.
In August 2004, we acquired 51% of Retalix Italia S.p.A. (then known as Unit S.p.A.), a supplier of specialized software and hardware solutions for
the food and fuel retail industries in Italy. In December 2004 we acquired the remaining 49% of Retalix Italia. This acquisition enabled us to improve our
exposure and customer base within the European Market.
In January 2004, we acquired OMI International, a provider of supply chain execution and warehouse management systems for the retail food
industry. OMI International manages the various fulfillment processes that take place in retailers’ warehouses and distribution centers. The acquisition of
OMI International enabled us to enter the supply chain execution and warehouse management systems market for retailers, broaden our customer base and
expand our suite of products. The addition of OMI International’s integrated applications to our suite of retail solutions enables us to provide customers
with end-to-end supply chain management, facilitating enterprise-wide procurement, merchandising, warehouse management and order management for
multi-warehouse, multi-facility retailers and wholesalers. We believe that the combination of our in-store solutions with OMI International’s applications
enables retailers to optimize their replenishment decisions based on point of sale data, thereby reducing lost sales due to items being out-of-stock on the
one hand, while, on the other hand, reducing additional costs of surplus inventory.
18