Three month period ended

September 30,

Nine month period ended

September 30,

2007

2006

2007

2006

Revenues:

Software Security (DRM)

15,498

13,951

48,986

44,671

Enterprise Security

10,622

7,087

27,778

20,097

Total Revenues

26,120

21,038

76,764

64,768

Cost of revenues

5,993

4,709

17,245

14,162

Gross profit

20,127

16,329

59,519

50,606

Research & development

4,866

3,551

14,040

10,642

Selling & marketing

7,958

6,533

23,952

20,703

General & administrative

3,157

3,044

9,922

9,300

Total operating expenses

15,981

13,128

47,914

40,645

Operating income

4,146

3,201

11,605

9,961

Financial income, net

1,114

720

3,161

2,230

Other income (loss)

(9)

25

5

221

Income before taxes

5,251

3,946

14,771

12,412

Taxes on income

876

652

2,388

1,996

Income before equity in loss of an affiliate

4,375

3,294

12,383

10,416

Equity in loss of an affiliate

(42)

-

(303)

-

Net Income

4,333

3,294

12,080

10,416

Basic earnings per share

0.31

0.23

0.84

0.71

Diluted earnings per share

0.30

0.22

0.82

0.69

Weighted average number of shares outstanding for Basic  earnings per share

14,022

14,612

14,398

14,580

Weighted average number of shares outstanding for Diluted  earnings per share

14,442

14,998

14,787

15,137

September 30,

2007

December 31,

2006

Assets

Current assets:

Cash & cash equivalents

60,688

            39,734

Marketable securities

22,681

            51,147

Trade receivables, net of allowance for doubtful accounts

18,492

            16,427

Other accounts receivable

6,926

              5,779

Inventories

8,259

              7,299

Total current assets

117,046

          120,386

Severance pay fund

3,003

              2,673

Fixed assets, net

6,536

              5,695

Other long-term assets, net

19,178

            19,290

Total Assets

145,763

          148,044

Liabilities and Shareholders’ Equity

Current liabilities:

Trade payables

7,924

              5,794

Deferred revenues and advances from customers

7,293

              6,173

Other current liabilities

9,797

              8,618

Total current liabilities

25,014

            20,585

Accrued severance pay

3,878

              3,441

Other long-term liabilities

1,089

              1,369

Shareholders’ Equity

115,782

          122,649

Total Liabilities and Shareholders’ Equity

145,763

          148,044

Three month period ended

September 30,

Nine month period ended

September 30,

2007

2006

2007

2006

Cash flow from operating activities:

Net income

4,333

3,294

12,080

10,416

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

887

601

2,536

1,776

Increase in trade and other receivables, net

         (920)

         (487)

      (3,012)

   (1,258)

Decrease (increase) in inventory

         (394)

           794

         (777)

    (428)

Increase (decrease) in trade payables and accrued liabilities

        2,368

         (393)

        2,896

(303)

Increase (decrease) in other long term liabilities

(95)

1,463

(281)

1,463

Other adjustments

           276

           113

        1,524

895

Net cash provided by operating activities

        6,455

   5,385

      14,966

12,561

Cash flow from investing activities:

Purchase of property and equipment, net

         (880)

      (2,092)

      (2,649)

   (3,688)

Investment in available-for-sale marketable securities

      (8,909)

               -

    (43,265)

-

Proceeds from sales of available-for-sale marketable securities

       36,909

        1,885

      72,119

3,371

Investment in other companies

               -

         (421)

         (495)

(850)

Investment in other assets

-

           (43)

               -

(2,508)

Proceeds from return on investment in other companies

               -

-

               -

1,724

Net cash provided by (used in) investing activities

       27,120

         (671)

      25,710

(1,951)

Cash flow from financing activities:

Proceeds from exercise of options

             81

181

           479

587

Purchase of treasury shares

     (10,003)

               -

    (19,986)

-

Net cash provided by (used in) financing activities

      (9,922)

181

    (19,507)

587

Effect of exchange rate on cash and cash equivalents

(224)

6

(215)

136

Increase in cash and cash equivalents

       23,429

        4,901

      20,954

11,333

Cash and cash equivalents at the beginning of the period

37,259

34,858

39,734

28,426

Cash and cash equivalents at the end of the period

60,688

39,759

60,688

39,759