RETALIX LTD.

ITEM 15 – CONTROLS AND PROCEDURES
PART III
As of the end of the period covered by this annual report, we performed an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)under the Exchange Act). The evaluation was performed with
the participation of our key corporate senior management and under the supervision and with the participation of our chief executive officer and chief
financial officer. Based on this evaluation, our principal executive officer and principal financial officer became aware of several revisions that were
required to our previously announced quarterly and annual financial statements for 2005. These revisions reflected changes in timing of the recognition of
revenues, accounting treatment for open contracts of acquired entities and activities, reallocations among Retalix’s classes of revenues and other expense
issues.
Based upon the these revisions, our chief executive officer and our chief financial officer have concluded that our disclosure controls and procedures
were not effective as of December 31, 2005 because at that time we did not have effective controls designed and in place to ensure that these items were
accounted for and reported in accordance with generally accepted accounting principles. In order to address the failure to have effective controls designed
and in place as described above, we have implemented stricter controls to insure more detailed reporting in advance to management and review by
management of transactions with lower minimums of volume. We have also subsequently begun recruitment of additional qualified accounting personnel
as well is improving our documentation of procedures, policies and controls as well as their actual implementation. In addition, we intend to use more
relevantly experienced external evaluation firms in connection with accounting due diligence processes and purchase price allocations in order to insure
key accounting issues are addressed.
There is no assurance that the disclosure controls and procedures will operate effectively under all circumstances. Nevertheless, our chief executive
officer and our chief financial officer believe that with the implementation of these corrective actions, the controls and procedures will be effective so as to
provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rule and forms.
There were no changes during the period covered by this annual report in our internal control over financial reporting that materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting. However, as discussed above in this Item 15, after the year ended
December 31, 2005, in 2006, we began implementing new internal controls as described above.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors determined that Mr. Brian Cooper and Mr. David Bresler are “audit committee financial experts” as defined in Item 16A of
Form 20-F. Both Mr. Cooper and Mr. Bresler have long term experience in senior financial positions in large corporations and the board has relied on their
experience in determining that they are audit committee financial experts”. Mr. Cooper and Mr. Bresler are “independent” as defined in Nasdaq rules.
ITEM 16B. CODE OF ETHICS
Our board of directors has adopted a Code of Ethics, which applies to all of our employees, officers and directors. We will provide a copy of our
Code of Ethics, free of charge, to any person who requests one. Such requests may be sent to our offices at 10 Zarhin Street, Ra’anana, Israel, Attention:
Controller.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Kost, Forer, Gabbay & Kasierer, a member firm of Ernst & Young, has served as our principal independent public accountants since April 2005.
Kesselman & Kesselman, a member of PricewaterhouseCoopers International Limited, served as our principal independent public accountants from 1997
until April 2005. The following table presents the aggregate fees for professional audit services and other services rendered by our principal auditors in
2004 and 2005:
Year Ended December 31,
(U.S. $ in thousands)
2004 2005
Audit Fees 152 1,108
Audit Related Fees 76 119
Tax Fees 23 24
Total 251 1,251
“Audit Fees” are the aggregate fees billed for the audit of our annual financial statements. This category also includes services that generally the
independent accountant provides, such as statutory audits including audits required by the Office of the Chief Scientist and other Israeli government
institutes, consents and assistance with and review of documents filed with the SEC. “Audit-Related Fees” are the aggregate fees billed for assurance and
related services that are reasonably related to the performance of the audit and are not reported under Audit Fees. These fees include mainly accounting
consultations regarding the accounting treatment of matters that occur in the regular course of business, implications of new accounting pronouncements,
due diligence related to acquisitions and other accounting issues that occur from time to time. “Tax Fees” are the aggregate fees billed for professional