RETALIX LTD.

The following table presents information about the rate of inflation in Israel, the rate of devaluation of the NIS against the U.S. dollar, and the rate of
inflation in Israel adjusted for the devaluation:
Because exchange rates between the NIS and the dollar fluctuate continuously, albeit with a historically declining trend in the value of the NIS,
exchange rate fluctuations and, in particular, larger periodic devaluations may have an impact on our profitability and period-to-period comparisons of our
results. We believe that inflation in Israel and exchange rate fluctuations between the NIS and the dollar have not had a material effect on our results of
operations.
C. Research and Development, Patents and Licenses, Etc.
Research and Development
We believe that our research and development efforts are essential to our ability to successfully develop innovative products that address the needs of
our customers as the market for enterprise-wide software solutions evolves. In particular, we intend to continue to invest significant resources in
developing new next-generation products for use in our enterprise solution As of December 31, 2005, our research and development staff consisted of 598
employees, of whom 344 were located in Israel and the remaining 254 were located primarily in the United States.
Proprietary Rights
Year Ended
December 31,
We have no patents or patent applications pending. Our success and ability to compete are dependent in part on our proprietary technology. We rely
on a combination of copyright, trademark and trade secret laws and non-disclosure agreements to establish and protect our proprietary rights. To date, we
have relied primarily on proprietary processes and know-how to protect our intellectual property.
Grants from the Office of the Chief Scientist
Israeli Inflation
Rate
%
From time to time we receive grants under programs of the Office of the Chief Scientist, or the OCS, of the Ministry of Industry, Trade and Labor of
the Government of Israel. The amount of grants of the OCS recognized in our statement of operations for the year ended December 31, 2005 was
approximately $539,000. This governmental support is conditioned upon our ability to comply with certain applicable requirements and conditions
specified in the OCS’s program and with the provisions of the Law for the Encouragement of Research and Development in the Industry, 1984, and the
regulations promulgated thereunder, or the Research and Development Law. In June 2005, an amendment to the Research and Development Law came into
effect, which intends to make the Research and Development Law more compatible with the global business environment by, among other things, relaxing
restrictions on the transfer of manufacturing rights outside Israel and on the transfer of government-funded know-how outside of Israel, as described below.
55
NIS Devaluation
Rate against the
U.S. dollar
%
Israel Inflation
Adjusted for the
Devaluation of the
NIS against the U.S.
dollar
%
2000 0.0 (2.7) 2.7
2001 1.4 9.3 (7.9)
2002 6.5 7.3 (0.8)
2003 (1.9) (7.6) 5.7
2004 1.2 (1.6) 2.8
2005 2.4 6.8 4.4