RETALIX LTD.

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PalmPoint In December 2002, a legal claim for the total amount of approximately $240,000 was filed in the Magistrate’s Court of Beer-Sheva against our subsidiary PalmPoint, by a local customer. The claim alleges damages caused by services and products not duly provided by PalmPoint. In February 2003, PalmPoint filed a statement of defense. A settlement of the claim has been agreed between the parties whereby PalmPoint will pay the claimant the sum of approximately $70,000. This settlement has been approved by the Magistrate’s Court of Beer-Sheva. We believe this claim will not have any material effect on our financial position and/or profitability. TCI Solutions Inc. In 2003, Fleming PCT, a customer of TCI Solutions, Inc. filed for bankruptcy protection. Certain debtors of Fleming PCT filed a claim in the United States Bankruptcy Court for the District of Delaware alleging certain preferential payments were made to TCI Solutions, which we acquired in April 2005. The debtors were seeking to recover from us approximately $364,320. We are in the process of negotiating a settlement agreement with the parties and thus we believe this claim will not have any material effect on our financial position and/or profitability. Retalix Italia In August, 2005, an Italian competitor of Retalix Italia has approached the Company and Retalix Italia claiming that the acquisition of M.P.S. Millennium Pos Solution S.r.l. (“MPS”) by Retalix Italia in July, 2005, formed an act of unfair competition. No further action has been taken by the above party, in connection with its above allegation to date. In addition, in April, 2006, the above competitor exercised arbitration proceedings in order to enforce its claims of co-ownership to a certain product of M.P.S., as well as indemnity for certain damages allegedly suffered by him within this context. In May, 2006 MPS has requested the arbitral court to reject all claims filed by the above party. The Company believes that these claims will not result in any material expense and therefore no provision was recorded in regard to these claims as of December 31, 2005. IDS In June, 2006, a fairly large customer in the U.S., filed in the District Court of Madison County, Nebraska, a complaint against the Company and IDS, in which it asserts claims for misrepresentation and concealment, breach of contract and breach of warranties arising from its contract with the Company and IDS. The customer seeks unspecified damages and injunctive relief. We are together with our legal advisors are in the process of studying this complaint. As of July 2006, the balance of debt of this customer for services supplied by us amounted to approximately $1.6 million. We are also parties to several other claims filed against us or letters of dispute submitted to us by former or current customers and service providers. In the opinion of the management, these claims represent financial risks are of sums that are not material to us either individually or in aggregate. Thus we believe that they will not have any material effect on our financial position and/or profitability. Dividend Policy Since 1995, we have not paid cash dividends on our ordinary shares, and we do not intend to pay cash dividends in the foreseeable future. Our board of directors is authorized to declare dividends, subject to applicable law. Dividends may be paid only out of profits and other surplus, as defined in the Companies Law, as of the end of the most recent financial statements or as accrued over a period of two years, whichever is higher. Alternatively, if we do not have sufficient profits or other surplus, then permission to effect a distribution can be granted by order of an Israeli court. In any event, a distribution is permitted only if there is no reasonable concern that the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. Under current Israeli regulations, any cash dividend in Israeli currency paid in respect of ordinary shares purchased by non-residents of Israel with non-Israeli currency may be freely repatriated in such non-Israeli currency. Significant Changes Except as described elsewhere in this annual report, no significant change has occurred since the date of the annual financial statements included in this annual report. 69
ITEM 9 – THE OFFER AND LISTING A. Offer and Listing Details Our ordinary shares have been quoted on the Nasdaq Global Select Market under the symbol “RTLX” since July 1998. Our ordinary shares have also been quoted on the Tel Aviv Stock Exchange since November 1994. The following table sets forth, for the periods indicated, the high and low closing prices of our ordinary shares, as reported on the Nasdaq Global Select Market. On July 21, 2006, the last reported sale price of our ordinary shares on the Nasdaq Global Select Market was $16.53 per share. 70 High Low 2001 $ 17.20 $ 8.25 2002 17.00 8.72 2003 23.19 8.75 2004 24.74 16.45 2005 26.99 20.17 2004: First Quarter $ 24.74 $ 20.05 Second Quarter 22.48 18.01 Third Quarter 20.74 16.45 Fourth Quarter 22.15 16.72 2005: First Quarter $ 25.89 $ 20.72 Second Quarter 24.27 20.17 Third Quarter 25.10 21.54 Fourth Quarter 26.99 23.30 2006: First Quarter $ 26.65 $ 23.54 Most recent six months: January 2006 $ 26.65 $ 25.28 February 2006 25.85 24.09 March 2006 25.69 23.54 April 2006 27.07 24.00 May 2006 25.59 23.16 June 2006 24.00 21.03 July 2006, through July 21, 2006 22.17 16.50
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UNITED STATES SECURITIES AND EXCHAN
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PART I TABLE OF CONTENTS Item 1. ID
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PART II PART III G. Statement by Ex
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ITEM 3 - KEY INFORMATION A. Selecte
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the uncertainty regarding the adopt
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changing customer needs; and frequ
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If we are unsuccessful in establish
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Antitrust scrutiny of e-marketplace
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The dollar cost of our operations i
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It could be difficult to enforce a
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ITEM 4 - INFORMATION ON THE COMPANY
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Our Market Opportunity The customer
Page 25 and 26: Our solutions provide for both reta
Page 27 and 28: Leverage our integrated suite of pr
Page 29 and 30: Enterprise Headquarters Solutions:
Page 31 and 32: Retalix HQC - Retalix HQ for C-Stor
Page 33 and 34: • Ordering, receiving • Load ba
Page 35 and 36: StoreLine.net StoreLine.net is a th
Page 37 and 38: create and sustain customer interes
Page 39 and 40: The Retalix InSync Solution Portfol
Page 41 and 42: Customers Our software has been dep
Page 43 and 44: Direct Sales Our direct sales force
Page 46 and 47: ITEM 5 - OPERATING AND FINANCIAL RE
Page 48: The following table shows the impac
Page 51 and 52: Revenues from on-line application,
Page 54 and 55: Product Sales Product sales primari
Page 56 and 57: Gain Arising from Issuance of Share
Page 58 and 59: The increase in cost of product sal
Page 60 and 61: SFAS No. 154. In May 2005, the FASB
Page 62 and 63: The following table presents inform
Page 64 and 65: D. Trend Information Trends we iden
Page 66 and 67: Yoni Stutzen has served as our Exec
Page 68 and 69: The Companies Law and Nasdaq listin
Page 70 and 71: D. Employees Set forth are tables p
Page 72 and 73: Options granted under our Second 19
Page 74 and 75: ITEM 7 - MAJOR SHAREHOLDERS AND REL
Page 78 and 79: The following table sets forth, for
Page 80 and 81: The oversight of the management of
Page 82 and 83: A quorum in a general meeting consi
Page 84 and 85: In addition, provisions of the Comp
Page 86 and 87: The amount of a distribution with r
Page 88 and 89: Backup Withholding A U.S. holder ma
Page 90 and 91: The benefits available to an approv
Page 92 and 93: Generally, up until the 2006 tax ye
Page 94 and 95: The table below presents principal
Page 96 and 97: ITEM 15 - CONTROLS AND PROCEDURES P
Page 98 and 99: Our audit committee has adopted a p
Page 100 and 101: SIGNATURES The registrant hereby ce
Page 102 and 103: REPORT OF INDEPENDENT REGISTERED PU
Page 104 and 105: RETALIX LTD. CONSOLIDATED BALANCE S
Page 106 and 107: RETALIX LTD. STATEMENTS OF CHANGES
Page 108 and 109: RETALIX LTD. CONSOLIDATED STATEMENT
Page 110 and 111: RETALIX LTD. CONSOLIDATED STATEMENT
Page 112 and 113: NOTE 1 - SIGNIFICANT ACCOUNTING POL
Page 114 and 115: RETALIX LTD NOTES TO CONSOLIDATED F
Page 116 and 117: RETALIX LTD. NOTES TO CONSOLIDATED
Page 122 and 123: NOTE 2 - ACQUISITIONS (continued):
Page 124 and 125: NOTE 2 - ACQUISITIONS (continued):
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NOTE 4 - GOODWILL AND OTHER INTANGI
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NOTE 6 - OTHER LIABILITIES: RETALIX
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RETALIX LTD. NOTES TO CONSOLIDATED
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NOTE 9 - SHAREHOLDERS’ EQUITY (co
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NOTE 9 - SHAREHOLDERS’ EQUITY (co
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NOTE 10 - TAXES ON INCOME (continue
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NOTE 15 - SELECTED INCOME STATEMENT
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RETALIX LTD. REPORT OF INDEPENDENT
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Report of Independent Registered Pu
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I, Barry Shaked, certify that: File
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I, Danny Moshaioff, certify that: F
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Certification Pursuant to Section 9
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Consent of Independent Registered P
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Retalix Holdings, Inc. Plano, Texas
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RETALIX LTD.

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