Three month period ended

December 31

Twelve month period ended

December  31

2007

2006

2007

2006

Revenues:

Software Security (DRM)

17,111

15,885

66,097

60,556

Enterprise Security

12,007

8,385

39,785

28,482

Total Revenues

29,118

24,270

105,882

89,038

Cost of revenues

8,047

5,851

25,292

20,013

Non-recurring cost

2,038

-

2,038

-

Gross profit

19,033

18,419

78,552

69,025

Research & development

4,344

3,694

18,384

14,336

Selling & marketing

9,242

7,999

33,194

28,703

General & administrative

3,141

3,480

13,063

12,780

Total operating expenses

16,727

15,173

64,641

55,819

Operating income

2,306

3,246

13,911

13,206

Financial income, net

1,113

1,010

4,274

3,240

Other income

9

63

14

284

Income before taxes

3,428

4,319

18,199

16,730

Taxes on income

380

704

2,768

2,699

Income before equity in loss of an affiliate

3,048

    3,615

15,431

14,031

Equity in loss of an affiliate

(240)

-

(543)

-

Net Income

2,808

3,615

14,888

14,031

Basic earnings per share

0.20

0.25

1.04

0.96

Diluted earnings per share

0.20

0.24

1.02

0.93

Weighted average number of shares outstanding for Basic EPS

13,839

14,645

14,257

14,596

Weighted average number of shares outstanding for Diluted EPS

14,297

15,047

14,663

15,078

December 31,

2007

December  31,

2006

Assets

Current assets:

Cash & cash equivalents

77,209

39,734

Marketable securities

13,127

51,147

Non marketable investment held for sale

4,423

-

Trade receivables, net of allowance for doubtful accounts

16,918

16,427

Other accounts receivable

7,093

5,779

Inventories

8,763

7,299

Total current assets

127,533

120,386

Severance pay fund

3,853

3,153

Fixed assets, net

6,501

5,695

Other long-term assets, net

12,565

19,290

Total Assets

150,452

148,524

Liabilities and Shareholders’ Equity

Current liabilities:

Trade payables

8,236

5,794

Deferred revenues

6,635

5,399

Other current liabilities

8,615

8,618

Total current liabilities

23,486

19,811

Accrued severance pay

4,802

3,921

Other long-term liabilities

2,934

 2,143

Shareholders’ Equity

119,230

122,649

Total Liabilities and Shareholders’ Equity

150,452

148,524

Three month period ended

December 31,

Twelve month period ended

December 31,

2007

2006

2007

         2006

Cash flow from operating activities:

Net income

       2,808

       3,615

14,888

         14,031

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

Depreciation and amortization

       2,758

           640

5,284

           2,416

Decrease (increase) in trade and other receivables, net

       1,782

        (966)

(1,230)

        (2,224)

Decrease (increase) in inventory

        (390)

           331

(1,167)

              (97)

Increase (decrease) in trade payables and accrued liabilities

        (824)

       2,464

2,072

           2,161

Stock-based compensation expenses

197

542

876

          2,268

Other adjustments

           844

        (292)

1,418

              340

Net cash provided by operating activities

       7,175

       6,334

         22,141

         18,895

Cash flow from investing activities:

Purchase of property and equipment

        (611)

        (888)

        (3,271)

        (4,576)

Proceeds from sale of property and equipment 

-

95

11

95

Investment in available-for-sale marketable securities

                -

     (6,500)

      (43,265)

        (6,500)

Proceeds from sales of available-for-sale marketable securities

       9,700

       1,000

         81,819

           4,371

Investment in other companies

        -

(250)

            (495)

        (1,100)

Proceeds from return on investment in other companies

                -

             12

                    -

           1,736

Investment in other assets

        (2,508)

Net cash provided by (used in) investing activities

       9,089

     (6,531)

         34,799

        (8,482)

Cash flow from financing activities:

Proceeds from exercise of options

           245

           248

              724

              835

Purchase of treasury shares

                -

                -

      (19,986)

                    -

Net cash provided by (used in) financing activities

           245

           248

      (19,262)

              835

Effect of exchange rate on cash and cash equivalents

             12

          (76)

            (203)

                 60

Increase (decrease) in cash and cash equivalents

     16,521

          (25)

         37,475

         11,308

Cash and cash equivalents at the beginning of the period

     60,688

     39,759

         39,734

         28,426

Cash and cash equivalents at the end of the period

     77,209

     39,734

         77,209

         39,734

Quarter ended December 31

Year ended December 31

GAAP 2007

SFAS 123R & Non-Recurring Cost Adjustments

Non-GAAP 2007

GAAP 2007

SFAS 123R & Non- Recurring Cost Adjustments

Non-GAAP 2007

(Unaudited)

(Unaudited)

Revenues:

Software Security (DRM)

       17,111

      17,111

        66,097

       66,097

Enterprise Security

       12,007

      12,007

        39,785

       39,785

Total Revenues

       29,118

      29,118

      105,882

     105,882

Cost of revenues

         8,047

        8,047

        25,292

       25,292

Non-recurring Cost

         2,038

             2,038

              -  

         2,038

             2,038

              -  

Gross profit

       19,033

            (2,038)

      21,071

        78,552

            (2,038)

       80,590

Research & development

         4,344

                101

        4,243

        18,384

               420

       17,964

Selling & marketing

         9,242

                141

        9,101

        33,194

               452

       32,742

General & administrative

         3,141

(45)

        3,186

        13,063

                   4

       13,059

Total operating expenses

       16,727

                197

      16,530

        64,641

               876

       63,765

Operating income

         2,306

            (2,235)

        4,541

        13,911

            (2,914)

       16,825

Financial income, net

         1,113

        1,113

         4,274

         4,274

Other income

               9

              9

              14

             14

Income before taxes

         3,428

            (2,235)

        5,663

        18,199

            (2,914)

       21,113

Taxes on income

           380

               (230)

           610

         2,768

              (230)

         2,998

Income before equity in loss of an affiliate

         3,048

            (2,005)

        5,053

        15,431

            (2,684)

       18,115

Equity in loss of an affiliate

          (240)

           (240)

            (543)

            (543)

Net income

         2,808

            (2,005)

        4,813

        14,888

            (2,684)

       17,572

Basic earning per share

          0.20

          0.35

           1.04

           1.23

Diluted earnings per share

          0.20

          0.34

           1.02

           1.20

Weighted average number of shares outstanding for Basic EPS

       13,839

      13,839

        14,257

       14,257

Weighted average number of shares outstanding for Diluted EPS

       14,297

      14,297

        14,663

       14,663