RETALIX LTD.

In April 2005, we acquired approximately 73.4% of the issued and outstanding shares (on an as-converted-to-common-stock basis) of TCI
Solutions, now called Retalix TCI, LLC, a provider of retail store and headquarters solutions, including pricing, promotions, inventory
management and DSD solutions for the grocery industry, for approximately $14.5 million in cash and 715,730 of our ordinary shares. As part of
the acquisition, we retained 111 of TCI Solutions’ employees. The purpose of the acquisition of TCI Solutions was to strengthen our position as a
provider of headquarters and in-store systems for retailers, improve the quality of our offerings, broaden our customer base and expand our suite of
products. In November 2005, we completed the acquisition of TCI Solutions as we acquired the remaining outstanding common stock and
preferred stock of TCI Solutions in a merger, for an aggregate of approximately $2.6 million in cash.
In April 2005, we also acquired through our wholly owned subsidiary Retalix SCM, Inc., substantially all of the assets of IDS, a provider of ERP
and distribution solutions for the foodservice, convenience store and grocery industries, for approximately $37.4 million in cash, and 290,128 of
our ordinary shares. In addition, 207,236 of our ordinary shares will be eligible for release to the sellers from escrow only if certain future customer
retention milestones are met as of April 1, 2007. As part of the acquisition, we retained 133 of IDS’s employees. The purpose of the acquisition of
IDS was to enable us to strengthen our position as a provider of supply chain execution and warehouse management systems, improve the quality
of our offerings, and in particular, those which facilitate coordination between retail and supply organizations, broaden our customer base and
expand our suite of products.
In August 2004, we acquired UNIT, now called Retalix Italia, a supplier of specialized software and hardware solutions for the food and fuel retail
industries in Italy and Europe. As part of the acquisition, we retained 59 of UNIT’s employees.
In January 2004, we acquired OMI International, a provider of supply chain execution and warehouse management systems for the retail food
industry, for aggregate consideration of approximately $19.5 million in cash and ordinary shares, including related transaction expenses. This
acquisition was concluded on January 2, 2004. As part of the acquisition, we retained 67 of OMI International’s employees. The purpose of the
acquisition of OMI International was to enable us to enter the supply chain execution and warehouse management systems market for retailers,
broaden our customer base and expand our suite of products. As expected, we invested significant resources in developing a next-generation, webbased
version of OMI International’s applications and in integrating these applications with ReMA, our web-based enterprise application suite.
We announced numerous new customer agreements, including French-based Mousquetaires-Intermarche, Tesco (Retalix Back Office systems for
sites across the United Kingdom, Europe and Asia), Alon USA, Zen and Drug-Eleven in Japan, Lotus Supermarkets in China, Rautakirja in Finland
and Woolworth’s in Australia. These new customers in Europe, Asia and the Pacific-Rim represent the advancement of our strategy to expand our
business to new retail markets around the globe.
We completed a public offering of 3,450,000 of our ordinary shares at a price to the public of $18.00 per share in May 2004. The proceeds of the
offering, net of underwriting discount and other related expenses, amounted to approximately $59 million.
Revision of periodic and annual results previously published in regard to 2005
During July 2006, we came to the conclusion that the accounting treatment previously implemented in connection with certain transactions was
incorrect, and not in accordance with the applicable accounting rules. Accordingly, the correction of the accounting treatment which affected previously
published financial statements for each quarter during 2005, as well as the year ended December 31, 2005, was included herein in this annual report. The
issues revised herein included:
the accounting treatment of the impact of open contracts in connection with recent acquisitions
the accounting treatment of revenue recognition applied to a certain multi-element transaction executed in 2005 involving a software license and a
maintenance arrangement based deployment progression or delayed commencement
the accounting treatment in accordance with FAS 123 in connection with certain options
insufficient provisions to cover unforeseen accounting fees in connection with the lengthy audit of our December 31, 2005 financial reports
a certain correction of effective tax rate applied to deferred tax expense
incorrect classification of certain revenues as product sales instead of revenues from services and projects
In addition, the restatement of our financial statements for the year ended December 31, 2004 and in this context, the correction of the accounting
treatment of revenue recognition applied to a certain multi-element transaction executed in 2004 involving a software license and a maintenance
arrangement based on deployment progression, also impacted our December 31, 2005 financial reports.
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