SUPERCOM LTD

FORM 20-F(Annual and Transition Report (foreign private issuer))

Filed 07/23/10 for the Period Ending 12/31/09

Telephone 972-9-889-0800

CIK 0001291855Symbol SPCBF

SIC Code 3674 - Semiconductors and Related DevicesIndustry Semiconductors

Sector TechnologyFiscal Year 12/31

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F (Mark One)

OR

For the fiscal year ended December 31, 2009

OR

OR

Date of event requiring this shell company report

Commission file number 000-50790

VUANCE LTD. (Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s Name into English)

Israel (Jurisdiction of incorporation or organization)

Sagid House “Ha’Sharon Industrial Park”

P.O.B 5039, Qadima 60920 Israel

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

None

Securities registered or to be registered pursuant to Section 12(g) of the Act. Ordinary Shares NIS 0.0588235 nominal value

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 5,724,421 ordinary shares as of December 31, 2009.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes � No

� REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

� ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

� TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

� SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to

Section 13 or 15 (d) of the Securities Exchange Act of 1934.

� Yes � No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such reporting requirements for the past 90 days.

Yes No � Not applicable

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition

of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer � Accelerated filer � Non-accelerated filer

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 � Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes � No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the

Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes � No �

2

TABLE OF CONTENTS

PART I

NOTE REGARDING FORWARD-LOOKING STATEMENTS 5

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS. 6

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLES. 6

ITEM 3. KEY INFORMATION. 6

Selected Financial Data 6

Capitalization and Indebtedness 8

Reasons for the Offer and Use of Proceeds 8

Risk Factors 8

ITEM 4. INFORMATION ON THE CORPORATION. 28

History and Development of the Corporation 28

Business Overview 33

Organizational Structure 45

Property, Plants and Equipment 46

ITEM 4A. UNSOLVED STAFF COMMENTS. 46

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS. 47

Operating results 47

Liquidity and Capital Resources 62

Research and Development 66

Trend Information 66

Off Balance Sheet Arrangements 67

Tabular Disclosure of Contractual Obligations 68

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES. 69

Directors and Senior Management 69

Compensation 71

Board Practices 72

Employees 75

Share Ownership 77

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. 81

Major shareholders 81

Related Party Transactions 82

Interests of Experts and Counsel 84

ITEM 8. FINANCIAL INFORMATION. 84

Consolidated Statements and Other Financial Information (Audited) 84

Significant Changes 87

ITEM 9. THE OFFER AND LISTING. 87

Offer and Listing Details 87

Plan of Distribution 90

Markets 90

Selling Shareholders 90

Dilution 90

Expenses of the Issue 90

3

ITEM 10. ADDITIONAL INFORMATION. 90

Share Capital 90

Memorandum and Articles of Association 90

Material Contracts 94

Exchange Controls 94

Taxation 94

Dividends and Paying Agent 102

Statement by Experts 102

Documents on Display 102

Subsidiary Information 102

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 103

Quantitative and Qualitative Information about Market Risk 103

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. 103

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. 104

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. 104

ITEM 15. CONTROLS AND PROCEDURES. 104

ITEM 16. RESERVED 105

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT 105

ITEM 16B.

CODE OF ETHICS 105

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES 105

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 106

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 106

PART III

ITEM 17. FINANCIAL STATEMENTS. 106

ITEM 18. FINANCIAL STATEMENTS. 106

ITEM 19. EXHIBITS. 159

SIGNATURE 160

4

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 20-F (“Annual Report”) contains “forward-looking statements” within the meaning of the United States

Private Securities Litigation Reform Act of 1995 that are not historical facts but rather reflect our present expectations concerning future results and events. Words such as “anticipate,” “estimate,” “expects,” “may,” “projects,” “intends,” “plans,” “believes,” “would,” “could” and words and terms of similar substance used in connection with any discussion of future operating or financial performance may identify forward-looking statements. These forward looking statements include, but are not limited to, statements regarding: (i) our belief about our competitive position in the tracking, asset management and monitoring, active radio frequency identification (“RFID"), disaster recovery, and our ability to become a key technological player in such markets; (ii) our belief about the commercial possibilities for our products in such markets; (iii) our expectation to be able to leverage our current products and technologies for the development of new applications and penetration to additional markets; (iv) our expectation to be able to continue to participate in the government market; (v) our belief about our ability to leverage our public sector experience into the commercial sector; (vi) our belief regarding the effects of competitive pricing on our margins, sales and market share; (vii) our expectations regarding the effects of the legal proceedings we are involved in on our sales and operating performance, including, without limitation to, our belief regarding the merit of the claim of the Department for Resources Supply of the Ministry of Ukraine against us and regarding the Secu-System claim. (See “Legal Proceedings” in Item 8.A); (viii) our belief regarding the fluctuations of our operating results, including our belief about the effects of inflation and the fluctuation of the NIS/dollar exchange rate on our operating results; (ix) our expectations about our future revenues (or absence of revenues); (x) our expectations about the effects of seasonality on our revenues and operating results; (xi) our expectations regarding development and introduction of future products; (xii) our expectations regarding revenues from our existing customer contracts and purchase orders, including, without limitation, the value of our agreement for our end-to-end system for a national multi-ID issuing and control system with the government of a European country, the value of our agreement for our perimeter security and border control at European International Airport and our expectations for increased revenues from sales of additional technology and raw materials to such government; (xiii) our expectations regarding the success of our new active RFID technology; (xiv) our expectations regarding the effectiveness of our marketing programs and generation of business from those programs, including our ability to continue to sell products through strategic alliances and our belief about the role customer service plays in our sales and marketing programs; (xv) our anticipation that sales to a relatively small number of customers will continue to account for a significant portion of our net sales; (xvi) our expectations regarding the mix of our sources of revenues; (xvii) our belief about the sufficiency or insufficiency of our capital resources and other sources of liquidity to fund our planned operations; (xiii) our expectations regarding our recurring revenues and backlog; (xix) our belief that we have not been a passive foreign investment company ("PFIC") for U.S. tax purposes; (xx) our belief regarding the impact of recently issued accounting pronouncements (see note 2(ab) to the financial statements included in this report) and adoption of new accounting pronouncements in the future on our earnings and operating results; and (xxi) our expectation regarding the success of the integration of the SHC business (as defined in “Risk Factors” in Item 3.D). All forward-looking statements are based on our management’s present assumptions and beliefs in light of the information currently available to us. Actual results, levels of activity, performance or achievements may differ materially from those expressed or implied in the forward-looking statements for a variety of reasons, including: changes in demand for our products; market conditions in our industry and the economy as a whole; variations, expansions or reductions in the mix of our product offerings; the timing of our product introductions; increased competition; introduction of new competing technologies; the increase of unexpected expenses; and such other factors discussed below under the captions “Risk Factors” in Item 3.D and “Operating and Financial Review and Prospects” in Item 5 and elsewhere in this Annual Report. We are not under any obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section, and you are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this Annual Report.

In this Annual Report, all references to "Vuance," the “Company,” "we," "us" or "our" are to Vuance Ltd., a company organized under the laws of the State of Israel, and its subsidiaries.

In this Annual Report, unless otherwise specified or unless the context otherwise requires, all references to "$" or "dollars" are to U.S. dollars and all references to "NIS" are to New Israeli Shekels. Except as otherwise indicated, the financial statements of and information regarding Vuance are presented in U.S. dollars. Note: Unless otherwise indicated herein, the prices and quantities of our ordinary shares provided in this Annual Report reflect the 1 to 5.88235 share consolidation (reverse share split) that we completed on April 29, 2007 and which became effective for trading purposes as of May 14, 2007.

5

PART I

ITEM 1. Identity of Directors, Senior Management and Advisors.

Not applicable. ITEM 2. Offer Statistics and Expected Timetables.

Not applicable. ITEM 3. Key Information.

A. Selected Financial Data

The following selected consolidated financial data as of December 31, 2005, 2006, 2007, 2008 and 2009 and for the years then ended have been derived from our audited consolidated financial statements. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, and audited by Fahn Kanne & Co., a member of Grant Thornton International. The selected consolidated financial data set forth below should be read in conjunction with and are qualified by reference to Item 5, "Operating and Financial Review and Prospects" and the consolidated financial statements and notes thereto and other financial information included elsewhere in this Annual Report. Historical results are not necessarily indicative of future results.

6

SUMMARY OF CONSOLIDATED FINANCIAL DATA YEAR ENDED DECEMBER 31,

(*) Certain comparative figures have been reclassified to conform to the current period presentation. The changes did not affect net income, cash flow or stockholders equity. (**) Due to the sale of certain business activities in January 2010, as described in Item 4 below, those business activities are presented as discontinued operations in accordance with U.S. GAAP.

Audited (IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA) 2005 2006 2007(**) 2008(**) 2009 SUMMARY OF STATEMENT OF OPERATIONS: Revenues 8,462 8,941 (*) 12,236 (*) 18,112 9,304 Cost of Revenues 4,293 3,494 4,992 6,945 3,365 Inventory write-off 287 -- -- -- -- Gross Profit 3,882 5,447 7,244 11,167 5,939 Operating Expenses: Research and Development 1,182 1,362 1,411 1,738 898 Selling and Marketing 3,003 5,619 7,144 9,905 5,131 General and Administrative 2,968 2,737 2,728 2,611 1,648 Restructuring expenses 496 -- -- -- -- Other expenses 129 108 134 8 130 Total Operating Expenses 7,778 9,826 11,417 14,262 7,807 Capital gain from the sale of the E-ID Division -- 10,536 -- -- -- Operating Income (Loss) (3,896 ) 6,157 (4,173 ) (3,095 ) (1,868 ) Financial Expenses, Net (25 ) (204 ) (4,646 ) (3,087 ) (620 ) Other Expenses, Net (30 ) (367 ) -- -- -- Income (Loss) before Taxes on Income (3,951 ) 5,586 (8,819 ) (6,182 ) (2,488 ) Taxes on income -- (146 )(*) (390 )(*) (137 ) (71 ) Net Income (Loss) from continuing operations (3,951 ) 5,440 (9,209 ) (6,319 ) (2,559 )

Loss from discontinued operations -- -- (2,102 ) (6,039 ) (2,526 ) Net income (loss) $ (3,951 ) $ 5,440 $ (11,311 ) $ (12,358 ) $ (5,085 )

PER SHARE DATA: Basic earning (loss) from continuing operations $ (1.25 ) $ 1.37 $ (2.09 ) $ (1.22 ) $ (0.46 ) Diluted earning (loss) from continuing operations $ (1.25 ) $ 1.31 $ (2.09 ) $ (1.22 ) $ (0.46 ) Basic and Diluted loss from discontinued operations $ -- $ -- $ (0.48 ) $ (1.17 ) $ (0.46 ) Basic earning (loss) per share $ (1.25 ) $ 1.37 $ (2.57 ) $ (2.39 ) $ (0.92 ) Diluted earning (loss) per share $ (1.25 ) $ 1.31 $ (2.57 ) $ (2.39 ) $ (0.92 ) SUMMARY OF BALANCE SHEET DATA: Cash and Cash Equivalents 2,294 2,444 2,114 812 656 Marketable debt securities 650 11,077 4,054 -- -- Trade receivables (net of allowance for doubtful accounts of $ 3,478 and $ 3,470 as of December 31, 2008 and 2009, respectively) 1,053 2,625 2,463 840 857 Inventories 2,205 270 566 1,307 82 Total Current Assets 8,023 17,992 14,769 6,443 4,236 TOTAL ASSETS 12,276 23,098 20,952 8,935 4,682 Total Current Liabilities 3,218 5,452 8,916 10,424 6,332 Accrued Severance 616 323 362 378 304 SHAREHOLDERS' EQUITY (DEFICIT) 8,247 15,001 9,233 (1,867 ) (6,271 )

7

Not applicable.

Not applicable.

You should carefully consider the following risks together with the other information in this Annual Report in evaluating our business,

financial condition and prospects. The risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties not presently known to us or that we consider immaterial may also impair our business operations, financial results and prospects. If any of the following risks actually occur, our business, financial results and prospects could be harmed. In that case, the trading price of our ordinary shares could decline. You should also refer to the other information set forth in this Annual Report, including our financial statements and related notes and the Section captioned “Note Regarding Forward-Looking Statements.” We have a history of operating losses and negative cash flows and may not be profitable in the future.

We have incurred substantial losses and negative cash flows since our inception. We had an operating cash flow deficit in each of 2005, 2006, 2007, 2008 and 2009. As of December 31, 2009, we had an accumulated deficit of approximately $47,379,000. We incurred net losses of approximately $3,951,000, $11,311,000, $12,358,000 and $5,085,000 in the years ended December 31, 2005, 2007, 2008 and 2009, respectively. For the year ended December 31, 2006, we would have incurred a net loss of $5,096,000, but for the $10,536,000 capital gain from the sale of the E-ID Division. We expect to spend significant amounts of capital to enhance our products and services, develop further sales and operations and fund expansion; and therefore, we may continue to have net operating losses and negative cash flows for the foreseeable future. As a result, we will need to generate significant revenue to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis .

Parts of our operating expense levels are based on internal forecasts for future demand and not on firm customer orders for products or services. Our results may be negatively affected by fluctuating demand for our products and services from one quarter to the next and by increases in the costs of components and raw materials acquired from suppliers. We will face a need for additional capital and may need to curtail our operations if it is not available.

We have partially funded our operations through the issuance of equity securities and convertible bonds to investors and may not be able to generate a positive cash flow from operations in the future. Continuation of our current operations after utilizing our current cash reserves is dependent upon the generation of additional financial resources either through the issuance of additional equity or debt securities or other sources of financing or the sale of certain assets of the Company. These matters raise substantial doubt about our ability to continue as a going concern. The financial statements have been prepared assuming that we will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Any additional financings will likely cause substantial dilution to existing stockholders. If we are unable to obtain necessary additional financing, we may be required to reduce the scope of, or cease, our operations. Even if we raise such additional capital, we may be required to reduce the scope of our operations and may need to implement certain operational changes in order to decrease our expenditure level. Our need for additional capital to finance our operations and growth will be greater should, among other things, our revenue or expense estimates prove to be incorrect.

B. C apitalization and Indebtedness

C. Reasons for the Offer and Use of Proceeds

D. Risk Factors

8

The current economic and financial crisis may have a material adverse effect on our results.

The crisis of the financial and credit markets worldwide in the second half of 2008 has led to an economic slowdown worldwide, and the outlook for 2010 is uncertain. A continuation or worsening of unfavorable economic conditions, including the on-going credit and capital markets disruptions, could have an adverse impact on our business, operating results or financial condition in a number of ways. We may experience declines in revenues, profitability and cash flows as a result of reduced orders, delays in receiving orders or in the completion of projects, delays or defaults in payment or other factors caused by the economic problems of our customers and prospective customers. We may experience supply chain delays, disruptions or other problems associated with financial constraints faced by our suppliers and subcontractors. In addition, changes and volatility in the equity, credit and foreign exchange markets and in the competitive landscape make it increasingly difficult for us to predict our revenues and earnings into the future. Currently, we lack of short-term visibility as customers are focused on maintaining flexibility, reducing inventory and conserving their cash. Adverse capital and credit market conditions may impact our ability to access liquidity and capital .

The capital and credit markets have been experiencing extreme volatility and disruption for more than eighteen months. We need liquidity in our day-to-day business activities to pay our operating expenses and interest on our debt.

In the event current resources do not satisfy our needs, we may have to seek additional financing. The availability of additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the volume of trading activities, the overall availability of credit to the financial services industry, our credit ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of our long- or short-term financial prospects.. If our internal sources of liquidity prove to be insufficient, there is a risk that external funding sources might not be available or available at unfavorable terms.

Disruptions, uncertainty or volatility in the capital and credit markets may also limit our access to capital required to operate our business. Such market conditions may limit our ability to raise additional capital to support business growth.

This would have the potential to decrease both our profitability and our financial flexibility. Our results of operations, financial condition, cash flows and regulatory capital position could be materially adversely affected by disruptions in the financial markets. Depending on the impact on our business of the current economic crisis, we may face problems in managing any decline in our business .

If the current economic and financial crisis continues to have an adverse impact on the demand for products or their profitability, we may face difficulties in managing a decline in our business. Our success in handling a contraction of our business will depend on our ability, among other things, to:

If we are unable to manage a decline in business, we could fail to manage the costs associated with all aspects of our business, which

would have a material adverse effect on our business and results of operations. There is a material weakness in our internal control over financial reporting and we may not be able to remedy this material weakness or prevent future material weaknesses. If we fail to do so there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis .

The material weakness in our internal control over financial reporting as identified by our management as of December 31, 2008 is summarized below and has not been remedied as of December 31, 2009.

Our improper segregation of duties in our finance department has not reduced to an acceptable low level the risk that material errors may occur and may not be detected on a timely basis by management in the normal course of business.

— develop efficient forecast methods for evaluating the prospective quantity of products that will be ordered by our customers; — control inventories of components ordered by our contract manufacturers required to meet actual demand, including but not

limited to handling the effects of excess inventories accumulated by such manufacturers; — reduce the costs of manufacturing our products; — continue to collect receivables from our customers in full and in a timely manner; and — properly balance the size and capabilities of our workforce.

9

Notwithstanding the steps we have taken and continue to take that are designed to remediate the material weakness identified above, we

may not be successful in remediating this material weakness in the near or long term and we may not be able to prevent other material weaknesses in the future. Any failure to maintain or implement required new or improved internal control over financial reporting, or any difficulties we encounter in their implementation, could result in additional significant deficiencies or additional material weaknesses or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations and annual auditor attestations regarding the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002.

The existence of a material weakness could result in errors in our financial statements that could result in a restatement of financial statements, cause us to miss our reporting deadlines and cause investors to lose confidence in our reported financial information, leading to a decline in the price of our shares. See “Item 15, Controls and Procedures” for additional information. We expect to face a reduction in revenue arising out of the sale of certain assets and liabilities.

On January 28, 2010, our wholly-owned subsidiary, Vuance, Inc., completed the sale of certain of its assets and certain of its liabilities related to our electronic access control market, and on January 29, 2010, we and Vuance, Inc. completed the sale of certain of the assets and certain of the liabilities of Vuance, Inc. related to our Government Services Division including our Critical Situation Management System ("CSMS") and Credentialing ("RAPTOR") suites (see a description of this transaction under the caption “History of the Company” in Item 4.A). As a result of such sales and our concentration on active RFID technology and our PureRFid suite, we expect to face a reduction in revenue, and we may continue to experience fluctuations in revenue in the future. We expect to face a substantial reduction in our revenues from our perimeter security and border control projects associated with the European Airport Project.

The revenues from our European International Airport Project for the years ended December 31, 2007, 2008 and 2009 were $2,182,000, $9,722,000 and $1,961,000, respectively. The revenues received from the European Airport Project are fully recognized through December 31, 2009. Unless we have significant growth in our active RFID business lines, we may face reduction in our revenues.

Additionally, under the terms of our agreement, upon our implementation of the integrated perimeter security system and border control system, the customer was to sign a transmission and acceptance report and we were to enter into the ten-year maintenance period. As of the filing date of this Form 20-F, while we have completed implementation of the systems, the customer has not signed the transmission and acceptance report, and our wholly-owned subsidiary, SBC Aviation Ltd., has not received the final payment from the customer under the agreement in the amount of $465,600. We derive a substantial portion of our revenue from a small number of customers, and the reduction of sales to any one of those customers could adversely impact our operating results by causing a drop in revenues.

We depend on a limited number of customers for a substantial portion of our revenue. In the years 2007, 2008 and 2009, we derived 71%, 84% and 88% respectively, of our consolidated net revenue from two customers. In the year ended December 31, 2009, two of our customers accounted for 88% of our consolidated net revenues as follows: the government of a European country and European International Airport accounted for 67%, and 21%, respectively, of our consolidated net revenues. A substantial reduction in sales to, or loss of, any of our significant customers would adversely affect our business unless we were able to replace the revenue we received from those customers, which replacement we may not be able to find. Specifically, changes that may negatively impact the political or economic stability and environment of the European country, from which we derive 88% of our consolidated net revenues under a 10-year contract, could adversely affect our business and future operations in such country.

As a result of this concentration of revenue from a limited number of customers and our increased reliance on active RFID technology resulting from our sale of certain assets and liabilities related to our electronic access control market and our Government Services Division including our CSMS and RAPTOR suites, our revenue has experienced wide fluctuations, and we expect our revenue to continue to experience wide fluctuations in the future as a result of our changing customer base. Part of our sales is not recurring sales, therefore quarterly and annual sales levels could fluctuate. Sales in any period may not be indicative of sales in future periods.

10

We are relying on On Track Innovations Ltd. as a subcontractor in projects not transferred as part of the sale of our E-ID Division.

On December 31, 2006, we sold our E-ID Division to On Track Innovations Ltd. (“OTI”), an Israeli public company (NASDAQ: OTIV). Simultaneously, we entered into a service and supply agreement with OTI under which OTI agreed to act as our subcontractor and provide services, products and materials necessary to carry out and complete our obligations with regard to certain projects that were not transferred to OTI (the “Existing Projects”) (see description of this transaction under the caption “The OTI Transaction” in Item 4.A). We will be dependent on OTI to adequately provide such services, products, and materials in order for us to be in good standing under, and successfully complete, these projects. If OTI fails to fulfill its obligations and provide such services and products as necessary for the Existing Projects, it could delay our receipt of revenues for these projects, subject us to certain remedies available to our customers in the Existing Projects, and damage our business reputation, and therefore could have a material adverse effect on our business, operating results and financial condition. Our reliance on third party technologies, raw materials and components for the development of some of our products and our reliance on third parties for manufacturing may delay product launches, impair our ability to develop and deliver products or hurt our ability to compete in the market.

Most of our products integrate third-party technology that we license and/or raw materials and components that we purchase or otherwise obtain the right to use, including: operating systems, microchips, security and cryptography technology for card operating systems, which prevents unauthorized parties from tampering with our cards, and dual interface technology, which enables cards to operate in both contact and contactless mode. Our ability to purchase and license new technologies and components from third parties is and will continue to be critical to our ability to offer a complete line of products that meets customer needs and technological requirements. We may not be able to renew our existing licenses or to purchase components and raw materials on favorable terms, if at all. If we lose the rights to a patented technology, we may need to stop selling or may need to redesign our products that incorporate that technology, and we may lose the potential competitive advantage such technology gave us. In addition, competitors could obtain licenses for technologies for which we are unable to obtain licenses, and third parties may develop or enable others to develop a similar solution to security issues, either of which could adversely affect our results of operations. Also, dependence on the patent protection of third parties may not afford us any control over the protection of the technologies upon which we rely. If the patent protection of any of these third parties were compromised, our ability to compete in the market could also be impaired.

We usually do not have minimum supply commitments from our vendors for our raw materials or components and generally purchase raw materials and components on a purchase order basis. Although we generally use standard raw materials and components for our systems, some of the key raw materials or components are available only from a single source or from limited sources. Many of our products are only available from limited sources. Even where multiple sources are available, we typically obtain components and raw materials from only one vendor to ensure high quality, prompt delivery and low cost. If one of our suppliers were unable to meet our supply demands and we could not quickly replace the source of supply, it could have a material adverse effect on our business, operating results and financial condition, for reasons including a delay of receipt of revenues and damage to our business reputation. Delays in deliveries from our suppliers, defects in goods or components supplied by our vendors, or delays in projects that are performed by our subcontractors could cause our revenues and gross margins to decline.

We rely on a limited number of vendors and subcontractors for certain components of the products we are supplying and projects we perform. In some cases, we rely on a single source vendor or subcontractor. Any undetected flaws in components or other materials to be supplied by our vendors could lead to unanticipated costs to repair or replace these parts or materials. Even though there are multiple suppliers, we purchase some of our components from single suppliers to take advantage of volume discounts, which presents a risk that the components may not be available in the future on commercially reasonable terms, or at all. Although we believe that there are additional suppliers for the equipment and supplies that we require, we may not be able to make such alternative arrangements promptly. If one of our suppliers were unable to meet our supply demands and we could not quickly replace the source of supply, it could cause a delay of receipt of revenues and damage our business reputation. We depend on subcontractors to adequately perform a substantial part of our projects. If a subcontractor fails to fulfill its obligations under a certain project, it could delay our receipt of revenues for such project and damage our business reputation, and therefore could have a material adverse effect on our business, operating results and financial condition.

11

We have entered into an agreement to acquire all of the issued and outstanding stock capital of Security Holding Corporation. Certain unexpected outcomes of this acquisition are not yet known and there is still no assurance that the business combination will result in all of the benefits that we anticipated.

In July 2007, we entered into an agreement to acquire all of the issued and outstanding stock capital of Security Holding Corp. (“SHC”). The main reason behind the acquisition of SHC is our belief that the combined company would be better positioned to offer competitive RFID security solutions to existing and prospective customers.

Prior to completion of the acquisition, we conducted a due diligence review of SHC; however, we cannot guarantee that all contingent liabilities were brought to our knowledge. A material liability that had not been discovered in the due diligence process, or since, might affect our business.

In addition, this acquisition resulted in the recording of amounts related to goodwill and certain purchased intangible assets, that may result in additional impairment charges arising out of the write-off of such goodwill and intangible assets, which could negatively impact our business, financial condition and results of operations, and cause the price of our ordinary shares to decline. During 2008, we had to record goodwill impairment charges in the amount of $3,235,000.

In January 2010 we completed the sale of certain of the assets (including certain accounts receivable and inventory) and certain of the liabilities (including certain accounts payable) of Vuance Inc. acquired in the acquisition of SHC (see a description of this transaction under the caption “History of the Company” in Item 4.A). In connection with the sale, we recognized an impairment of goodwill and intangible assets. We entered into an agreement to acquire substantially all of the assets and liabilities of Intelli-Site, Inc. Certain unexpected outcomes of this acquisition are not yet known and there is still no assurance that the business combination will result in all of the benefits that we anticipated.

In March 2009, we entered into an agreement to acquire substantially all of the assets and liabilities of Intelli-Site, Inc. (“Intelli-Site”). The main reason behind the acquisition of Intelli-Site is our belief that the combined company will be better positioned to offer competitive RFID security solutions to existing and prospective customers. It is not yet clear whether all of the expected benefits of this business combination will be achieved. We believe that the following are among the factors that may affect whether such benefits will indeed be achieved, and when such results will be known:

Prior to completion of the acquisition, we conducted a due diligence review of Intelli-Site; however, we cannot guarantee that all

contingent liabilities were brought to our knowledge. A material liability that had not been discovered in the due diligence process might affect our business.

In addition, this acquisition may result in the recording and later amortization of amounts related to goodwill and certain purchased intangible assets, or later impairment charges arising out of the write-off of such goodwill and intangible assets, which could negatively impact our business, financial condition and results of operations, and cause the price of our ordinary shares to decline.

In January 2010 we completed the sale of certain of the assets (including certain accounts receivable and inventory) and certain of the liabilities (including certain accounts payable) of Vuance Inc. acquired in the acquisition of Intelli-Site (see a description of this transaction under the caption “History of the Company” in Item 4.A). In connection with the sale, we recognized an impairment of goodwill and intangible assets.

? our ability to maintain and increase the sale of Intelli-Site products; ? our ability to combine the operating activities of Intelli-Site with those of our U.S. subsidiary, Vuance, Inc.; ? our ability to sell our products to Intelli-Site’s existing customers; and ? our ability to maintain key employees of Intelli-Site;

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We may pursue acquisitions or investments in complementary technologies and businesses. We may be unsuccessful in integrating the acquired businesses and/or assets of SHC and other complementary technologies and businesses, the acquisition of which we may pursue in the future, and such integrations could divert our resources and adversely affect our financial results.

Before the acquisition of SHC, we have not made any other acquisitions and our management has not had significant experience making acquisitions or integrating acquired businesses. Integrating the newly acquired business or technologies into our business could divert our management’s attention from other business concerns and could be expensive and time-consuming. Acquisitions, such as our agreement to acquire the issued and outstanding stock capital of SHC, could expose our business to unforeseen liabilities or risks associated with entering new markets. Consequently, we might not be successful in integrating the acquired businesses, technologies or products into our existing business and products, and might not achieve anticipated revenue or cost benefits. In the future, we may pursue acquisitions of, or investments in, additional complementary technologies and businesses. We may be unable to identify suitable acquisition candidates in the future or to make these acquisitions on a commercially reasonable basis, or at all. Acquisitions present a number of potential risks and challenges that could, if not met, disrupt our business operations, increase our operating costs and reduce the value to us of the acquired company. For example, if we identify an acquisition candidate, we may not be able to successfully negotiate or finance the acquisition on favorable terms. In addition, future acquisitions could result in customer dissatisfaction, performance problems with an acquired company, or require us to issue equity securities, incur debt, assume contingent liabilities or have amortization expenses and write-downs of acquired assets, which could adversely affect our profitability. Our dependence on third-party distributors, sales agents and value-added resellers could result in marketing and distribution delays, which would prevent us from generating sales revenues. We market and sell some of our products using a network of distributors covering the United States. We establish relationships with distributors and resellers through agreements that provide prices, discounts and other material terms and conditions under which the reseller is eligible to purchase our systems and products for resale. These agreements generally do not grant exclusivity to the distributors and resellers and, as a general matter, are not long-term contracts, do not have commitments for minimum sales, and could be terminated by the distributor. We do not have agreements with all of our distributors. We are currently engaged in discussions with other potential distributors, sales agents, and value-added resellers. Such arrangements may never be finalized and, if finalized, such arrangements may not increase our revenues or enable us to achieve profitability.

Our ability to terminate a distributor who is not performing satisfactorily may be limited. Inadequate performance by a distributor could adversely affect our ability to develop markets in the regions for which the distributor is responsible and could result in substantially greater expenditures by us in order to develop such markets. Our operating results will be highly dependent upon: (i) our ability to maintain our existing distributor arrangements; (ii) our ability to establish and maintain coverage of major geographic areas and establish access to customers and markets; and (iii) the ability of our distributors, sales agents, and value-added resellers to successfully market our products. A failure to achieve these objectives could result in lower revenues. Third parties could obtain access to our proprietary information or could independently develop similar technologies.

Despite the precautions we take, third parties may copy or obtain and use our technologies, ideas, know-how and other proprietary information without authorization or may independently develop technologies similar or superior to our technologies. In addition, the confidentiality and non-competition agreements between us and most of our employees, distributors and clients may not provide meaningful protection of our proprietary technologies or other intellectual property in the event of unauthorized use or disclosure. If we are not able to successfully defend our industrial or intellectual property rights, we may lose rights to technologies that we need to develop our business, which may cause us to lose potential revenues, or we may be required to pay significant license fees for the use of such technologies. To date, we have relied primarily on a combination of patent, trade secret and copyright laws, as well as nondisclosure and other contractual restrictions on copying, reverse engineering and distribution to protect our proprietary technology. Our patent portfolio consisted of two issued U.S. patents, four U.S. patent applications and one PCT. Generally, these patents, applications and PCTs related to our government solutions and access control technologies and were transferred in the sale of certain of the assets and certain of the liabilities of Vuance, Inc. in the first quarter of 2010 (see a description of this transaction under the caption “History of the Company” in Item 4.A).

Our prior patent applications may not result in issued patents, and even if they result in issued patents, the patents may not have claims of the scope we sought. In the event the prior patent applications do not result in issued patents, the applications may become publicly available and proprietary information disclosed in the applications will then become available to others. In addition, any issued patents may be challenged, invalidated or declared unenforceable.

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Our future patents may provide only limited protection for our technology and may not be sufficient to provide competitive advantages

to us. For example, competitors could be successful in challenging any issued patents or, alternatively, could develop similar or more advantageous technologies on their own or design around our patents. Any inability to protect intellectual property rights in our technology could enable third parties to compete more effectively with us and/or could reduce our ability to compete. In addition, these efforts to protect our intellectual property rights could require us to incur substantial costs even when our efforts are successful.

In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as do the laws of Israel or the United States. Our means of protecting our intellectual property rights in Israel, the United States or any other country in which we operate may not be adequate to fully protect our intellectual property rights. Third parties may assert that we are infringing their intellectual property rights.

We may face intellectual property litigation, which could be costly, harm our reputation, limit our ability to sell our products, force us to modify our products or obtain appropriate licenses, and divert the attention of management and technical personnel.

Our products employ technology that may infringe on the proprietary rights of others, and, as a result, we could become liable for significant damages and suffer other harm to our business. Other than the ongoing litigation with Secu-Systems Ltd., as described in Item 8 below under the caption “Legal Proceedings,” we have not been subject to intellectual property litigation to date. On August 8, 2003, we received a letter stating that we may be infringing certain patents of third parties with respect to our hot lamination process for plastic cards. We reviewed the claims made in the letter and we do not believe that our products or technology infringe any third party's patents as claimed in the letter. Since the initial letter, we received another letter dated July 13, 2004 from the same party requesting that we respond to their claim and stating that attractive licenses are available. On August 11, 2004, we responded to this letter and indicated that we were not infringing upon such parties’ patents. To date, no infringement claims have been filed against us in connection with the foregoing letters. We believe that hot lamination of plastic cards is a widely known process that is used by most card manufacturers. Even if it were determined that we are infringing such third party’s patents, we believe that we could use another process to laminate plastic cards without materially affecting our business. On December 2, 2005, we received a letter stating that we may be infringing certain patents of third parties with respect to our Smart DSMS product for incident response management. We reviewed the claims made in the letter and we do not believe that our products or technology infringe any third party's patents as claimed in the letter. On February 21, 2006, after thorough investigation that included legal counseling, we responded to the letter while declining the claims in the letter. Since the initial letter, we received another letter dated August 1, 2007 from the same party stating that "at least on the surface" it appears that we are infringing one of their patents based on a line written in our website. On September 6, 2007, we responded to this letter and indicated that we were not infringing upon such party’s patents. To date, no infringement claims have been filed against us in connection with the foregoing letters. We believe that the Smart DSMS product lacks key features recited in each of the claims mentioned because the product does not perform steps of assigning and recording as recited in the party's patent.

Litigation may be necessary in the future to enforce any patents we may obtain and/or any other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity, and we may not prevail in any such future litigation. Litigation, whether or not determined in our favor or settled, could be costly, could harm our reputation and could divert the efforts and attention of our management and technical personnel from normal business operations. In addition, adverse determinations in litigation could result in the loss of our proprietary rights, subject us to significant liabilities, require us to seek licenses from third parties, prevent us from licensing our technology or selling or manufacturing our products, or require us to expend significant resources to modify our products or attempt to develop non-infringing technology, any of which could seriously harm our business.

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Our products may contain technology provided to us by third parties. Because we did not develop such technology ourselves, we may

have little or no ability to determine in advance whether such technology infringes the intellectual property rights of any other party. Our suppliers and licensors may not be required to indemnify us in the event that a claim of infringement is asserted against us, or they may be required to indemnify us only with respect to intellectual property infringement claims in certain jurisdictions, and/or only up to a maximum amount, above which we would be responsible for any further costs or damages. In addition, we have indemnification obligations to certain customers, as well as to OTI, with respect to any infringement of third-party patents and intellectual property rights by our products. If litigation were to be filed against these parties in connection with our technology, we would be required to defend and indemnify such customers. We may be plaintiff or defendant in various legal actions from time to time.

From time to time, we are the defendant or plaintiff in various legal actions, which arise in the normal course of business. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required for these contingencies, if any, which would be charged to earnings, is made after careful and considered analysis of each individual action with our legal advisors. The required reserves may change in the future due to new developments in each matter or changes in circumstances, such as a change in settlement strategy. A change in the required reserves would affect our earnings in the period the change is made. A security breach of our internal systems or those of our customers could harm our business by adversely affecting the market's perception of our products and services, thereby causing our revenues to decline.

For us to further penetrate the marketplace, the marketplace must be confident that we provide effective security protection for national and other secured identification documents and cards. Although we have not experienced any act of sabotage or unauthorized access by a third party of our software or technology to date, if an actual or perceived breach of security occurs in our internal systems or those of our customers, regardless of whether we caused the breach, it could adversely affect the market's perception of our products and services. This could cause us to lose customers, resellers, alliance partners or other business partners, thereby causing our revenues to decline. If we or our customers were to experience a breach of our internal systems, our business could be severely harmed by adversely affecting the market's perception of our products and services. We may be exposed to significant liability for actual or perceived failure to provide required products or services which could damage our reputation and adversely affect our business by causing our revenues to decline and our costs to rise.

Products as complex as those we offer may contain undetected errors or may fail when first introduced or when new versions are released. Despite our product testing efforts and testing by current and potential customers, it is possible that errors will be found in new products or enhancements after commencement of commercial shipments. The occurrence of product defects or errors could result in adverse publicity, delay in product introduction, diversion of resources to remedy defects, loss of or a delay in market acceptance, or claims by customers against us, or could cause us to incur additional costs or lose revenues, any of which could adversely affect our business.

Because our customers rely on our products for critical security applications, we may be exposed to claims for damages allegedly caused to a customer as a result of an actual or perceived failure of our products. An actual or perceived breach of security systems of one of our customers, regardless of whether the breach is attributable to our products or solutions, could adversely affect our business reputation. Furthermore, our failure or inability to meet a customer's expectations in the performance of our services, or to do so in the time frame required by the customer, regardless of our responsibility for the failure, could result in a claim for substantial damages against us by the customer, discourage other customers from engaging us for these services, and damage our business reputation. We carry product liability insurance, but existing coverage may not be adequate to cover potential claims.

We carry a combined products liability and professional liability insurance. We believe that this insurance coverage is comparable to that of other similar companies in our industry. However, that insurance may not continue to be available to us on reasonable terms or in sufficient amounts to cover one or more large claims, or the insurer may disclaim coverage as to any future claim. We do not maintain insurance coverage for theft by employees, nor do we maintain specific insurance coverage for any interruptions in our business operations. The successful assertion of one or more large claims against us that exceed available insurance coverage, or changes in our insurance policies, including premium increases or the imposition of large deductibles or co-insurance requirements, could adversely affect our business by significantly increasing our costs.

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Our efforts to expand our international operations are subject to a number of risks, any of which could adversely reduce our future international sales and increase our losses.

Most of our revenues to date have been generated in jurisdictions other than the United States. Our inability to obtain or maintain federal or foreign regulatory approvals relating to the import or export of our products on a timely basis could adversely affect our ability to expand our international business. Additionally, our international operations could be subject to a number of risks, any of which could adversely affect our future international sales and operating results, including:

In addition, in many countries the national security organizations require our employees to obtain clearance before such employees can

work on a particular transaction. Failure to receive, or delays in the receipt of, relevant foreign qualifications could also have a material adverse effect on our ability to obtain sales at all or on a timely basis. Additionally, as foreign government regulators have become increasingly stringent, we may be subject to more rigorous regulation by governmental authorities in the future. If we fail to adequately address any of these regulations, our business will be harmed. We have sought in the past and may seek in the future to enter into contracts with the U.S. government as well as state and local governmental agencies and municipalities, which subjects us to certain risks associated with such types of contracts.

Most contracts with the U.S. government or state or local agencies or municipalities (“Governmental Contracts”) are awarded through a competitive bidding process, and some of the business that we expect to seek in the future will likely be subject to a competitive bidding process. Competitive bidding presents a number of risks, including:

We may not be afforded the opportunity in the future to bid on contracts that are held by other companies, and are scheduled to expire,

if the U.S. government or the applicable state or local agency or municipality determines to extend the existing contract. If we are unable to win particular contracts that are awarded through the competitive bidding process, we may not be able to operate in the market for the products and services that are provided under those contracts for a number of years. If we are unable to win new contract awards or retain those contracts, if any, that we are awarded over any extended period, our business, prospects, financial condition and results of operations will be adversely affected.

? increased collection risks; ? trade restrictions; ? export duties and tariffs; ? uncertain political, regulatory and economic developments; ? inability to protect our intellectual property rights; ? highly aggressive competitors; ? lower gross margins in commercial sales in Hong Kong and China; ? business development issues in Hong Kong and China, where business development is time consuming and risky due to the

uncertain political, regulatory and legal environment; ? if we do not generate additional sales from the expansion, our losses may increase; and ? currency issues.

? the frequent need to compete against companies or teams of companies with more financial and marketing resources and more experience than we have in bidding on and performing major contracts;

? the need to compete against companies or teams of companies that may be long-term, entrenched incumbents for a particular contract we are competing for and which have, as a result, greater domain expertise and established customer relations;

? the substantial cost and managerial time and effort necessary to prepare bids and proposals for contracts that may not be awarded to us;

? the need to accurately estimate the resources and cost structure that will be required to service any fixed-price contract that we are awarded; and

? the expense and delay that may arise if our competitors protest or challenge new contract awards made to us pursuant to competitive bidding or subsequent contract modifications, and the risk that any of these protests or challenges could result in the resubmission of bids on modified specifications, or in termination, reduction or modification of the awarded contract.

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In addition, Governmental Contracts subject us to risks associated with public budgetary restrictions and uncertainties, actual contracts

that are less than awarded contract amounts, and cancellation at any time at the option of the governmental agency. Any failure to comply with the terms of any Governmental Contracts could result in substantial civil and criminal fines and penalties, as well as suspension from future contracts for a significant period of time, any of which could adversely affect our business by requiring us to pay significant fines and penalties or prevent us from earning revenues from Governmental Contracts during the suspension period. Cancellation of any one of our major Governmental Contracts could have a material adverse effect on our financial condition.

The U.S. government may be in a position to obtain greater rights with respect to our intellectual property than we would grant to other entities. Governmental agencies also have the power, based on financial difficulties or investigations of their contractors, to deem contractors unsuitable for new contract awards. Because we will engage in the government contracting business, we will be subject to audits, and may be subject to investigation, by governmental entities. Failure to comply with the terms of any Governmental Contracts could result in substantial civil and criminal fines and penalties, as well as suspension from future contracts for a significant period of time, any of which could adversely affect our business by requiring us to pay the fines and penalties and prohibiting us from earning revenues from Governmental Contracts during the suspension period.

Furthermore, governmental programs can experience delays or cancellation of funding, which can be unpredictable. For example, the U.S. military’s involvement in Iraq has caused the diversion of some Department of Defense funding away from certain projects in which we participate, thereby delaying orders under certain of our governmental contracts. This makes it difficult to forecast our revenues on a quarter-by-quarter basis. The markets that we target for a substantial part of our future growth are in very early stages of development, and if they do not develop our business may not grow as much or as profitably as we hope.

Many of the markets that we target for our future growth are small or non-existent and need to develop if we are to achieve our growth objectives. If some or all of these markets do not develop, or if they develop more slowly than we anticipate, then we will not grow as quickly or as profitably as we hope. In February 2006, we announced the introduction of a new technology and solution for actively tracking people, objects and assets, Active RFID Tracking Systems (“PureRF”). This new technology, which expanded our homeland security offerings, was developed in response to growing market demand for asset tracking solutions in the homeland security and commercial markets. While the incident management and homeland security benefits provided by PureRF are relatively obvious, we have also identified other market opportunities in the public and private sectors of the economy.

Our Credentialing suite has not been widely adopted by state and local governments, largely due to the dependency on federal grants, the cost of the necessary infrastructure and the relatively limited capabilities of previous solutions. As of January 2010, we have discontinued the sale of credentialing, identification and security networks products and services.

In 2009, our revenues from the government market totaled approximately $8,233,000 compared to $1,071,000 from the commercial market. Although we believe the government market is critical to our success in the short term, we believe that both the government and commercial markets will be critical to our long-term success. The development of these markets will depend on many factors that are beyond our control, including the following factors (and other factors discussed elsewhere in the Risk Factors): (i) there can be no assurances that we will be able to continue to apply our expertise and solutions developed for the government market to the commercial market; (ii) the ability of public safety and other government agencies to access U.S. Department of Homeland Security and other homeland security-related grants for incident management and related purposes; (iii) the ability of the commercial markets to adopt and implement the active RFID solutions; and (iv) the ability of our management to successfully market our technologies to such government and/or commercial entities.

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The success of our new business line, the active RFID, is dependent on several factors.

The success of our active RFID business line is dependent on several factors, including proper new product definitions, product costs, timely completion and introduction of the new product, differentiation of the new product from those of our competitors, and market acceptance of the product, as well as our existing and potential customers’ varying budgets for capital expenditures and new product introduction. We have addressed the need to develop new products through our internal development efforts and joint development efforts with other companies. In light of the OTI Transaction and the sale of certain assets and liabilities related to our electronic access control market and our Government Services Division including our CSMS and RAPTOR suites, the active RFID product line will be our main revenue growth generator in the future. There can be no assurance that we will successfully identify new product opportunities and/or develop and bring new products to market in a timely manner, or that the products and technologies developed by others will not render our products or technologies obsolete or noncompetitive. The failure of our new product development efforts could have a material adverse effect on our business, results of operations and future growth. If our technology and solutions ceases to be adopted and used by government and commercial organizations, we may lose some of our existing customers and increase our losses.

Our ability to grow depends significantly on whether governmental and commercial organizations adopt our technology and solutions as part of their new standards and whether we will be able to leverage our expertise with government products into commercial products. If these organizations do not adopt our technology, we might not be able to penetrate some of the new markets we are targeting, or we might lose some of our existing customer base. There also can be no assurances that we will be able to continue to apply our expertise and solutions developed for the public sector to the commercial market.

In order for us to achieve our growth objectives, our RFID technology must be adapted to and adopted in a variety of areas, including:

Any or all of these areas may not adopt our RFID technology.

We cannot accurately predict the future growth rate, if any, or the ultimate size of the RFID technology markets. The expansion of the

market for our products and services depends on a number of factors such as:

Even if our RFID solutions gain wide market acceptance, our products and services may not adequately address market requirements

and may not gain wide market acceptance. If our solutions or our products and services do not gain wide market acceptance, our business and our financial results will suffer.

? public safety and emergency; ? asset management; ? patient and critical equipment tracking in the health care sector; ? building automation; ? patient wandering in the homecare market; ? transportation applications using active RFID as method of monitoring and control; and ? access control in such fields as education and health care.

? the cost, performance and reliability of our products and services compared to the products and services of our competitors; ? customer perception of the benefits of our RFID based solutions; ? public perception of the intrusiveness of these solutions and the manner in which organizations use the information collected; ? public perception of the confidentiality of private information; ? customer satisfaction with our products and services; and ? marketing efforts and publicity for our products and services.

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We need to develop our position as a provider of RFID enabled security solutions and services to earn high margins from our technology, and if we are unable to develop such position, our business will not be as profitable as we hope, if at all.

The increasing sophistication of our RFID technology places a premium on providing innovative software systems and services to customers, in addition to manufacturing and supplying RFID technology. While we have had some early success positioning ourselves as a provider of such services and systems, we may not continue to be successful with this strategy and we may not be able to capture a significant share of the market for the sophisticated services and systems that we believe are likely to produce attractive margins in the future. A significant portion of the value of our RFID technology lies in the development of software and applications that will permit the use of RFID technology in new markets. In contrast, the margins involved in manufacturing and selling RFID technology can be relatively small, and may not be sufficient to permit us to earn an attractive return on our development investments. The time from our initial contact with a customer to a sale may be long and subject to delays, which could result in the postponement of our receipt of revenues from one accounting period to the next, increasing the variability of our results of operations and causing significant fluctuations in our revenue from quarter to quarter.

The period between our initial contact with a potential customer and the purchase of our products and services is often long and subject to delays associated with the budgeting, approval and competitive evaluation processes that frequently accompany significant capital expenditures, particularly by governmental agencies. The typical sales cycle for our government customers has, to date, ranged from three to 24 months and the typical sales cycle for our commercial customers has ranged from one to six months. A lengthy sales cycle may have an impact on the timing of our revenue, which may cause our quarterly operating results to fall below investor expectations. We believe that a customer's decision to purchase our products and services is discretionary, involves a significant commitment of resources, and is influenced by customer budgetary cycles. To successfully sell our products and services, we generally must educate our potential customers regarding their use and benefits, which can require significant time and resources. This significant expenditure of time and resources may not result in actual sales of our products and services. Due to the nature of our business, our financial and operating results could fluctuate.

Our financial and operating results have fluctuated in the past and could fluctuate in the future from quarter to quarter and from year to year for the following reasons:

The fair value of Vuance, Inc., our U.S. subsidiary, has caused a significant goodwill and other intangible assets impairment loss.

As part of the annual review for impairment in accordance with ASC Topic 350, "Intangibles - Goodwill and Other" in November 2008, we examined the fair value of the intangible assets and the goodwill and in doing so, considered in part, a third party expert services. The valuation referred to Vuance, Inc. as a single reporting unit. The valuation was conducted on a going concern basis. Since Vuance, Inc. is closely-held, and thus without a public market for its ownership interests, the appraisal was conducted according to common appraisal practices, and based on the Free Discounted Cash-Flows ("DCF") method. In addition, we received market indication with respect to the fair value of Vuance, Inc. in the first quarter of 2009. Based on the above we were required to recognize an impairment loss in the amount of approximately $3,235,000.

? long customer sales cycles; ? reduced demand for our products and services; ? price reductions ? new competitors, or the introduction of enhanced products or services from new or existing competitors; ? changes in the mix of products and services we or our customers and distributors sell; ? contract cancellations, delays or amendments by customers; ? the lack of government demand for our products and services or the lack of government funds appropriated to purchasing our

products and services; ? unforeseen legal expenses, including litigation costs; ? expenses related to acquisitions; ? other non-recurring financial charges; ? the lack of availability, or increased cost, of key components and subassemblies; ? the inability to successfully manufacture in volume, and reduce the price of, certain of our products; and ? impairment loss of goodwill and intangible assets.

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Due to the sale of certain of the assets and certain of the liabilities of Vuance, Inc. in the first quarter of 2010 (see a description of this

transaction under the caption “History of the Company” in Item 4.A), as of December 31, 2009 we recognized an impairment of goodwill and intangible assets in the amount of $1,119,000 and presented the balance of $1,996,000 and $1,599,000 as assets attributed to discontinued operations and liabilities attributed to discontinued operations, respectively, in our financial statements. The lead time for ordering parts for and manufacturing our products can be significantly long and therefore based on forecasted demands rather than actual orders received.

The lead time for ordering parts and materials and building many of our products can be many months. As a result, we must order parts and materials and build our products based on forecasted demand. If demand for our products lags significantly behind our forecasts, we may produce more products than we can sell, which can result in cash flow problems and write-offs or write-downs of obsolete inventory. Our markets are highly competitive and competition could harm our ability to sell products and services and could reduce our market share.

The market for RFID enabled products is intensely competitive. We expect competition to increase as the industry grows and as RFID technology begins to converge with the access control and information technology industry. We may not be able to compete successfully against current or future competitors. We face competition from technologically sophisticated companies, many of which have substantially greater technical, financial, and marketing resources than we do. In some cases, we compete with entities that have pre-existing relationships with potential customers. As the active RFID enabled solutions market expands, we expect additional competitors to enter the market.

Some of our competitors and potential competitors have larger technical staffs, larger customer bases, more established distribution channels, greater brand recognition and greater financial, marketing and other resources than we do. Our competitors may be able to develop products and services that (i) are superior to our products and services, (ii) achieve greater customer acceptance or (iii) have significantly improved functionality as compared to our existing and future products and services. In addition, our competitors may be able to negotiate strategic relationships on more favorable terms than we are able to negotiate. Many of our competitors may also have well-established relationships with our existing and prospective customers. Increased competition may result in our experiencing reduced margins, loss of sales or decreased market share.

The average selling prices for our products may decline as a result of competitive pricing pressures, promotional programs and customers who negotiate price reductions in exchange for longer-term purchase commitments. The pricing of products depends on the specific features and functions of the products, purchase volumes and the level of sales and service support required. As we experience pricing pressure, the average selling prices and gross margins for our products may decrease over product lifecycles. These same competitive pressures may require us to write down the carrying value of any inventory on hand, which could adversely affect our operating results and earnings per share. We rely on the services of certain executive officers and key personnel, the loss of which could adversely affect our operations by causing a disruption to our business.

Our future success depends largely on the efforts and abilities of our executive officers and senior management and other key employees, including technical and sales personnel. The loss of the services of any of these persons could disrupt our business until replacements, if available, are found. We do not maintain any key-person insurance for any of our employees. Our ability to remain competitive depends in part on attracting, hiring and retaining qualified technical personnel; if we are not successful in such hiring and retention, our business could be disrupted.

Our future success depends in part on the availability of qualified technical personnel, including personnel trained in software and hardware applications within specialized fields. As a result, we may not be able to successfully attract or retain skilled technical employees, which may impede our ability to develop, install, implement and otherwise service our software and hardware systems and to efficiently conduct our operations.

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The information technology and network security industries are characterized by a high level of employee mobility and the market for

technical personnel remains extremely competitive in certain regions, including Israel. This competition means that (i) there are fewer highly qualified employees available for hire, (ii) the costs of hiring and retaining such personnel are high, and (iii) highly qualified employees may not remain with us once hired. Furthermore, there may be pressure to provide technical employees with stock options and other equity interests in us, which may dilute our shareholders and increase our expenses.

The additions of new personnel and the departure of existing personnel, particularly in key positions, can be disruptive, might lead to additional departures of existing personnel and could have a material adverse effect on our business, operating results and financial condition. Our planned growth will place significant strain on our financial and managerial resources and may negatively affect our results of operations and ability to grow more.

Our ability to manage our growth effectively will require us:

Our existing management and any new members of management may not be able to augment or improve existing systems and controls,

or implement new systems and controls, in response to anticipated future growth. If we are successful in achieving our growth plans, such growth is likely to place a significant burden on the operating and financial systems, resulting in increased responsibility for our senior management and other personnel. Some of our products are subject to government regulation of radio frequency technology which could cause a delay in introducing, or an inability to introduce, such products in the United States and other markets.

The rules and regulations of the United States Federal Communications Commission (the "FCC") limit the radio frequency used by and level of power emitting from electronic equipment. Our readers, controllers and other radio frequency technology scanning equipment are required to comply with these FCC rules which may require certification, verification or registration of the equipment with the FCC. Certification and verification of new equipment requires testing to ensure the equipment's compliance with the FCC's rules. The equipment must be labeled according to the FCC's rules to show compliance with these rules. Testing, processing of the FCC's equipment certificate or FCC registration and labeling may increase development and production costs and could delay introduction of our verification scanning device and next generation radio frequency technology scanning equipment into the U.S. market. Electronic equipment permitted or authorized to be used by us through FCC certification or verification procedures must not cause harmful interference to licensed FCC users, and may be subject to radio frequency interference from licensed FCC users. Selling, leasing or importing non-compliant equipment is considered a violation of FCC rules and federal law, and violators may be subject to an enforcement action by the FCC. Any failure to comply with the applicable rules and regulations of the FCC could have a material adverse effect on our business, operating results and financial condition by increasing our compliance costs and/or limiting our sales in the United States. Conditions in Israel affect our operations in Israel and may limit our ability to sell our products and services.

We are incorporated under Israeli law and we also facilitate offices located in Israel. Political, economic and military conditions in Israel may directly affect our operations and business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility, varying from time to time in degree and intensity, has led to security and economic problems for Israel. Although Israel has entered into various agreements with its Arab neighbors and the Palestinian Authority, there has been an increase in unrest and terrorist activity in Israel, in varying levels of severity, since September 2000. The election in early 2006 of representatives of Hamas, an Islamic resistance movement, to a majority of seats in the Palestinian Legislative Council and the resulting tension among the different Palestinian factions has created additional unrest and uncertainty. Furthermore, several countries still restrict trade with Israeli companies and additional countries may impose such restrictions as a result of changes in the military and/or political conditions in Israel, which may limit our ability to make sales in, or purchase components from, those countries. Any future armed conflict, such as the armed conflict that occurred during July and August, 2006 between Israel and Hezbollah, a Lebanese Islamist Shiite militia group and political party, which involved rocket attacks on populated areas in Northern Israel, or political instability, continued violence in the region or restrictions could have a material adverse effect on our business, operating results and financial condition. No predictions can be made as to whether or when a final resolution of the area’s problems will be achieved or the nature thereof and to what extent the situation will impact Israel’s economic development or our operations.

? to continue to improve our operations, financial and management controls, reporting systems and procedures; ? to train, motivate and manage our employees; and ? as required, to install new management information systems.

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Our operations could be disrupted as a result of the obligation of management or key personnel to perform military service in Israel.

Generally, all nonexempt male adult citizens and permanent residents of Israel under the age of 40, or older for reserves officers or citizens with certain occupations, are obligated to perform annual military reserve duty and are subject to being called for active duty at any time under emergency circumstances. We believe that a maximum of two of our employees, 10% of our employees at any one time, could be called for active duty under emergency circumstances. While we have operated effectively under these requirements since our incorporation, we cannot predict the full impact of such conditions on us in the future, particularly if emergency circumstances occur. If many of our employees are called for active duty, our operations in Israel and our business, operating results and financial condition may be adversely affected. Your rights and responsibilities as a shareholder will be governed by Israeli law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.

We are incorporated under Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our Memorandum of Association and Articles of Association, and by Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and customary manner in exercising his or her rights and fulfilling his or her obligations toward the company and other shareholders, and to refrain from misusing his power, including, among other things, when voting at the general meeting of shareholders on certain matters. Israeli law provides that these duties are applicable to shareholder votes on, among other things, amendments to a company’s articles of association, increases in a company’s authorized share capital and mergers and interested party transactions requiring shareholder approval. A shareholder also has a general duty to refrain from oppressing any other shareholder of his or her rights as a shareholder. In addition, a controlling shareholder of an Israeli company or a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or who, under our Articles of Association, has the power to appoint or prevent the appointment of a director or executive officer in the company, has a duty of fairness toward the company. Israeli law does not define the substance of this duty of fairness, but provides that remedies generally available upon a breach of contract will apply also in the event of a breach of the duty to act with fairness. Because Israeli corporate law has undergone extensive revision in recent years, there is little case law available to assist in understanding the implications of these provisions that govern shareholder behavior. Provisions of Israeli law may delay, prevent or otherwise encumber a merger with or an acquisition of our company, which could prevent a change of control, even when the terms of such transaction are favorable to us and our shareholders. Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger may not be completed unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, a majority of each class of securities of the target company is required to approve a merger. Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which time sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when the time expires, tax then becomes payable even if no actual disposition of the shares has occurred. These provisions of Israeli law could delay, prevent or impede a merger with or an acquisition of our company, which could prevent a change of control, even when the terms of such transaction are favorable to us and our shareholders and therefore potentially depress the price of our shares.

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Our shareholders may face difficulties in the enforcement of civil liabilities against Vuance Ltd. and its officers and directors.

Certain of our officers and directors and our professional advisors are residents of Israel or otherwise reside outside of the U.S. Vuance Ltd. is incorporated under Israeli law and its principal office and facilities are located in Israel. All or a substantial portion of the assets of such persons are or may be located outside of the U.S. It may be difficult to effect service of process within the U.S. upon us or upon any such officers and directors or professional advisors or to realize in the U.S. upon judgments of U.S. courts predicated upon the civil liability of Vuance Ltd. or such persons under U.S. federal securities laws. We have been advised by our Israeli counsel that there is doubt as to whether Israeli courts would (i) enforce judgments of U.S. courts obtained against Vuance Ltd. or such officers and directors or professional advisors predicated solely upon the civil liabilities provisions of U.S. federal securities laws, or (ii) impose liabilities in original actions against Vuance Ltd. or such officers and directors and professional advisors predicated solely upon such U.S. laws. However, in accordance with the Israeli Law on Enforcement of Foreign Judgments, 1958-5718, and subject to certain time limitations, an Israel court may declare a foreign (including U.S.) civil judgment enforceable if it finds that:

Even if these conditions are satisfied, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws do not

provide for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel. The term “prejudice the sovereignty or security of the State of Israel” as used in the Israeli Law on Enforcement of Foreign Judgments has rarely been interpreted by Israeli courts; therefore, there is only limited guidance as to what criteria will be considered by an Israeli court in determining whether the enforcement of a foreign judgment would prejudice the sovereignty or security of the State of Israel.

An investor may also find it difficult to bring an original action in an Israeli court to enforce liabilities based upon U.S. federal securities laws against us or against our directors or officers. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws and rule that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear such a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing these matters. Fluctuations in the exchange rate between the U.S. dollar and foreign currencies may affect our operating results.

We incur expenses for our operations in Israel in New Israeli Shekels ("NIS") and translate these amounts into U.S. dollars for purposes of reporting consolidated results. As a result, fluctuations in foreign currency exchange rates may adversely affect our expenses and results of operations, as well as the value of our assets and liabilities. Fluctuations may adversely affect the comparability of period-to-period results. In addition, we hold foreign currency balances, primarily NIS, that will create foreign exchange gains or losses, depending upon the relative values of the foreign currency , at the beginning and end of the reporting period, affecting our net income and earnings per share. Although we may use hedging techniques in the future (which we currently do not use), we will not be able to eliminate the effects of currency fluctuations. Thus, exchange rate fluctuations could have a material adverse impact on our operating results and stock price. (See also Item 15 , "Impact of Inflation and Currency Fluctuations")

? the judgment was rendered by a court which was, according to the laws of the state of the court, competent to render the judgment; ? the judgment may no longer be appealed; ? the judgment is executory in the jurisdiction in which it was given; ? the obligation, the subject matter of the judgment, is enforceable under Israeli laws of enforcement of judgments and is not contrary

to public policy; ? due process has been observed; ? such judgment was rendered by a court which was competent to render such judgment according to the rules of private

international law, as applicable in Israel; ? such judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same

parties; and ? an action between the same parties in the same matter is not pending in any Israeli court or tribunal at the time the law suit is

instituted in the foreign court.

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We are exposed to special risks in foreign markets which may make operating in those markets difficult and thereby force us to curtail our business operations.

In conducting our business in foreign countries, we are subject to political, economic, legal, operational and other risks that are inherent in operating in other countries. For instance, business development in Hong Kong and China is time consuming and risky due to the uncertain political, regulatory and legal environment. Other risks inherent to operating in other countries range from difficulties in settling transactions in emerging markets to possible nationalization, expropriation, price control and other restrictive governmental actions. We also face the risk that exchange controls or similar restrictions imposed by foreign governmental authorities may restrict our ability to convert local currency received or held by it in their countries into U.S. dollars or other currencies, or to take those dollars or other currencies out of those countries. The terrorist attacks of September 11, 2001, and the continuing threat of global terrorism, have increased financial expectations in our industries that may not materialize.

The September 11, 2001 terrorist attacks and continuing concerns about global terrorism, may have created an increased awareness for our security solutions in general. However, it is uncertain whether the actual level of demand for our products and services will grow as a result of such increased awareness. Increased demand may not result in an actual increase in our revenues. In addition, it is uncertain which security solutions, if any, will be adopted as a result of terrorism and whether our products will be a part of those solutions. The efforts of the U.S. in the war against terrorism, the war in Iraq, and the post-war reconstruction efforts in Iraq, may actually delay funding for the implementation of security solutions generally in the U.S. Even if our products are considered or adopted as solutions to terrorism concerns, the level and timeliness of available funding are unclear. These factors may adversely impact us and create unpredictability in our revenues and operating results. We are unlikely to pay dividends in the foreseeable future and any return on investment may be limited to the value of our ordinary shares.

We distributed a cash dividend to our shareholders on one occasion on August 26, 1997 in the aggregate amount of NIS 1 million and prior to that dividends in the form of bonus shares were distributed on two other occasions. We do not expect to declare or pay cash dividends in the foreseeable future and intend to retain future earnings, if any, to finance the growth and development of our business. If we do not pay dividends, our ordinary shares may be less valuable because a return on your investment will only occur if our share price appreciates. Servicing our debt obligations requires a significant amount of cash, and our ability to obtain or generate cash depends on many factors beyond our control.

Our ability to satisfy our debt service obligations, including making the payments under the convertible bonds we issued in November 2006, to Brevan Howard Master Fund Limited ("BH") and to Special Situation Funds (the “Convertible Bonds”) will depend, among other things, upon our future operating performance and our ability to refinance indebtedness when necessary. Each of these factors is to a large extent dependent on economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

If, in the future, we cannot generate sufficient cash from our operations to meet our debt service obligations, we may need to reduce or delay capital expenditures or curtail research and development efforts. In addition, we may need to refinance our debt, obtain additional financing or sell assets, which we may not be able to do on commercially reasonable terms, if at all. We cannot assure you that our business will generate sufficient cash flow, or that we will be able to obtain funding, sufficient to satisfy our debt service obligations. In addition, we may need additional capital even to satisfy our present requirements if we undertake large projects or have a delay in one of our anticipated projects. If we fail to raise such additional capital, we may need to implement certain operational changes in order to decrease our expenditure level. Our need for additional capital to finance our operations and growth will be greater should, among other things, our revenue or expense estimates prove to be incorrect. In addition, continuation of the Company's current operations after utilizing its current cash reserves is dependent upon the generation of additional financial resources either through the issuance of additional equity or debt securities or other sources of financing or the sale of certain assets of the Company. These matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements have been prepared assuming that we will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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Restrictions imposed by our Convertible Bonds and other debt instruments may limit our ability to fina nce future operations or capital needs or engage in other business activities that may be in our interest. Our failure to comply with our obligations under these instruments could lead to an acceleration of our indebtedness.

The indenture governing the Convertible Bonds contains certain covenants that will, among other things, limit our ability and the ability of our restricted subsidiaries to: (i) create liens; (ii) sell or otherwise dispose of assets; (iii) engage in transactions with our affiliates; and (iv) merge or consolidate with another entity or transfer all or substantially all of our assets. These restrictions could limit our ability to obtain future financing, make acquisitions or capital expenditures, withstand economic downturns in our business, the industry or the economy in general, conduct operations or otherwise take advantage of business opportunities that arise.

Our failure to make payments due under our debt instruments, or to otherwise comply with the restrictions or our obligations thereunder, could result in an event of default under such instruments and lead to an acceleration of our related indebtedness. In the event of such a default, we are not certain whether we would have, or would be able to obtain, sufficient funds to make the accelerated payments, and as a result certain lenders would be able to proceed against certain of our assets that secure the debt. As of December 31, 2009 and the filing date of this Form 20-F, we are in compliance with the terms and conditions of our Convertible Bond agreements, as amended. See Item 5.B, “Liquidity and Capital Resources,” regarding the amendments to the Convertible Bonds. The number of ordinary shares that are available for sale upon exercise of our outstanding warrants, options and convertible bonds is significant in relation to our currently outstanding ordinary shares. Sales of a significant number of our ordinary shares in the public market, or the perception that they may occur, may depress the market price for our ordinary shares.

The number of ordinary shares available for sale upon the exercise of our outstanding warrants, options and convertible bonds is significant in relation to the number of ordinary shares currently outstanding. As of May 31, 2010, 7,262,882 of our ordinary shares were outstanding. In addition, we had a total of 1,392,458 ordinary shares issuable upon the exercise of outstanding options, which we have issued to our employees and certain other persons at various prices, some of which have exercise prices below the current market price for our ordinary shares. As of May 31, 2010, we had a total of 1,212,552 ordinary shares issuable upon the exercise of outstanding warrants issued to investors and consultants, at various prices, which expire between 2010 and 2016. As of May 31, 2010, we had a total of 1,041,189 ordinary shares issuable upon the conversion of convertible bonds. As of May 31, 2010, our registered capital permitted us to issue up to additional 1,090,919 ordinary shares in connection with future grants of options, warrants, shares and other financial instruments.

If our warrant or option holders exercise their warrants or options, or holders of convertible bonds covert their bonds into ordinary shares, and determine to sell a substantial number of shares into the market at any given time, there may not be sufficient demand in the market to purchase the shares without a decline in the market price for our ordinary shares. Moreover, continuous sales into the market of a number of shares in excess of the typical trading volume for our ordinary shares, or even the availability of such a large number of shares or the perception that these sales could occur, could cause substantial dilution to existing shareholders, decrease the market price of our ordinary shares, and impair our ability to raise capital in the future. Our ordinary shares were delisted from The NASDAQ Capital Market, which could negatively impact the price of our ordinary shares.

On December 11, 2008, we received a letter from the NASDAQ Capital Market (“NASDAQ") advising us that we did not comply with the continued listing requirements of Listing Rule 5550(b) (formerly Marketplace Rule 4310(c)(3)), which requires us to have a minimum of $2.5 million in stockholders’ equity, or $35 million in market value of listed securities, or $500,000 of net income from continuing operations for the most recently completed fiscal year or two of the three most recently completed fiscal years (the “Listing Requirements”).

As a result, the NASDAQ Staff began reviewing our eligibility for continued listing on NASDAQ. To facilitate their review, the NASDAQ Staff requested that we provide on or before December 26, 2008, our specific plan to achieve and sustain compliance with the NASDAQ listing requirements, including the time frame for completion of the plan (the “Plan”). After we submitted the Plan, on March 30, 2009 we received further correspondence from NASDAQ that we did not comply with the Listing Requirements, and therefore, trading of our ordinary shares would be suspended at the opening of business on April 8, 2009, and a form 25-NSE would be filed with the SEC removing our securities from listing and registration on NASDAQ, unless we requested an appeal of the delisting decision by NASDAQ.

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We appealed the NASDAQ determination to a NASDAQ Listings Qualifications Panel (the “Panel”), which automatically stayed the

delisting of our ordinary shares until the Panel reached a decision. On June 17, 2009, the Panel granted our request for an extension of time to achieve full compliance with the Listing Requirements.

On September 29, 2009 we received a NASDAQ Staff Determination letter indicating that we failed to comply with the minimum stockholders’ equity requirement of $2.5 million as set forth in Listing Rule 5550(b) (formerly Marketplace Rule 4310(c)(3)). As a result, our securities were delisted from The Nasdaq Stock Market and trading in our shares was suspended effective at the open of business on October 1, 2009.

We had been advised by Pink OTC Markets Inc., which operates an electronic quotation service for securities traded over-the-counter, that our securities were immediately eligible for quotation in the Pink Sheets effective as of the open of business on October 1, 2009. Our ordinary shares are currently quoted under the ticker symbol “VUNCF”.

The delisting of our ordinary shares significantly affects the ability of investors to trade our securities and negatively affects the value and liquidity of our ordinary shares. In addition, the delisting of our ordinary shares could also have a material adverse affect on our ability to raise capital on terms acceptable to us, or at all. Delisting from NASDAQ could also have other negative results, including the potential loss of confidence by customers and employees, the loss of institutional investor interest and fewer business development opportunities. "Penny stock" rules may make buying or selling our ordinary shares difficult, severely limiting the market price of our ordinary shares and the liquidity of our shares in the U.S.

Trading in our ordinary shares may be subject to the "penny stock" regulations adopted by the SEC. These regulations generally define a "penny stock" to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser's written agreement to execute the transaction. Unless an exception is available, the regulations require delivery, prior to any transaction involving a "penny stock," of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our stock, which could severely limit the market price and liquidity of our stock. Our default under certain registration rights agreements may result in liquidated damages.

In connection with private placements completed in September 2004 and December 2005, in which we issued to the investors ordinary shares and warrants to purchase our ordinary shares, we entered into registration rights agreements pursuant to which we undertook to register such ordinary shares in accordance with the Securities Act of 1933. Accordingly, we filed Forms F-1 on November 2004 and January 5, 2006. Our failure to properly update the Forms (and to make subsequent registrations) in accordance with the registration rights agreements could result in an event of default under such agreements and subject us to liquidated damages. We have a shareholder that is able to exercise substantial influence over us and all matters submitted to our shareholders which may make us difficult to be acquired and less attractive to new investors.

Special Situations Fund III, L.P. and its affiliates (collectively, “SSF”) beneficially own 1,007,359 of our ordinary shares, representing approximately 13.87% of our outstanding ordinary shares, based on 7,262,882 ordinary shares currently outstanding. In addition, SSF own warrants exercisable for an additional 250,952 ordinary shares and Convertible Bond for additional 207,855 ordinary shares. Such ownership interest gives SSF substantial influence over the outcome of all matters submitted to our stockholders, including the election of directors and the adoption of a merger agreement, and such influence could make us a less attractive acquisition or investment target. In addition, our officers and directors beneficially own a significant amount of our ordinary shares, which may have a similar effect to SSF's ownership of our ordinary shares.

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If persons engage in short sales of our ordinary shares, including sales of shares to be issued upon the exercise of our outstanding warrants, options and convertible bonds, the price of our ordinary shares may decline.

Selling short is a technique used by a stockholder to take advantage of an anticipated decline in the price of a security. In addition, holders of options, warrants and convertible bonds will sometimes sell short knowing they can, in effect, cover the sale through the exercise of an option, warrant or convertible bond, thus locking in a profit. A significant number of short sales or a large volume of other sales within a relatively short period of time can create downward pressure on the market price of a security. Further sales of ordinary shares issued upon exercise of our outstanding warrants, options or convertible bonds could cause even greater declines in the price of our ordinary shares due to the number of additional shares available in the market upon such exercise or conversion, which could encourage short sales that could further undermine the value of our ordinary shares. You could, therefore, experience a decline in the value of your investment as a result of short sales of our ordinary shares. Costs arising from our future acquisitions and dispositions could adversely affect our financial condition.

Any acquisition or disposition that we make could result in the use of our cash, incurrence and assumption of debt, contingent liabilities, significant acquisition-related expenses, amortization of certain identifiable intangible assets, and research and development write-offs, and could require us to record goodwill and other intangible assets that could result in future impairments that could harm our financial results. We will likely incur significant transaction costs pursuing acquisitions or dispositions, including acquisitions or dispositions that may not be consummated. We may not be able to generate sufficient revenues from our acquisitions or dispositions to offset their costs, which could materially adversely affect our financial condition. The recognition of impairments of tangible, intangible and financial assets results in a non-cash charge on the income statement, which could adversely affect our results of operations. Being a foreign private issuer exempts us from certain SEC requirements.

We are a foreign private issuer within the meaning of rules promulgated under the U.S. Securities and Exchange Act of 1934, as amended (the “Exchange Act”). As such, we are exempt from certain provisions applicable to U.S. public companies including:

Because of these exemptions, investors are not afforded the same protections or information generally available to investors holding

shares in public companies organized in the U.S. We could face additional costs or liabilities arising from the winding down of our operations through SuperCom Asia Pacific Limited (“SuperCom Asia Pacific”). SuperCom Asia Pacific, incorporated in Hong Kong, has been our wholly-owned subsidiary since November 2003, and is responsible for our sales and marketing efforts in Asia Pacific. In the third quarter of 2009, we began to wind down our operations through SuperCom Asia Pacific and as a result may be subject in the future to claims from former employees of SuperCom Asia Pacific. To our knowledge, no such claims have been lodged to date. To the best of our knowledge, as of December 31, 2009, all required allowances in connection with such potential claims are included in our financial statements.

? the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;

? the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

? the provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and ? the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and

establishing insider liability for profits realized from any “short-swing” trading transaction (i.e., a purchase and sale, or sale and purchase, of the issuer’s equity securities within less than six months).

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ITEM 4. Information on the Corporation.

History of the Company

Vuance Ltd. was incorporated in Israel, as a company limited by shares, on July 4, 1988, under the provisions of the then-current Israeli Companies Ordinance. We now operate under the Israeli Companies Law, 5759-1999 (the “Israeli Companies Law”), which became effective on February 1, 2000, and the Israeli Companies Ordinance (New Version) 1983, as amended.

From our incorporation in 1988 until 1999, we were a development-stage company primarily engaged in research and development, establishing relationships with suppliers and potential customers and recruiting personnel with a focus on the governmental market. In 2001, we implemented a reorganization plan, which we completed in 2002. As a result of the reorganization, we expanded our marketing and sales efforts to include the commercial market with a new line of advanced smart card and identification technologies products, while maintaining our governmental market business.

During 2002, we sold, in three separate transactions with third party purchasers, our entire equity interest in a U.S. subsidiary, InkSure Technologies, Inc., for which we received aggregate proceeds of approximately $6,600,000. In December 2002, we discontinued the operations, disposed of all of the assets and terminated the employees of two U.S. subsidiaries, Genodus Inc. and Kromotek, Inc.

We became a publicly-traded company on NASDAQ Europe stock market (Formerly EASDAQ) on April 19, 1999. On October 23, 2003, following the closing of the NASDAQ Europe stock market, we transferred the listing of our ordinary shares to the Euronext Brussels stock market under the symbol “SUP,” which became “VUNC” after our corporate name change on May 14, 2007. We applied for delisting of our shares from the Euronext Brussels stock market, and our application was approved on May 6, 2008, effective August 4, 2008.

On July 29, 2004, we filed a Registration Statement on Form 20-F under the Exchange Act. When the Registration Statement became effective on September 29, 2004, we became a foreign private issuer reporting company under the Exchange Act. On November 5, 2004, our ordinary shares began trading in the U.S. on the OTC Bulletin Board under the symbol “SPCBF.OB," which following our name change on May 14, 2007 became “VUNCF.OB.” On August 23, 2007, our ordinary shares were approved for trading on The NASDAQ Capital Market under the symbol “VUNC” and the trading of our shares on the OTC Bulletin Board ceased. On October 1, 2009 our shares were delisted from The NASDAQ Capital Market and beginning on the same date, our shares were quoted under the ticker symbol “VUNCF” in the Pink Sheets.

During the fourth quarter of 2005, we established a new Delaware subsidiary (of which we initially owned 80%), Vuance-RFID Inc. (formerly, Pure RF Inc.), which began operations during the first quarter of 2006. During the first quarter of 2006, Vuance-RFID Inc. established a wholly-owned Israeli subsidiary, Vuance RFID Ltd. (formerly, Pure RF Ltd.). Vuance-RFID Inc. and Vuance RFID Ltd. focus on new technologies and solutions for active tracking of people and objects. In February 2007, we purchased the remaining 20% of the stock of Vuance -RFID Inc. from its minority stockholders for an amount of $100,000, whereupon it became our wholly-owned subsidiary. In August 2007, all the employees of Vuance RFID Ltd. were transferred to Vuance Ltd., and on December 31, 2007 we purchased all the assets and liabilities of Vuance RFID Ltd. During the year 2008, Vuance-RFID Inc. engaged in an activity to distribute complementary locks and electronic locks. This activity was terminated and it is presented in the financial reports, as discontinued operations.

During the fourth quarter of 2006, we established a new wholly-owned subsidiary, S.B.C. Aviation Ltd., (incorporated in Israel) which began operations in 2007 and is focused on executing information technology and security projects.

A. History and Development of the Corporation

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In 2006 we decided to sell our E-ID Division in order to focus on opportunities in the U.S. for our CSMS and active RFID tracking

businesses, and on December 31, 2006, we sold the E-ID Division to On Track Innovations Ltd., for 2,827,200 restricted ordinary shares of OTI (of which 212,040 shares are related to consultants, as part of the direct expenses of this transaction). The ordinary shares were issued to us subject to a lock-up agreement, where one-seventh of the shares (403,885 ordinary shares) are released from the lock-up restrictions every three months beginning on December 31, 2006. We executed an irrevocable proxy appointing OTI's chairman, on behalf of the board of directors of the Company (“Board of Directors”), or a person the Board of Directors will instruct, to vote the 2,827,200 ordinary shares issued to us in connection with the transaction. Under the terms of our agreement with OTI, OTI committed to file with the SEC a registration statement covering these ordinary shares and made such filing on April 24, 2007. As of December 31, 2008, we sold all the OTI shares received in the OTI Transaction.

Simultaneously, we entered into a service and supply agreement with OTI under which (i) OTI agreed to act as our subcontractor and provide services, products and materials necessary to carry out and complete certain projects that were not transferred to OTI (the “Existing Projects”), and (ii) OTI granted us an irrevocable, worldwide, non-exclusive, non-assignable and non-transferable license to use in connection with our Existing Projects, certain intellectual property rights transferred to OTI as part of the OTI Transaction, for the duration of such projects. The sale of our E-ID division and the services and supply agreement are collectively referred to herein as the “OTI Transaction.”

On July 3, 2007, we entered, through our wholly-owned subsidiary, Vuance, Inc., into an agreement (the “SHC Purchase Agreement”) to acquire all of the issued and outstanding stock capital of Security Holding Corp. (“SHC”) from Homeland Security Capital Corporation (OTCBB: HOMS.OB (“HMSC”)) and other minority shareholders (collectively, “Sellers”) for approximately $4,335,000 in our ordinary shares and direct expenses of approximately $600,000 in our ordinary shares. The closing date of this transaction was August 28, 2007 (“SHC Closing Date”). SHC was a Delaware corporation engaged in the business of manufacturing and distributing RFID-enabled solutions, access control and security management systems. As consideration for the acquisition of the stock capital of SHC, 1,097,426 ordinary shares of the Company were issued to the Sellers. Subject to certain terms and conditions, in the event that we seek to register any of our ordinary shares under the Securities Act of 1933 for sale to the public, for our own account or the account of others, then at HMSC’s request, we will use our reasonable best efforts to include our shares owned by HMSC in such registration. The Sellers agreed to a lock-up period during which, subject to certain exceptions, they will not sell or otherwise dispose of our shares. The restrictions on making such transactions will expire for HMSC in eight equal installments, commencing on the end of the first calendar quarter following the SHC Closing Date and each of the seven calendar quarters thereafter, and for the other Sellers, in twelve equal installments, commencing on the end of the first calendar quarter following the SHC Closing Date and each of the eleven calendar quarters thereafter. HMSC also agreed that during such restriction period, upon the occurrence of any sale by HMSC of our shares due to HSMC’s bankruptcy, insolvency or otherwise by operation of law, Vuance Inc. and the Company will have a right of first refusal to purchase all (but not less than all) of our shares held by HSMC on certain terms and conditions. HMSC further agreed that at the SHC Closing Date it will grant an irrevocable power of attorney to the Chairman of the Board of Directors of the Company to exercise all voting rights related to its Vuance shares until the sale or transfer of such Vuance shares by HMSC to an unaffiliated third party in an arm’s-length transaction. As part of the SHC Purchase Agreement, certain Sellers will assume, subject to certain exceptions, certain non-competition and employee non-solicitation undertakings for a period of two years commencing on the SHC Closing Date. We guaranteed all of the obligations of Vuance Inc. under the SHC Purchase Agreement. During the fourth quarter of 2007, SHC and its subsidiaries were merged into Vuance Inc.

In September 2007, we announced that we had entered into a definitive agreement to acquire, through our U.S. subsidiary, Vuance Inc., the credentialing division of Disaster Management Solutions Inc., ("DMS") for approximately $100,000 in cash and up to $650,000 in royalties that will be paid upon sales of the advanced first responder credentialing system (named “RAPTOR”) during the first twelve months following the acquisition (the closing was in August 2007). This acquisition complemented our incident management solutions business and added the RAPTOR to our Credentialing & Incident Management Suite.

On March 25, 2009 we and our subsidiary, Vuance, Inc., completed the acquisition of certain of the assets and certain of the liabilities of Intelli-Site, pursuant to an asset purchase agreement dated March 6, 2009 with Intelli-Site and Integrated Security Systems, Inc (“ISSI”). On the date of closing, Vuance, Inc. agreed to pay Intelli-Site $262,000 payable in twenty-five (25) consecutive installments (the “Cash Consideration”). Each of the first twelve (12) monthly installments shall be equal to $11,000, and thereafter, each of the remaining thirteen (13) monthly installments shall be equal to $10,000. In addition, we issued to ISSI 200,000 of our ordinary shares (the “Consideration Shares”). In addition to the payment of the Cash Consideration and the issuance of the Consideration Shares, Vuance, Inc. agreed to pay Intelli-Site and ISSI, as applicable, in royalty payments, an amount of up to $600,000 in the aggregate, based upon certain conditions, which shall be paid on a quarterly basis, within thirty (30) days of the close of each quarter, and will be made 50% in cash to Intelli-Site and 50% in our ordinary shares (the “Royalty Shares”) to ISSI. The number of Royalty Shares to be issued to ISSI shall be calculated on the basis of the weighted average closing price of our ordinary shares for the fifteen (15) trading days preceding the quarterly payment, subject to a minimum of $1.25.

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ISSI, or its permitted transferee, agreed to lock-up the Consideration Shares and Royalty Shares, as applicable, pursuant to which ISSI

or its transferee will not offer, sell, transfer or otherwise dispose of the Consideration Shares or the Royalty Shares, except the restrictions on the transfer of the Consideration Shares and the Royalty Shares will expire in eight equal installments, commencing with the end of the first calendar quarter following the date of closing and each of the seven following calendar quarters thereafter. If any Consideration Shares or Royalty Shares are issued after the last day of the eighth calendar quarter following the date of closing, such shares shall not be subject to any transfer restrictions. The assets and liabilities purchased in the foregoing transaction were sold in January 2010 (see below).

On January 28, 2010 (the “Closing Date”), Vuance, Inc., our wholly-owned subsidiary, completed the sale of certain of its assets (including certain accounts receivable and inventory) and certain of its liabilities (including certain accounts payable) (the “Sale”) related to our electronic access control market (the “Vuance EAC Business”), pursuant to a certain Agreement for Purchase and Sale of Business Assets, dated as of January 9, 2010 between Vuance, Inc. and OLTIS Security Systems International, LLC (“OSSI”). On the Closing Date, as consideration for the Sale of the Vuance EAC Business, OSSI paid Vuance, Inc. $161,518 in cash. In addition, OSSI paid off a certain Business Financing Agreement (the “Loan”) between Vuance, Inc. and Bridge Bank, National Association (the “Bridge Bank Payment”). Further to the Bridge Bank Payment, the Loan was released, and we and Vuance, Inc. no longer have any liabilities associated with the Loan.

On January 29, 2010 (the “Closing Date”), we and our subsidiary, Vuance, Inc., completed the sale of certain of the assets and certain of the liabilities of Vuance, Inc. (the “Sale”) related to our Government Services Division (the “Vuance CSMS Business”), pursuant to a certain asset purchase agreement dated as of January 29, 2010 between us, Vuance, Inc., WidePoint Corporation (“WidePoint”) and Advance Response Concepts Corporation. On the Closing Date, as consideration for the Sale, WidePoint paid Vuance, Inc. $250,000. In addition, WidePoint agreed to pay Vuance, Inc. a maximum earnout of $1,500,000 over the course of calendar years 2010, 2011, and 2012, subject to the performance of certain financial requirements of the Vuance CSMS Business during each of those years.

On January 21, 2010, we incorporated a new wholly-owned subsidiary in the state of Delaware, PureRFid, Inc., to focus on marketing and sales for our active RFID solutions. Recent Developments

On March 22, 2010, we entered into a Subscription Agreement with a private investor, Mr. Yitzchak Babayov (the “Investor”), pursuant to which at a March 23, 2010 closing we issued 1,538,461 ordinary shares of the Company at a par value of NIS 0.0588235 (the “Transaction Shares”) in consideration of a one-time cash payment in the amount of $200,000. Following the issuance of the Transaction Shares, we have 7,262,882 ordinary shares issued and outstanding.

Simultaneously with execution of the Subscription Agreement, we entered into a Warrant Agreement with the Investor, pursuant to which the Investor received a warrant (the “Warrant”) to purchase up to 553,846 of our ordinary shares for an exercise price of $0.15 per share. The Warrant has a term of five (5) years and contains standard adjustments for stock dividends, stock splits, reclassification and similar events. We intend to ask our shareholders to approve and ratify at our next annual general meeting that the purpose of the private placement of the Transaction Shares and Warrant was to provide the Investor with more than twenty five percent (25%) of our issued and outstanding shares in accordance with Israeli law, which exempts such an acquisition from Israeli tender offer requirements.

The Transaction Shares and the ordinary shares issuable upon the exercise of the Warrant have not been registered under the Securities Act and may not be offered or sold except pursuant to an effective registration statement or an applicable exemption from the registration requirements of the Securities Act.

On March 21, 2010, we issued a press release announcing a significant restructuring of our business operations. The press release also announced the departure of Eyal Tuchman as our Chief Executive Officer and the appointment of Ron Peer, our former President, as our new Chief Executive Officer.

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On January 29, 2010 (the “Closing Date”), we and our subsidiary, Vuance, Inc., completed the sale of certain of the assets and certain

of the liabilities of Vuance, Inc. (the “Sale”) related to our Government Services Division (the “Vuance CSMS Business”), pursuant to a certain asset purchase agreement dated as of January 29, 2010 between us, Vuance, Inc., WidePoint Corporation (“WidePoint”) and Advance Response Concepts Corporation. On the Closing Date, as consideration for the Sale, WidePoint paid Vuance, Inc. $250,000. In addition, WidePoint agreed to pay Vuance, Inc. a maximum earnout of $1,500,000 over the course of calendar years 2010, 2011, and 2012, subject to the performance of certain financial requirements of the Vuance CSMS Business during each of those years.

On January 28, 2010 (the “Closing Date”), Vuance, Inc., our wholly-owned subsidiary, completed the sale of certain of its assets (including certain accounts receivable and inventory) and certain of its liabilities (including certain accounts payable) (the “Sale”) related to our electronic access control market (the “Vuance EAC Business”), pursuant to a certain Agreement for Purchase and Sale of Business Assets, dated as of January 9, 2010 between Vuance, Inc. and OLTIS Security Systems International, LLC (“OSSI”). On the Closing Date, as consideration for the Sale of the Vuance EAC Business, OSSI paid Vuance, Inc. $161,518 in cash. In addition, OSSI paid off (the “Bridge Bank Payment”) a certain Business Financing Agreement (the “Loan”) between Vuance, Inc. and Bridge Bank, National Association. Further to the Bridge Bank Payment, the Loan was released, and we and Vuance, Inc. no longer have any liabilities associated with the Loan.

On December 11, 2008, we received a letter from NASDAQ advising us that we did not comply with the Listing Requirements. As a result, the NASDAQ Staff began reviewing our eligibility for continued listing on NASDAQ. To facilitate their review, the NASDAQ Staff requested that we provide our specific Plan. After we submitted the Plan, on March 30, 2009, we received further correspondence from NASDAQ that we did not comply with the Listing Requirements, and therefore, trading of our ordinary shares would be suspended at the opening of business on April 8, 2009, and a form 25-NSE would be filed with the SEC removing our securities from listing and registration on NASDAQ, unless we requested an appeal of the delisting decision by NASDAQ.

We appealed the NASDAQ determination to a NASDAQ Listings Qualifications Panel (the “Panel”), which automatically stayed the delisting of our ordinary shares until the Panel reached a decision. On June 17, 2009, the Panel granted our request for an extension of time to achieve full compliance with the Listing Requirements.

On September 29, 2009 we received a NASDAQ Staff Determination letter indicating that we failed to comply with the minimum stockholders’ equity requirement of $2.5 million as set forth in Listing Rule 5550(b) (formerly Marketplace Rule 4310(c)(3)). As a result, our securities were delisted from the NASDAQ Stock Market and trading in our shares was suspended effective at the open of business on October 1, 2009.

We had been advised by Pink OTC Markets Inc., which operates an electronic quotation service for securities traded over-the-counter, that our securities were immediately eligible for quotation in the Pink Sheets effective as of the open of business on October 1, 2009. Our ordinary shares are currently quoted under the ticker symbol “VUNCF”.

Our securities may, in the future, also be quoted on the Over-the-Counter Bulletin Board (the "OTCBB"), an electronic quotation service maintained by the Financial Industry Regulatory Authority ("FINRA"), provided that a market maker in our securities files an application to register and quote the securities in accordance with SEC Rule 15c2-11, and such application (a “Form 211”) is cleared by FINRA. Only a market maker, not us, may file a Form 211. There can be no assurance that a market maker will file a Form 211 or that the securities would become eligible to be quoted on the OTCBB on a timely basis or at all.

On March 25, 2009, we and our subsidiary, Vuance, Inc., completed the acquisition of certain of the assets and certain of the liabilities of Intelli-Site, pursuant to an asset purchase agreement dated March 6, 2009 with Intelli-Site and Integrated Security Systems, Inc (“ISSI”). On the date of closing, Vuance, Inc. agreed to pay Intelli-Site $262,000 payable in twenty-five (25) consecutive installments (the “Cash Consideration”). Each of the first twelve (12) monthly installments shall be equal to $11,000, and thereafter, each of the remaining thirteen (13) monthly installments shall be equal to $10,000. In addition, we issued to ISSI 200,000 of our ordinary shares (the “Consideration Shares”). In addition to the payment of the Cash Consideration and the issuance of the Consideration Shares, Vuance, Inc. agreed to pay Intelli-Site and ISSI, as applicable, in royalty payments, an amount of up to $600,000 in the aggregate, based upon certain conditions, which shall be paid on a quarterly basis, within thirty (30) days of the close of each quarter, and will be made 50% in cash to Intelli-Site and 50% in our ordinary shares (the “Royalty Shares”) to ISSI. The number of Royalty Shares to be issued to ISSI shall be calculated on the basis of the weighted average closing price of our ordinary shares for the fifteen (15) trading days preceding the quarterly payment, subject to a minimum of $1.25.

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ISSI, or its permitted transferee, agreed to lock-up the Consideration Shares and Royalty Shares, as applicable, pursuant to which ISSI

or its transferee will not offer, sell, transfer or otherwise dispose of the Consideration Shares or the Royalty Shares, except the restrictions on the transfer of the Consideration Shares and the Royalty Shares will expire in eight equal installments, commencing with the end of the first calendar quarter following the date of closing and each of the seven following calendar quarters thereafter. If any Consideration Shares or Royalty Shares are issued after the last day of the eighth calendar quarter following the date of closing, such shares shall not be subject to any transfer restrictions.

Certain of the assets and liabilities acquired in the asset purchase agreement with Intelli-Site and ISSI were sold in January 2010, in connection with the sale of certain of the assets and certain of the liabilities of Vuance, Inc.

In December 2008, we announced that we were awarded a stake in a government-funded project to develop a crime scene security and evidentiary tracking system. This project was sold in connection with the sale of certain of the assets and certain of the liabilities of Vuance, Inc. related to our Government Services Division, pursuant to that certain asset purchase agreement, dated January 29, 2010, between us, Vuance, Inc., WidePoint Corporation and Advance Response Concepts Corporation.

In August 2008, we announced that we entered into a 10-year services agreement with a European International Airport to provide support for the integrated perimeter security system and border control system which includes annual fees of approximately $620,000.

On June 5, 2008, the Board of the Brussels Stock Exchange (Euronext Brussels) approved our application to delist our shares from the Euronext Stock Exchange. The delisting took effect as of August 4, 2008. The liquidity of our shares was limited on the Euronext Exchange, representing a small fraction of the total trading volume of our shares globally. In addition, the delisting of our shares from the Euronext Stock Exchange will result in reduced expenses.

In June 2008, we reached an agreement with Brevan Howard Master Fund Limited (“BH”), the holder of a $2,500,000 convertible bond issued by us, under which, among other things, BH waived our compliance with certain covenants under its convertible bond, in exchange for:

In addition, under certain circumstances, BH may have the right to demand an early payment in part or in full of the principal amount of

the convertible bond (up to the $2,500,000 as mentioned above).

On August 12, 2009, we entered into an Amendment Agreement and Bond with BH pursuant to which, in exchange for security in certain of our assets, we and BH agreed to waive compliance and amend certain provisions of the convertible bond to, among other things, (i) increase the applicable rate of interest, (ii) release us from certain payments upon the completion of certain payments of principal and interest due under the convertible bond, and (iii) make monthly payments against the total amount due under the convertible bond over an eight (8) year period.

On November 9, 2009, we entered into an Amendment Agreement with Special Situation Funds ("SSF"), the holder of the convertible bond in the amount of $623,565, pursuant to which, in exchange for security in certain of our assets, we and the SSF agreed to waive compliance and amend certain provisions of the convertible bond to, among other things, (i) increase the applicable rate of interest, (ii) release us from certain payments upon the completion of certain payments of principal and interest due under the convertible bond, (iii) make monthly payments against the total amount due under the convertible bond over an eight (8) year period and (iv) reducing the exercise price of the bond and the warrants to $3 and $2.8, respectively.

As of December 31, 2009 and the filing date of this Form 20-F, we are in compliance with the terms and conditions of our convertible bond agreements, as amended. See Item 5.B, “Liquidity and Capital Resources,” regarding the amendments to our agreements with the holders of the convertible bonds.

1. Increasing the interest rate to 10% starting March 31, 2008. Any withholding and other taxes payable with respect to the interest will be grossed up and paid by us (approximately 3% of the principal of the bond).

2. Reducing the exercise price of the bond and the warrants to $3 and $2.8, respectively. 3. Our undertaking to place a fixed charge on all incomes and/or rights in connection with a certain European Airport Project. This charge

shall be senior to any indebtedness and/or other pledge and encumbrance, but shall, however, be subject to certain rights of the Company to use part of the income.

4. Our granting of certain anti-dilution rights with respect to the warrants held by the single investor.

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In June 2008, we announced that we had been awarded a $1.4 million contract from the Racine (WI) Unified School District, to install

our MASC (Managed Automated Security Controls) security solution into 31 school buildings, and two administrative buildings, in the district. The project was sold in January 2010 along with certain assets and liabilities related to our electronic access control market. Principal capital expenditures and divestitures

From January 1, 2009 to December 31, 2009 , our capital expenditures totaled approximately $100,000 (compared to $73,000 during 2008 and $116,000 during 2007), of which approximately $7,000 (compared to $39,000 during 2008 and $62,000 during 2007) can be attributed to our facilities in Israel, and approximately $93,000 (compared to $34,000 during 2008 and $54,000 during 2007) can be attributed to various facilities of our subsidiaries outside of Israel. During the first financial quarter of 2010, our capital expenditures totaled approximately $1,000. Corporate information

Our headquarters is located in Israel at Sagid House “Ha’Sharon Industrial Park,” Qadima 60920, Israel and our telephone number is +972-9-889-0800. Our U.S. offices are located at Oak Creek, Wisconsin. Our Internet website address is http://www.vuance.com. The information contained on our corporate websites is not a part of this prospectus.

Our agent for SEC matters in the U.S. is our subsidiary, PureRFid Inc., whose address is 9817 S. 13 th Street, Oak Creek WI 53154, telephone number (414)301-9435.

From 1988 through 2006, our principal business was the design, development and marketing of advanced smart card and identification

technologies and products for governmental and commercial customers in Europe, Asia and Africa. As described in Item 4.A (“History and Development of the Corporation”) above, we decided to sell our E-ID Division in 2006 to focus on opportunities for our RFID and Credentialing businesses.

On July 3, 2007, we entered, through our wholly-owned subsidiary, Vuance, Inc., into an agreement to acquire all of the issued and outstanding capital stock of Security Holdings Corp. (“SHC”), a Delaware corporation engaged in the business of manufacturing and distributing RFID-enabled solutions, access control and security management systems. Following the acquisition of SHC, in March 2009, we completed the acquisition of certain of the assets and certain of the liabilities of Intelli-Site, Inc. to further position ourselves in the offering of competitive RFID security solutions to existing and prospective customers.

Prior to January 2010, we offered three principal product suites to our customers: an Active RFID solution under the AAID brand (currently the PureRFid Suite), Electronic Access Control Suite and Credentialing & Incident Management Suite. On January 28, 2010, our wholly-owned subsidiary, Vuance, Inc., completed the sale of certain of its assets and certain of its liabilities related to our electronic access control market, and on January 29, 2010, we and Vuance, Inc. completed the sale of certain of the assets and certain of the liabilities of Vuance, Inc. related to our Government Services Division including our Critical Situation Management System and Credentialing suites (see a description of this transaction under the caption “History of the Company” in Item 4.A). Following the divestitures indicated above, in March 2010, we issued a press release announcing a significant restructuring of our business operations, pursuant to which we are focusing our sales and marketing efforts on our core competencies, active RFID technology, our PureRFid Suite and existing e-ID projects. Our Products

We currently offer the following principal product suite to our customers: Active RFID

Active RFID is long, active radio frequency identification equipment that utilizes active radio frequency communications to track assets, people and objects for potential governmental agency and commercial customers. Our solutions are programmable, small, sensitive and relatively cost effective, providing significant competitive advantages.

B. Business Overview

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Prior to January 2010, we offered an active RFID solution under the AAID brand, which we acquired in the acquisition of SHC. The

AAID brand was established and well known in the market for tracking vehicles. Since January 2010, we have been engaged in leveraging the marketing position of the AAID brand to introduce our latest product suite, PureRFid. The PureRFid Suite is superior to the AAID Suite, providing a secure, precise and cost-effective means to positively identify, locate, track, monitor, count and protect people and objects, including inventory and vehicles.

Prior to January 2010, we offered the following two principal products suites to our customers, in addition to our active RFID solutions: Passive RFID Electronic Access Control (“EAC”) Suite

Our EAC Suite was sold in connection with the sale of certain of the assets and certain of the liabilities of Vuance, Inc. related to our electronic access control market. (See Item 4.A “History and Development of the Corporation”). Prior to January 2010, our EAC Suite offered solutions to provide credentials (secure badges), readers, door hardware, sensing devices, alarms, controllers and host hardware and software to help maintain security at enterprises, schools, office buildings, warehouses and government facilities. Prior to January 2010, we provided such solutions through several branded offerings:

Credentialing & Incident Management Suite

Our Credentialing & Incident Management Suite was sold in connection with the sale of certain of the assets and certain of the liabilities of Vuance, Inc. related to our Government Services Division. (See Item 4.A “History and Development of the Corporation”). Prior to January 2010, we provided our Credentialing & Incident Management Suite through the following branded offerings:

? COMPASS COMPASS is used by schools and universities (Columbine, Virginia Tech and Rutgers, among others) and by governmental agencies and commercial enterprises (such as Prince Williams County).

? MASC Managed Automated Security Controls is an integrated solution designed for larger commercial enterprises. MASC helps organizations (such as airports, banks, hospitals, and correctional facilities) to control access, communications, and other security solutions from an integrated platform.

? Insignia and Clarity Insignia and Clarity together constitute a software hardware solution sold by distributors to smaller businesses.

? Intelli -Site Software Package Intelli-Site is a software package, used for integrated security control and as a management software solution. This package is scalable from stand-alone applications that can manage a variety of different applications from within a single, unified, GUI platform that is used mainly for enterprise-level deployments. It also provides flexibility for future system change or expansion and can support both new and existing subsystems.

? Credentialing ("RAPTOR") Cutting-edge storage and secure retrieval system for credentialing, authenticating, verifying, validating, and managing personnel, advanced tracking and logistics, designed especially for state and local governments, critical infrastructure, and first responders.

? Critical Situation Management System ("CSMS") Management system, for first responders currently in use in the U.S., CSMS offers a customizable solution for credentialing, incident management, accountability and virtual access control. We have an extensive product line, with smart cards, both standalone and handheld readers, and interoperable communications equipment. Credentialing and Incident Management systems utilize both passive and active RFID technology, creating a unique and comprehensive solution unmatched in the industry. CSMS applications target the following industries: Law Enforcement, Fire Rescue, Homeland and Site Security and Emergency Management.

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Our Strategy

In 2006, we decided to sell our E-ID division in order to focus on opportunities mainly in the U.S. for our active RFID enabled solutions and CSMS businesses. The sale was completed on December 31, 2006 (See a description of this transaction in Item 4.A above). In August 2007, we completed the acquisition of SHC, a Delaware corporation engaged in the business of manufacturing and distributing RFID-enabled solutions, access control and security management systems. In January 2010, we completed the sale of our Electronic Access Control Suite and our Credentialing & Incident Management Suite to focus our sales and marketing efforts on our core competencies, active RFID technology and our PureRFid Suite.

Our two-pronged sales strategy is to:

We have a multi-pronged approach to growth:

Due to our strategies, we are emerging as a leading RFID enabled security solution provider in fast growing markets, such as public

safety, educational & health care facilities. This is accomplished because of our unique combination of in-house security products, superior technology and team expertise coupled with non-organic synergies.

Enhancing Our Presence

In February 2006, we established an advisory board (the “Advisory Board”) to assist us in broadening our presence in the government, military, and law enforcement sectors and to identify the core technology needs of the homeland security and related markets, as well as new applications for our technologies. The Advisory Board has assisted us in such matters from its creation until March 2010, at which time we resolved to disband the Advisory Board.

We currently concentrate our marketing efforts for our RFID technology on U.S. distributors, state and local government agencies.

In order to expand our U.S. presence, we may pursue acquisitions of one or more companies that have an existing customer base and revenues in the U.S. or that can otherwise offer us business synergies.

? Develop strong strategic relationships with our business partners, including our systems integrators and distributors who introduce our solutions into their respective markets.

? Employ dedicated sales teams to work closely with such business partners. Since January 2010, our sales teams focus on active RFID sales through leading system integrators. Our sales teams customize and adapt solutions that can then be installed and supported by these business partners. Prior to January 2010, our sales teams were also responsible for: (i) EAC systems sold through regional system integrators (e.g., COMPASS, MASC and other defined products) and the provision of needed product support; and (ii) CSMS and RAPTOR sales to government agencies and commercial enterprises, and responding to bids through system integrators involving requests for proposal (RFPs) from clients requiring commercial off-the-shelf solutions.

? Grow organically:

1. Increase existing products’ value (e.g., offer products which are smaller, better and cost effective); 2. Identify new applications for existing products and solutions; 3. Develop new products/solutions that meet clients’ needs; and 4. Build a superior sales force. We are dedicating sales teams, coordinated through our U.S. corporate office to sell more

products/solutions through our growing number of business partners. Cross-selling products and solutions will increase sales to existing customers and create new opportunities.

? Make synergistic acquisitions. Continue to “ leapfrog” growth through strategic acquisitions of companies with complementary products and/or relations with business partners.

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Identifying New Applications for Our Technologies

Our management and its external advisors are working to identify new applications for our technologies in the homeland security,

defense, healthcare, educational and other markets. At a time when both government and the private sector are faced with unprecedented challenges to protect public safety and personal privacy, we expect to extend our forward-looking technologies to the U.S. market.

Leveraging Knowledge and Experience

We believe that our exposure to the governmental market and experience in customizing solutions in our former E-ID Division will

contribute to our ability to develop and market products in our RFID. We intend to leverage such knowledge and experience in order to respond to the needs of existing and potential customers in the homeland security, healthcare, educational and other markets.

Seeking Partnerships With Other Relevant Companies

To bolster our sales and marketing efforts, we may seek to partner with distributors that can offer us new relationships within the homeland security sector and with government agencies as well as with the commercial sector and help us increase our geographic breadth and penetrate other selected vertical markets. In addition, we may seek to partner with system integrators experienced in handling large-scale governmental projects under government contracts, since we believe such partners, by virtue of their recognition by government agencies, may have an advantage in securing government contracts. Finally, we may seek to enter into strategic partnerships with companies that offer technologies that complement ours.

Current Businesses

Active RFID Business

In February 2006, we introduced our active RFID technology, which utilizes active radio frequency communications to track people and objects. We developed this new technology to meet the growing market demand for asset and person tracking solutions. The new technology expands our wide range of products aimed at the private, the homeland security and the governmental market through a wireless asset tracking system.

In order to focus on the growing market for this technology we acquired SHC, which owned the AAID long range Active RFID security solution.

The readers and tags have been sold by AAID since 1999. Currently, the majority of the sales are vehicle-related including gated communities, employee parking lots, and fleet management. We believe in the future of this technology in personnel and asset tracking and we are leveraging AAID's marketing position by introducing our Pure-RF technologies successfully during the last quarter of 2009. Our Pure-RF movement detection solution can monitor and track a number of items simultaneously, providing an active set of different signals and alerts. The software and hardware solution employs small, low-powered RFID tags attached to an object or a person. License-free radio bands are used to track the RFID tag from a base transmitter that is programmable for periodic or event-driven transmissions.

Prior to January 2010, we offered an active RFID solution under the AAID brand, which we acquired in the acquisition of SHC. The AAID brand was established and well known in the market for tracking vehicles. Since January 2010, we have been engaged in leveraging the marketing position of the AAID brand to introduce our latest product suite, PureRFid. The PureRFid Suite is superior to the AAID Suite, providing a secure, precise and cost-effective means to positively identify, locate, track, monitor, count and protect people and objects, including inventory and vehicles.

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Product

We expect our PureRFid Suite, a complete location position (LP) system solution based on active RFID tag technology, to offer

commercial customers and governmental agencies enhanced asset management capabilities. The system can be deployed in physical security applications. The basic components of our PureRFid Suite include:

The PureRFid Suite provides a secure, precise and cost-effective means to positively identify, locate, track, monitor, count and protect

people and objects, including inventory and vehicles. The ability to reliably identify and track the movement of people and objects in real time will enable PureRFid Suite customers to detect unauthorized movement of vehicles, trace packages and containers, control personnel and vehicle access to premises, and protect personnel in hazardous working environments and disaster management situations.

Customers

Our customers are also our business partners, i.e., system integrators and distributors who introduce our solutions into their prospective markets. These include: Carolina Time Equipment Co., Inc., InteliSea, Precision Time Systems, PSA Security Network, RSH Protection, SFI Electronics, Inc., Smith & Wesson Security and Zimy Electronics Inc.

Market Opportunity

Radio frequency identification, or RFID, is a widely adopted technology in the auto-identification market, which addresses electronic identification and location of objects. Typically, an RFID tag or transponder is attached to or incorporated into a product or person. A handheld or stationary device that receives the radio frequency waves from these tags is used to determine their locations. Prior to the adoption of RFID, users identified and tracked assets manually as well as through the use of bar code technology. These solutions were limited because of the need for ongoing human intervention and the lack of instantaneous location capabilities. RFID technology possesses greater range, accuracy, speed and lower line−of−sight requirements than bar code technology.

Our PureRFid Suite can track items simultaneously, providing an alert when a tagged item is removed from a pre-determined area, passes through a marked checkpoint or otherwise moves. We believe that potential customers for our PureRFid Suite include the following:

? an active tag, which contains a microchip equipped transmitter, an antenna, a capacitor and battery attached to the item to be identified, located or tracked;

? a web-based management system, which captures and processes the signal from the active tag, and may be configured to provide an alert upon the occurrence of a trigger event;

? one or more wireless receivers; and ? the tag's initializer, which is used to configure the PureRFid tags.

Civil and Military Governments . Our PureRFid Suite can provide secure access control into restricted areas and map and track visitors throughout a facility. Many high security facilities, including governmental and industrial facilities, need access monitoring. For example, nuclear power plants, national research laboratories and correctional facilities need to accurately and securely monitor inbound and outbound activity. Line of sight identifiers, such as identification cards, suffer from problems that our RFID technology readily overcomes, including reliance on human visual identification, forgery and tampering. Our PureRFid Suite also enables identification and location of individuals in restricted areas in real time.

Airport and Port Security Infrastructure Providers . Our PureRFid Suite can offer solutions for the transportation sector by enabling common carriers to monitor, track, locate and manage multiple baggage items simultaneously, thereby reducing risk of lost baggage, increasing customer service and improving security.

Businesses and Industrial Companies . Our PureRFid Suite can be used by businesses, shippers and warehouse operators to manage and track cartons, pallets, containers and individual items in order to facilitate movement, order picking, inventory verification and reduce delivery time. In addition, industrial companies can manage and track their mobile equipment and tools. We believe that our PureRFid Suite can increase efficiency at every stage of asset, inventory and supply chain management by enabling long-range identification and location of products and removing the need for their human visual identification. Our products also work in conjunction with existing bar coding and warehouse systems to reduce the risk of loss, theft and slow speed of transfer.

Hospitals and Care Homes . The healthcare sector has successfully utilized RFID technologies for the purposes of infant protection in maternity wards and wander prevention in care homes similar to our asset and personnel location and identification system targeted at the secure facility and hazardous business sectors. Our PureRFid Suite can provide solutions for the healthcare sector for asset, staff, patient and medical record location and identification. We believe that as hospitals continue to upgrade their security measures, RFID technology will be utilized in real time location systems that are designed to immediately locate persons, equipment and objects within the hospital.

Livestock Owners . Our PureRFid Suite can be used as a livestock identification, tracking and safeguarding system.

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Credentialing - CSMS and RAPTOR Suite Business

Prior to January 2010, we offered the Credentialing & Incident Management Suite. Our Credentialing & Incident Management Suite

was sold in connection with the sale of certain of the assets and certain of the liabilities of Vuance, Inc. related to our Government Services Division. (See Item 4.A “History and Development of the Corporation”).

Our CSMS and RAPTOR suite represented a completely integrated solution for multiple applications. The applications included enabling state and local public safety agencies, such as police, fire and emergency medical services departments, and other governmental agencies to comply with U.S. Department of Homeland Security requirements regarding national incident management systems, security, protection of infrastructure and incident command systems.

Product These suites offered a range of access control, RFID, and credentialing product lines which were integrated into an end-to-end comprehensive solution.

Credentialing: CSMS and RAPTOR. These products are designed to meet the need for comprehensive and mutually compatible credentials that governments and first responders have noted as important in both the fight against terrorism and the need to respond to any catastrophe. This market suffered from low expenditure levels due to a lack of clearly defined product requirements. Now that these requirements are not only defined, but also codified into law, the purchasing decisions are returning to standard procedures. CSMS was designed primarily for temporary credentials created at the scene of an incident. RAPTOR was targeted more specifically to use credentials that meet the full range of government specifications with user verification as well as identification.

Customers

Our first customer for our CSMS products was the City of Columbus, Ohio, which deployed the SmartDSMS system in April 2005 and subsequently expanded its capabilities. In November 2006, we entered into a contract to provide a CSMS system to the City of Los Angeles, CA for the Department of General Services—Office of Public Safety, the Office of Personnel and the Police Department (Mobile Command Post Unit). In January 2007, we entered into two additional contracts for the deployment of CSMS systems with county governments in Pennsylvania. In October 2008, we entered into a MOU with Delaware State University to cooperate in order to develop, test and deploy a Mobile Crime Scene system. In December 2008, we announced that we have been awarded a stake in a government-funded project to develop a crime scene security and evidentiary tracking system. In December 2008, we also received an order for expansion of our RAPTOR solution with Chester County, Pennsylvania.

In January 2010, we sold our Credentialing & Incident Management Suite in connection with the sale of certain of the assets and certain of the liabilities of Vuance, Inc. related to our Government Services Division. (See Item 4.A “History and Development of the Corporation”).

Market Opportunity

In 2002, following the terrorist attacks on September 11, 2001, and in accordance with The National Strategy for Homeland Security and the Homeland Security Act of 2002, the U.S. Department of Homeland Security, (“DHS”) was formed. The main objective of the DHS is to provide the unifying core for the vast nationwide network of organizations and institutions involved in efforts to provide national security. DHS initiatives have emphasized “interoperability”—the implementation of new systems that facilitate interaction between government agencies, including first responders such as police, fire and emergency medical services departments, in anticipation of and response to incidents that threaten public safety. Presidential directives concerning homeland security call for the development of:

? a National Incident Management System that will provide a consistent framework for incident management at all jurisdictional levels regardless of the cause, size or complexity of the incident and provide first responders with a common foundation for incident management of terrorist attacks, natural disasters and other emergencies; and

? a National Response Plan that will provide the structure and mechanisms to coordinate and integrate incident management activities and emergency support functions across federal, state, local and tribal government entities, the private sector and non-governmental agencies.

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The activities and projects necessary to achieve these goals are accomplished by furnishing federal funding to state and local

government agencies. Prior to January 2010, we used our position to take advantage of the market opportunity presented by DHS funded security projects of state and local government agencies throughout the U.S. Following the sale of our Credentialing & Incident Management Suite through the sale of certain of the assets and certain of the liabilities of Vuance, Inc. related to our Government Services Division, we are no longer positioned to take advantage of such market opportunities.

Passive RFID Electronic Access Control (“EAC”) Suite

Product

Prior to January 2010, we offered the Electronic Access Control (“EAC”) Suite. Our EAC Suite was sold in connection with the sale of certain of the assets and certain of the liabilities of Vuance, Inc. related to our electronic access control market. (See Item 4.A “History and Development of the Corporation”). Prior to January 2010, our EAC Suite offered solutions to provide credentials (secure badges), readers, door hardware, sensing devices, alarms, controllers and host hardware and software to help maintain security at enterprises, schools, office buildings, warehouses and government facilities. Prior to January 2010, we provided such solutions through several branded offerings:

Customers

Customers of our EAC Suite were distributors, regional system integrators (e.g. COMPASS; MASC) and dealers (e.g., Insignia Security

Systems, Clarity Security and other providers of security solutions). Occasionally, if conditions permitted, we offered the EAC Suite directly to large organizations such as local municipalities and large organizations , which required the direct intervention of our subject matter experts.

Market Opportunity

Our EAC Suite targeted a wide range of customers from challenging environments, spanning the commercial sectors, small businesses and the private sector. This was achieved by presenting three product lines:

? COMPASS COMPASS is used by schools and universities (Columbine, Virginia Tech and Rutgers, among others) and by governmental agencies and commercial enterprises (such as Prince Williams County).

? MASC Managed Automated Security Controls is an integrated solution designed for larger commercial enterprises. MASC helps organizations to control access, communications, and other security solutions from an integrated platform (such as banks, hospitals, and correctional facilities).

? Insignia and Clarity Insignia and Clarity together constitute a software hardware solution sold by distributors to smaller businesses.

? MASC EAC for correctional facilities, airports, cities, and challenging environments.

? COMPASS EAC for education and commercial sector.

? Clarity/Insignia EAC for small businesses and the commercial and private sectors.

? Intelli -Site software Intelli-Site software package for managed integrated security solutions

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Sectors targeted included: Health Care

From clinics in shopping malls to sprawling medical campuses, the challenges facing the health care industry are immense. From coordinating access to secure areas such as operating rooms and nurseries to preventing theft of valuable equipment and monitoring corridors, stairways and departments, health care management requires reliable solutions to meet the needs in a complex and rapidly changing environment.

Education

Today’s school campuses rival their counterparts in business and health care in terms of sophistication and security requirements. From providing automated access control for sporting events and concerts , and credentialing and verifying faculty, staff (and students) , to tracking equipment from building to building or throughout districts and identifying vehicles , to securing buildings and facilities in the event of disaster; educators are no longer “just teachers” and administrators must enforce a number of requirements to keep students and assets safe.

Transportation

Identifying drivers, and controlling access to parking garages, parking lots or special parking zones are only part of the challenges facing the transportation industry. From connecting drivers to specific vehicles or connecting pilots with specific aircrafts to monitoring fleet vehicles, or reducing theft and vandalism in parking garages, transportation management involves more than just getting from place to place.

Correctional Facilities, Airports, Municipalities Facilities

From correctional facilities to airports and municipalities facilities, the challenges facing environments that require high security are enormous and ever-changing. Coordinating access to secure areas and monitoring these challenging environments efficiently despite multiple events requires reliable intuitive solutions to meet the needs in complex and high security sites.

Former E-ID Division

From 1988 to 2006, our principal business was the design, development and marketing of advanced smart card and identification technologies and products for governmental and commercial customers in Europe, Asia and Africa. Our applications and solutions included e-passports, visas and other border entry documents, national identification and military, police and commercial access identification. As detailed above, in 2006, we decided to sell our E-ID division in order to focus on opportunities in the U.S. for our CSMS and active RFID businesses.

In our E-ID Division, we developed a fully automated production line for picture identification contactless smart cards, and offered our customers raw materials, maintenance and service agreements. We provided identification solutions and contactless smart card production equipment for governmental and commercial customers. The customers and contracts of our E-ID Division in 2006, 2007 and 2008 included the following:

National Multi ID with a European Country

In 2006, we entered into an agreement with a European country which we estimate will generate approximately $50 million in revenues during the 10-year term of the project. Under the agreement we will provide the end-to-end system for a national multi-ID issuing and control system. There can be no assurance, however, that we will realize the full estimated value of this agreement.

The project, which commenced during the third quarter of 2006, involves the implementation of an end-to-end national ID issuing and control system based on our Magna system and includes the supply of digital enrollment and production equipment, software, maintenance and supply of secured raw material for the production of various national ID cards. In 2007, 2008 and 2009 , we recognized revenue of $6 , 179 ,000, $5,468,000 and $6,199 ,000, respectively, under this Agreement.

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Perimeter Security and Border Control at European International Airport

In 2007, we entered into a definitive agreement (the “Agreement”) with a European international Airport to provide an integrated

perimeter security system and a border control system for a total of $13.8 million. The establishment of the security and control system began during the third quarter of 2007. Under the current contract, once the system has been fully implemented and a transmission and acceptance report is signed by the customer, we will enter the ten-year maintenance period that could generate an additional $620,000 in annual revenues. In 2007, 2008 and 2009, we recognized revenue of $2,182,000, $9,722, 000 and $1,961,000, respectively, under this Agreement.

Other Projects

During the years 2007, 2008 and 2009 we had the following projects:

During the years ended 2007 and 2008 and 2009 we generated revenues from the above mentioned projects in the total amounts of

$2,659,000 and $478,000 and $32, respectively. Research and Development

Our past research and development efforts helped us to achieve the goal of offering our customers a complete line of products and solutions. We spent $1.4 million , $1 . 7 million and $0.9 million on research and development in 2007, 2008 and 2009, respectively. These amounts were spent on the development or improvement of our technologies and products, primarily in the areas of Active RFID and Credentialing. We will continue to research and develop new technologies for RFID. There can be no assurance that we can achieve any or all of our research and development goals. Sales and Marketing

We sell our systems and products worldwide through distribution channels that include direct sales and traditional distributor or reseller sales. We have approximately 3 employees that are directly engaged in the sale, distribution and support of our products through centralized marketing offices in distinct world regions, including the employees of PureRFid, Inc., which markets our products in the U.S. We are also represented by several independent distributors and resellers with which we often have distribution agreements.

Our distributors and resellers sell our systems and products to business enterprises and government agencies and act as the initial customer service contact for the systems and products they sell. We establish relationships with distributors and resellers through written agreements that provide prices, discounts and other material terms and conditions under which the reseller is eligible to purchase our systems and products for resale. These agreements generally do not grant exclusivity to the distributors and resellers and, as a general matter, are not long-term contracts, do not have commitments for minimum sales and could be terminated by the distributor. We do not have agreements with all of our distributors.

? Passports and ID Card - Africa ? Passports - Hong Kong ? Hong Kong – China Re-Entry Cards ? Biometric Visa system to a European Government ? National ID card deal with an African Governmental Agency ? Automated Smart Card Production System to a European Government ? Biometric passport issuing and control system for a western European country ? E-Passport with a European Country

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Sales Analysis Sales By Geographic Destination:

The following table provides a breakdown of total revenue by geographic market (all amounts in thousands of dollars):

(*) Certain comparative figures have been reclassified to conform to the current period presentation. (**) Due to the sale of certain business activities in January 2010, as described in Item 4 above, those business activities are presented as discontinued operations in accordance with U.S. GAAP.

The following table provides a breakdown of total revenue by product category (all amounts in thousands of dollars):

(*) Certain comparative figures have been reclassified to conform to the current period presentation. (**) Due to the sale of certain business activities in January 2010, as described in Item 4 above, those business activities are presented as discontinued operations in accordance with U.S. GAAP. Customer Service

We believe that customer support plays a significant role in our sales and marketing efforts and in our ability to maintain customer satisfaction, which is critical to our efforts to build our reputation and grow in our existing markets, as well as to our efforts to penetrate and grow in new markets. In addition, we believe that our interaction with our customers and the customers’ feedback involved in our ongoing support functions provide us with information on customer needs and contribute to our product development efforts. We generally provide maintenance services under separate, tailor made agreements. We provide our service through customer training, local third-party service organizations, our subsidiaries, or our personnel, including appropriate personnel sent from any of our offices in U.S., or Israel. We generally provide our customers with a warranty for our products, varying in length from 12 to 36 months. Costs incurred annually by us for product warranties have to date been insignificant; however, there can be no assurance that these costs will not increase significantly in the future. Manufacturing and Availability of Raw Materials

Our manufacturing operations consist primarily of materials planning and procurement, quality control of components, kit assembly and integration, final assembly, and testing of fully-configured systems. A significant portion of our manufacturing operations consists of the integration and testing of off-the-shelf components. All of our products and systems, whether or not manufactured by us, undergo several levels of testing, including configuration to customer orders and testing with current release software, prior to delivery.

Year ended December 31, 2007(**) 2008(**) 2009 Total Total Total revenues revenues revenues Europe $ 9,003 (*) $ 15,193 $ 8,180 Asia Pacific 1,330 310 76 Africa 823 350 - United States 709 1,965 976 Israel 371 294 72 $ 12,236 (*) $ 18,112 $ 9,304

Year ended December 31, 2007(**) 2008(**) 2009 Raw materials and equipment $ 8,237 $ 15,048 $ 6,884 Maintenance, royalties and project management 3,999 (*) 3,064 2,420 $ 12,236 (*) $ 18,112 $ 9,304

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Our manufacturing consists of systems for the electronic security industries and includes a range of RFID solutions. We outsource the

manufacturing for our PCB panels to a number of different suppliers. We usually commit to a long-term relationship with such suppliers in exchange for receiving competitive pricing. All panels and enclosures are built to our engineering specifications. All panels are received in our manufacturing facilities in Israel and then tested, assembled, and retested. Other products are off-the-shelf products, which we purchase from a number of different suppliers.

All activities for Existing Projects, such as purchasing, logistics, making integration, installation and testing, are done by third parties according to our instructions and under our supervision. Moreover, we continue to be responsible to the customers of the Existing Projects. Competition

We assess our competitive position from our experience and market intelligence, and from reviewing third party competitive research materials.

We believe that Zebra, RF Code, Axcess, Ekahau, and Aeroscout are potential competitors, in niche areas, to us with respect to our

active RFID tracking products.

Our management expects competition to intensify as the markets in which our products and services compete continue to develop. Some of our competitors may be more technologically sophisticated or have substantially greater technical, financial, or marketing resources than we do, or may have more extensive pre-existing relationships with potential customers. Although we believe that our products combine technologies and features that provide customers with complete and comprehensive solutions, we cannot assure you that other companies will not offer similar products in the future or develop products and services that are superior to our products and services, achieve greater customer acceptance or have significantly improved functionality as compared to our products and services. Increased competition may result in our experiencing reduced margins, loss of sales or decreased market shares.

Due to the developing nature of the markets for our active RFID tracking products and the ongoing changes in this market, the above-mentioned list may not constitute a full list of all of our competitors and additional companies may be considered our competitors. Intellectual Property

Our ability to compete is dependent on our ability to develop and maintain the proprietary aspects of our technology. We rely on a combination of trademark, copyright, trade secret and other intellectual property laws, employee and third-party nondisclosure agreements, licensing and other contractual arrangements and have also applied for patent protection to protect our proprietary technology and intellectual property. However, these legal protections afford only limited protection for our proprietary technology and intellectual property.

In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as do the laws of Israel or the U.S. Our means of protecting our intellectual property rights in Israel, the U.S. or any other country in which we operate may not be adequate to fully protect such rights.

Patents

Our patent portfolio consisted of two issued U.S. patents, four U.S. patent applications and one PCT. Generally, these patents, applications and PCTs related to our government solutions and access control technologies and were transferred in the sale of certain of the assets and certain of the liabilities of Vuance, Inc. in the first quarter of 2010 (see a description of this transaction under the caption “History of the Company” in Item 4.A).

We may file additional patent applications when and if appropriate. However, there is no guarantee that patentable inventions will arise from our research and development efforts and, if we do apply for patent protection for such inventions, there is no guarantee that it will be granted.

In addition, not all countries provide legal protection of proprietary technology to the same extent. There can be no assurance that the measures taken by us to protect our proprietary technologies are or will be sufficient to prevent misappropriation of our technologies or portions thereof by unauthorized third parties or independent development by others of similar technologies or products. In addition, regardless of whether our products infringe on the proprietary rights of third parties, infringement or invalidity claims may be asserted or prosecuted against us and we could incur significant expenses in defending them. Our costs could also increase if we become obligated to pay license fees as a result of these claims.

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Licenses

We license technology and software, such as operating systems and database software, from third parties for incorporation into our

systems and products and we expect to continue to enter into these types of agreements for future products. Our licenses are either perpetual or for specific terms.

As part of the OTI Transaction, we received an irrevocable, worldwide, non-exclusive, non-assignable and non-transferable license to use, in connection with the Existing Projects, the intellectual property that we transferred to OTI. Generally speaking, the license will be valid for the duration of all Existing Projects. Government Regulation

We are subject to certain labor statutes and to certain provisions of collective bargaining agreements between the Histadrut (the General Federation of Labor in Israel) and the Coordinating Bureau of Economic Organizations, including the Industrialists’ Association, with respect to our Israeli employees. In addition, some of our Israeli employees are also subject to minimum mandatory military service requirements. (See the discussion under the caption “Employees” in Section D of Item 6.)

Generally, we are subject to the laws, regulations and standards of the countries in which we operate and/or sell our products, which vary substantially from country to country. The difficulty of complying with these laws, regulations and standards may be more or less difficult than complying with applicable U.S. or Israeli regulations, and the requirements may differ. Employees

As of December 31, 2009 we had 37 full-time employees, compared to 52 full-time employees as of December 31, 2008. (See the discussion under the caption “Employees” in Item 6.D.)

Our ability to succeed depends, among other things, upon our continuing ability to attract and retain highly qualified managerial, technical, accounting, sales and marketing personnel. Seasonality

Our financial and operating results have fluctuated in the past and our financial and operating results could fluctuate in the future. The period between our initial contact with a potential customer and the sale of our products and services is often long and subject to delays associated with the budgeting, approval and competitive evaluation processes that frequently accompany significant capital expenditures, particularly by governmental agencies. The typical sales cycle for our government customers has to date ranged from three to 36 months and the typical sales cycle for our commercial customers has ranged from one to six months. A lengthy sales cycle may have an impact on the timing of our revenue, which may cause our quarterly operating results to fall below investor expectations. We believe that a customer's decision to purchase our products and services is discretionary, involves a significant commitment of resources, and is influenced by customer budgetary cycles or federal and state grants. To successfully sell our products and services, we generally must educate our potential customers regarding their use and benefits, which can require significant time and resources. This significant expenditure of time and resources may not result in actual sales of our products and services.

The lead-time for ordering parts and materials and building many of our products can be many months. As a result, we must order parts and materials and build our products based on forecasted demand. If demand for our products lags significantly behind our forecasts, we may produce more products than we can sell, which can result in cash flow problems and write-offs or write-downs of obsolete inventory.

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The diagram below shows Vuance Ltd.'s holdings in its subsidiaries and affiliates as of June 30, 2010:

Vuance, Inc. (formerly, SuperCom Inc.) Vuance, Inc., incorporated in Delaware, is our wholly-owned subsidiary, and was responsible for our sales and marketing efforts in the U.S until January 2010. SuperCom Asia Pacific Limited (“SuperCom Asia Pacific”) SuperCom Asia Pacific, incorporated in Hong Kong, has been our wholly-owned subsidiary since November 2003, and has been responsible for our sales and marketing efforts in Asia Pacific. In the third quarter of 2009, we began to wind down operations of SuperCom Asia Pacific. Vuance - RFID Inc. Vuance - RFID Inc. (formerly, Pure RF Inc.) incorporated in Delaware in November 2005. Upon its incorporation we owned 80% of its shares. During January 2006, Vuance - RFID Inc. established a wholly owned Israeli subsidiary, Vuance RFID Ltd. (formerly, Pure RF Ltd.), which focuses on new technologies and solutions for the tracking of people and assets. During February 2007, we purchased the remaining 20% of Vuance - RFID Inc. for $100,000, whereupon Vuance - RFID Inc. became our wholly-owned subsidiary. In August 2007, all the employees of Vuance RFID Ltd. were transferred to us, and on December 31, 2007 we purchased all of the assets and liabilities of Vuance RFID Ltd. Commencing year 2008, Vuance RFID Inc. engaged in an activity to distribute complementary locks and electronic locks. This activity was terminated in the fourth quarter of 2008 and it is presented in the financial reports as discontinued operations. S.B.C Aviation Ltd. S.B.C Aviation Ltd., incorporated in Israel in the fourth quarter of 2006, is our wholly-owned subsidiary, which commenced operations in 2007, and focuses on executing information technology and security projects. SuperCom Slovakia A.S. (“SuperCom Slovakia”) SuperCom Slovakia, incorporated in Slovakia, was established to implement a national documentation project in the Republic of Slovakia. SuperCom Slovakia is 66% owned by us and 34% owned by EIB Group a.s., a privately held Czech company. Despite our ownership of almost two-thirds of the economic interests of SuperCom Slovakia, our voting power in SuperCom Slovakia is 50%. PureRFid, Inc. PureRFid, Inc., incorporated in Delaware, is our wholly-owned subsidiary, and as of January 2010 is responsible for our sales and marketing efforts in the U.S.

C. Organizational Structure

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Vuance Ltd.

SuperCom Asia Pacific Ltd.

SuperCom Slovakia A.S.

100% 66%

Vuance Inc.

100%

Vuance RFID Inc.

100%

S.B.C. Aviation Ltd.

100%

Vuance RFID Ltd.

100%

PureRFid Inc.

100%

We do not own any real estate.

We lease approximately 2,224 square meters of facilities in Qadima, Israel under a five-year lease contract, currently expiring on

October 31, 2010. We have an option to renew the lease for an additional period of five years. According to the agreement, the monthly fee is approximately $16,000. As a result of the OTI Transaction, we leased to OTI certain portions of our leased facilities for a monthly fee of $11,000, for a period of one year, commencing on December 31, 2006. During the first quarter of 2008, OTI moved out and we currently sublease this space to a few different companies.

Vuance, Inc. leases a facility in Peachtree City, GA of approximately 465 square meters for a monthly fee of $2,400 . The lease commenced on March 1, 2008 and expires on February 28, 2013.

Vuance, Inc. also leases a facility in Rockville, Maryland of approximately 219 square meters for a monthly fee of $4,800 , which is subleased for a monthly fee of $4,100. The lease commenced on December 1, 2007 and expires on February 28, 2011.

In 2009, Vuance , Inc. signed a lease agreement in Wisconsin of approximately 836 square meters for a monthly fee of $4,500 , with eight months of rent at no cost. The lease commenced on January 1, 2010 and expires on December 31, 2014.

SuperCom Asia Pacific leased approximately 130 square meters of office space in Hong Kong for a monthly fee of $4,300. This lease expired on June 30, 2010. In July 2010, SuperCom Asia Pacific signed a lease agreement in Hong Kong for approximately 55 square meters of office space . This lease will expire on December 31 , 201 0.

All such leased properties in the U.S. and Hong Kong consist of office space for management, administrative, operation, sales and marketing activities.

The total annual rental fees for 2007, 2008 and 2009 were $376,295, $440,130 and $331 ,000 , respectively. The total annual lease commitments for 2010 are $332 ,000.

All assets are held in the name of Vuance Ltd. and its subsidiaries. The following table details our fixed assets as of December 31, 2008 and 2009:

Depreciation expenses for the years ended December 31, 2007, 2008 and 2009 were $38,000, $73,000 and $77,000 respectively.

ITEM 4A. Unsolved Staff Comments.

Not applicable.

D. Property, Plants and Equipment

December 31, 2008 2009

(In thousands of US

Dollars) Cost:

Computers and peripheral equipment $ 354 $ 320 Office furniture and equipment 193 198 Leasehold improvements 39 46

586 564

Accumulated depreciation: Computers and peripheral equipment 243 270 Office furniture and equipment 103 110 Leasehold improvements 22 27

368 407

Depreciated cost: $ 218 $ 157

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ITEM 5. Operating and Financial Review and Prospects.

The following section should be read in conjunction with our consolidated financial statements and the related notes thereto, which have

been prepared in accordance with U.S. GAAP and which are included in Item 18. Some of the statements contained in this section constitute “forward-looking statements.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. (See “Note Regarding Forward Looking Statements” at the beginning of this report, and “Risk Factors” In Item 3.D) Overview

We were established in 1988 in Israel under the name “SuperCom Ltd.” On April 29, 2007, our shareholders approved the change of the Company’s name to Vuance Ltd., effective as of May 14, 2007. Our ordinary shares have been listed for trading on the Euronext Brussels stock market since October 23, 2003, initially under the symbol “SUP,” and following our name change, under the symbol “VUNC.” We applied for delisting of our shares from the Euronext Brussels stock market, and our application was approved on May 6, 2008, effective August 4, 2008.

From November 5, 2004 to August 23, 2007, the Company’s ordinary shares traded on the OTC Bulletin Board, initially under the symbol "SPCBF.OB" and following our name change, under the symbol, “VUNCF.OB.” Since August 23, 2007, our ordinary shares have been listed for trading on NASDAQ under the symbol “VUNC.” Upon the commencement of trading of our ordinary shares on NASDAQ, our ordinary shares ceased to trade on the OTC Bulletin Board .

On December 11, 2008, we received a letter from NASDAQ advising us that we did not comply with the Listing Requirements. As a result, the NASDAQ Staff began reviewing our eligibility for continued listing on NASDAQ. To facilitate their review, the NASDAQ Staff requested that we provide our specific Plan. After we submitted the Plan, on March 30, 2009 we received further correspondence from NASDAQ that we did not comply with the Listing Requirements, and therefore, trading of our ordinary shares would be suspended at the opening of business on April 8, 2009, and a form 25-NSE would be filed with the SEC removing our securities from listing and registration on NASDAQ, unless we requested an appeal of the delisting decision by NASDAQ.

We appealed the NASDAQ determination to a NASDAQ Listings Qualifications Panel (the “Panel”), which automatically stayed the delisting of our ordinary shares until the Panel reached a decision. On June 17, 2009, the Panel granted our request for an extension of time to achieve full compliance with the Listing Requirements.

On September 29, 2009 we received a NASDAQ Staff Determination letter indicating that we failed to comply with the minimum stockholders’ equity requirement of $2.5 million as set forth in Listing Rule 5550(b) (formerly Marketplace Rule 4310(c)(3)). As a result, our securities were delisted from The Nasdaq Stock Market and trading in our shares was suspended effective at the open of business on October 1, 2009.

We had been advised by Pink OTC Markets Inc., which operates an electronic quotation service for securities traded over-the-counter, that our securities were immediately eligible for quotation in the Pink Sheets effective as of the open of business on October 1, 2009. Our ordinary shares are currently quoted under the ticker symbol “VUNCF”.

We develop and market innovative active RFID enabled solutions for public safety agencies, commercial customers and governmental organizations.

We currently offer the following principal product suite to our customers:

A. Operating results

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Active RFID

Active RFID is long, active radio frequency identification equipment that utilizes active radio frequency communications to track assets, people and objects for potential governmental agency and commercial customers. Our solutions are programmable, small, sensitive and relatively cost-effective, providing significant competitive advantages. Prior to January 2010, we offered an active RFID solution under the AAID brand, which we acquired in the acquisition of SHC. The AAID brand was established and well known in the market for tracking vehicles. Since January 2010, we have been engaged in leveraging the marketing position of the AAID brand to introduce our latest product suite, PureRFid. The PureRFid Suite is superior to the AAID Suite, providing a secure, precise and cost-effective means to positively identify, locate, track, monitor, count and protect people and objects, including inventory and vehicles.

Prior to January 2010, we offered the following two principal product suites to our customers, in addition to our active RFID

solutions: Passive RFID Electronic Access Control (“EAC”) Suite

Our EAC Suite was sold in connection with the sale of certain of the assets and certain of the liabilities of Vuance, Inc. related to our electronic access control market. (See Item 4.A “History and Development of the Corporation”). Prior to January 2010, our EAC Suite offered solutions to provide credentials (secure badges), readers, door hardware, sensing devices, alarms, controllers and host hardware and software to help maintain security at enterprises, schools, office buildings, warehouses and government facilities. Prior to January 2010, we provided such solutions through several branded offerings:

Credentialing & Incident Management Suite:

Our Credentialing & Incident Management Suite was sold in connection with the sale of certain of the assets and certain of the liabilities of Vuance, Inc. related to our Government Services Division. (See Item 4.A “History and Development of the Corporation”). Prior to January 2010, we provided our Credentialing & Incident Management Suite through the following branded offerings:

? MASC Managed Automated Security Controls is an integrated solution designed for larger commercial enterprises. MASC helps organizations to control access, communications, and other security solutions from an integrated platform (such as airports, banks, hospitals, and correctional facilities).

? COMPASS COMPASS is used by schools and universities (Columbine, Virginia Tech and Rutgers, among others) and by governmental agencies and commercial enterprises (such as Prince Williams County).

? Insignia and Clarity Insignia and Clarity together constitute a software hardware solution sold by distributors to smaller businesses.

? Intelli -Site software Intelli-Site software package for managed integrated security solutions.

? Credentialing ("RAPTOR") Cutting-edge storage and secure retrieval system for credentialing, authenticating, verifying, validating, and managing personnel, advanced tracking and logistics, designed especially for state and local governments, critical infrastructure, and first responders.

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In addition, we have several continuing projects relating to the E-ID Division we sold to OTI (see the section captioned “The OTI

Transaction” in Item 4.A and the section captioned “Former E-ID Division” in Item 4.B).

As of January 2010, we market and sell our products in the U.S. through our wholly-owned subsidiary, PureRFid, Inc.

During the fourth quarter of 2005, we established a new Delaware subsidiary in which we initially owned 80% of the shares, Vuance -RFID Inc. (formerly, Pure RF Inc.), which began operations during the first quarter of 2006. During the first quarter of 2006, Vuance - RFID Inc. established a wholly-owned Israeli subsidiary, Vuance RFID Ltd. (formerly, Pure RF Ltd.). Vuance - RFID Inc. and Vuance RFID Ltd. focus on new technologies and solutions for active tracking of people and objects. During February 2007, we purchased the remaining 20% of Vuance -RFID Inc. from its minority shareholder for $100,000, whereupon Vuance - RFID Inc. became our wholly-owned subsidiary. On August 2007, all the employees of Vuance RFID Ltd. were transferred to Vuance, and on December 31, 2007, we purchased the assets and liabilities of Vuance RFID Ltd. Commencing in 2008, Vuance - RFID Inc. engaged in an activity to distribute complementary locks and electronic locks. This activity was terminated in the fourth quarter of 2008 and it is presented in the financial reports, as discontinued operations.

During the fourth quarter of 2006, we established a new wholly-owned Israeli subsidiary, S.B.C. Aviation Ltd., which commenced operations in 2007, and focuses on executing information technology and security projects.

On November 8, 2006, we announced the execution of the OTI Transaction (see Item 4.A above under the caption “The OTI Transaction”). As a result of the OTI Transaction, we recognized $10,536,000 as capital gain on the sale of the E-ID Division in fiscal year 2006. The capital gain was calculated based on OTI’s share price on the closing date of the transaction, less a discount due to the lock-up restrictions on the shares (based on an independent appraisal), the carrying value of the assets that were transferred to OTI and direct expenses (in an amount of $1,550) associated with the sale. As a result of the OTI Transaction, we terminated the employment of certain employees that were employed by us in the E-ID Division.

On July 3, 2007, we entered, through our wholly-owned subsidiary, Vuance, Inc., into an agreement (the “SHC Purchase Agreement”) to acquire all of the issued and outstanding stock capital of Security Holding Corp. (“SHC”) from Homeland Security Capital Corporation (OTCBB: HMSC.OB) (“HMSC”) and other minority shareholders (collectively, “Sellers”) for approximately $4,335,000 in our ordinary shares and direct expenses of approximately $600,000. The closing date of this transaction was August 28, 2007 (“SHC Closing Date”). SHC was a Delaware corporation engaged in the business of manufacturing and distributing RFID-enabled solutions, access control and security management systems. As consideration for the acquisition of the stock capital of SHC, 1,097,426 ordinary shares of the Company were issued to the Sellers. Subject to certain terms and conditions, in the event that we seek to register any of our ordinary shares under the Securities Act of 1933 for sale to the public, for our own account or the account of others, then at HMSC’s request, we will use our reasonable best efforts to include our shares owned by HMSC in such registration. The Sellers agreed to a lock-up period during which, subject to certain exceptions, they will not sell or otherwise dispose of our shares. The restrictions on making such transactions will expire for HMSC in eight equal installments, commencing on the end of the first calendar quarter following the SHC Closing Date and each of the seven calendar quarters thereafter, and for the other Sellers, in twelve equal installments, commencing on the end of the first calendar quarter following the SHC Closing Date and each of the eleven calendar quarters thereafter. HMSC also agreed that during such restriction period, upon the occurrence of any sale by HMSC of our shares due to HSMC’s bankruptcy, insolvency or otherwise by operation of law, Vuance Inc. and the Company will have a right of first refusal to purchase all (but not less than all) of our shares held by HSMC on certain terms and conditions. HMSC further agreed to grant an irrevocable power of attorney to the Chairman of the Board of Directors of the Company to exercise all voting rights related to its Vuance shares until the sale or transfer of such Vuance shares by HMSC to an unaffiliated third party in an arm’s-length transaction. As part of the SHC Purchase Agreement, certain Sellers will assume, subject to certain exceptions, certain non-competition and employee non-solicitation undertakings for a period of two years commencing on the SHC Closing Date. We guaranteed all of the obligations of Vuance Inc. under the SHC Purchase Agreement. During the fourth quarter of 2007, SHC and its subsidiaries were dissolved and merged into Vuance Inc.

? Critical Situation Management System ("CSMS") Management system, for first responders currently in use in the U.S., a customizable solution for credentialing, incident management, accountability and virtual access control. We have an extensive product line, with smart cards, both standalone and handheld readers, and interoperable communications equipment. Credentialing and Incident Management systems utilize both passive and active RFID technology, creating a unique and comprehensive solution unmatched in the industry. CSMS applications target the following industries: Law Enforcement, Fire Rescue, Homeland and Site Security and Emergency Management.

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In September 2007, we announced that we had entered into a definitive agreement to acquire, through our U.S. subsidiary, Vuance Inc.,

the credentialing division of Disaster Management Solutions Inc., for approximately $100,000 in cash and up to $650,000 in royalties that will be paid upon sales of the advanced first responder credentialing system (named “RAPTOR”) during the first twelve months following the acquisition (the closing was in August 2007). This acquisition complemented our incident management solutions business and added RAPTOR to our Credentialing & Incident Management Suite.

On March 25, 2009 we and our subsidiary, Vuance, Inc., completed the acquisition of certain of the assets and certain of the liabilities of Intelli-Site., pursuant to an asset purchase agreement dated March 6, 2009 with Intelli-Site and ISSI. On the date of closing, Vuance Inc agreed to pay Intelli-Site the Cash Consideration and we issued to ISSI the Consideration Shares. In addition to the payment of the Cash Consideration and the issuance of the Consideration Shares, Vuance Inc. agreed to pay Intelli-Site and ISSI, as applicable, in royalty payments, an amount of up to $600,000 in the aggregate, based upon certain conditions, which shall be paid on a quarterly basis, within thirty (30) days of the close of each quarter, and will be made 50% in cash to Intelli-Site and the Royalty Shares to ISSI. The number of Royalty Shares to be issued to ISSI shall be calculated on the basis of the weighted average closing price of our ordinary shares for the fifteen (15) trading days preceding the quarterly payment, subject to a minimum of $1.25. ISSI, or its permitted transferee, agreed to lock-up the Consideration Shares and Royalty Shares, as applicable, pursuant to which ISSI or its transferee will not offer, sell, transfer or otherwise dispose of the Consideration Shares or the Royalty Shares, except the restrictions on the transfer of the Consideration Shares and the Royalty Shares will expire in eight equal installments, commencing with the end of the first calendar quarter following the date of closing and each of the seven following calendar quarters thereafter. If any Consideration Shares or Royalty Shares are issued after the last day of the eighth calendar quarter following the date of closing, such shares shall not be subject to any transfer restrictions.

On January 28, 2010 (the “Closing Date”), Vuance, Inc., our wholly-owned subsidiary, completed the sale of certain of its assets (including certain accounts receivable and inventory) and certain of its liabilities (including certain accounts payable) (the “Sale”) related to our electronic access control market (the “Vuance EAC Business”), pursuant to a certain Agreement for Purchase and Sale of Business Assets dated as of January 9, 2010 between Vuance, Inc. and OLTIS Security Systems International, LLC (“OSSI”). On the Closing Date, as consideration for the Sale of the Vuance EAC Business, OSSI paid Vuance, Inc. $161,518.00 in cash. In addition, OSSI paid off (the “Bridge Bank Payment”) a certain Business Financing Agreement (the “Loan”) between Vuance, Inc. and Bridge Bank, National Association. Further to the Bridge Bank Payment, the Loan was released, and we and Vuance, Inc. no longer have any liabilities associated with the Loan.

On January 29, 2010 (the “Closing Date”), we and our subsidiary, Vuance, Inc., completed the sale of certain of the assets and certain of the liabilities of Vuance, Inc. (the “Sale”) related to our Government Services Division (the “Vuance CSMS Business”), pursuant to a certain asset purchase agreement dated as of January 29, 2010 between us, Vuance, Inc., WidePoint Corporation (“WidePoint”) and Advance Response Concepts Corporation. On the Closing Date, as consideration for the Sale, WidePoint paid Vuance, Inc. $250,000.00. In addition, WidePoint agreed to pay Vuance, Inc. a maximum earnout of $1,500,000.00 over the course of calendar years 2010, 2011, and 2012, subject to the performance of certain financial requirements of the Vuance CSMS Business during each of those years.

On January 21, 2010, we incorporated a new wholly-owned subsidiary in the state of Delaware, PureRFid, Inc., to focus on marketing and sales for our active RFID solutions.

Revenues

The Company and its subsidiaries generate their revenues from the sale of products, maintenance, royalties and long term contracts including training and installation. The sale of products involves the sale of active RFID products and raw materials. Following delivery of such systems, often the significant portion of revenues generated from the agreement results from ongoing maintenance fees and support.

Our systems are tailored to meet the specific needs of our customers. In order to satisfy these needs, the terms of each agreement, including the duration of the agreement and prices for our products and services differ from agreement to agreement.

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Operating Expenses

Our costs associated with a particular project may vary significantly depending on the specific requirements of the customer, the terms

of the agreement, as well as on the extent of the technology licensing. As a result, our gross profits from each project may vary significantly.

Our research and development expenses consist of salaries, raw material, subcontractors, equipment costs and rent allocated to research and development activities, as well as related supplies and travel and entertainment costs .

Our selling and marketing expenses consist primarily of salaries and commissions earned by sales and marketing personnel, trade show , promotional expenses and rent allocated to selling and marketing activities, as well as related supplies and travel and entertainment costs.

Our general and administrative expenses consist primarily of salaries, benefits, allocated rent and supplies, and related costs for our executive, finance, legal, human resource, information technology and administrative personnel, and professional service fees, including legal counsel , insurance and audit fees.

Net Income

Our operating results are significantly affected by, among other things, the timing of contract awards and the performance of agreements. As a result, our revenues and income may fluctuate substantially from quarter to quarter, and comparisons over longer periods of time may be more meaningful. The nature of our expenses is mainly fixed or semi-fixed and any fluctuation in revenues will generate a significant variation in gross profit and net income. Critical Accounting Policies and Estimates

The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and judgments on an ongoing basis, including those related to revenue recognition, allowance for bad debts, contingencies, stock-based compensation, valuation of inventories and impairment of long-lived assets (including goodwill and intangible assets).

We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Under different assumptions or conditions, actual results may differ from these estimates.

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S. ("US GAAP"). Our significant accounting principles are presented within Note 2 to our Consolidated Financial Statements. While all the accounting policies impact the financial statements, certain policies may be viewed to be critical. These policies are those that are most important to the portrayal of our financial condition and results of operations. Actual results could differ from those estimates. Our management believes that the accounting policies which affect the more significant judgments and estimates used in the preparation of our consolidated financial statements and which are the most critical to fully understanding and evaluating our reported results include the following:

? Revenue recognition; ? Allowance for doubtful accounts; ? Contingencies; ? Stock Based Compensation; ? Goodwill and other intangible assets; and ? Going concern.

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Revenue Recognition

We generate our revenues from the sale of products, maintenance, royalties and long term contracts including training and installation.

The sale of products currently involves the sale of active RFID products and raw materials and prior to January 2010, involved the sale of passive RFID products and CSMS. We sell our products in the U.S. through distributors and our local subsidiary, PureRFid, Inc., and directly throughout the rest of the world.

Product sales are recognized in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB No. 104”), when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable, collectability is probable, and inconsequential or perfunctory performance obligations remain. If the product requires specific customer acceptance, revenue is deferred until customer acceptance occurs or the acceptance provision lapses.

We recognize certain long-term contract revenues in accordance with ASC Topic 605-35, "Construction-Type and Production-Type Contracts".

Pursuant to ASC Topic 605-35, revenues from these contracts are recognized under the percentage of completion method. We measure the percentage of completion based on output or input criteria, such as contract milestones, percentage of engineering completion or number of units shipped, as applicable in each contract.

Provisions for estimated losses on uncompleted contracts are made during the period in which such losses are first identified, in the amount of the estimated loss on the entire contract. As of December 31, 2009, no such estimated losses were identified.

We believe that the use of the percentage of completion method is appropriate, since we have the ability, using the also independent subcontractor's evaluation, to make reasonably dependable estimates of the extent of progress made towards completion, contract revenues and contract costs. In addition, contracts executed include provisions that clearly specify the enforceable rights of the parties to the contract, the consideration to be exchanged and the manner and the terms of settlement. In all cases, we expect to perform our contractual obligations and the parties are expected to satisfy their obligations under the contract.

In contracts that do not meet all the conditions mentioned above, we utilize zero estimates of profits; equal amounts of revenue and cost are recognized until results can be estimated with sufficient accuracy.

Revenues and costs recognized pursuant to ASC Topic 605-35 on contracts in progress are subject to management estimates. Actual results could differ from these estimates.

We are not obligated to accept returned products or issue credit for returned products, unless a product return has been approved by us in advance and is according to specific terms and conditions. As of December 31, 2009 we had an allowance for customer's returns in an insignificant amount.

We apply the provisions of ASC Topic 605-25, "Revenue Recognition - Multiple-Element Arrangements". ASC Topic 605-25 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. For such arrangements, each element of the contract is accounted for as a separate unit when it provides the customer value on a stand-alone basis and there is objective evidence of the fair value of the related unit.

Maintenance and support revenues included in multiple-element arrangements are deferred and recognized on a straight-line basis over the term of the maintenance and support agreement. For these multiple element arrangements, we account for each unit of the contract (maintenance, support and services) as a separate unit, when each unit provides value to the customer on a stand-alone basis and there is objective evidence of the fair value of the stand-alone unit.

Deferred revenues and customer advances include amounts received from customers for which revenues have not been recognized.

We are entitled to royalties upon of the issuance of a certificate. Such royalties are recognized when the sales are reported to the Company (usually on a monthly basis).

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We derive our revenues mainly from sale of hardware products and long term contracts that include embedded software that

management considers to be incidental. Such revenues are recognized as mentioned above. However, in limited circumstances, we provide software upgrades with respect to the embedded software of hardware products sold to our customers in the past. Such revenues are recognized when all criteria outlined in ASC Topic 985-605, "Software - Revenue Recognition" are met: when persuasive evidence of an agreement exists, delivery of the product has occurred (i.e. the services have been provided), no significant obligations under the agreement remain, the fee is fixed or determinable and collectability is probable.

Allowance for doubtful accounts

The allowance for doubtful accounts is determined with respect to specific debts that we have determined to be of doubtful collection.

We perform ongoing credit evaluations of our customers' financial conditions and we require collateral as we deem necessary. An allowance for doubtful accounts is determined with respect to those accounts that we have determined to be doubtful of collection. If the financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances would be required. The allowance for doubtful accounts was $3,478,000 and $3,470,000 at December 31, 2008 and 2009, respectively.

Contingencies

From time to time, we are the defendant or plaintiff in various legal actions, which arise in the normal course of business. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required for these contingencies, if any, which would be charged to earnings, is made after careful and considered analysis of each individual action with our legal advisors. The required reserves may change in the future due to new developments in each matter or changes in circumstances, such as a change in settlement strategy. A change in the required reserves would affect our earnings in the period the change is made. Other than as described under the heading “Legal Proceedings” in Item 8, there are no material pending legal proceedings in which we are a party or of which our property is subject.

Stock-Based Compensation

Share-based compensation, including grants of stock options, are recognized in the consolidated statement of operations as an operating expense, based on the fair value of the award on the date of grant. The fair value of stock-based compensation is estimated using an option-pricing model.

The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in our consolidated statement of operations.

We estimate the fair value of employee stock options using a Black-Scholes valuation model. We amortize compensation costs using the graded vesting attribution method over the vesting period, net of estimated forfeitures.

Goodwill and other intangible assets Under ASC Topic 350, "Intangibles - Goodwill and Other", goodwill acquired in a business combination is deemed to have indefinite life and is not to be amortized. ASC Topic 350 requires goodwill to be tested for impairment at least annually or between annual tests in certain circumstances, and written down when impaired, rather than being amortized. Goodwill is tested for impairment by comparing the fair value of each reporting unit to its carrying value ("step 1"). If the fair value exceeds the carrying value of the reporting unit net assets, goodwill is considered not impaired, and no further testing is required. If the carrying value exceeds the fair value of the reporting unit, then the implied fair value of goodwill is determined by subtracting the fair value of all the identifiable net assets from the fair value of the reporting unit. An impairment loss is recorded for the excess, if any, of the carrying value of the goodwill allocated to the reporting unit over its implied fair value ("step 2").

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As part of the annual review for impairment in accordance with ASC Topic 350, in November 2008, we examined the fair value of the

intangible assets and the goodwill and in doing so, considered in part, a third party expert services. The valuation referred to Vuance, Inc. as a single reporting unit and was conducted on a going concern basis. Since Vuance, Inc. is closely-held, and thus without a public market for its ownership interests, the appraisal was conducted according to common appraisal practices, and based on the Free Discounted Cash-Flows ("DCF") method. In addition, we received market indication with respect to the fair value of Vuance, Inc. in the first quarter of 2009. Based on the above we were required to recognize during 2008 an impairment loss in the amount of approximately $3,235,000.

In January 2010, we completed the sale of certain of the assets (including certain accounts receivable and inventory) and certain of the liabilities (including certain accounts payable) of Vuance, Inc. acquired in the acquisition of SHC (see a description of this transaction under the caption “History of the Company” in Item 4.A). In connection with the sale, we recognized an impairment of goodwill and intangible assets in the amount of $1,119,000 as of December 31, 2009.

Going concern

We incurred substantial losses and negative cash flows from operations since our inception. We had an operating cash flow deficit in each of 2007, 2008, and 2009. As of December 31, 2009, we had an accumulated deficit of approximately $47,379 ,000 . We incurred net losses of approximately $11,311,000, $12,358,000 and $5,085,000 in the years ended December 31, 2007, 2008 and 2009, respectively. We expect to have net operating losses and negative cash flows for the foreseeable future, and expect to spend significant amounts of capital to enhance our products and services, develop further sales and operations and fund expansion. As a result, we will need to generate significant revenue to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Continuation of our current operations after utilizing our current cash reserves is dependent upon the generation of additional financial resources either through fund raising or the sale of certain assets. These matters raise substantial doubt about our ability to continue as a going concern. The financial statements have been prepared assuming that we will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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Results of Operations

The following table sets forth selected consolidated income statement data for the Company for each of the three years ended December 31, 2007, 2008 and 2009 expressed as a percentage of total revenues.

(*) Less than 0.1%. (**) Certain comparative figures have been reclassified to conform to the current period presentation. (***) Due to the sale of certain business activities in January 2010, as described in Item 4 above, those business activities are presented as discontinued operations in accordance with U.S. GAAP.

2007(***) 2008(***) 2009 Revenues 100 %(**) 100 % 100 % Cost of revenues 40.8 38.3 36.2 Gross profit 59.2 61.7 63.8 Operating expenses Research and development 11.5 9.6 9.7 Selling and marketing, net 58.4 54.7 55.1 General and administrative 22.3 14.4 17.7 Impairment loss -- -- -- Other expenses 1.1 --(*) 1.3 Total operating expenses 93.3 78.7 83.8 Capital gain from the sale of the E-ID Division -- -- -- Operating loss (34.1 ) (17.1 ) (20 ) Financial income (expenses), net (38.0 ) (17.0 ) (6.7 ) Other income (expenses), net -- -- -- Loss before income taxes (72.1 ) (34.1 ) (26.7 ) Taxes on income (3.2 )(**) (0.8 ) (0.8 ) Loss from discontinued operations (17.2 ) (33.3 ) (27.1 ) Net loss (92.4 ) (68.2 ) (54.6 )

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Operating Results Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

Revenues

Our revenues from continuing operations in 2009 were $9,304,000, compared to $18,112,000 in 2008, a decrease of 49%. The decrease in our revenues from continuing operations is primarily due to a decrease in revenues from our European Airport Project as a result of the completion of our contractual obligations during 2009. Under this project we recognized revenues in 2009 in the amount of $1,961,000 compared to $9,722,000 in 2008.

Gross Profit

Our gross profits from continuing operations in 2009 were $5,939,000 compared to $11,167,000 in 2008, a decrease of 47%. The gross

profit margin for the year 2009 increased by 2.1% to 63.8%. The decrease in gross profits from continuing operations was due to a decrease in revenues from our European Airport Project as described above.

Expenses

Our operating expenses from continuing operations in 2009 were $7,807,000, compared to $14,262,000 in 2008, a decrease of 45%. The decrease in operating expenses from continuing operations was primarily due to the reduction in sales and marketing expenses related to promotion and commissions expenses resulting from the decrease in revenues from the European Airport Project, as described above, and the reduction of our operational expenses from continuing operations including labor, rent, and other administration expenses.

Research and development from continuing operations expenses consist primarily of salaries, benefits, subcontractors, allocated overhead expense, supplies and equipment for software developers and architects, hardware engineers and program managers, as well as legal fees associated with our intellectual property. Our research and development expenses from continuing operations in 2009 were $898,000, compared to $1,738,000 in 2008, a decrease of 48%. The decrease in our research and development expenses from continuing operations was primarily due to an efficiency plan we implemented to achieve a reduction in subcontractors and labor expenses related to our efforts to develop our RFID technologies.

Sales and marketing expenses from continuing operations consist primarily of salaries and commissions earned by sales and marketing personnel, promotion expenses, trade show expenses, allocated overhead and supplies and travel and entertainment costs. Our sales and marketing expenses from continuing operations in 2009 were $5,131,000, compared to $9,905,000 in 2008, a decrease of 48%. The decrease in the sales and marketing expenses from continuing operations was primarily due to the decrease in sales promotion and commission expenses related to the decrease in revenues from the European Airport Project, as described above, and labor, rent, traveling and marketing expenses related to our activities in the U.S.

General and administrative expenses from continuing operations consist primarily of salaries, benefits, allocated overhead and supplies, and related costs for our executive, finance, legal, human resource, information technology and administrative personnel, and professional service fees, including legal counsel insurance and audit fees. Our general and administrative expenses from continuing operations in 2009 were $1,648,000, compared to $2,611,000 in 2008, a decrease of 37%. The decrease in general and administrative expenses from continuing operations was primarily due to reductions in labor, rent, and other administration expenses.

Additionally, other expenses from continuing operations consist of expenses that relate to litigations that settled during the reported periods as described in "Legal Proceedings" in Item 8 and accruals related to legal proceeding exposures. Our other expenses from continuing operations in 2009 were $130,000, compared to $8,000 in 2008. The increase in our other expenses from continuing operations in 2009 related to the litigation with Secu-Systems Ltd., as described in Item 8 "Legal Proceedings".

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Financial Expenses, net

Financial expenses from continuing operations for the twelve months ended December 31, 2009 and 2008, were $620,000 and

$3,087,000, respectively. The decrease in financial expenses from continuing operations is mainly due to the decrease in financial expenses with respect to Convertible Bonds from $2,214,000 in 2008 to $565,000 in 2009. The financial expenses in 2008 were higher due to a breach of certain convertible bond covenants that required us to amend the convertible bond agreement including penalties and the acceleration of deferred expenses and the remaining discount amounts (attributed to warrants and the beneficial conversion feature), and due to financial expenses related to marketable securities. During 2008, we realized losses from the sale of marketable securities in the amount of $862,000, compared to $0 during 2009.

Taxes on income

Taxes on income from continuing operations are mainly expenses related to withholding tax at source related to our project with a European country. Taxes on income from continuing operations for the twelve months ended December 31, 2009 and 2008 were $71,000 and $137,000, respectively. The decrease is mainly due to a change in the percentage of the withholding tax at source.

Loss from discontinued operations

Loss from discontinued operations for the twelve months ended December 31, 2009 and 2008 were $2,526,000 and $6,039,000, respectively. The loss from discontinued operations is attributed to the sale of our EAC and CSMS businesses, which were sold in January 2010. A loss from discontinued operations in 2008 in the amount of $272,000, related to Vuance - RFID Inc. activity to distribute complementary locks and electronic locks which commenced in 2008 and was terminated in the fourth quarter of 2008.

Net Loss

As a result of the factors described above, our net loss in 2009 was $5,085,000, compared to a net loss of $12,358,000 in 2008. Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Revenues

Our revenues from continuing operations in 2008 were $18,112,000, compared to $12 , 236,000 in 2007, an increase of 48%. The increase in our revenues from continuing operations is primarily due to our European Airport Project for which we recognized revenues in 2008 in the amount of $9,722,000 compared to $2,181,000 in 2007.

Gross Profit

Our gross profits from continuing operations in 2008 were $11,167,000 compared to $7,244,000 in 2007, an increase of 54%. The gross

profit margin for the year 2008 increased by 2.5% to 61.7%. The increase in our 2008 gross profit margin from continuing operations was primarily due to the different mix of products, which carry higher margins .

Expenses

Our operating expenses from continuing operations in 2008 were $14,262,000, compared to $11,417,000 in 2007, an increase of 25%. The increase in operating expenses from continuing operations was mainly due to an increase in sales and marketing expenses related to promotion and commissions expenses due to the increase in revenues.

Research and development expenses from continuing operations consisted primarily of salaries, benefits, subcontractors, allocated overhead expense, supplies and equipment for software developers and architects, hardware engineers and program managers, as well as legal fees associated with our intellectual property. Our research and development expenses from continuing operations in 2008 were $1,738,000, compared to $1,411,000 in 2007, an increase of 23%. The increase in the research and development expenses from continuing operations was primarily due to research and development expenses associated with our new technology, active RFID.

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Sales and marketing expenses from continuing operations consisted primarily of salaries and commission earned by sales and marketing

personnel, promotion expenses, trade show expenses, allocated overhead and supplies and travel and entertainment costs. Our sales and marketing expenses from continuing operations in 2008 were $9,905,000, compared to $7,144,000 in 2007, an increase of 39%. The increase in the sales and marketing expenses from continuing operations was primarily due to the increase in sales promotion and commission expenses related to the European country projects.

General and administrative expenses from continuing operations consisted primarily of salaries, benefits, allocated overhead and supplies, and related costs for our executive, finance, legal, human resource, information technology and administrative personnel, and professional service fees, including legal counsel insurance and audit fees. Our general and administrative expenses from continuing operations in 2008 were $2,611,000, compared to $2,728,000 in 2007, a decrease of 4%.

Additionally, other expenses from continuing operations consisted of one-time expenses that relate to litigations that settled during the reported periods as described in "Legal Proceedings" in Item 8 and accruals related to legal proceeding exposures. Our other expenses from continuing operations in 2008 were $8,000, compared to $134,000 in 2007.

Financial Expenses, net

Financial expenses from continuing operations for the twelve months ended December 31, 2008 and 2007, were $3,087,000 and $4,646,000, respectively. The decrease in financial expenses from continuing operations is mainly due to lower financial expenses related to our marketable securities. During 2008, we realized losses from the sale of marketable securities in the amount of $862,000, compared to $1,116,000 during 2007 and decrease in value of marketable securities, net in the amount of $0 and $2,699,000 during the year ended December 31, 2008 and 2007 respectively. This decrease was offset by an increase in financial expenses with respect to Convertible Bonds in the amount of $2,214,000 and $745,000 in 2008 and 2007, respectively.

Taxes on income

Taxes on income from continuing operations are mainly expenses related to withholding tax at source related to our project with a European country. Taxes on income from continuing operations for the twelve months ended December 31, 2008 and 2007 were $137,000 and $390,000, respectively. The decrease is mainly due to a change in the percentage of the withholding tax at source.

Loss from discontinued operations

Loss from discontinued operations for the twelve months ended December 31, 2008 and 2007 were $6,039,000 and $2,102,000, respectively. The loss from discontinued operations is attributed to the selling of our EAC and CSMS businesses. A loss from discontinued operations in 2008, amounted to $272,000, relates to Vuance - RFID Inc. activity to distribute complementary locks and electronic locks which commenced in 2008 and was terminated in the fourth quarter of 2008.

Net Loss

As a result of the factors described above, our net loss in 2008 was $12,358,000, compared to a net income of $11,311,000 in 2007. Impact of Inflation and Currency Fluctuations

Because the majority of our revenue is paid in or linked to the U.S. dollar, we believe that inflation and fluctuation in the NIS/dollar exchange rate has limited effect on our results of operations. However, a portion of the cost of our Israeli operations, mainly personnel, is incurred in NIS. Because some of our costs are in NIS, inflation in NIS/dollar exchange rate fluctuations do have some impact on our expenses and, as a result, on our net income. Our NIS costs, as expressed in dollars, are influenced by the extent to which any increase in the rate of inflation in Israel is not offset, or is offset on a delayed basis, by a devaluation of the NIS in relation to the dollar.

Historically, the New Israeli Shekel has been devalued in relation to the U.S. dollar and other major currencies principally to reflect the extent to which inflation in Israel exceeds average inflation rates in Western economies. Such devaluations in any particular fiscal period are never completely synchronized with the rate of inflation and therefore may lag behind or exceed the underlying inflation rate.

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In 2009 , the rate of appreciation of the NIS against the U.S. dollar was 0.7% and the rate of inflation, in Israel, was 3.9%. It is unclear

what the devaluation/evaluation and inflation rates will be in the future, and we may be materially adversely affected if inflation in Israel exceeds the devaluation of the NIS against the U.S. dollar or the evaluation of the NIS against the U.S. Dollar, or if the timing of the devaluation lags behind increases in inflation in Israel.

We do not engage in any hedging or other transactions intended to manage risks relating to foreign currency exchange rate or interest rate fluctuations. At December 31, 2009, we did not own any market risk sensitive instruments except for our revolving line of credit. However, we may in the future undertake hedging or other similar transactions or invest in market risk-sensitive instruments if our management determines that it is necessary or advisable to offset these risks.

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Seasonality

Our quarterly operations are subject to fluctuations due to several factors, including the factors discused under the caption “Risk Factors—The time from our initial contact with a customer to a sale is long and subject to delays which could result in the postponement of our receipt of revenues from one accounting period to the next, increasing the variability of our results of operations and causing significant fluctuations in our revenue from quarter to quarter” in Item 3.D. It is our experience that, as a general matter, a majority of our sales are made during the latter half of the calendar year consistent with the budgetary, approval and order processes of our governmental agencies customers. Additionally, the period between our initial contact with a potential customer and the purchase of our products and services is often long and subject to delays associated with the budgeting, approval and competitive evaluation processes that frequently accompany significant expenses, particularly for government and government agencies organizations. A lengthy sales cycle may have an impact on the timing of our revenue, which may cause our quarterly operating results to fall below investor expectations. We believe that a customer's decision to purchase our products and services is discretionary, involves a significant commitment of resources, and is influenced by customer budgetary cycles. To successfully sell our products and services, we generally must educate our potential customers regarding their use and benefits, which can require significant time and resources. This significant expenditure of time and resources may not result in actual sales of our products and services, which could have an adverse effect on our results of operations. New Accounting Pronouncements Accounting pronouncements adopted in 2009

ASC Topic 105, "Generally Accepted Accounting Principles"

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (the "ASC" or "the Codification"), which replaces FASB Statement No. 162: “The Hierarchy of Generally Accepted Accounting Principles”. Following SFAS No. 168, The Codification became the single authoritative source for US GAAP. The FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts, rather the FASB will issue Accounting Standards Updates (ASU's). SFAS No. 168 became effective for financial statements issued for interim and annual periods ending after September 15, 2009.

Concurrently with the issuance of SFAS 168, the FASB issued ASU 2009-01, an amendment based on SFAS No. 168 in order to codify SFAS No. 168 within ASC Topic 105, "Generally Accepted Accounting Principles". ASU 2009-01 includes SFAS No. 168 in its entirety, including the instructions contained in Appendix B of the statement. The guidance in ASC Topic 105 became effective for financial statements issued for interim and annual periods ending after September 15, 2009.

Applying the guidance in ASC Topic 105 did not impact our financial condition and results of operations. We have revised references to pre-Codification GAAP in our financial statements for the year ended December 31, 2009.

ASC Topic 805, "Business Combinations"

In December 2007, the FASB issued ASC Topic 805, "Business Combinations", to change how an entity accounts for the acquisition of a business. ASC Topic 805 replaces the previous standard in its entirety for business combinations.

ASC Topic 805 carries forward the existing requirements to account for all business combinations using the acquisition method (formerly called the purchase method). In general, ASC Topic 805 requires acquisition-date fair value measurement of identifiable assets acquired, liabilities assumed, and non-controlling interests in the acquiree.

The new measurement requirements result in the recognition of the full amount of acquisition-date goodwill, which includes amounts attributable to non-controlling interests. The acquirer recognizes in income any gain or loss on the remeasurement to acquisition-date fair value of consideration transferred or of previously acquired equity interests in the acquiree. Neither the direct costs incurred to effect a business combination nor the costs the acquirer expects to incur under a plan to restructure an acquired business may be included as part of the business combination accounting. As a result, those costs are charged to expense when incurred, except for debt or equity issuance costs, which are accounted for in accordance with other generally accepted accounting principles.

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ASC Topic 805 also changes the accounting for contingent consideration, in process research and development, and restructuring costs.

In addition, after Statement ASC Topic 805 is adopted, changes in uncertain tax positions or valuation allowances for deferred tax assets acquired in a business combination are recognized as adjustments to income tax expense or contributed capital, as appropriate, even if the deferred tax asset or tax position was initially acquired prior to the effective date of ASC Topic 805.

We adopted ASC Topic 805 as of the required effective date of January 1, 2009 and apply its provisions prospectively to business combinations that occur after adoption. The adoption of ASC Topic 805 did not have a significant effect on our financial statements.

ASC Topic 810 - 10, "Consolidation"

In December 2007, the FASB issued ASC Topic 810-10, "Consolidation". The Statement changes the accounting for, and the financial statement presentation of, noncontrolling equity interests in a consolidated subsidiary. Under ASC Topic 810-10, all entities are required to report noncontrolling (minority) interests in subsidiaries as a component of consolidated equity in the consolidated financial statements. In addition, the Statement requires transactions between an entity and noncontrolling interests that do not result in deconsolidation to be treated as equity transactions and provides new guidance on accounting for deconsolidation. ASC Topic 810-10 is effective for fiscal years beginning on or after December 15, 2008. The Statement applies prospectively from the effective date except for the presentation and disclosure requirements, which must be applied retrospectively. We adopted ASC Topic 810-10 as of January 1, 2009; however, as of the date of this Annual Report we do not hold any noncontrolling (minority) interests in subsidiaries. Accordingly, no adjustments have been made to our financial statements in connection with our adoption of ASC Topic 810-10.

ASC Topic 855, “Subsequent Events”

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, which was codified into ASC Topic 855, “Subsequent Events”. This standard establishes general standards of accounting and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC Topic 855 is effective for interim or annual financial periods ending after June 15, 2009. The adoption did not have a material impact on our financial position, results of operations or cash flows.

ASC Topic 820, “Fair Value Measurements and Disclosures”

In April 2009, the FASB issued additional guidance on determining whether a market for a financial asset is not active and a transaction is not distressed for fair value measurements. The new guidance became effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of the new guidance did not have a material impact on our consolidated financial statements Accounting pronouncements not yet effective

ASC Topic 605 - 25 “Revenue Recognition - Multiple-Element Arrangements”

In October 2009, the FASB issued amendments to the accounting and disclosure for revenue recognition. These amendments, effective for fiscal years beginning on or after June 15, 2010 (fiscal year 2011 for us), with early adoption permitted, modify the criteria for recognizing revenue in multiple element arrangements and require companies to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. Additionally, the amendments eliminate the residual method for allocating arrangement considerations. We are currently evaluating the impact that the adoption would have on our consolidated financial statements.

ASC Topic 985 - 605, "Software - Revenue Recognition"

In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-14, Certain Revenue Arrangements That Include Software Elements – a consensus of the FASB Emerging Issues Task Force, to amend the scope of arrangements under ASC 985, Software, 605, “Revenue Recognition” to exclude tangible products containing software components and non-software components that function together to deliver a product’s essential functionality. Such components shall be subject to ASC Topic 605 - 25 “Revenue Recognition - Multiple-Element Arrangements”.

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The amended guidance in ASC 605-25 and ASC 985-605 is effective prospectively for revenue arrangements entered into or materially

modified in fiscal years beginning on or after June 15, 2010, with early application and retrospective application permitted. We expect to prospectively apply the amended guidance in ASC 985-605, concurrently with the amended guidance in ASC 605-25, beginning on January 1, 2011.

We are in the process of evaluating the impact the amendments to ASC 605-25 and ASC 985-605 will have on our consolidated financial statements.

ASC Topic 820, “Fair Value Measurements and Disclosures”

In January 2010, the FASB updated the “Fair Value Measurements Disclosures” accounting standard. This update will require (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). The update clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value, and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs.

As applicable to us, the update will become effective as of the first interim or annual reporting period beginning after December 15, 2009, except for the disclosures of the Level 3 roll forward information, which is required for annual reporting periods beginning after December 15, 2010 and for interim reporting periods within those years. The adoption of the new guidance is not expected to have a material impact on our financial position, results of operations or cash flows.

Net cash used in operating activities for the twelve months ended December 31, 2009 was $1,661,000 compared to $5,264,000 during

the period ended December 31, 2008, a decrease of $3,603,000, or 68%. This decrease was primarily due to a decrease in inventory of $1,008,000 during 2009 compared to an increase of $1,001,000 in 2008 to a decrease in accrued expenses and other liabilities of $214,000 in 2009 compared to $1,663,000 in 2008, to an increase in trade receivables of $667,000 during 2009 compared to a decrease of $1,610,000 during 2008 and to a decrease in net loss from $5,085,000 in 2009 to $12,358,000 in 2008. On the other hand a decrease in impairment loss from $1,119,000 in 2009 to $3,235,000 in 2008, a decrease in amortization of discount on convertible bonds from $0 in 2009 to $810,000 in 2008 and a decrease in realized loss from sale of marketable securities from $0 in 2009 to $862,000 in 2008.

Net cash provided by investing activities during the period ended December 31, 2009 was $1,676,000, compared to $4,136,000 during the period ended December 31, 2008, a decrease of $2,460,000. This decrease was primarily due to the proceeds from the sale of marketable securities in the amount of $3,192,000 during 2008, compared to $0 during 2009.

Net cash used in financing activities during the year ended December 31, 2009 was $171,000, compared to $174,000 during the year ended December 31, 2008, a decrease of $3,000.

As of December 31, 2009, our cash and cash equivalents totaled $656,000, compared to $812,000 as of December 31, 2008. Restricted cash totaled $330,000 as of December 31, 2009, compared to $2,150,000 as of December 31, 2008. The main decrease in restricted cash deposit is related to a bank deposit to secure a guarantee to a supplier, related to a certain project of the Company with a European country which was paid to the supplier according to the agreement, and cash which is pledged to our major Convertible Bond holder in 2008. Restricted cash is invested in deposits, which mature within up to one year, and is used to secure agreements with a customer or a bank. We have accumulated net losses of approximately $47,379,000 from our inception through December 31, 2009, and we have continued to accumulate net losses since December 31, 2009. Since May 1999, we have funded operations primarily through cash generated from our initial public offering on NASDAQ Europe in April 1999, which resulted in total net proceeds of approximately $23,600,000 (before offering expenses), and, to a lesser extent, from our sale of the shares of our former subsidiary, InkSure Technologies, Inc., from borrowings from financial institutions, from private placements of our ordinary shares and warrants to purchase our ordinary shares, in 2004 and 2005, from issuance of convertible bonds and warrants in 2006, 2007 and 2008 from the sale of OTI shares that were received from the sale of the E-ID Division to OTI. As of December 31, 2009, our principal source of liquidity was $656,000 of cash and cash equivalents. As of December 31, 2009, we had $4,747,000 of debt outstanding relating to obligations under our Convertible Bonds, accrued expenses of $2,859,000 and an obligation for severance pay to Israeli employees of $304,000, of which $283,000 is already covered by monthly deposits to severance pay funds and insurance policies.

B. Liquidity and Capital Resources

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During June and July 2004, we received aggregate gross proceeds of $1,225,000 from the private placement of 265,001 ordinary shares

and five-year warrants to purchase 106,001 ordinary shares at an exercise price of $6.47 per share. In connection with the private placement, our placement advisors received warrants to purchase 77,941 ordinary shares at an exercise price of $6.47 per share.

In August and September 2004, we received gross proceeds of $2,200,000 from a private placement to accredited investors of 420,000 ordinary shares and five-year warrants to purchase 168,000 ordinary shares at an exercise price of $6.47 per share. In connection with the private placement, our placement agent received warrants to purchase 30,240 ordinary shares at an exercise price of $6.47 per share and 75,601 ordinary shares at an exercise price of $5.00 per share. All of such warrants issued in this private placement, except 75,601 warrants with an exercise price of $5.00, were called by us at a redemption price of $0.0588 per warrant pursuant to our right to do so if the closing price (or closing bid price) of our ordinary shares on an U.S. stock exchange, NASDAQ or the OTC Bulletin Board was equal to or greater than $14.70 per share for 10 out of any 15 consecutive trading days. The investors exercised warrants to purchase an aggregate of 194,627 ordinary shares. During the fourth quarter of 2004, 120,176 warrants were exercised for an aggregate amount of approximately $778,000, and approximately $130,000 was received with respect to shares to be allotted in 2005. During the year 2005, 54,451 warrants were exercised for an aggregate amount of approximately $352,000.

In November and December of 2005, we received aggregate gross proceeds of $3,050,000 from a private placement by certain investors of 836,292 ordinary shares (of which 150,807 shares were issued after December 31, 2005) and five-year warrants to purchase 292,701 ordinary shares at an exercise price of $3.53 per share. The private placement was made to accredited investors pursuant to Rule 506 of Regulation D, promulgated under the Securities Act of 1933, as amended (the “Securities Act”) and to foreign private investors in offshore transactions in reliance on Regulation S promulgated under the Securities Act. In connection with the private placement, our placement agent received a cash fee of $150,000 and our placement advisors received five-year warrants to purchase 8,446 ordinary shares at an exercise price of $3.53 per share. The investors that participated in this private placement were granted the right, for one year following the closing of the private placement and subject to certain limitations, to participate in future issuances of our capital stock or securities (a “Subsequent Financing”) up to an amount which would permit each investor to maintain its fully diluted percentage equity ownership at the same level existing prior to the Subsequent Financing (after giving effect to such Subsequent Financing). The warrants are callable, subject to certain limitations, at our option if the closing bid price per ordinary share of our ordinary shares equals or exceeds $7.06 for 20 trading days during the term of the warrants. We may however only call, in any 3-month period, the lesser of (i) 20% of the aggregate amount of the warrants initially issued to a warrant holder, or (ii) the total number of warrants then held by such holder.

In November 2006, we raised $3,156,500 through the issuance of Units consisting of Convertible Bonds and Warrants. Units valued at $2,500,000 were issued to a single investor, and Units valued at $656,500 were issued to Special Situation Funds (SSF), based on the participation rights provided in a private placement during 2005, which were existing shareholders of us. According to their original terms the Convertible Bonds mature three years from the date of issuance and bear interest at an annual rate of 8% (which was updated as described below). Any withholding and other taxes payable with respect to the interest will be grossed up and paid by us (approximately 3% of the principal of the bonds); payment of interest will be net of any tax. Subject to certain redemption provisions, as described below, the Convertible Bonds may be converted at any time, at the option of the investors, into our ordinary shares at an original conversion price of $5 per share (see amendment below). The investors were also granted Warrants entitling them to acquire a total of 134,154 ordinary shares at an original exercise price of $5 per share during the next five years (see amendment below). In respect of this transaction, we paid approximately $215,000 cash as issuance expenses and granted an option to acquire up to 25,000 shares of us to a third party, exercisable at an original $5 per share. The fair market value of this grant was $ 40,000.

If we fail to fulfill certain conditions, the investors may accelerate repayment of the principal amount of $3,123,500 of the Convertible Bonds, in which case all interest payable until Maturity Date will immediately become due and payable.

We have determined that the embedded conversion feature should not be separated from the host instrument because it is qualified for equity classification. Therefore the transaction was accounted for in accordance with ASC Topic 470 – 20, “Debt – Debt with Conversion and Other Options”. The fair market value of the Warrants was determined based on the fair value of the instruments issued using the Black-Scholes pricing model, assuming a risk free rate of 5%, a volatility factor of 78.21%, dividend yields of 0% and an expected life of 2 years. The original expiration date of the Warrants is November 2011(see amendment below).

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As a result, we recorded in 2006 an amount of $282,000 with respect to the Warrants and an amount of $632,000 as beneficial

conversion feature with respect to the Convertible Bonds, as a credit to shareholders’ equity (additional paid in capital). The discount of the bonds as a result of the value assigned to the warrants and the beneficial conversion feature was amortized during the contractual term of the bonds.

In November 2007, due to a breach of certain conditions of the convertible bonds, the investors had the right to accelerate the repayment of the principal amount of the bonds with all the interest payable until the maturity date of the bonds. However, we signed an amendment to the agreement with the investors under which we were required to pay to one of the investors the abovementioned interest amount ($276,000) (with any withholding and other taxes payable with respect to the interest (approximately 3% of the principal of the bonds)) and with respect to the other investors we changed the conversion ratio of the bonds to $4.25. In a consideration the investors waived their right to accelerate the repayment of the bonds. We accounted for the amendment as a modification of the bonds.

In June 2008, following a breach in the amended terms of the convertible bonds, we reached an agreement with Brevan Howard Master Fund Limited (“BH”), the holder of a $2,500,000 convertible bond issued by us, under which, among other things, BH waived our compliance with certain covenants under its Convertible Bonds, in exchange for:

In addition, under certain circumstances BH may demand an early payment in part or in full of the principal amount of the convertible

bond (up to the $2,500,000 as mentioned above). We accounted for the amendment as an extinguishment of the Bonds.

Due to the breach of certain convertible bonds covenants, we had to recognize, in 2008, financial expenses in the amount of $553,000, to accelerate deferred expenses in the amount of $138,000 and to accelerate the remaining discount amounts (attributed to warrants and beneficial conversion feature) in the amount of $724,000. In addition, as of December 31, 2008, the Convertible Bond was classified as a current liability.

On August 12, 2009, we entered into an agreement with BH to amend certain term of the convertible bond (the “Amendment Agreement”), pursuant to which, in exchange for security in certain of our assets of us, including all incomes and/or rights in connection therewith to which we and our Subsidiaries are and shall be entitled to as a result of the Slovakian Project Arbitral Award, and all amounts in connection with the project related to the arbitration, we and BH agreed to waive compliance and amend certain provisions of the convertible bond to, among other things, (i) increase the applicable rate of interest to 12% and by 0.5% every 180 days afterward, (ii) release us from certain payments upon the completion of certain payments of principal and interest due under the convertible bond, and (iii) make monthly payments of $41,000 against the total amount due under the convertible bond over an eight (8) year period. The modification was determined to be a debt extinguishment.

On November 9, 2009, we entered into an Amendment Agreement with Special Situation Funds (“SSF”), the holder of the convertible bond in the amount of $623,565, pursuant to which, in exchange for security in certain of our assets, we and SSF agreed to waive compliance and amend certain provisions of the convertible bond to, among other things, (i) increase the applicable rate of interest to 12% and by 0.5% every 180 days afterward, (ii) release us from certain payments upon the completion of certain payments of principal and interest due under the convertible bond, and (iii) make monthly payments of $10,000 against the total amount due under the convertible bond over an eight (8) year period; and (iv) reduce the exercise price of the convertible bond and the warrants to $3 and $2.8, respectively. The modification was determined to be a debt extinguishment.

As of December 31, 2009, in light of the above amendments, total principal amount of $430,000 is presented in current liabilities and a total principle amount of $2,624,000 is presented in long-term liabilities. In addition, an amount of $1,693,000 which includes interest and penalties that it was agreed to be paid after the principal amount is paid, and therefore is presented among long-term loan and others.

As of December 31, 2009 and the filing date of this Form 20-F, we are in compliance with covenants under the amendment Convertible Bond agreements.

1. Increasing the interest rate to 10% starting March 31, 2008. Any withholding and other taxes payable with respect to the interest will be grossed up and paid by us (approximately 3% of the principal of the bonds).

2. Reducing the exercise price of the bond and the warrants to $3 and $2.8, respectively. 3. Our undertaking to place a fixed charge on all income and/or rights in connection with a certain European Airport Project. This

charge shall be senior to any indebtedness and/or other pledge and encumbrance, but shall, however, be subject to certain rights of us to use part of the income.

4. Our granting of certain anti-dilution rights with respect to the warrants held by the investor.

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In January 2010 we have received the investors’ consent to sell our EAC and CSMS businesses (as described in ITEM 4). In addition,

we created a specific (fixed) charge in favor of the investors on the intellectual property rights belonging to the remaining RFID business of us. On December 31, 2006, we concluded the OTI Transaction for 2,827,200 restricted ordinary shares of OTI. One seventh of the

restricted ordinary shares vest at the end of each calendar quarter, beginning with the quarter ended December 31, 2006.

As a result of the OTI Transaction, we recognized $10,536,000 as a capital gain on the sale of the E-ID Division in fiscal year 2006.

The capital gain was calculated based on OTI’s share price on the closing date, less a discount due to the lock up restrictions of the shares (based on an independent appraisal), the carrying value of the assets that were transferred to OTI and direct expenses (in an amount of $1,550,000) associated with the sale.

The direct expenses included, inter alia, the fair value of 212,040 shares out of the shares received by us from OTI that will be transferred to consultants, as a finder and legal fee, in connection with the transaction.

In connection with the completion of the sale, during January 2007, a financial institution extended a $2,500,000 loan to us. In order to secure this loan we deposited our OTI shares in favor of the financial institution. This loan was repaid in full during 2007.

During 2007 and 2008, we sold 1,414,716 and 1,200,444 shares of OTI for a total consideration of $7,639,000 and $3,192,000, respectively.

On January 28, 2010 (the “Closing Date”), Vuance, Inc., our wholly-owned subsidiary, completed the sale of certain of its assets (including certain accounts receivable and inventory) and certain of its liabilities (including certain accounts payable) (the “Sale”) related to our electronic access control market (the “Vuance EAC Business”), pursuant to a certain Agreement for Purchase and Sale of Business Assets, dated as of January 9, 2010 between Vuance, Inc. and OLTIS Security Systems International, LLC (“OSSI”). On the Closing Date, as consideration for the Sale of the Vuance EAC Business, OSSI paid Vuance, Inc. $161,518.00 in cash. In addition, OSSI paid off (the “Bridge Bank Payment”) a certain Business Financing Agreement (the “Loan”) between Vuance, Inc. and Bridge Bank, National Association (“Bridge Bank”). Prior to the Bridge Bank Payment, Vuance, Inc. had an account receivable line of credit from Bridge Bank in an aggregate amount of up to $1,000,000, bearing interest at the WSJ Prime Rate (subject to a 6% floor) plus 2.5% annualized on the average daily gross financed amount outstanding. Bridge Bank also held a perfected first position security interest in all of Vuance, Inc.’s current and future assets, including intellectual property and general intangibles. Following the Bridge Bank Payment, the Loan was released, and we and Vuance, Inc. no longer have any liabilities associated with the Loan.

On January 29, 2010 (the “Closing Date”), we and our subsidiary, Vuance, Inc., completed the sale of certain of the assets and certain of the liabilities of Vuance, Inc. (the “Sale”) related to our Government Services Division (the “Vuance CSMS Business”), pursuant to a certain asset purchase agreement dated as of January 29, 2010 between us, Vuance, Inc., WidePoint Corporation (“WidePoint”) and Advance Response Concepts Corporation. On the Closing Date, as consideration for the Sale, WidePoint paid Vuance, Inc. $250,000.00. In addition, WidePoint agreed to pay Vuance, Inc. a maximum earnout of $1,500,000.00 over the course of calendar years 2010, 2011, and 2012, subject to the performance of certain financial requirements of the Vuance CSMS Business during each of those years.

On March 22, 2010, we entered into a Subscription Agreement with a private investor, Mr. Yitzchak Babayov (the “Investor”), pursuant to which at a March 23, 2010 closing we issued 1,538,461 ordinary shares of the Company (the “Transaction Shares”) in consideration of a one-time cash payment in the amount of $200,000. Following the issuance of the Transaction Shares, we have 7,262,882 ordinary shares issued and outstanding. Simultaneously with the issuance of the Transaction Shares, we entered into a Warrant Agreement with the Investor, pursuant to which the Investor received a warrant (the “Warrant”) to purchase up to 553,846 of our ordinary shares at an exercise price of $0.15 per share. The Warrant has a term of five (5) years and contains standard adjustments for stock dividends, stock splits, reclassification and similar events. We intend to ask our shareholders to approve and ratify at our next annual general meeting that the purpose of the private placement of the Transaction Shares and Warrant was to provide the Investor with more than twenty five percent (25%) of our issued and outstanding shares in accordance with Israeli law, which exempts such an acquisition from Israeli tender offer requirements.

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The Transaction Shares and the ordinary shares issuable upon the exercise of the Warrant have not been registered under the Securities

Act and may not be offered or sold except pursuant to an effective registration statement or an applicable exemption from the registration requirements of the Securities Act.

During the period from January 1, 2009 to December 31, 2009, our capital expenditures totaled approximately $100,000 (compared to $73,000 during 2008 and $116,000 during 2007), of which approximately $7,000 (compared to $39,000 during 2008 and $62,000 during 2007) was expended at or upon our facilities in Israel, and approximately $93,000 (compared to $34,000 during 2008 and $54,000 during 2007) was expended upon the various facilities of our subsidiaries outside of Israel. During the first financial quarter of 2010, our capital expenditures totaled approximately $1,000.

Continuation of our current operations after utilizing our current cash reserves is dependent upon the generation of additional financial resources either through the issuance of additional equity or debt securities or other sources of financing or the sale of certain assets of the Company. These matters raise substantial doubt about our ability to continue as a going concern. The financial statements have been prepared assuming that we will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Our past research and development efforts have helped us to achieve our goal of offering our customers a complete line of products and

solutions. As of December 31, 2009 the number of employees in our research and development activities was 14. We focus on the new technology of our active RFID, and expect to maintain our current research and development efforts. We spent $1.4 million, $1.7 million and $0.9 million on research and development in 2007, 2008 and 2009, respectively. These amounts were spent on the development or improvement of our technologies and products, primarily in the area of RFID in 2009, and in 2008 and 2007, primarily in the areas of automatic contactless smart card production line, data capture, management software, population registry software packages, security printing, and document authentication. We will continue to research and develop our RFID technology and products. There can be no assurance that we can achieve any or all of our research and development goals.

See – “Results of operations” in Item 5.A for additional information.

Industry Trends

The increased demand for better security systems and services has positively affected trends within the industry. Access control and

asset management are now leading security concerns in commercial and governmental enterprises. This has created an increasing demand for secure, precise and cost-effective means to positively identify, locate, track, monitor, count and protect people and objects, including inventory and vehicles. Our RFID-enabled security and asset management solutions provide an optimal solution to these problems as our solutions reliably identify and track the movement of people and objects in real time enabling our customers to detect unauthorized movement of vehicles, trace packages and containers, control personnel and vehicle access to premises, and protect personnel in hazardous working environments and disaster management situations.

Market and Operational Trends

Our quarterly operations results may be subject to significant fluctuations due to several factors. Some of these factors are based primarily on the timing of large orders, which represent a significant percentage of our revenues, customer budget cycles and impact on the timing for buying decisions, as well as competitive pressures and the ability of our partners, distributors and system integrators to become effective in selling and marketing our products, as well as other factors.

We have also observed a considerable increase in marketing leads from our growing partnerships, distributions and systems integration network, and a particular interest by federal as well as local government customers in public safety or incident management. We expect to continue to benefit from marketing programs and leads generated by this network, as well as sales opportunities identified by them. We intend to expand our marketing and implementation capacity through these third parties, including vendors of complementary products and providers of service applications. By employing third parties in the marketing and implementation process, we expect to enhance sales by taking advantage of their market presence.

C. Research and Development

D. Trend Information

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A significant portion of our 2009 revenues was derived from our governmental projects and the remainder was derived from

commercial customers. Historically, our revenues have been concentrated in a few large orders and in a relatively small number of customers. We expect this trend to change and we expect that future revenues will come from larger number of orders and customers.

For more information about our expectations regarding future cost of revenues, future operating expenses and liquidity and capital resources, please refer to the section captioned “Risk Factors” in Item 3.D., the sections captioned “Results of Operations” in Item 5.A and the section captioned “Liquidity and Capital Resources” in Item 5.B.

Our development and marketing efforts for the solution and product platforms are aimed at addressing several systems and service trends that we see developing in the industry.

In December 2006, we concluded the sale of our E-ID Division to OTI. The sale allowed management to focus primarily on the market opportunities we identified for our Credentialing and active RFID solutions. Following the events of September 11, 2001 and other major disasters it has become increasingly important for agencies to track personnel, assets, and other objects on a local positioning basis. Prior to January 2010, we offered our CSMS and RAPTOR solutions to fulfill critical homeland security requirements for public safety and emergency services agencies and local counter-terrorism task forces. In January 2010, we completed the sale of our Electronic Access Control Suite and our Credentialing & Incident Management Suite to focus our sales and marketing efforts on our core competencies, active RFID technology and our PureRFid Suite.

As of the date of this Annual Report, we expect that our 2010 revenues will be primarily derived from:

Recent Developments and Outlook

We expect revenues to continue to be derived from one-time sales and recurring fees, sales of high-end solutions, sales of products,

consumables and technology. Sales are expected to continue through OEM partnerships and continual upgrades, maintenance and support will continue to be provided to customers. For more information see the section captioned “ Recent Developments ” in Item 4.

We do not have any off-balance sheet transactions that have or are reasonably likely to have a material effect on our current or future

financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

? Smart ID technologies; and ? Active RFID.

E. Off Balance Sheet Arrangements

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Contractual Obligations

The following table summarizes our contractual obligations and commitments as of December 31, 2009 , which will require significant cash outlays in the future:

Long-term debt consists of amounts due on loans from banks, which is described in Item 18, Note 9 to the financial statements included in this Annual Report. Operating lease obligations represent commitments under several lease agreements for our facilities and the facilities of certain subsidiaries. Convertible bonds represent the amount due to the investors under the convertible bonds assuming there will no conversion to shares, which is described in Item 18, Note 13 to the financial statements included in this Annual Report. Total contractual cash obligations represent outstanding commitments for loans from banks, convertible bonds, purchase obligations and lease agreements for facilities. We are not a party to any capital leases.

(*) As of December 31, 2009 and the filing date of this Form 20-F, we are in compliance with the terms and conditions of our convertible bond agreements, as amended. See Item 5.B, “Liquidity and Capital Resources,” regarding recent amendments to our agreements with the holders of the Convertible Bonds.

F. Tabular Disclosure of Contractual Obligations

Contractual Obligations Total Less than 1

year 1-3 years 3-5 years More than 5

years Long-term debt obligations -- -- -- -- -- Capital (finance) lease obligations -- -- -- -- -- Operating lease obligations $ 620 ,000 $ 332,000 $ 234,000 $ 54 ,000 -- Purchase obligations -- -- -- -- -- Convertible bonds* $ 4,747,000 $ 430,000 $ 1,835,000 $ 1,446,000 $ 1,036,000 Total contractual cash obligations $ 5,367,000 $ 762,000 $ 2,069,000 $ 1,500,000 $ 1,036,000

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ITEM 6. Directors, Senior Management and Employees.

Board of Directors

We are managed by our Board of Directors. Pursuant to our Articles of Association, the number of directors may be determined from

time to time by the Board of Directors, and unless otherwise determined, the number of directors comprising the Board of Directors will be between four and ten. Directors are elected for a one year term ending at the following annual general meeting of shareholders, except for our external directors, who are elected for three year terms in accordance with the Israeli Companies Law. However, if no directors are elected at an annual meeting, then the persons who served as directors immediately prior to the annual meeting shall be deemed re-elected at the same meeting. The General Meeting may resolve that a director be elected for a period longer than the time ending at the next annual meeting but not longer than that ending at the third next annual meeting. The Board of Directors elects one of its members to serve as the Chairman.

The Board of Directors is composed as follows (as of the date of this Annual Report):

(1) The Board of Directors has accepted the resignation of Mr. Eli Rozen from the Board of Directors, which resignation shall become effective on July 25, 2010. (2) “External Director” as defined in the Israeli Companies Law (see explanation below). (3) The reelection of Michal Brikman, who was elected as an external director on October 28, 2004 for a period of three years, was inadvertently left off of the agenda of our 2007 annual general meeting of shareholders, and under Israeli law, an external director cannot be deemed reelected or continue in office until a successor is elected. Due to this oversight, since October 28, 2007, Ms. Brikman has not qualified as our “external director,” but has continued to function as such and as a member of certain committees of our Board of Directors. At the annual general meeting of shareholders held on August 17, 2008, Ms. Brikman was reelected as an external director for an additional period of three years commencing as of October 28, 2007. Additionally, our Board of Directors and such committees ratified all of the actions that had been taken by them since the expiration of Ms. Brikman’s initial term as our external director. (4) The Board of Directors has appointed Eyal Tuchman to serve as a director on the Board of Directors until the conclusion of the next annual general meeting of shareholders. Eli Rozen is one of our co-founders. We accepted the resignation of Mr. Rozen from service as a director and as Chairman of our Board of Directors, which resignation shall become effective on July 25, 2010. Mr. Rozen has served as Chairman since 2000. From 1988 until 2000, Mr. Rozen served as our Chief Executive Officer and President. Mr. Rozen has a Bachelor of Science in Industrial Engineering and Management from the Israel Institute of Technology. Avi Landman is one of our co-founders and prior to July 8, 2010 served as a member of the Board of Directors. We accepted Mr. Landman’s resignation from the Board of Directors, effective July 8, 2010. Mr. Landman continues to serve as our Research Manager. Prior to co-founding Vuance in 1988, Mr. Landman worked as a computer engineer at Gal Bakara Ltd. and prior to that as a Practical Engineer at Eltam Ltd. Mr. Landman has a Bachelor of Science degree in Computer Engineering from the Technion – Israel Institute of Technology and a Practical Engineer Diploma in Electronics from Bosmat Haifa.

A. Directors and Senior Management

Name Age Position Eli Rozen 55 Director, Chairman of the Board (1) Avi Landman 55 Director – From 1988 to July 8, 2010 Ilan Horesh 57 External Director (2) – From September 17, 2006 to September 17, 2009 Jaime Shulman 66 Director – From September 17, 2006 to January 1, 2010 Michal Brikman 39 External Director (3) Shlomo Benjamin 60 External Director (2) Eyal Tuchman 42 Director (4)

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Ilan Horesh , an external director, became a member of the Board of Directors on September 17, 2006 and is a member of the audit committee. The service term of Mr. Horesh expired on September 17, 2009, and since that time he has not served on the Board of Directors. Mr. Horesh was also a board member of Retalix Ltd. From 1998 to 2006. Since 2006, he has been an external director of Ampa Investments LTD, and since 2007 has been a board member of Taldor Computer System (1986) Ltd. And an external director of Rekah Pharmaceutical Industry Ltd. Mr. Horesh was a department manager at Pelephone Communication Ltd. From 1997 to 1998, Mr. Horesh served as the Chief Executive Officer of “SHEFFA consumer club,” a subsidiary of Macabi Health Services. From 1994 to 1997, Mr. Horesh was the manager of the Planning and Projects Department at Paz Oil Corp. From 1994 to 1999, Mr. Horesh was a director of Hed-Artzi Ltd. Mr. Horesh holds a Bachelor of Arts in History and Geography from Tel Aviv University, a Master of Arts in Political Studies from Haifa University, and a Bachelor of Arts degree in Business Administration. Jaime Shulman became a member of the Board of Directors on September 17, 2006. Further to our efforts to streamline our operations, on December 2, 2009, we accepted the resignation of Mr. Jaime Shulman from our Board of Directors, which resignation shall be effective as of January 1, 2010. From 2001 to 2003, Mr. Shulman was President and CEO of Logisticare, Ltd. From 1998 to 2000, Mr. Shulman was President and CEO of the Amcor Group. From 1993 to 1997, Mr. Shulman was President and CEO of the Magam Enterprises Group. From 1991 to 1998, Mr. Shulman was the active Chairman of the board (part time) of Tana Industries. From 1991 to 1992, Mr. Shulman was a foreign consultant to and subsequently CEO of Metrometer, Inc. (New York). From 1978 to 1991, Mr. Shulman was CEO of Electra Israel. From 1970 to 1977, Mr. Shulman was Production Manager at Tadiran, Plastic and Metal Plant. Mr. Shulman is an Electromechanical Engineer (equivalent to M.Sc. in Israel) from Buenos Aires University, Argentina. Michal Brikman , an external director, became a member of the Board of Directors on October 28, 2004. Ms. Brikman is a Certified Public Accountant with extensive management and accounting experience. From 2000 to 2005, Ms. Brikman was a business consultant at Daniel Doron Business Consulting. Ms. Brikman received her Masters in Finance from Baruch College in New York City and later relocated to Israel. Shlomo Benjamin , an external director, became a member of the Board of Directors on September 17, 2009. Mr. Benjamin is a shareholder and managing director of 4BEST Consulting and Management Ltd., a company engaged in financial consulting to companies and businesses. From 2004 to 2006, Mr. Benjamin was CFO of Globus Group Ltd. From 2002 to 2003, Mr. Benjamin was CEO of H. Aloni Enterprises Ltd. From 1992 to 2002, Mr. Benjamin was CFO and Deputy CEO of Ytong Industries Ltd. From 1987 to 1992, Mr. Benjamin was Finance and Administration Manager in the Azorim group. From 1981 to 1987, Mr. Benjamin served in several executive positions at the Tadiran Group, including as Deputy CEO of T.F.L Ltd. and Chief Accountant of Tadiran Communications Ltd. From 1977 to 1981, Mr. Benjamin was a “Senior” at Braude & Co. accounting firm. Mr. Benjamin is an authorized accountant in Israel and holds a first degree in economics and accounting from the Tel Aviv University. Eyal Tuchman was appointed by the Board of Directors on July 8, 2010, to serve as a director on the Board of Directors until the conclusion of the next annual general meeting of shareholders. Mr. Tuchman served as our Chief Executive Officer from April 2006 to March 2010. Prior to serving as our CEO, Mr. Tuchman served for four years as our Chief Financial Officer and Chief Operational Officer. Mr. Tuchman brings to us years of experience in business development, finance and operational management in publicly traded companies. Prior to joining us in 2002, Mr. Tuchman served as Chief Financial Officer of Magam Group, a company traded on the Tel-Aviv Stock Exchange. From 1996 to 2002, Mr. Tuchman was a Senior Auditor at Kesselman & Kesselman (today, PriceWaterhouseCoopers). Mr. Tuchman holds a Bachelor of Arts in Economics & Accounting from Ben Gurion University and is a certified public accountant.

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Executive Officers and Key Employees

As of the date of this Annual Report, our executive officers and certain key employees who are not also directors are:

Ron Peer , Chief Executive Officer. In March 2010, Mr. Peer became our Chief Executive Officer, after three years of service as our Deputy CEO and President. Mr. Peer has over 30 years of experience in the technology industry, where he has held top management positions. Mr. Peer has proven to be a successful leader in the Israeli and U.S. high-tech industries with broad and in-depth marketing and business vision. With proven experience and expertise in brand counterfeiting and document security solutions, he has directed startup and turnaround situations and also recruited and developed strong management teams. With his technological and operational experience and background, rooted in the Israel Defense Forces as a Lieutenant Colonel, Mr. Peer maintains a successful international business and management career. Mr. Peer holds a Bachelor of Science degree in Electronic Engineering, and Business and Marketing Diplomas from Tel-Aviv University. Kevin Michael , Vice President of Operations. With over 15 years of experience in the private sector, Mr. Michael has managed projects at EMC2, Intel, and National Semiconductors. Mr. Michael has extensive experience in operations including the integration of RFID technologies and facility management applications to control space and assets.

The aggregate amount of compensation paid by us to our board members, our Chief Executive Officer, our former Chief Executive

Officer, Vice President of Operations, our former Deputy CEO, Marketing, Technology and Business Development, our former Chief Financial Officer, Chief Operating Officer and Chief Technology Officer (collectively, the “Named Executive Officers”) as a group for the twelve months ended December 31, 2009 was approximately $612. This sum includes amounts paid for salary and social benefit. In addition, we have provided automobiles to our executive officers at our expense.

In accordance with the requirements of Israeli law, we determine our directors’ compensation in the following manner. First, our audit committee reviews the proposal for compensation; second, provided that the audit committee approves the proposed compensation, the proposal is then submitted to our Board of Directors for review, except that a director who is the beneficiary of the proposed compensation does not participate in any discussion or voting with respect to such proposal; and finally, if our Board of Directors approves the proposal, it must then submit its recommendation to our shareholders, which is done in the forum of our shareholders’ general meeting. The approval of a majority of the votes cast by our shareholders is required for any such compensation proposal.

On January 26, 2003, at a special general meeting, our shareholders approved the grant to each of our directors who is not an external director, commencing on October 1, 2002, a monthly $1,000 fee and participation remuneration per meeting of the Board of Directors, provided however, that each of the directors who is not an external director shall be entitled to an aggregate sum of monthly remuneration and participation remuneration of not more than $18,000 per year.

As of December 31, 2009 , we had set aside approximately $38 to provide pension, retirement or similar benefits for our Board of Directors and Named Executive Officers.

Option/SAR Grants during the Year Ended December 31, 2009

During the twelve months ended December 31, 2009, we granted options to purchase 564,655 ordinary shares under our Option Plan (as defined in “Share Options Plans” below) to 7 of our Named Executive Officers at an exercise price of $0.015. All options will expire in 2019.

Name Age Position Ron Peer 59 Chief Executive Officer Kevin Michael 48 Vice President of Operations

B. Compensation

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During 2009, according to the board resolution on October 27, 2008 and the Special General Meeting dated December 21, 2008, we

granted to (a) the Chairman of our Board of Directors, (b) a member of our Board of Directors who is also one of the co-founders, (c) one of our co-founders, and (d) another member of our Board of Directors, options to purchase up to 256,456, 179,966, 126,944 and 42,121 shares, respectively. The options have an exercise price of 0.0582235 NIS, vesting immediately and will expire after ten years. The options were granted as compensation for three months of service in exchange for waiving their right to receive cash payments for such months, according to their agreement with us. In addition (a) all options held by the Participants on October 27, 2008 shall be re-priced so that the exercise price thereof shall be $1.1 (the closing price of the Ordinary Share on said date), and (b) all such options with an expiration date prior to October 27, 2013 shall nonetheless be exercisable until October 27, 2013.

During the twelve months ended December 31, 2008, we granted options to purchase 23,000 ordinary shares under our Option Plan (as defined in “Share Options Plans” below) to two of our Named Executive Officers at an exercise price of $1.88. All options will expire in 2018.

In September 2008, the Board of Directors approved a re-pricing of options for three executive officers for 149,600 options, which had exercise prices ranging between $2.47 and $14.8235. The re-pricing changed the exercise price of the options to $1.86. The incremental compensation cost at the date of the modification was $66,000, of which $59,000 was recognized during 2008.

Please refer to the Section captioned “Share Option Plan” under Item 6.E below for a description of our Share Options Plans.

Our Board of Directors and senior management consider good corporate governance to be central to our effective and efficient

operations. The following table lists our directors, the positions they hold with us and the dates the directors were first elected or appointed:

(*) The Board of Directors has accepted the resignation of Mr. Eli Rozen from the Board of Directors, which resignation shall become effective on July 25, 2010. (**) The reelection of Michal Brikman, who was elected as an external director on October 28, 2004 for a period of three years, was inadvertently left off the agenda of our 2007 annual general meeting of shareholders, and under Israeli law, an external director cannot be deemed reelected or continue in office until a successor is elected. Due to this oversight, since October 28, 2007, Ms. Brikman has not qualified as our “external director,” but has continued to function as such and as a member of certain committees of our Board of Directors. At the annual general meeting of shareholders held on August 17, 2008, Ms. Brikman was reelected as an external director for an additional period of three years commencing on October 28, 2007. Additionally, our Board of Directors and such committees ratified all of the actions that had been taken by them since the expiration of Ms. Brikman’s initial term as our external director. (***) The Board of Directors has appointed Eyal Tuchman to serve as a director on the Board of Directors until the conclusion of the next annual general meeting of shareholders. (****) The Board of Directors has nominated David Mimon, Tsviya Trabelsi and Menachem Mirski for appointment to the Board of Directors, which appointment shall become effective on July 25, 2010, and continue until the conclusion of the next annual general meeting of shareholders.

C. Board Practices

Name Position Period Served in Office

Eli Rozen Director Chairman of the Board

1988 – present(*) July 25, 2000 – present(*)

Avi Landman Director 1988 – July 8, 2010

Ilan Horesh External Director September 17, 2006 – September 17, 2009

Jaime Shulman Director September 17, 2006 – January 1, 2010

Michal Brikman External Director October 28, 2004 – present (**)

Shlomo Benjamin External Director September 17, 2009 – present

Eyal Tuchman Director July 8, 2010 – present (***)

David Mimon Director Pending appointment. (****)

Tsviya Trabelsi Director Pending appointment. (****)

Menachem Mirski Director Pending appointment. (****)

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David Mimon is nominated for appointment to the Board of Directors, which appointment shall become effective on July 25, 2010, and continue until the conclusion of the next annual general meeting of shareholders. Mr. Mimon is the owner of a legal practice with offices in Netanya and Haifa, Israel. Mr. Mimon is the author of several books related to labor law and debts management, and he brings extensive experience in providing legal representation and consulting services to individuals and companies in various areas of law. Tsviya Trabelsi is nominated for appointment to the Board of Directors, which appointment shall become effective on July 25, 2010, and continue until the conclusion of the next annual general meeting of shareholders. Mrs. Trabelsi is currently the CFO of Sigma Wave Ltd., and also President and Director of Klikot Inc., an Internet based company. She has more than 20 years experience in accounting, taxes, and financial management in Israel and the United States, and has served in various managerial positions in a variety of companies. Mrs. Trabelski holds a Bachelor of Arts in Economics and Accounting from the University of Tel-Aviv. Menachem Mirski is nominated for appointment to the Board of Directors, which appointment shall become effective on July 25, 2010, and continue until the conclusion of the next annual general meeting of shareholders. Mr. Mirski is the founder and a partner of Raz - El Ltd., a software and system development company located in Israel. He has significant experience and expertise as a software developer and project manager for embedded real time systems, including RF-based systems. Mr. Mirski holds a Bachelor of Science in Computer and Electrical Engineering from Ben-Gurion University.

Our Articles of Association provide that the number of directors may be determined from time to time by the Board of Directors, and unless otherwise determined, the number of directors comprising the Board of Directors will be between four and ten. The Board of Directors is presently comprised of four members, two of whom were elected as external directors under the provisions of the Israeli Companies Law (discussed below). Our Articles of Association provide further that the majority of the directors appointed to the Board of Directors will be independent directors. Following the resignation of Mr. Jaime Shulman, we have not been in compliance with this requirement.

All directors hold office until their successors are elected at the next annual general meeting of shareholders, except for our external directors, Michal Brikman, who shall hold office until October, 2010 and Shlomo Benjamin, who shall hold office until September 2012.

Under the Israeli Companies Law and the regulations promulgated pursuant thereto, Israeli public companies, namely companies whose shares have been offered to the public or are publicly traded, are required to appoint at least two natural persons as “external directors.” A person may not be appointed as an external director if the person, or a relative, partner or employer of the person, or any entity under the person’s control, has or had, on or within the two years preceding the date of the person’s appointment to serve as an external director, any affiliation with the company to whose board the external director is proposed to be appointed; with the controlling shareholder of such company or with any entity controlling or controlled by such company or by the controlling shareholder of such company. The term “affiliation” includes an employment relationship, a business or professional relationship maintained on a regular basis, control and service as an office holder (which term includes a director).

In addition, no person may serve as an external director if the person’s position or other business activities create, or may create, a conflict of interest with the person’s responsibilities as an external director or interfere with the person’s ability to serve as an external director or if the person is an employee of the Israel Securities Authority or of an Israeli stock exchange. If, at the time of election of an external director, all other directors are of the same gender, the external director to be elected must be of the other gender.

Pursuant to the Israeli Companies Law, at least one of the external directors, as well as a number of the non-external directors to be determined by the Board of Directors, are required to have “accounting and financial expertise” and the other external directors are required to have “professional skills,” as such terms are defined in regulations recently promulgated under the Israeli Companies Law.

Each committee of a company’s Board of Directors that has the authority to exercise powers of the Board of Directors is required to include at least one external director and its audit committee must include all external directors.

External directors are elected at the general meeting of shareholders by a simple majority, provided that the majority includes at least one-third of the shareholders who are not controlling shareholders, who are present and voting, or that the non-controlling shareholders who vote against the election hold one percent or less of the voting power of the company.

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At our 2003 Annual General Meeting held on June 30, 2003, Esther Koren and Avi Elkind were each re-elected to serve as external

directors for an additional term of three years ending on June 30, 2006. However, Esther Koren resigned as a member of our Board of Directors due to personal reasons effective July 14, 2004. Ms. Michal Brikman was subsequently appointed to our Board of Directors as an External Director, which appointment was approved by our shareholders at a special general shareholder meeting on October 28, 2004. In addition, Ms. Brikman has been appointed to the audit committee and several other committees. Ms. Brikman’s term as External Director, and consequently as a member of such committees expired on October 27, 2007; however, at the annual general meeting of shareholders held on August 17, 2008, Ms. Brikman was re-elected as an external director for an additional period of three years commencing on October 28, 2007. Our Board of Directors and such committees have ratified all of the actions that had been taken by them since the expiration of Ms. Brikman’s initial term as our external director.

On September 17, 2006, our general meeting appointed Mr. Ilan Horesh as an External Director. In addition, Mr. Horesh has been appointed to the audit committee. Mr. Horesh held the position until September 2009.

On September 6, 2009 our general meeting appointed Mr. Benjamin as an External Director. In addition, Mr. Benjamin has been appointed to the audit committee.

Under the Israeli Companies Law, an external director cannot be dismissed from office unless: (i) the Board of Directors determines that the external director no longer meets the statutory requirements for holding the office, or that the external director has breached the external director’s fiduciary duties, and the shareholders vote, by the same majority required for the appointment, to remove the external director after the external director has been given the opportunity to present his or her position; (ii) a court determines, upon a request of a director or a shareholder, that the external director no longer meets the statutory requirements of an external director or that the external director has breached his or her fiduciary duties to the company; or (iii) a court determines, upon a request of the company or a director, shareholder or creditor of the company, that the external director is unable to fulfill his or her duty or has been convicted of specified crimes.

We have the following committees: Audit Committee

The Israeli Companies Law requires public companies to appoint an audit committee comprised of at least three directors, including all of the external directors, and further stipulates that the chairman of the Board of Directors of a public company, any director employed by or providing other services on a regular basis to the company and the controlling shareholder or any relative of the controlling shareholder of such company may not be members of the audit committee of the company. Since the expiration of Ms. Brikman’s term as an external director (on October 27, 2007) and due to the oversight omission of her re-election for an additional term of three years, we have not had an audit committee (the “Audit Committee”) which complies with the requirements of Israeli law. During that period our “Audit Committee” continued to operate, however, no event or action, which under the Israeli Companies Law requires approval by the Audit Committee, occurred or was taken until Ms. Brikman was re-elected as an external director at the annual general meeting of shareholders held on August 17, 2008, for an additional period of three years commencing as of October 28, 2007. Our Board of Directors and Audit Committee ratified all of the actions that have been taken by them since the expiration of Ms. Brikman’s initial term as external director. In 2007 the Audit Committee adopted an audit committee charter which regulates its operations. According to our Audit Committee charter, the objective of the Audit Committee is to assist the Board of Directors’ oversight of the Company’s accounting practices; the integrity of the Company’s financial statements; the Company’s accounting and financial reporting processes; the Company’s compliance with legal and regulatory requirements; the independent auditors’ qualifications, independence, and performance; audits of the Company’s financial statements and the internal audit function, and to locate deficiencies in the business management of the Company, among other things, in consultation with the Company’s independent auditors and internal auditors, and to suggest to the Board of Directors the measures to be taken regarding such deficiencies. Mr. Benjamin, who replaced Mr. Horesh in September 2009, and Ms. Brikman are the members of the Audit Committee. Mr. Shulman was a member of the Audit Committee until he resigned from the position in January 1, 2010. Following the resignation of Mr. Shulman, we have not been in compliance with the requirement that the Audit Committee be composed of three directors as discussed immediately above. At the next annual general meeting of shareholders, we will nominate an independent director to replace Mr. Jaime Shulman on the Audit Committee.

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Compensation (Remuneration) Committee

We have a compensation committee (the “Compensation Committee”). In 2007, the Compensation Committee adopted a Compensation Committee charter, which regulates its operations. According to the Compensation Committee charter it is responsible for determining the compensation (including salaries, bonuses and equity incentive compensation awards) of executive officers, including the Chief Executive Officer, other senior management and members of the Board of Directors. The Compensation Committee is currently comprised of Ms. Brikman and Mr. Benjamin, who replaced Mr. Horesh in September 2009. Mr. Shulman was also a member of the Compensation Committee until January 1, 2010. Nominating and Corporate Governance Committee Charter

On May 15, 2007, our Board of Directors approved the establishment of a Nominating and Corporate Governance Committee (the “Nominating and Corporate Governance Committee”). The Nominating and Corporate Governance Committee is responsible for identifying individuals qualified to become board members, consistent with criteria approved by the Board of Directors, and recommending that the Board of Directors select the director nominees for election at the general meeting of shareholders. The Committee is also responsible for developing and recommending to the Board of Directors a set of corporate governance guidelines applicable to the Company, periodically reviewing such guidelines, recommending any changes thereto, and overseeing the evaluation of the Board of Directors. The Nominating and Corporate Governance Committee is currently comprised of Ms. Brikman and Mr. Benjamin, who replaced Mr. Horesh in September 2009. Mr. Shulman was also a member of the Nominating and Corporate Governance Committee until January 1, 2010. Management Employment Agreements

We maintain written employment agreements with substantially all of our key employees. These agreements provide, among other matters, for monthly salaries, our contributions to Managers’ Insurance, an Education Fund and severance benefits. All of our agreements with our key employees are subject to termination by either party upon the delivery of notice of termination as provided therein. Internal Auditor Under the Israeli Companies Law, the Board of Directors must appoint an internal auditor, proposed by the Audit Committee. The role of the internal auditor is to examine, among other matters, whether the company’s activities comply with the law and orderly business procedure. Under the Israeli Companies Law, the internal auditor may be an employee of the company but may not be an interested party or office holder, or a relative of any interested party or office holder, and may not be a member of the company’s independent accounting firm, or its representative. Prior to June 2010, the office of Chaikin Cohen Rubin & Co. served as our internal auditor in accordance with the requirements of the Israeli Companies Law. On June 27, 2010 we received a resignation letter from Chaikin Cohen Rubin & Co., indicating their resignation due to time restraints. We are currently seeking an internal auditor to replace Chaikin Cohen Rubin & Co.

As of December 31, 2009 and 2008, we had 37 and 52 full- time employees, respectively. The following table describes our employees

and the employees of our subsidiaries by department.

D. Employees

Dec. 31,

2007 Dec. 31,

2008 Dec. 31,

2009 Research, Development & Manufacturing 23 21 20 Marketing and Sales 34 20 11 Administration 13 11 6 Total 70 52 37

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Over the past three years, the number of our employees by geographic area was as follows:

From time to time, we have engaged temporary employees to fill open positions. These temporary employees, however, historically

have not comprised a material number of our employees.

Vuance’s Israeli employees are not part of a collective bargaining agreement. However, in Israel we are subject to certain labor statutes, and to certain provisions of collective bargaining agreements between the Histadrut, the General Federation of Labor in Israel, and the Coordinating Bureau of Economic Organizations, including the Industrialists’ Association. These are applicable to our employees by virtue of expansion orders of the Israeli Ministry of Labor and Welfare. These statutes and provisions principally concern the length of the workday, minimum daily wages for professional workers, procedures for dismissing employees, determination of severance pay, annual and other vacations, sick pay and other conditions for employment. In addition, by virtue of such expansion order, all employees in Israel are entitled to automatic adjustment of wages relative to increases in the Consumer Price Index in Israel. The amount and frequency of these adjustments are modified from time to time. We provide our employees with benefits and working conditions that comply with the required minimum.

Generally, all nonexempt adult male citizens and permanent residents of Israel, under the age of 40, or older for reserves officers or citizens with certain occupations, are obligated to perform annual military reserve duty and are subject to being called for active duty at any time under emergency circumstances. Some of our officers and employees are obligated to perform annual reserve duty. While we have operated effectively under these requirements since we began operations, no assessment can be made as to the full impact of such requirements on our workforce or business if conditions should change, and no prediction can be made as to the effect on us of any expansion of such obligations.

All of our employees have entered into confidentiality agreements. We have also granted certain employees options to purchase shares of our ordinary shares under our option plan. We consider our relationship with our employees to be good and we have never experienced a strike or work stoppage.

Dec. 31,

2007 Dec. 31,

2008 Dec. 31,

2009 Israel 22 16 14 United states 43 30 23 Rest of the world 5 6 - Total 70 52 37

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The following table sets forth certain information regarding the beneficial ownership of our ordinary shares by our directors and Named

Executive Officers as of May 31, 2010. As of that date, we had 7,262,882 ordinary shares outstanding.

(1) Includes (a) 412,311 shares held directly by Eli Rozen, and (b) options to purchase 553,273 ordinary shares which are currently exercisable or exercisable within 60 days of May 31, 2010, of which 376,462 ordinary shares are held by Finel Architecture and Engineering Ltd., a company owned solely by Mr. Rozen (“Finel”). (2) Includes (a) 398,780 ordinary shares held by Avi Landman, of which 85,000 shares are held by Ashland Investments LLC, a limited liability company solely owned by Mr. Landman (“Ashland”), and (b) options to purchase 217,366 ordinary shares which are currently exercisable or exercisable within 60 days of May 31, 2010. (3) Includes (a) 138,680 shares held directly by Ron Peer, and (b) options to purchase 39,513 ordinary shares which are currently exercisable or exercisable within 60 days of May 31, 2010. (4) Includes (a) 4,950 shares held directly by Eyal Tuchman, and (b) options to purchase 159,580 ordinary shares which are currently exercisable or exercisable within 60 days of May 31, 2010. (5) Includes options to purchase 741,857 ordinary shares which are currently exercisable or exercisable within 60 days of May 31, 2010. (6) See notes 1, 2, 3 and 4. Each of the directors and executive officers not separately identified in the above table beneficially owns less than 1% of our outstanding ordinary shares (including options held by each such party, and which are exercisable or exercisable within 60 days of May 31, 2010) and has therefore not been separately disclosed. All of our ordinary shares have identical voting rights.

E. Share Ownership

Name

Ordinary Shares

held directly and beneficially

% of Outstanding

Ordinary Shares

as of May 31, 2009

Number of options

outstanding

Exercise price Expiration date

Eli Rozen 965,584(1) 12.35% 194,817 51,000 51,000 49,311

113,943 93,202

1.1 1.1 1.1

0.015 0.015 0.015

October 27, 2013 January 11, 2015 January 19, 2017 January 1, 2019 June 30, 2019 September 30, 2019

Avi Landman 616,146(2) 8.24% 8,500 8,500

20,400 34,702 79,673 65,591

1.1 1.1 1.1

0.015 0.015 0.015

October 27, 2013 January 11, 2015 January 19, 2017 January 1, 2019 June 30, 2019 September 30, 2019

Ron Peer 178,193(3) 2.44% 17,000 15,000 17,513

1.86 1.88

0.015

February 18, 2017 September 9, 2018 March 12, 2019

Eyal Tuchman 164,530(4) 2.22% 5,100 12,750 25,500 21,250 51,000 43,980

1.86 1.86 1.86 1.86 1.86

0.015

June 19, 2012 March 28, 2014 November 7, 2014 October 4, 2014 May 29, 2016 March 12, 2019

Directors and Named Executive Officers as a Group ([8] persons)(6)

1,959,695(5) 23.7% 1,018,474 0.015 – 5 April 2012 – September 2019

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Share Option Plans

In 2003, we adopted a new stock option plan under which we now issue stock options (the “Option Plan”). In December 2004, we filed

a Registration Statement on Form S-8 with the SEC registering (i) 170,000 ordinary shares available for issuance upon exercise of stock options reserved for grant under the Option Plan, (ii) 594,034 ordinary shares issued or issuable upon exercise of options previously granted under the Option Plan, and (iii) 109,412 ordinary shares issued or issuable upon exercise of options previously granted under the 1999 Option Plan. The Option Plan is intended to provide incentives to our employees, officers, directors and/or consultants by providing them with the opportunity to purchase our ordinary shares. The Option Plan is subject to the provisions of the Israeli Companies Law, administered by the Compensation Committee, and is designed: (i) to comply with Section 102 of the Israeli Tax Ordinance or any provision which may amend or replace it and the rules promulgated thereunder and to enable us and grantees thereunder to benefit from Section 102 of the Israeli Tax Ordinance and the Commissioner’s Rules; and (ii) to enable us to grant options and issue shares outside the context of Section 102 of the Israeli Tax Ordinance. Options granted under the Option Plan will become exercisable ratably over a period of three to five years or immediately in certain circumstances, commencing with the date of grant. The options generally expire no later than 10 years from the date of grant. Any options, which are forfeited or canceled before expiration, become available for future grants. As of December 31, 2009, 3,227,519 ordinary shares are available for future grants of options, warrants, shares and other financial instruments.

As a result of an amendment to Section 102 of the Israeli Tax Ordinance as part of the 2003 Israeli tax reform, and pursuant to an election made by us thereunder, capital gains derived by optionees arising from the sale of shares issued pursuant to the exercise of options granted to them under Section 102 after January 1, 2003 will generally be subject to a flat capital gains tax rate of 25%. Previously, such gains were taxed as salary income at the employee’s marginal tax rate (which could be up to 50%). However, as a result of this election, we will no longer be allowed to claim as an expense for tax purposes the amounts credited to such employees as a benefit when the related capital gains tax is payable by them, as we had previously been entitled to do under Section 102. For certain information as to the Israeli tax reform, see “Taxation.” In Item 10.

On June 27, 2007, our Compensation Committee and Board of Directors approved a new option plan under which the Company may grant stock options to the U.S. employees of the Company and its subsidiaries. Under this new option plan, the Company may grant both qualified (for preferential tax treatment) and non-qualified stock options. On August 15, 2007 the new option plan was approved by the shareholders of the Company at the general shareholders meeting.

During 2007 the Board of Directors approved grants of options as follows:

An additional 217,600 options were granted during 2007 to related parties including directors.

During 2008, the Board of Directors approved grants of options as follows:

In September 2008, the Board of Directors approved a re-pricing of options for three executive officers for a total of 149,600 options,

which had exercise prices ranging from $2.47 to $14.8235. The re-pricing changed the exercise price of the options to $1.86. The incremental compensation cost at the date of the modification was $66,000 of which $59,000 was recognized during 2008.

Number of options granted Exercise price 37,400 4.412 71,500 5.100 21,000 4.900 62,333 0.014 47,372 0.058 5,500 4.850 141,500 4.640 34,000 4.120

Number of options granted Exercise price 2,000 3.38 43,000 1.88

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In December, 2008, according the Special General Meeting, 20,400 options held by a director, with an exercise price of $5, were re-

priced to an exercise price of $1.1 and it was decided that all such options with an expiration date prior to October 27, 2013 shall nonetheless be exercisable until October 27, 2013. The Special General Meeting approved also the re-pricing and the extension (if applicable) of 334,217 options held by related parties. See notes 15a and 15b in the financial reports. The incremental compensation cost at the date of the modification amounted to $44,000 and was recognized as expense since all of the options were fully vested.

On January 9, 2009, according to the board resolution on October 27, 2008 and the Special General Meeting dated December 21, 2008, we granted to: a) Chairman of the Board of Directors; b) a member of the Company’s Board of Directors who is also one of the co-founders; c) one of the co-founders of the Company and d) another member of the Company’s Board of Directors options to purchase up to: 256,456, 179,966, 126,944 and 42,121 shares of the Company, respectively. The options have an exercise price of NIS 0.0582235 per share, vest immediately and expire after ten years. The options were granted as a partial payment for certain liabilities with respect to the terms of their appointment with us.

On March 12, 2009, we granted options to purchase up to 161,718 shares to several employees and ex-employees as compensation for waiving part of their payroll. The options have an exercise price of NIS 0.0582235, vested immediate and will expire after ten years.

A summary of our stock option activity and related information is as follows:

Year ended December 31 2007 2008 2009

Number of

options

Weighted average exercise

price Number of

options

Weighted average exercise

price Number of

options

Weighted average exercise

price Outstanding at beginning of year 553,902 $ 5.12 1,076,756 $ 4.43 981,462 $ 2.55 (*) Granted 638,205 $ 3.86 45,000 $ 1.95 626,194 $ 0.015 Exercised (25,968 ) $ 3.16 (27,032 ) $ 0.32 (93,056 ) $ 0.015 Canceled and forfeited (89,383 ) $ 5.06 (113,262 ) $ 6.17 (166,435 ) $ 3.30 Outstanding at end of year 1,076,756 $ 4.43 981,462 $ 2.55 (*) 1,348,165 $ 1.47 (*)

Exercisable at end of year 591,485 $ 4.81 663,021 $ 2.51 (*) 1,272,016 $ 1.39 (*)

(*) The weighted average exercise price, presented as of December 31, 2008 and 2009, is after the re-pricing made during 2008, as mentioned in Note 15 in the financial statements. The weighted average fair value of options granted during the reported periods was $2.87, $0.88 and $0.44, per option, for the years ended December 31, 2007, 2008 and 2009, respectively. The fair value of these options was estimated on the date of grant using the Black & Scholes option pricing model. The following weighted average assumptions were used for the 2007, 2008 and 2009 grants: risk-free rate of 4.05%, 4.24% and 2.25%, respectively, dividend yield of 0%, expected volatility factor of 57.20%, 52.29% and 193.27%, respectively and expected term of 3.6, 4 and 2.08 years, respectively. In 2009 the fair value of only 125,142 options were calculated using the Black & Scholes option pricing model, for all other options granted in 2009, the fair value was the salary that was paid by options instead of cash. The expected volatility was based on the historical volatility of the Company’s stock. The expected term was based on the historical experience and based on Management estimate. Compensation expenses recognized by the Company related to its share-based employee compensation awards were $1,032,000, $856,000 and $483,000 based on the provisions of SFAS 123R for the years ended December 31, 2007, 2008 and 2009, respectively.

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The following table summarizes the allocation of the stock-based compensation charge.

The options outstanding and exercisable as of December 31, 2009, have been separated into ranges of exercise prices as follows:

The aggregate intrinsic value of the above table represents the total intrinsic value, based on the Company’s stock price of $0.2 as of December 31, 2008, less the weighted average exercise price per range. This represents the potential amount received by the option holders had all option holders exercised their options as of that date.

The total intrinsic value of options exercised during the years ended December 31, 2007, 2008 and 2009 was $62,000, $53,000 and $36,000, respectively, based on the Company’s average stock price of $5.57, $2.26 and $0.4, during the years ended respectively.

A summary of the status of the Entity’s non-vested options granted to employees as of December 31, 2009 and changes during the year ended December 31, 2009 is presented below:

As of December 31, 2009, there was $103,000 total unrecognized compensation cost related to non-vested share-based compensation

arrangements granted under the stock option plans, of which, $98,000 during the year 2010 and $5,000 during the year 2011.

Year ended December 31, 2007 2008 2009 (In thousands of US Dollars) Cost of revenues $ 5 $ 16 $ 7 Research and development expenses 336 353 200 Selling and marketing expenses 158 151 43 General and administrative expenses 533 336 177 $ 1,032 $ 856 $ 427

Range of exercise price

Options outstanding

as of December 31, 2009

Weighted average

remaining contractual life (years)

Weighted average exercise

price

Aggregate intrinsic

value

Options exercisable

as of December 31, 2009

Weighted average exercise

price

Aggregate intrinsic

value

$ 0.01 - $ 0.06 595,425 9.71 0.016 $ 110 589,261 0.016 $ 109 $1.10 - $ 1.88 495,417 4.96 1.33 - 460,200 1.33 - $ 2.47 - $ 3.38 33,626 3.25 2.99 - 33,626 2.99 - $ 4.12 - $ 4.90 131,397 3.36 4.46 - 109,262 4.43 - $ 5.00 - $ 5.24 75,300 4.18 5.07 - 62,667 5.08 -

$ 14.82 17,000 2.25 14.82 - 17,000 14.82 - 1,348,165 1.47 1,272,016 1.39

Options

Weighted–average

grant-date fair value

Non-vested at January 1, 2009 318,441 $ 2.21 Granted 626,194 $ 0.44 Vested (including cancelled and exercised) (739,244 ) $ 0.82 Forfeited (129,242 ) $ 2.21 Non-vested at December 31, 2009 76,149 $ 1.15

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ITEM 7. Major Shareholders and Related Party Transactions.

The following table lists the beneficial ownership of our securities as of the filing date of this Annual Report by each person known by

us to be the beneficial owner of more than 5% of the outstanding shares of any class of our securities.

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. The principal address of our Beneficial Owners listed below (all but Sigma Waves Ltd., Special Situations Fund III, L.P., Special Situations Fund III, Q.P, Special Situations Cayman Fund, L.P. and Homeland Security Capital Corporation) is c/o Vuance Ltd., Sagid House “Hasharon Industrial Park” P.O.B 5039, Qadima 60920 Israel. We believe that all persons named in the table, except HMSC, Mr. Rozen, Mr. Landman, and Sigma Waves Ltd. have sole voting and sole investment power with respect to all shares beneficially owned by them. All figures include ordinary shares issuable upon the exercise of convertible bonds, options and warrants exercisable within 60 days of the filing date of this Annual Report and deemed to be outstanding and beneficially owned by the person holding those bonds, options or warrants for the purpose of computing the percentage ownership of that person, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. None of the following major shareholders have different voting rights from the other holders of our ordinary shares.

A. Major shareholders

Name of Beneficial Owner

Number of Shares

Beneficially Owned

Percentage of Shares

Outstanding Sigma Waves Ltd. (1) 398,881 5.49 % Avi Landman (2) 616,146 8.24 % Eli Rozen (3) 965,584 12.35 % Special Situations Fund III, L.P. (“SSF”)(4) * * Special Situations Fund III, Q.P. (“SSFQP”)(5) 1,466,166 18.99 % Special Situations Cayman Fund, L.P. (“Cayman” )(6) ** ** Homeland Security Capital Corporation (“HMSC”) (7) 692,660 9.54 % Investor through convertible bond (8) 939,583 11.45 % Yitzchak Babayov (9) 1,618,461 22.04 %

(1) Includes (a) 398,881 shares held directly by Sigma Waves Ltd., and (b) options to purchase 0 ordinary shares which are currently exercisable or exercisable within 60 days of the filing date of this Annual Report.

(2) Includes (a) 398,780 ordinary shares held by Avi Landman, of which 85,000 shares are held by Ashland, and (b) options to purchase 217,366 ordinary shares which are currently exercisable or exercisable within 60 days of the filing date of this Annual Report.

(3) Includes (a) 412,311 shares held directly by Eli Rozen, and (b) options to purchase 553,273 ordinary shares which are currently exercisable or exercisable within 60 days of the filing date of this Annual Report, of which 376,462 ordinary shares are held by Finel.

(4) * Includes (a) 0 ordinary shares, (b) 790,247 shares held by its affiliate, SSFQP, (c) warrants held by SSFQP to purchase 197,292 ordinary shares which are currently exercisable or exercisable within 60 days of the filing date of this Annual Report, (d) convertible bond which can be convert into 163,333 ordinary shares (e) 217,113 ordinary shares held by its affiliate, Cayman, (f) warrants held by Cayman to purchase 53,660 ordinary shares which are currently exercisable or exercisable within 60 days of the filing date of this Annual Report and (g) convertible bond which can be converted into 44,521 ordinary shares.

(5) Includes (a) 790,247 ordinary shares, (b) warrants to purchase 197,292 ordinary shares which are currently exercisable or exercisable within 60 days of the filing date of this Annual Report, (c) convertible bond which can be converted into 163,333 ordinary shares, (d) 0 shares held by its affiliate, SSF, (e) 217,113 ordinary shares held by its affiliate, Cayman, and (f) warrants held by Cayman to purchase 53,660 ordinary shares which are currently exercisable or exercisable within 60 days of the filing date of this Annual Report and (g) convertible bond which can be convert into 44,521 ordinary shares .

(6) **Includes (a) 217,113 ordinary shares, (b) warrants to purchase 53,660 ordinary shares which are currently exercisable or exercisable within 60 days of the filing date of this Annual Report, (c) convertible bond which can be convert into 44,521 ordinary shares, (d) 790,247 shares held by its affiliate, SSFQP, (e) warrants held by SSFQP to purchase 197,292 ordinary shares which are currently exercisable or exercisable within 60 days of May 31, 2010, (f) convertible bond which can be convert into 163,333 ordinary shares and (g) 0 ordinary shares held by its affiliate, SSF.

81

To the best of our knowledge based on the information known to us, there has not been any significant change in the percentage

ownership of the our major shareholders during the last three years other than changes resulting from our private placements in 2005, the issuance of convertible bonds in November, 2006, the shares issued according to the acquisition of SHC, the exercise of warrants issued in those offerings, the grant of options to Messrs. Rozen, Landman and Hassan, and Mr. Hassan’s subsequent transfer of the beneficial ownership of his shares to Sigma Waves Ltd., and the shares issued to Mr. Yitzchak Babayov.

As of December 31, 2009 and June 29, 2010, to the best of our knowledge based on the information available to us, we had approximately 29 registered holders of our ordinary shares, and approximately 425 beneficial holders of our ordinary shares, respectively.

To the best of our knowledge based on the information currently available to us, there are no existing arrangements that may at a future date result in a change of control of Vuance, except for a voting agreement entered into by and between Mr. Eli Rozen, Mr. Avi Landman and Sigma Waves Ltd. However there is no assurance that this agreement will result in a change of control.

It is our policy to enter into transactions with related parties on terms that, on the whole, are no less favorable than those that would be

available from unaffiliated parties. Based on our experience in the business segments in which we operate and the terms of our transactions with unaffiliated third parties, we believe that all of the transactions described below met our policy standards at the time they occurred.

On October 1, 2001, we entered into a consulting agreement with a company owned by the Chairman of our Board of Directors who was one of our co-founders. In consideration of these consulting services, we have undertaken to pay $10,500 per month plus motor vehicle expenses. In addition, we pay $1,500 per month as a director’s fee. During 2009 we paid $32,000 pursuant to this agreement. (Regarding the partial payment in options during 2008 and 2009, see Note 15d, in the financial reports.)

In December, 2008, according the Special General Meeting (see note 15f in the financial reports), 296,817 options with an exercise price in the range of $2.4706 to $5 were re-priced to $1.1 and all such options with an expiration date prior to October 27, 2013, shall nonetheless be exercisable until October 27, 2013.

(7) HMSC granted an irrevocable power of attorney to our Chairman of the Board of Directors to exercise all voting rights related to its Vuance Shares until the sale or transfer of such Vuance Shares by HMSC to an unaffiliated third party in an arm’s-length transaction. (The shares are subject to a lock-up and are not registered (see note 1a to the financial reports below).)

(8) Includes (a) warrants to purchase 106,250 ordinary shares which are currently exercisable or exercisable within 60 days of May 31, 2009, (b) convertible bond which could be converted into 833,333 ordinary shares.

(9) Includes (a) 1,538,461 ordinary shares held by Yitzchak Babayov, and (b) warrants to purchase 80,000 ordinary shares, which are currently exercisable or exercisable within 60 days of the filing date of this Annual Report. We intend to ask our shareholders to approve and ratify at our next annual general meeting that the purpose of the private placement of the shares and a warrant to purchase 535,846 shares was to provide Mr. Babayov with more than twenty five percent (25%) of our issued and outstanding shares in accordance with Israeli law, which exempts such an acquisition from Israeli tender offer requirements. Accordingly, we did not include Mr. Babayov’s warrant to purchase 535,846 ordinary shares in the table above.

B. Related Party Transactions

82

On October 1, 2001, we entered into a consulting agreement with a company owned by a member of our Board of Directors, who was

also one of our co-founders and a principal shareholder. On January 13 2005, the General Shareholders Meeting approved the following amendments to the consulting agreement:

In addition, the Company pays $1,500 per month as a director’s fee. In 2009, we paid $22,000 pursuant to this agreement. (Regarding

the partial payment in options during 2008 and 2009, see Note 15d, in the financial reports.)

In December, 2008, according the Special General Meeting (see note 15b in the financial reports), 37,400 options with an exercise price in the range of $2.4706 to $5 were re-priced to $1.1 and all such options with an expiration date prior to October 27, 2013 shall nonetheless be exercisable until October 27, 2013.

On October 1, 2001, we entered into a consulting agreement with a company owned by one of the co-founders of the Company. In consideration for these services, we have undertaken to pay $4,600 per month plus motor vehicle expenses. During 2009, we paid $15,000, pursuant to this agreement. (Regarding the partial payment in options during 2008 and 2009, see Note 15d, in the financial reports.)

On January 13, 2005, the General Shareholders Meeting approved, among other things, the Board of Directors’ decision dated October 4, 2004 to grant options to acquire up to 51,001 ordinary shares to the Chairman of the Board of Directors and 8,500 ordinary shares to each of the two directors of the Company, who are not “outside directors.” The exercise price of the options is $5 per share. Those options were granted as compensation for their efforts in completing a private placement during 2004.

On January 21, 2007, the General Shareholders Meeting approved the grant of options to the Chairman of the Board of Directors and to a director who is one of the co-founders to acquire up to 51,000 and 20,400 ordinary shares of the Company, respectively, at an exercise price of $5.

On April 29, 2007, the General Shareholders Meeting approved the grant of options to the Chairman of the Board of Directors and to two external directors to acquire up to 85,000 and 40,800 ordinary shares of the Company, respectively, at an exercise price of $4.118 and $5, respectively.

On August 15, 2007, the General Meeting of Shareholders approved the grant of options to a director to acquire up to 20,400 ordinary shares of the Company, at an exercise price of $5. In December 2008 according the Special General Meeting (see Note 15f below), the options were re-priced to $1.1 and all such options shall nonetheless be exercisable until October 27, 2013.

On December 21, 2008, the Special General Shareholders Meeting approved that as part of a cost cutting plan, all of our non-external directors will join a temporary arrangement pursuant to which the remuneration payable to them shall be paid in fully vested options to purchase shares of the Company instead of in cash, effective October 1, 2008, for a minimum period of three months, with an option to us to extend it from time to time for additional consecutive periods of up to twelve (12) months in the aggregate. In addition (a) all options held by the Participants on October 27, 2008 shall be re-priced so that the exercise price thereof shall be $1.10 (the closing price of our ordinary shares on October 27, 2008), and (b) all such options with an expiration date prior to October 27, 2013 shall nonetheless be exercisable until October 27, 2013.

During the year 2009, according to the board resolution on October 27, 2008 and the Special General Meeting dated December 21, 2008, we granted to (a) our Chairman of the Board of Directors, (b) a member of our Board of Directors who is also one of our co-founders, (c) one of the co-founders, and (d) another member of our Board of Directors options to purchase up to 256,456, 179,966, 126,944 and 42,121 shares, respectively. The options have an exercise price of 0.0582235 NIS per share, vesting immediately, and will expire after ten years. The options were granted as a partial payment for certain liabilities with respect to the terms of their appointment with us.

As of December 31, 2009, we accrued $79,000 as expenses arising from related party transactions providing for consulting services.

As of December 31, 2009, we accrued $252,000 as employee and payroll expenses arising from a bridge loan that we received from our Chairman of the Board of Directors. This loan was paid in full by us on January 10, 2010.

? As of the date of the approval of the General Shareholders Meeting, the consideration shall be to an amount of $7,000 per month. ? Upon the termination of the car lease agreement, to increase the car lease, to a price of up to NIS 4,200 (approximately $ 1,100 as

of December 31, 2009), (excluding tax) per month.

83

Not applicable.

ITEM 8. Financial Information.

Refer to Item 18, which contains the following financial statements:

Export Sales

Sales in Israel during each of the years 2007, 2008 and 2009 was $371,000, $294,000 and $72,000, respectively. Export sales during

each of the years 2007, 2008 and 2009 was $11,865,000 (97% of the total sales volume), $17,818,000 (98% of the total sales volume) and $9,232,000 (99% of the total sales volume), respectively.

Legal Proceedings We are party to legal proceedings in the normal course of our business. Other than as described below, there are no material pending legal proceedings to which we are a party or of which our property is subject. Although the outcome of claims and lawsuits against us cannot be accurately predicted, we do not believe that any of the claims and lawsuits described in this paragraph, individually or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or cash flows for any quarterly or annual period.

On January 20, 2008, the Manufacturers Association of Israel (the “Plaintiff”) filed a lawsuit with the labor court in Tel Aviv-Jaffa (the “Court”) against us, seeking an amount of NIS 82,789 + VAT (as of June 20, 2008 approximately $25,700 + VAT) for service fees for the years 2001-2007, as well as legal expenses and attorney's fees of the Plaintiff. In addition, the Plaintiff has asked the Court to instruct us to submit the necessary documentation, certified by the Company's accountant, needed to calculate the service fees sought by the Plaintiff. During 2008, we and the Plaintiff reached a settlement; accordingly, we paid $8,000, as a compromise that was included in the financial reports in 2008.

In April 2004, the Department for Resources Supply of the Ministry of Ukraine (the “Department”) filed with the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (the “Arbitration Court”) a claim to declare Contract No. 10/82 (the “Contract”), dated April 9, 2002, between us and the Ministry of Internal Affairs of Ukraine (the “Ministry”) void due to defects in the proceedings by which we were awarded the Contract. In July, 2004, the Arbitration Court declared the Contract void. On April 27, 2005, we appealed the decision in the High Commercial Court of Ukraine. In May, 2005, the Department filed with the Arbitration Court a new statement of claim for restitution of $1,047,740, paid to us by the Department under the Contract. On September 27, 2005, we received a negative award issued by the Arbitration Court in the second claim (the “Award”). On December 12, 2005, we were informed that the Supreme Court of Ukraine had dismissed our appeal regarding the July, 2004 decision. On June 29, 2006, the Supreme Court of Ukraine held that the Arbitration Court award was valid and legal under applicable law.

On September 28, 2008, the Department filed a petition (the “Petition”) in the Central District Court of Israel (the “Court”), under which the Department requested the approval of the Award as a valid foreign arbitral award under the laws of the State of Israel.

C. Interests of Experts and Counsel

A. Consolidated Statements and Other Financial Information (Audited)

• Consolidated Balance Sheets

• Consolidated Statements of Operations

• Statements of Changes in Shareholders’ Equity

• Consolidated Statements of Cash Flows

• Notes to Consolidated Financial Statements

84

During November 2008, we filed with the Court an objection to the Petition and a petition to declare the Award null and void. Our

objection and petition rely on what we believe to be well-based evidence that we have against the manner under which the arbitration proceedings were conducted by the Arbitration Court and against their validness and legality. We believe that the arbitration proceedings were conducted partially and jeopardized our basic rights. Our claims are also corroborated by a contrary legal opinion written in the arbitration decision by one of the arbitrators (“Arbitrator”).

On February 16, 2009 the Department filed its response to our claims (the “Response”). The Department raised in its Response procedural and other claims, including a claim that we filed in Ukraine a monetary claim which is based on the Award and the filing of such claim basically affirms our acknowledgment that the Award is valid. On March 25, 2009, we filed a response to the Department’s response and a requisition to order the Arbitrator to testify in the scope of the Petition proceedings (the Court’s decision regarding the said request has not been given yet).

On June 6, 2009, a preliminary court session was held regarding the Petition. During the session, the Department’s counsel claimed that one of the two machines that we previously supplied pursuant to the Contract (which machine is priced higher than the amount of the Department’s claim), was not supplied to the Department and was transferred by us to another Ukrainian governmental authority. It is noted that we have documents that evidence that, contrary to the Department’s claim, we supplied both of the machines directly to the Department.

At a hearing held on September 23, 2009, the Court accepted our application to summon the Arbitrator as a witness, subject to our deposit of € 5,000 to ensure repayment of the Arbitrator’s costs for appearing. Testimony hearing sessions are currently scheduled for November 29-30, 2010, with respect to our witnesses, and January 17-18, 2011, with respect to the Petitioner’s witnesses.

Based on the opinion of our legal advisors, we believe that the above mentioned Ukraine Arbitration Court decision is incorrect, as a matter of law, that the Ukrainian government’s claim has no merit and that the Ukrainian Arbitration Proceedings were legally defective. We further believe that there is a good chance that Petition will be denied. Therefore no provision has been made in the financial statements with respect to the claim for restitution of $1,047,740.

We did not have any revenues from this project in 2007, 2008 or 2009.

On October 30, 2003, SuperCom Slovakia, a subsidiary (66%) of Vuance Ltd., received an award from the International Arbitral Centre of the Austrian Federal Economic Chamber (“IAC”), in a case against the Ministry of Interior of the Slovak Republic relating to the agreement on delivery of Technology, Cooperation and Services signed on March 17, 1998. Upon the Arbitral Award, the Ministry of Interior of the Slovak Republic was ordered to pay SuperCom Slovakia the amount of SKK 80,000,000 (approximately $3,806,000 as of December 31, 2009) plus interest accruing from March, 1999. In addition, the Ministry of Interior of the Slovak Republic was ordered to pay the costs of arbitration in the amount of EUR 42,716 (approximately $61,000 as of December 31, 2009) and SuperCom Slovakia’s legal fees in the amount of EUR 63,611 (approximately $91,000 as of December 31, 2009). We have begun an enforcement proceeding to collect the arbitral award. The Ministry of Interior of the Slovak Republic filed a claim with the Commercial Court in Vienna, Austria on February 10, 2004, whereby it challenged and requested to set aside the arbitral award. During September, 2005, the commercial court of Vienna dismissed the claim. On October 21, 2005, the Ministry of the Interior of the Slovak Republic filed an appeal. On August 25, 2006, the Austrian Appellate Court rejected the appeal and ordered the Ministry to reimburse Supercom Slovakia´s costs of the appellate proceeding in the amount of EUR 6,688 within 14 days. On October 3, 2006, we were informed that the Ministry had decided not to file an extraordinary appeal to the Austrian Supreme Court’s decision rejecting its appeal. To date, our efforts to enforce the Commercial Court’s decision have been unsuccessful. On December 16, 1999, Secu-Systems Ltd. (“Secu-systems”) filed a lawsuit with the District Court in Tel-Aviv-Jaffa jointly and severally against us and InkSure Ltd. (“InkSure”) (our former subsidiary, which became a subsidiary of InkSure Technologies, Inc.) seeking a permanent injunction and damages arising from the printing method applied to certain products developed by Inksure. In its lawsuit, the plaintiff asserted claims of breach of a confidentiality agreement between the plaintiff and us, unjust enrichment by us and InkSure, breach of fiduciary duties owed to Secu-systems by us and InkSure, misappropriation of trade secrets by us and InkSure, and damage to Secu-systems’ property. On March 15, 2006, the Court denied the breach of contract claim, but upheld the claim for misappropriation of trade secrets and ordered InkSure and us to cease all activity involving the use of the confidential knowledge and/or confidential information of the plaintiff. In addition, the court ordered us and Inksure to provide a report certified by an accountant setting forth in full the income and/or benefit received by InkSure and us as a result of the misappropriation activity through the date of the judgment, and ordered us and Inksure, jointly and severally, to pay to Secu-systems compensation in the sum of NIS 100,000 ($26,500 as of December 31, 2009) and legal expenses as well as attorney’s fees in the sum of NIS 30,000 ($7,950 as of December 31, 2009). Secu-systems has filed an appeal, and we and InkSure filed a counter-appeal, on the ruling above. On November 1, 2007, the Supreme Court accepted Secu-systems’ appeal, and stated that Inksure and us have breached the confidentiality agreement. Consequently, the appeal that had been filed by Inksure and us was dismissed. The Supreme Court instructed that the case will be returned to the District Court for determining the remedies to which Secu-Systems is entitled.

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On February 18, 2008, the Plaintiff filed a petition with the District Court asking the court to allow Secu-systems to amend the amount

for which it sued as stated in the Statement of Claims to NIS 25,000,000 (approximately $6,623,000 as of December 31, 2009). The petition is mainly based on the fact that in 2002, Inksure was sold by us to a third party for a consideration of approximately $6,000,000 and upon Secu-systems’ assertion that such amount of consideration constitutes a benefit and/or profit which seems to have been derived from the breach of the confidentiality agreement and upon the assertion that Secu-systems is entitled, in light of the Supreme Court’s ruling with respect to the breach of the confidentiality agreement, to receive such amount. Another argument made by Secu-systems relates to the profit which Inksure, allegedly, generated from the breach of the confidentiality agreement; this argument is based on a gross profit of $6,400,000 according to the financial statements of Inksure for the years 2002-2007.

On March 24, 2008, we provided our lawyers with an opinion of subject matter consultant, according to which, the following conclusions can be drawn:

On September 8, 2009 the District Court denied Secu-systems’ petition to amend the amount for which it sued. However, the District

Court allowed Secu-systems to submit evidence to show that the reports which we submitted along with Inksure were incorrect in order to prove Secu-systems’ damages. On December 15, 2009 Secu-systems filed affidavits of prime testimony on its behalf and we filed a request to strike the affidavits for being outside of the scope of the District Court's decision of September 8, 2009. The District Court suggested that the parties attempt to resolve this dispute through mediation. All of the parties agreed to mediate the matter.

During the course of the mediation process an agreement was reached in principle, according to which the mediator will be authorized to determine a sum, within the range of NIS 750,000 (approximately $199,000 as of December 31, 2009) and NIS 1,000,000 (approximately $265,000 as of December 31, 2009), which we shall pay to Secu-systems in ten (10) equal, consecutive installments. It should be noted that despite reaching an agreement in principle, we have not entered into a definitive agreement.

In light of the above, we have made an allowance of $230,000 that reflects the expected legal expenses related to this litigation.

We lease office space in Qadima, Israel, from Somet HaSharon (“Somet”) under a lease agreement entered into in 2005. In 2009, we discovered a discrepancy in the lease agreement between the amount of space indicated as leased in the agreement and the amount of space actually possessed by us. Accordingly, we sent Somet a set-off notice regarding the excess lease payments that, according to us, Somet has collected from us from the commencement of the lease period. We agreed along with Somet to submit the dispute to arbitration.

On February 19, 2009, the first arbitration session was held and a time table was established for submitting our statements of claims. On June 14, 2009, we submitted our statement of defense, as well as a statement of counterclaim, and Somet submitted responses to our statements approximately two weeks before the date set for the hearing. The hearing was held on August 18, 2009.

On June 28, 2010, we received the arbitral award, which indicated that the claim against us was accepted and our counterclaim was rejected. In addition, legal expenses in the amount of NIS 20,000 (approximately $5,000 as of December 31, 2009) were awarded in favor of Somet. In consequence of the arbitral award, the arbitrator handed over to Somet the checks that we had drawn and deposited with the arbitrator as security.

As of the filing date of this Form 20-F we have not filed a petition seeking to annul the arbitral award.

a. In light of the costs analysis, we had no economical profit from the sale of Inksure’s shares. b. The consideration received from the sale of Inksure’s shares in 2002, incorporates the value of the cash flow of Inksure following

the sale. Therefore, a calculation based upon both the sale price and the future cash flow of Inksure is not accurate and is not line with customary accounting standards, since it calculates the factor of the future cash flow twice.

c. The examination of the results of Inksure’s business activity in 2002-2007, as reflected in its financial reports, show that Inksure has not made any profits, and even suffered losses in the said period. The financial reports also show that Inksure had a negative cash flow in these years, which was financed by bank loans and fund raising.

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On March 26, 2010, two former employees of Vuance, Inc., our wholly-owned U.S. subsidiary, filed suit against Vuance, Inc. in the

Circuit Court for Milwaukee County. The plaintiffs allege that each was a party to an employment agreement with Vuance, Inc. and that Vuance, Inc. breached such agreements. The employment agreements provide, among other terms, that any dispute arising under or in connection with the employment agreements shall be resolved by third-party mediation and, failing such mediation, by binding arbitration. Accordingly, we have agreed to mediate the dispute. The plaintiffs’ claims for damages are in the aggregate, in excess of $168,000. Vuance, Inc. made an allowance of $168,000, in 2009 to reflect the expected expenses related to this litigation.

Dividend Policy

We have not distributed a cash dividend since August 27, 1997 and we do not anticipate any dividend distribution in the foreseeable future. Under the Israeli Companies Law, dividends may only be paid out of profits legally available for distribution (the “Profits Criteria”) and provided that there is no reasonable concern that such payment will prevent us from satisfying our existing and foreseeable obligations as they become due. In addition, a competent court may approve, as per a motion to be filed by a company in accordance with the Israeli Companies Law requirements, a payment which does not meet the Profit Criteria, provided that the court was convinced that there is no reasonable concern that such payment will prevent the company from satisfying its existing and foreseeable obligations as they become due.

In accordance with our Articles of Association, our Board of Directors may from time to time declare and cause the Company to pay to the shareholders such interim or final dividends as the Board of Directors deems appropriate considering the profits of the Company and in compliance with the provisions of the Israeli Companies Law.

Subject to the rights of the holders of shares as to dividends, and to the provisions of our Articles of Association, dividends, whether in cash or in bonus shares, shall be paid or distributed, as the case may be, to shareholders pro rata to the amount paid up or credited as paid up on account of their shares, without taking into consideration any premium paid thereon.

There have not been any significant changes since the date of the annual financial statements included under Item 18 of this Annual

Report. ITEM 9. The Offer And Listing.

We were traded on the NASDAQ Europe stock market since April 19, 1999. On October 23, 2003, following the closing of the

NASDAQ Europe stock market, we transferred the listing of our shares to Euronext Brussels stock market where we traded under the symbol “VUNC.” We applied for delisting of our shares from the Euronext Brussels stock market, and our application was approved on May 6, 2008, effective August 4, 2008.

Our ordinary shares were quoted on the OTC Bulletin Board Market under the symbol “VUNC.OB,” from November 5, 2004 until August 22, 2007.

Our ordinary shares approved for listing on NASDAQ and began trading effective August 23, 2007. The shares are traded on NASDQ under the symbol “VUNC.”

On December 11, 2008, we received a letter from NASDAQ advising us that we did not comply with the Listing Requirements. As a result, the NASDAQ Staff began reviewing our eligibility for continued listing on NASDAQ. To facilitate their review, the NASDAQ Staff requested that we provide our specific Plan. After we submitted the Plan, on March 30, 2009 we received further correspondence from NASDAQ that we did not comply with the Listing Requirements, and therefore, trading of our ordinary shares would be suspended at the opening of business on April 8, 2009, and a form 25-NSE would be filed with the SEC removing our securities from listing and registration on NASDAQ, unless we requested an appeal of the delisting decision by NASDAQ.

B. Significant Changes

A. Offer and Listing Details

The tables included below set forth information regarding the price history of the ordinary shares on the Euronext Brussels stock market and the OTC Bulletin Board/NASDAQ for the periods indicated.

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We appealed the NASDAQ determination to a NASDAQ Listings Qualifications Panel (the “Panel”), which automatically stayed the

delisting of our ordinary shares until the Panel reached a decision. On June 17, 2009, the Panel granted our request for an extension of time to achieve full compliance with the Listing Requirements.

On September 29, 2009 we received a NASDAQ Staff Determination letter indicating that we failed to comply with the minimum stockholders’ equity requirement of $2.5 million as set forth in Listing Rule 5550(b) (formerly Marketplace Rule 4310(c)(3)). As a result, our securities were delisted from The Nasdaq Stock Market and trading in our shares was suspended effective at the open of business on October 1, 2009.

We had been advised by Pink OTC Markets Inc., which operates an electronic quotation service for securities traded over-the-counter, that our securities were immediately eligible for quotation in the Pink Sheets effective as of the open of business on October 1, 2009. Our ordinary shares are currently quoted under the ticker symbol “VUNCF”.

The following table shows, for the periods indicated, the high and low closing prices of our ordinary shares in Euros as reported on the NASDAQ Europe stock market or the Euronext Brussels stock market, as applicable until August 4, 2008 (conversion to U.S. dollars is based on the exchange rate published by the Bank of Israel). The following table also shows, for the periods indicated since November 5, 2004, the high and low closing prices of our ordinary shares on the Pink OTC Market or OTC Bulletin Board Market or NASDAQ, as applicable.

The Company has not issued any securities in connection with a pre-emptive issue.

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(1) Our shares were quoted on the NASDAQ Europe stock market since April 19, 1999 and since October 23, 2003, on the Euronext

Brussels stock market. We applied for delisting of our shares from the Euronext Brussels stock market, and our application was approved on May 6, 2008, effective August 4, 2008.

(2) Our ordinary shares were quoted on the OTC bulletin board from November 5, 2004 and since August 23, 2007, our ordinary shares were approved for trading on NASDAQ under the symbol “VUNC” and the trade on the OTC Bulletin Board ceased. On October 1, 2009 our ordinary shares started being quoted under the ticker symbol “VUNCF” on the Pink OTC Market.

(3) Share prices are adjusted to give effect to our 1-for-5.88235 reverse share split effective for trading purposes on May 14, 2007.

On June 30, 2010, the last reported sale price of our ordinary shares on Pink Sheets was $0.16 per share.

Period European market (1) US market (2) Per share ($) Per share ($) High Low High Low

Annual 2005 16.41 3.12 15.06 3.29 2006 6.71 3.18 6.59 3.24 2007 5.28 3.58 6.18 3.82 2008 3.90 (1) 2.40 (1) 4.69 0.29 2009 N/A N/A 0.68 0.20

Financial quarters 2008 First quarter 4.15 2.81 4.69 2.94 Second quarter 2.91 2.40 3.60 2.75 Third quarter 2.57 (1) 2.41 (1) 2.97 1.76 Fourth quarter N/A N/A 2.00 0.29 2009 First quarter N/A N/A 0.68 0.24 Second quarter N/A N/A 0.64 0.26 Third quarter N/A N/A 0.45 0.30 Fourth quarter N/A N/A 0.55 0.20 2010 First quarter N/A N/A 0.29 0.08 Most recent six months December 2009 N/A N/A 0.31 0.20 January 2010 N/A N/A 0.29 0.19 February 2010 N/A N/A 0.21 0.13 March 2010 N/A N/A 0.20 0.08 April 2010 N/A N/A 0.24 0.10 May 2010 N/A N/A 0.21 0.18 June 2010 N/A N/A 0.18 0.16

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Not applicable.

Our ordinary shares were listed for trade on the Euronext Brussels stock market, from October 23, 2003 under the symbol “SUP,”

which became “VUNC” after our corporate name change on May 14, 2007. We applied for delisting of our shares from the Euronext Brussels stock market, and our application was approved on May 6, 2008, effective August 4, 2008.

Since November 5, 2004, our ordinary shares have also traded on the OTC Bulletin Board under the symbol "SPCBF.OB," which, following our recent name change became “VUNCF.OB.” Since August 23, 2007, our ordinary shares were approved for trading on NASDAQ under the symbol “VUNC” and the trade on the OTC Bulletin Board ceased. On October 1, 2009 our ordinary shares started being quoted under the ticker symbol “VUNCF” on the Pink OTC Market.

Not applicable.

Not applicable.

Not applicable.

ITEM 10. Additional Information.

Not applicable.

Our Memorandum of Association and Articles of Association are attached hereto as noted in Item 19.

We are a public company organized in the State of Israel under the Israeli Companies Law. We are registered with the Registrar of

Companies of the State of Israel and we have been assigned company number 52-00-4407-4.

Set forth below is a summary of certain provisions of our Memorandum of Association (the "Memorandum"), the Articles of Association (the "Articles") and the Companies Law. This description does not purport to be complete and is qualified in its entirety by reference to the full text of the Memorandum and Articles and by Israeli law. The Memorandum, which integrates into the text all amendments thereto since our incorporation, and the Articles, which were adopted in August 2007, are incorporated by reference as exhibits to this Form 20-F. OBJECTS OF THE COMPANY

Pursuant to Section 2 of the Memorandum, the principal object for which we were established is to engage in the development, manufacture, implementation and marketing of computerized systems in general and computerized systems for producing tags, computerized photograph databases for the purpose of identification and for issuing various certificates in particular; consultation in the above fields; development, manufacture, implementation and marketing of any product based on the knowledge and expertise of the parties; and the purchase, sale, import, export and implementation of any action required to realize the above objectives.

B. Plan of Distribution

C. Markets

D. Selling Shareholders

E. Dilution

F. Expenses of the Issue

A. Share Capital

B. Memorandum and Articles of Association

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DIRECTORS

Our Articles provide that the number of directors may be determined from time to time by the Board of Directors, and unless otherwise determined, the number of directors comprising the Board of Directors will be between four and ten. With the exception of our external directors, who are elected for three year terms and may only be elected for two three year terms in accordance with the Israeli Companies Law, our directors are elected for a one year term ending at the following annual general meeting of shareholders, However, if no directors are elected at an annual meeting, then the persons who served as directors immediately prior to the annual meeting shall be deemed reelected at the same meeting. The general meeting may resolve that a director be elected for a period longer than by the next annual general meeting, but not longer than the third next annual meeting. Directors may resign or in certain circumstances be removed by our general meeting prior to the expiration of his term.

The board may appoint additional directors (whether to fill a vacancy or create new directorship) to serve until the next annual shareholders meeting. In case an office of a director has been vacated, the remaining directors may continue to act in every matter so long as the number of its members is not less than the quorum required at the time for meetings of the board. If the number of members of the board decreases below said quorum, the board will not be entitled to act except in case of emergency or for appointing additional directors in order to fill vacant positions on the board or to call a general meeting of the shareholders. The Board of Directors elects one of its members to serve as the Chairman.

The Board of Directors may meet and adjourn its meetings as it deems fit, provided, however, that the board must meet at least once in every three months period. A meeting of the board may be called at the request of each director. The quorum required for a meeting of the board is not less than 30% of the number of directors and in any event not less than two directors. Issues arising at any Board of Directors’ meeting are decided by a majority of votes cast at the meeting. In lieu of a board meeting a resolution may be adopted in writing if signed by all directors, and a meeting may also be held through telephone conference or other communications means, provided however that all participants may hear each other simultaneously.

Subject to the Companies Law, the board may delegate any of its powers to committees consisting of at least three directors, provided that each such committee shall include at least one external director. The Board of Directors may from time to time revoke such delegation or alter the composition of any such committee. Any committee so formed must exercise its powers in accordance with any directions given to it by the board. Under the Companies Law the Board of Directors must appoint an audit committee, comprised of at least three directors and including all of the external directors. The function of the audit committee is to review irregularities in the management of our business and recommend remedial measures. The committee is also required, under the Companies Law, to approve certain related party transactions. FIDUCIARY DUTIES OF OFFICERS

The Companies Law codifies the fiduciary duties that "office holders," including directors and executive officers, owe to a company. An office holder's fiduciary duties consist of a duty of care and a duty of loyalty. The duty of loyalty includes avoiding any conflict of interest between the office holder's position in the company and his personal affairs, avoiding any competition with the company, avoiding exploiting any business opportunity of the company in order to receive personal advantage for himself or others, and revealing to the company any information or documents relating to the company's affairs which the office holder has received due to his position as an office holder. APPROVAL OF CERTAIN TRANSACTIONS

Under the Companies Law, all arrangements as to compensation of office holders who are not directors, or controlling parties, require approval of the Board of Directors. Arrangements regarding the compensation of directors also require approval by the audit committee and the shareholders.

The Companies Law requires that an office holder of the company promptly disclose any personal interest that he or she may have and all related material information known to him or her, in connection with any existing or proposed transaction by the company. In addition, if the transaction is an extraordinary transaction as defined under Israeli law, the office holder must also disclose any personal interest held by the office holder's spouse, siblings, parents, grandparents, descendants, spouse's descendants and the spouses of any of the foregoing. In addition, the office holder must also disclose any interest held by any corporation in which the office holder is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager. An extraordinary transaction is defined as a transaction other than in the ordinary course of business, otherwise than on market terms, or that is likely to have a material impact on the company's profitability, assets or liabilities.

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In the case of a transaction which is not an extraordinary transaction, after the office holder complies with the above disclosure

requirement, only board approval is required unless the articles of association of the company provide otherwise. The transaction must not be adverse to the company's interest. Furthermore, if the transaction is an extraordinary transaction, then, in addition to any approval stipulated by the articles of association, it also must be approved by the company's audit committee and then by the Board of Directors, and, under certain circumstances, by a meeting of the shareholders of the company. An office holder who has a personal interest in a matter that is considered at a meeting of the Board of Directors or the audit committee may not be present at the deliberations or vote on this matter. If a majority of the directors has a personal interest in a transaction with us, such directors may be present at the deliberations and vote in this matter, and shareholder approval of the transaction is required.

The Companies Law applies the same disclosure requirements to a controlling shareholder of a public company, which includes a shareholder that holds 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights in the company. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and the terms of compensation of a controlling shareholder who is an office holder, require the approval of the audit committee, the Board of Directors and the shareholders of the company by simple majority, provided that either such majority vote must include at least one-third of the shareholders who have no personal interest in the transaction and are present at the meeting (without taking into account the votes of the abstaining shareholders), or that the total shareholdings of those who have no personal interest in the transaction who vote against the transaction represent no more than one percent of the voting rights in the company.

In addition, a private placement of securities that will increase the relative holdings of a shareholder that holds five percent or more of the company's outstanding share capital (assuming the exercise or conversion of all securities held by such person that are exercisable for or convertible into shares) or voting rights or that will cause any person to become, as a result of the issuance, a holder of more than five percent of the company's outstanding share capital or voting rights, requires approval by the Board of Directors and the shareholders of the company. However, if the receiving party is not a director in the company, its CEO, or a controlling shareholder, and will not become a controlling shareholder as a result of the private placement, shareholder approval is not required if the allotted securities amount to less than twenty percent of the company's outstanding voting rights before the allotment. Since our shares are traded and were offered to the public only outside of Israel, and as long as our shares are not offered to the public or registered for trade in Israel, we are exempted from these limitations concerning private placements.

Under the Companies Law and as long as our Articles are not amended to determine otherwise, certain resolutions, such as resolutions regarding mergers, and windings up, require approval of the holders of 75% of the shares represented at the meeting and voting thereon. DUTIES OF SHAREHOLDERS

Under the Companies Law, a shareholder has a duty to act in good faith and in a customary way towards the company and other shareholders and to refrain from abusing his or her power in the company including, among other things, when voting in a general meeting of shareholders on the following matters:

In addition, any controlling shareholder, any shareholder who knows that it possesses power to determine the outcome of a shareholder

vote and any shareholder who, pursuant to the provisions of a company's articles of association, has the power to appoint or prevent the appointment of an office holder in the company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty but provides that a breach of his or her duty is tantamount to a breach of fiduciary duty of an officer of the company. EXEMPTION, INSURANCE AND INDEMNIFICATION OF DIRECTO RS AND OFFICERS EXEMPTION OF OFFICE HOLDERS

Under the Companies Law, an Israeli company may not exempt an office holder from liability for breach of his duty of loyalty, but may exempt in advance an office holder from liability to the company, in whole or in part, for a breach of his duty of care, provided the articles of association of the company allow it to do so. Our Articles allow us to exempt our office holders from liability towards us for breach of duty of care to the maximum extent permitted by law.

? any amendment to the articles of association; ? an increase of the company's authorized share capital; ? a merger; or ? approval of interested party transactions which require shareholder approval.

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OFFICE HOLDER INSURANCE

Our Articles provide that, subject to the provisions of the Companies Law, we may enter into a contract for the insurance of the liability of any of our office holders for any act done by him or her by virtue of being an office holder, in respect of any of the following:

INDEMNIFICATION OF OFFICE HOLDERS

Our Articles provide that we may indemnify an office holder for the following cases of liability and expenses incurred by him or her as a result of an act done by him or her by virtue of being an office holder:

We have obtained directors and officers liability insurance for the benefit of our office holders.

LIMITATIONS ON EXEMPTION, INSURANCE AND INDEMNIFICA TION

The Israeli Companies Law provides that a company may not exempt or indemnify an office holder, or enter into an insurance contract, which would provide coverage for any monetary liability incurred as a result of any of the following:

REQUIRED APPROVALS

In addition, under the Companies Law, any exemption of, indemnification of, or procurement of insurance coverage for, our office holders must be approved by our audit committee and our Board of Directors and, if the beneficiary is a director, an additional approval by our shareholders is required.

? a breach of duty of care towards us or any other person, ? a breach of fiduciary obligations towards us, provided that the office holder acted in good faith and had reasonable grounds to

assume that his or her act would not be to our detriment, ? a financial liability imposed on him or her in favor of another person, or ? any other event for which insurance of an office holder is or may be permitted.

? financial liability imposed upon said office holder in favor of another person by virtue of a decision by a court of law, including a decision by way of settlement or a decision in arbitration which has been confirmed by a court of law;

? reasonable expenses of the proceedings, including lawyers’ fees, expended by the office holder or imposed on him by the court for:

(1) proceedings issued against him by or on behalf of the Company or by a third party; (2) criminal proceedings in which the office holder was acquitted; or (3) criminal proceedings in which he was convicted in an offense, which did not require proof of criminal intent; or ? any other liability or expense for which the indemnification of an officer holder is not precluded by law.

? a breach by the office holder of his or her duty of loyalty towards the company unless, with respect to insurance coverage, the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;

? a breach by the office holder of his or her duty of care if the breach was done intentionally or recklessly; ? any act or omission done with the intent to derive an illegal personal benefit; or ? any fine levied against the office holder.

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RIGHTS OF ORDINARY SHARES

Our ordinary shares confer upon our shareholders the right to receive notices of, and to attend, shareholder meetings, the right to one vote per ordinary share at all shareholders' meetings for all purposes, and to share equally, on a per share basis, in such dividends as may be declared by our Board of Directors; and upon liquidation or dissolution, the right to participate in the distribution of any surplus assets of the Company legally available for distribution to shareholders after payment of all debts and other liabilities of the Company. All ordinary shares rank pari passu in all respects with each other. Our Board of Directors may, from time to time, make such calls as it may think fit upon a shareholder in respect of sum unpaid in respect of shares held by such shareholder which is not payable at a fixed time, and each shareholder shall pay the amount of every call so made upon him (and of each installment thereof if the same is payable in installments). MEETINGS OF SHAREHOLDERS

An annual general meeting of our shareholders will be held at least once in every calendar year, not later than 15 months after the last annual general meeting at such time and at such place either within or without the State of Israel as may be determined by our Board of Directors.

Our Board of Directors may, whenever it deems fit, convene a special general meeting. Special general meetings may also be convened upon requisition in accordance with the Companies Law. Our Board is obligated to convene a special general meeting if it receives a written request from any of (a) two Directors or 25% of the total number of Directors; (b) one or more Shareholders, holding at least 5% of our issued share capital and at least 1% of the shareholders’ voting power; or (c) one or more shareholders holding no less than 5% of the our issued voting shares. MERGERS

A merger of the Company shall require resolution adopted by a simple vote cast at a general meeting, not taking into account abstentions.

Except for the material contracts described under the sections captioned “Employment Agreements, Termination of Employment and

Change-In-Control Arrangements” and “Share Option Plans” under Sections B and E, respectively, under Item 6, we are not a party to any other material contracts outside of the ordinary course of business.

Pursuant to a general permit issued in 1998 by the Israeli Controller of Foreign Exchange under the Currency Control Law, 1978 (the

"Currency Control Law"), there are virtually no restrictions on foreign exchange in the State of Israel, except for certain reporting obligations.

To the extent that the following discussion is based on new or existing tax or other legislation that has not been subject to judicial or

administrative interpretation, there can be no assurance that the views expressed herein will be accepted by the tax or other authorities in question. This discussion is not intended, nor should it be construed, as legal or professional tax advice and it is not exhaustive of all possible tax considerations. Israeli Taxation

The following is a summary of the current material Israeli tax laws applicable to companies in Israel with special reference to its effect on us. This section also contains a discussion of certain Israeli government programs from which we may benefit. This summary does not discuss all the acts of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Some parts of this discussion are based on new tax legislation that has not been subject to judicial or administrative interpretation. Accordingly, we cannot assure you that the views expressed in the discussion will be accepted by the tax authorities in question. The discussion is not intended and should not be construed as legal or professional tax advice and does not cover all possible tax considerations.

C. Material Contracts

D. Exchange Controls

E. Taxation

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Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and

disposition of our ordinary shares, including, in particular, the effect of any foreign, state or local taxes.

The following discussion describes the material Israeli tax consequences regarding ownership and disposition of Vuance’s ordinary shares applicable to non-Israeli shareholders, including U.S. shareholders. General Corporate Tax Structure

Israeli companies are generally subject, in 2009, to corporate tax at the rate of 26% on their taxable income. This rate was 29% in the 2007 tax year, 27% for the 2008 tax year and will be 25% for the 2010 tax year. On July 23, 2009, as part of the Arrangements Law for the period 2009-2010, article 126 of the Income Tax Ordinance (New Version) – 1961 was amended, whereby the corporate tax rate would be gradually reduced commencing in the 2011 tax year and thereafter, as follows: 2011 – 24%, 2012 – 23%, 2013 – 22%, 2014 – 21%, 2015 – 20% and 2016 and thereafter – 18%. Protection against the effects of inflation or changes in the US dollar exchange rate

In the past, in order to avoid erosion of corporate capital in times of high inflation, Israeli companies implemented the Income Tax Law (Adjustment for Inflation) 1985 that adjusted taxable income for changes in the Israeli Consumer Price Index. Since inflation in Israel in recent years has not been significant, the Income Tax Law (Adjustment for Inflation) 1985 was canceled as from the 2008 tax year subject to provisions that were set out. Taxation of Capital Gains Applicable to Israeli Shareholders and Non-Israeli Shareholders General

Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, including shares in Israeli companies, by both residents and non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain which is equivalent to the increase of the relevant asset’s purchase price which is attributable to the increase in the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus. Israeli residents Individuals:

Commencing in January 1, 2006, a real capital gain deriving to an individual will be taxed at a rate of 20%, on condition that the income is not classified as business income from the vantage point of the individual. This will apply to the entire real capital gain accrued since the date of purchase, or since January 1, 2003 if the purchase preceded that date. Notwithstanding the above, the real capital gain will be taxed at a rate of 25% in the following instances:

Companies:

The real capital gain on the sale of securities by a company will be taxed at the corporate tax rate applicable during the year of sale, as follows: 2009 – 26%, 2010 – 25%, 2011 – 24%, 2012 – 23%, 2013 – 22%, 2014 – 21%, 2015 – 20%, 2016 – 18%.

Companies that prior to January 1, 2006 were not subject to the Income Tax Law (Adjustments for Inflation) – 1985, will be taxed at a rate of 25% upon the capital gain on the sale of securities in the period 2006-2009. Based on part 5 of the income tax ordinance instructions and on revision number 147, the real capital gain on the sale and/or redemption of securities by us in connection with this Annual Report will be subject to taxation at the corporate tax rate stated in section 126(A) of the income tax ordinance. This tax rate will gradually decrease to a rate of 18% for the tax year 2016 and for each tax year thereafter.

1. The individual deducts interest expenses and linkage differentials. 2. The seller is a "significant shareholder" at the date of the sale of the securities or at any time during the 12-month period preceding

the sale. A "significant shareholder" is defined in general as shareholder who holds, either directly or indirectly, alone or together with another, at least 10% of any form of a means of control in a company. The term "together with another" means together with a relative, or together with someone who is not a relative with which the individual, either directly or indirectly, has a regular cooperative agreement regarding the affairs of the company.

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Non-Israeli residents:

Generally speaking, Non-residents of Israel will be exempt from capital gain tax in relation to the sale of ordinary shares traded in a stock exchange as long as (a) the capital gains are not accrued or derived by the nonresident shareholder’s permanent establishment in Israel, (b) the ordinary shares in relation to which the capital gains are derived were acquired by the nonresident after the initial listing of the ordinary shares and (c) neither the shareholder nor the capital gain is subject to certain sections of the Israeli income tax ordinance.

However, non-Israeli corporations will not be entitled to such exemption if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli corporation, or (ii) is the beneficiary or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.

In addition, pursuant to the Income Tax Treaty between Israel and the U.S. (the “Tax Treaty”), gains derived from the sale, exchange or disposition of our ordinary shares by a person who qualifies as a resident of the U.S. within the meaning of the Tax Treaty and who is entitled to claim the benefits afforded to US residents under the Tax Treaty, referred to as a Treaty US Resident, would not be subject to Israeli capital gains tax, unless such US Resident owned, directly or indirectly, shares representing 10% or more of the voting power of our company at any time during the 12-month period preceding such sale, exchange or disposition.

In some instances where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at the source. However, under the Tax Treaty, such U.S. resident would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The Tax Treaty does not relate to U.S. state or local taxes. U.S. Federal Income Taxation General

The following is a summary of the material U.S. federal income tax consequences of the ownership and disposition of our ordinary shares and warrants. The following discussion is not exhaustive of all possible tax considerations. This summary is based upon the Internal Revenue Code of 1986, as amended (the “Code”), regulations promulgated under the Code by the U.S. Treasury Department (including proposed and temporary regulations), rulings, current administrative interpretations and official pronouncements of the Internal Revenue Service (the “IRS”), and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. Such change could materially and adversely affect the tax consequences described below. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below.

This discussion does not address state, local, or foreign tax consequences of the ownership and disposition of ordinary shares and warrants. (See “Israeli Taxation” above).

This summary is for general information only and does not address all aspects of the U.S. federal income taxation that may be important to a particular holder in light of its investment or tax circumstances or to holders subject to special tax rules, such as: banks; financial institutions; insurance companies; dealers in stocks, securities, or currencies; traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; tax-exempt organizations; real estate investment trusts; regulated investment companies; qualified retirement plans, individual retirement accounts, and other tax-deferred accounts; expatriates of the U.S.; persons subject to the alternative minimum tax; persons holding ordinary shares or warrants as part of a straddle, hedge, conversion transaction, or other integrated transaction; persons who acquired ordinary shares or warrants pursuant to the exercise of any employee stock option or otherwise as compensation for services; persons actually or constructively holding 10% or more of our voting stock; and U.S. Holders (as defined below) whose functional currency is other than the U.S. dollar.

This discussion is not a comprehensive description of all of the U.S. federal tax consequences that may be relevant with respect to the ownership and disposition of our ordinary shares and warrants. We urge you to consult your own tax advisor regarding your particular circumstances and the U.S. federal income and estate tax consequences to you of owning and disposing of our ordinary shares and warrants, as well as any tax consequences arising under the laws of any state, local, or foreign or other tax jurisdiction and the possible effects of changes in U.S. federal or other tax laws.

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This summary only addresses ordinary shares and warrants that are held as capital assets within the meaning of Section 1221 of the

Code, which generally means as property held for investment, and were acquired upon original issuance at their initial public offering price. For purposes of this discussion, the term “U.S. Holder” means a beneficial owner of our ordinary shares and warrants that is any of the following:

The term “Non-U.S. Holder” means a beneficial owner of our ordinary shares and warrants that is not a U.S. Holder. As described in

“Taxation of Non-U.S. Holders” below, the tax consequences to a Non-U.S. Holder may differ substantially from the tax consequences to a U.S. Holder.

If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our ordinary shares and warrants, the U.S. federal income tax consequences to a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. A holder of our ordinary shares and warrants that is a partnership and the partners in such partnership should consult their own tax advisors regarding the U.S. federal income tax consequences of the ownership and disposition of our ordinary shares and warrants. Taxation of U.S. Holders

The discussion in “Distributions on Ordinary Shares” and “Dispositions of Ordinary Shares or Warrants” below assumes that we will not be treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. For a discussion of the rules that apply if we are treated as a PFIC, see the discussion in “Passive Foreign Investment Company” below. Distributions on Ordinary Shares

General. Subject to the discussion in “Passive Foreign Investment Company” below, if you actually or constructively receive a distribution on ordinary shares, you must include the distribution in gross income as a taxable dividend on the date of your receipt of the distribution, but only to the extent of our current or accumulated earnings and profits, as calculated under U.S. federal income tax principles. Such amount must be included without reduction for any Israeli tax withheld. Dividends paid by us generally will not be eligible for the dividends received deduction allowed to corporations with respect to dividends received from certain domestic corporations. Dividends paid by us may or may not be eligible for preferential rates applicable to qualified dividend income, as described below.

To the extent a distribution exceeds our current and accumulated earnings and profits, it will be treated first as a non-taxable return of capital to the extent of your adjusted tax basis in the ordinary shares, and thereafter as capital gain. Preferential tax rates for long-term capital gain may be applicable to non-corporate U.S. Holders.

We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, you should expect that a distribution will generally be reported as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.

? a citizen or resident of the U.S. or someone treated as a U.S. citizen or resident for U.S. federal income tax purposes; ? a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the

laws of the U.S., any state thereof, or the District of Columbia; ? an estate, the income of which is subject to U.S. federal income taxation regardless of its source; ? a trust if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized

to control all substantial decisions of the trust; or ? a trust in existence on August 20, 1996 that has a valid election in effect under applicable Treasury Regulations to be treated as a

U.S. person.

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Qualified Dividend Income. With respect to non-corporate U.S. Holders (i.e., individuals, trusts, and estates), for taxable years

beginning before January 1, 2011, dividends that are treated as qualified dividend income (“QDI”) are taxable at a maximum tax rate of 15%. Among other requirements, dividends generally will be treated as QDI if either (i) our ordinary shares are readily tradable on an established securities market in the U.S., or (ii) we are eligible for the benefits of a comprehensive income tax treaty with the U.S. which includes an information exchange program and which is determined to be satisfactory by the U.S. Treasury. It is expected that our ordinary shares will be “readily tradable” as a result of being listed on The NASDAQ Capital Market.

In addition, for dividends to be treated as QDI, we must not be a PFIC (as discussed below) for either the taxable year in which the dividend was paid or the preceding taxable year. We do not believe that we will be a PFIC for our current taxable year. However, please see the discussion under “Passive Foreign Investment Company” below. Additionally, in order to qualify for QDI treatment, you generally must have held the ordinary shares for more than 60 days during the 121-day period beginning 60 days prior to the ex-dividend date. However, your holding period will be reduced for any period during which the risk of loss is diminished.

Moreover, a dividend will not be treated as QDI to the extent you are under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Since the QDI rules are complex, you should consult your own tax advisor regarding the availability of the preferential tax rates for dividends paid on ordinary shares.

Foreign Currency Distributions. We have the right to pay dividends in Israeli currency. A dividend paid in Israeli currency must be included in your income as a U.S. dollar amount based on the exchange rate in effect on the date such dividend is received, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted to U.S. dollars on the date of receipt, you generally will not recognize a foreign currency gain or loss. However, if you convert the foreign currency into U.S. dollars on a later date, you must include in income any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the difference between (i) the U.S. dollar value of the amount you included in income when the dividend was received and (ii) the amount that you receive on the conversion of the foreign currency into U.S. dollars. Such gain or loss will generally be ordinary income or loss and U.S. source for U.S. foreign tax credit purposes.

In-Kind Distributions. Distributions to you of new ordinary shares or rights to subscribe for new ordinary shares that are received as part of a pro rata distribution to all of our shareholders will not be subject to U.S. federal income tax. The adjusted tax basis of the new ordinary shares or rights so received will be determined by allocating your adjusted tax basis in the old ordinary shares between the old ordinary shares and the new ordinary shares or rights received, based on their relative fair market values on the date of distribution. However, in the case of a distribution of rights to subscribe for ordinary shares, the adjusted tax basis of the new rights will be zero if the fair market value of the new rights is less than 15% of the fair market value of the old ordinary shares on the date of distribution and you do not make an election to determine the adjusted tax basis of the rights by allocation as described above. Your holding period for the new ordinary shares or rights will generally include the holding period for the old ordinary shares on which the distribution was made.

Foreign Tax Credits. Subject to certain conditions and limitations, including potential limitations under the U.S.-Israel Tax Treaty, Israeli taxes paid on or withheld from distributions from us and not refundable to you may be credited against your U.S. federal income tax liability or, alternatively, may be deducted from your taxable income. This election is made on a year-by-year basis and applies to all foreign taxes paid by you or withheld from you that year.

Distributions will constitute foreign source income for foreign tax credit limitation purposes. The foreign tax credit limitation is calculated separately with respect to specific classes of income. For this purpose, distributions characterized as dividends distributed by us will generally constitute “passive category income” or, in the case of certain U.S. Holders, “general category income.” Special limitations may apply if a dividend is treated as QDI (as defined above).

Special rules may apply to individuals whose foreign source income during the taxable year consists entirely of “qualified passive income” and whose creditable foreign taxes paid or accrued during the taxable year do not exceed $300 ($600 in the case of a joint return).

Since the rules governing foreign tax credits are complex, you should consult your own tax advisor regarding the availability of foreign tax credits in your particular circumstances.

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Exercise or Lapse of Warrants

Upon the exercise of our warrants, a U.S. Holder will not recognize gain or loss and will have a tax basis in the ordinary shares received equal to the U.S. Holder’s tax basis in the warrant plus the exercise price of the warrant. The holding period for the shares purchased pursuant to the exercise of a warrant will begin on the day following the date of exercise and will not include the period during which the U.S. Holder held the warrant. If a warrant lapses unexercised, a U.S. Holder will recognize a capital loss in an amount equal to its tax basis in the warrant. Such loss will be long-term if the warrant has been held for more than one year. See “Disposition of Ordinary Shares or Warrants” below for a discussion of capital gains tax rates and limitations on deductions for losses. The loss will generally be from U.S. sources, but the loss may be from a non-U.S. source under some circumstances under the U.S.-Israel Tax Treaty. U.S. Holders should consult their own independent tax advisors regarding the sourcing of any losses due to the lapse of our warrants before exercise. Dispositions of Ordinary Shares or Warrants

Subject to the discussion in “Passive Foreign Investment Company” below, you generally will recognize taxable gain or loss realized on the sale or other taxable disposition of ordinary shares or warrants equal to the difference between the U.S. dollar value of (i) the amount realized on the disposition (i.e., the amount of cash plus the fair market value of any property received), and (ii) your adjusted tax basis in the ordinary shares or warrants. Such gain or loss will be capital gain or loss.

If you have held the ordinary shares or warrants for more than one year at the time of disposition, such capital gain or loss will be long-term capital gain or loss. Preferential tax rates for long-term capital gain (currently, with a maximum rate of 15% for taxable years beginning before January 1, 2011) will apply to non-corporate U.S. Holders. If you have held the ordinary shares or warrants for one year or less, such capital gain or loss will be short-term capital gain or loss taxable as ordinary income at your marginal income tax rate. The deductibility of capital losses is subject to limitations.

Generally, any gain or loss recognized will not give rise to foreign source income for U.S. foreign tax credit purposes, unless a different result is achieved under the U.S.-Israel Tax Treaty. You should consult your own tax advisor regarding the effect of such treaty on the source of income.

You should consult your own tax advisor regarding the U.S. federal income tax consequences if you receive currency other than U.S. dollars upon the disposition of ordinary shares or warrants. Passive Foreign Investment Company

We generally will be a PFIC under Section 1297 of the Code if, for a taxable year, either (a) 75% or more of our gross income for such taxable year is passive income (the “income test”) or (b) 50% or more of the average quarterly percentage, generally determined by fair market value, of our assets either produce passive income or are held for the production of passive income (the “asset test”). “Passive income” includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.

Certain “look through” rules apply for purposes of the income and asset tests described above. If we own, directly or indirectly, 25% or more of the total value of the outstanding shares of another foreign corporation, we will be treated as if we (a) held directly a proportionate share of the other corporation’s assets, and (b) received directly a proportionate share of the other corporation’s income. In addition, passive income does not include any interest, dividends, rents, or royalties that are received or accrued by us from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to income of such related person that is not passive income.

Under the income and asset tests, whether or not we are a PFIC will be determined annually based upon the composition of our income and the composition and valuation of our assets, all of which are subject to change. In determining that we are not a PFIC, we are relying on our projected revenues and projected capital expenditures. If our actual revenues and capital expenditures do not match our projections, we may become a PFIC. For example, if we do not spend enough of the cash (a passive asset) we raise from any financing transactions we may undertake, the relative percentage of our passive assets will increase. In addition, our determination is based on a current valuation of our assets, including goodwill. In calculating goodwill, we have valued our total assets based on our market capitalization, determined using the market price of our ordinary shares. Such market price may fluctuate. If our market capitalization is less than anticipated or subsequently declines, this will decrease the value of our goodwill and we may become a PFIC. Furthermore, we have made a number of assumptions regarding the amount of value allocable to goodwill. We believe our valuation approach is reasonable. However, it is possible that the IRS will challenge the valuation of our goodwill, which may result in our being a PFIC.

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We do not believe that we are currently a PFIC. However, because the PFIC determination is highly fact intensive and made at the end

of each taxable year, there can be no assurance that we will not be a PFIC for the current or any future taxable year or that the IRS will not challenge our determination concerning our PFIC status. If we determine that we are a PFIC, we will take reasonable steps to notify you.

Default PFIC Rules under Section 1291 of the Code. If we are a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the ownership and disposition of ordinary shares and warrants will depend on whether such U.S. Holder makes an election to treat us as a qualified electing fund (“QEF”) under Section 1295 of the Code (a “QEF Election”) or a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder owning ordinary shares and warrants while we were or are a PFIC that has not made either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”

If you are a Non-Electing U.S. Holder, you will be subject to the default tax rules of Section 1291 of the Code with respect to:

Under these default tax rules:

In addition, notwithstanding any election you may make, dividends that you receive from us will not be eligible for the preferential tax

rates applicable to QDI (as discussed above in “Distributions on Ordinary Shares”) if we are a PFIC either in the taxable year of the distribution or the preceding taxable year, but will instead be taxable at rates applicable to ordinary income.

Special rules for Non-Electing U.S. Holders will apply to determine U.S. foreign tax credits with respect to withholding taxes imposed on distributions on ordinary shares.

If we are a PFIC for any taxable year during which you hold ordinary shares or warrants, we will continue to be treated as a PFIC with respect to you for all succeeding years during which you hold ordinary shares or warrants, regardless of whether we actually continue to be a PFIC. You may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the default tax rules of Section 1291 of the Code discussed above) as if your ordinary shares or warrants had been sold on the last day of the last taxable year for which we were a PFIC.

If we are a PFIC in any year with respect to you, you will be required to file an annual return on IRS Form 8621 regarding distributions received on ordinary shares and any gain realized on the disposition of ordinary shares or warrants.

QEF Election. If you make a QEF Election, you generally will not be subject to the default rules of Section 1291 of the Code discussed above. Instead, you will be subject to current U.S. federal income tax on your pro rata share of our ordinary earnings and net capital gain, regardless of whether such amounts are actually distributed to you by us. However, you can make a QEF Election only if we agree to furnish you annually with certain tax information, and we currently do not intend to prepare or provide such information.

Mark-to-Market Election. U.S. Holders may make a Mark-to-Market Election, but only if the ordinary shares are marketable stock. The ordinary shares will be “marketable stock” as long as they remain listed on NASDAQ, and are regularly traded. Stock is “regularly traded”for any calendar year during which it is traded (other than in de minimis quantities) on at least fifteen days during each calendar quarter. There can be no assurances, however, that our ordinary shares will be treated, or continue to be treated, as regularly traded.

? any “excess distribution” paid on ordinary shares and warrants, which means any distribution received by you which, together with all other distributions received in the current taxable year, exceeds 125% of the average distributions received by you during the three preceding taxable years (or during your holding period for the ordinary shares and warrants, if shorter); and

? any gain recognized on the sale or other taxable disposition (including a pledge) of ordinary shares and warrants.

? any excess distribution or gain will be allocated ratably over your holding period for the ordinary shares and warrants; ? the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a

PFIC will be treated as ordinary income in the current year; ? the amount allocated to each of the other years will be treated as ordinary income and taxed at the highest applicable tax rate in

effect for that year; and ? the resulting tax liability from any such prior years will be subject to the interest charge applicable to underpayments of tax.

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If the ordinary shares are marketable stock and you make a Mark-to-Market Election, you generally will not be subject to the default

rules of Section 1291 of the Code discussed above. Rather, you generally will be required to recognize ordinary income for any increase in the fair market value of the ordinary shares and warrants for each taxable year that we are a PFIC. You will also be allowed to deduct as an ordinary loss any decrease in the fair market value to the extent of net marked-to-market gain previously included in prior years. Your adjusted tax basis in the ordinary shares and warrants will be adjusted to reflect the amount included or deducted.

The Mark-to-Market Election will be effective for the taxable year for which the election is made and all subsequent taxable years, unless the ordinary shares and warrants cease to be marketable stock or the IRS consents to the revocation of the election. You should consult your own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.

Since the PFIC rules are complex, you should consult your own tax advisor regarding them and how they may affect the U.S. federal income tax consequences of the ownership and disposition of ordinary shares and warrants. Information Reporting and Backup Withholding

Generally, information reporting requirements will apply to distributions on ordinary shares or proceeds on the disposition of ordinary shares and warrants paid within the U.S. (and, in certain cases, outside the U.S.) to U.S. Holders other than certain exempt recipients, such as corporations. Furthermore, backup withholding (currently at 28%) may apply to such amounts if the U.S. Holder fails to (i) provide a correct taxpayer identification number, (ii) report interest and dividends required to be shown on its U.S. federal income tax return, or (iii) make other appropriate certifications in the required manner. U.S. Holders who are required to establish their exempt status generally must provide such certification on IRS Form W-9.

Backup withholding is not an additional tax. Amounts withheld as backup withholding from a payment to you may be credited against your U.S. federal income tax liability and you may obtain a refund of any excess amounts withheld by filing the appropriate claim for refund with the IRS and furnishing any required information in a timely manner. Taxation of Non-U.S. Holders Distributions on Ordinary Shares

Subject to the discussion in “Information Reporting and Backup Withholding” below, as a Non-U.S. Holder, you generally will not be subject to U.S. federal income tax, including withholding tax, on distributions received on ordinary shares, unless the distributions are effectively connected with a trade or business that you conduct in the U.S. and (if an applicable income tax treaty so requires) attributable to a permanent establishment that you maintain in the U.S.

If distributions are effectively connected with a U.S. trade or business and (if applicable) attributable to a U.S. permanent establishment, you generally will be subject to tax on such distributions in the same manner as a U.S. Holder, as described in “Taxation of U.S. Holders –Distributions on Ordinary Shares” above. In addition, any such distributions received by a corporate Non-U.S. Holder may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. Dispositions of Ordinary Shares and Warrants

Subject to the discussion in “Information Reporting and Backup Withholding” below, as a Non-U.S. Holder, you generally will not be subject to U.S. federal income tax, including withholding tax, on any gain recognized on a sale or other taxable disposition of ordinary shares and warrants, unless (i) the gain is effectively connected with a trade or business that you conduct in the U.S. and (if an applicable income tax treaty so requires) attributable to a permanent establishment that you maintain in the U.S., or (ii) you are an individual and are present in the U.S. for at least 183 days in the taxable year of the disposition, and certain other conditions are present.

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If you meet the test in clause (i) above, you generally will be subject to tax on any gain that is effectively connected with your conduct

of a trade or business in the U.S. in the same manner as a U.S. Holder, as described in “Taxation of U.S. Holders – Dispositions of Ordinary Shares and Warrants” above. Effectively connected gain realized by a corporate Non-U.S. Holder may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

If you meet the test in clause (ii) above, you generally will be subject to tax at a 30% rate on the amount by which your U.S. source capital gain exceeds your U.S. source capital loss. Information Reporting and Backup Withholding

Payments to Non-U.S. Holders of distributions on, or proceeds from the disposition of, ordinary shares and warrants are generally exempt from information reporting and backup withholding. However, a Non-U.S. Holder may be required to establish that exemption by providing certification of non-U.S. status on an appropriate IRS Form W-8.

Backup withholding is not an additional tax. Amounts withheld as backup withholding from a payment to you may be credited against your U.S. federal income tax liability and you may obtain a refund of any excess amounts withheld by filing the appropriate claim for refund with the IRS and furnishing any required information in a timely manner.

Not applicable.

Not applicable.

We are subject to the informational requirements of the Exchange Act, applicable to foreign private issuers. We, as a “foreign private

issuer,” are exempt from the rules under the Exchange Act prescribing certain disclosure and procedural requirements for proxy solicitations, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act, with respect to their purchases and sales of shares. In addition, we are not required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 180 days after the end of each fiscal year, an annual report on Form 20-F containing financial statements audited by an independent accounting firm. We will also furnish quarterly reports on Form 6-K containing unaudited interim financial information for the first three quarters of each fiscal year, within 60 days after the end of such quarter.

You may read and copy any document we file or furnish with the SEC at reference facilities at 450 Fifth Street, NW, Washington, DC 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You can review our SEC filings and the registration statement by accessing the SEC’s internet site at http://www.sec.gov.

Not applicable.

F. Dividends and Paying Agent

G. Statement by Experts

H. Documents on Display

I. Subsidiary Information

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ITEM 11. Quantitative and Qualitative Disclosures About Market Risk. Quantitative and Qualitative Information about Market Risk

The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from investments without significantly increasing risk. Some of the securities in which we may invest may be subject to market risk. This means that a change in prevailing interest rates and foreign currency rates against the NIS may cause the value of the investment to fluctuate. For example, if we purchase a security that was issued with a fixed interest rate and the prevailing interest rate later rises, the value of our investment will probably decline. To minimize this risk, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including U.S. dollars, NIS bank deposits, money market funds and government and non-government debt securities. In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate.

Our financial market risk includes risks related to international operations and related foreign currencies. We anticipate that sales outside of North America will continue to account for a significant portion of our consolidated revenue in 2010. To date, most of our sales have been valued in dollars. In future periods, we expect our sales to continue to be principally valued in dollars, narrowing foreign currency exchange risk.

We value part of our expenses in some of our international operations, such as Israel and Hong Kong, in each country's local currency, and therefore are subject to foreign currency exchange risk. However, through December 31, 2009 , we have not experienced any significant negative impact on our operations as a result of fluctuations in foreign currency exchange rates; we have incurred an expense of $32,000 in the year ended December 31, 2009 due to fluctuations in foreign exchange rates. We do not use financial instruments to hedge operating expenses in Israel or Hong Kong that are valued in local currency. We intend to continue to assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis.

We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure to offset the effects of changes in foreign exchange rates.

Our exposure to market risks for changes in interest rates relates primarily to our credit facility. At December 31, 2009 , our financial market risk related to this debt was immaterial. Our general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. Foreign currency risk

Most of our sales are denominated in U.S. dollars, and we incur most of our expenses in U.S. dollars, Euros and Israeli Shekels. According to the salient economic factors indicated in ASC Topic 830, “Foreign Currency Matters,” our cash flow, sale price, sales market, expense, financing and inter-company transactions and arrangement indicators are predominantly denominated in U.S. dollars. In addition, the U.S. dollar is the primary currency of the economic environment in which we operate, and thus the U.S. dollar is our functional and reporting currency.

In our balance sheet, we remeasure into U.S. dollars all monetary accounts (principally cash and cash equivalents and liabilities) that are maintained in other currencies. For this remeasurement we use the foreign exchange rate at the balance sheet date. Any gain or loss that results from this remeasurement is reflected in the statement of income as financial income or financial expense, as appropriate.

We measure and record non-monetary accounts in our balance sheet (principally fixed assets, prepaid expenses and share capital) in U.S. dollars. For this measurement we use the U.S. dollar value in effect at the date that the asset or liability was initially recorded in our balance sheet (the date of the transaction). ITEM 12 . Description of Securities Other than Equity Securities.

Not applicable.

103

PART II

ITEM 13 . Defaults , Dividend Arrearages and Delinquencies.

ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds .

ITEM 15. Controls and Procedures. Disclosure controls and procedures

Our management has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2009. Our disclosure controls and procedures include components of our internal control over financial reporting. Based on that evaluation, our Chief Executive Officer has concluded that our disclosure controls and procedures, as of December 31, 2009, were not effective to provide reasonable assurance that (i) information required to be disclosed in filings and submissions under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure.

Based further upon that evaluation, our Chief Executive Officer has concluded that our disclosure controls and procedures were not effective as of December 31, 2009, due solely to the material weakness in our internal control over financial reporting as described below in "Management's Report on Internal Control over Financial Reporting." In light of this material weakness, the Company performed additional analysis as deemed necessary to ensure that the consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the consolidated financial statements included in this report present fairly, in all material respects, our financial position, results of operations and cash flows for the period presented. Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP, and includes policies and procedures that:

A. None.

B. None.

A. None.

B. None.

C. Not applicable.

D. No changes.

E. None.

? pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions; ? provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in

accordance with generally accepted accounting principles; ? provide reasonable assurance that receipts and expenditures are made only in accordance with authorizations of our management

and Board of Directors (as appropriate); and ? provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets

that could have a material effect on our financial statements.

104

Our management assessed the effectiveness of internal control over financial reporting as of December 31, 2009, the end of our fiscal

year. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the report entitled “Internal Control – Integrated Framework.”

Based on our assessment, our management has concluded that we did not maintain effective internal control over financial reporting as a result of insufficient resources and personnel to properly segregate duties in our finance department, resulting in a material weakness in the financial statement closing process.

Our independent registered public accounting firm is not required to provide an attestation on management’s report on internal control over financial reporting until our annual report for the fiscal year ended December 31, 2010. Accordingly, this Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal controls over financial reporting pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report. Inherent limitations on effectiveness of controls.

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Changes in internal controls over financial reporting

During the year ended December 31, 2009, due to reductions in headcount, we have made adjustments to internal control over financial reporting. Such adjustments are not deemed by our management to materially affect, or to reasonably be likely to materially affect, our internal controls over financial reporting. ITEM 16. Reserved ITEM 16A. Audit Committee Financial Expert

Our Board of Directors has determined that Ms. Michal Brikman, who chairs our audit committee, is an “audit committee financial expert.” ITEM 16B. Code of Ethics

Our Board of Directors adopted a code of ethics that applies to our chief executive officer, chief financial officer (if any), director of finance, controller, and other persons performing similar functions a copy of which is previously filed and incorporated by reference to this Annual Report. A copy of our code of ethics will be provided, without charge, upon written request of any person delivered as follows: Sagid House “Ha’Sharon Industrial Park” P.O.B 5039, Qadima 60920 Israel. ITEM 16C. Principal Accountant Fees and Services

The following table presents the fees to our external auditors for professional services rendered in the years ended December 31, 2009 and 2008:

2009 2008 Audit Fees 83,000 91,000 Audit-Related Fees - 23,000 Tax Fees 7,000 7,000 Total 90,000 121,000

105

Pre-Approval Policies for Non-Audit Services

The audit committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our independent auditors. These policies generally provide that we will not engage our independent auditors to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to the pre-approval procedure described below. From time to time, the audit committee may pre-approve specified types of services that are expected to be provided to us by our independent auditors during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount. ITEM 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable. ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

PART III ITEM 17. Financial Statements.

Not applicable. ITEM 18. Financial Statements.

106

REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNT ING FIRM To the Board of Directors and stockholder of SuperCom Asia Pacific Limited We have audited the accompanying balance sheets of SuperCom Asia Pacific Limited (the “Company”) as of December 31, 2008 and 2007, and the related statements of operations, stockholder’s deficit and cash flows for each of the two years in the period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007 , and the results of its operations and cash flows for each of the two years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the financial statements, the Company incurred net loss for the year ended December 31, 2008 and had net current liabilities and stockholder’s (deficit) as of December 31, 2008, these factors raise substantial doubt about its ability to continue as a going concern. Management plans on the continuation of the Company as a going concern include financing the Company’s existing and future operations through additional issuance of common stock and/or advances from the stockholders and seeking for improvement in profitability of the Company’s operations. However, the Company has no assurance with respect to these plans. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. PKF Certified Public Accountants Hong Kong, China June 26, 2009

107

VUANCE LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2009

IN U.S. DOLLARS

INDEX

Page

Report of Independent Registered Public Accounting Firm 109

Consolidated Balance Sheets 110 – 111

Consolidated Statements of Operations 112

Statements of Changes in Shareholders' Equity (Deficit ) 113

Consolidated Statements of Cash Flows 114 – 115

Notes to Consolidated Financial Statements 116 – 158

108

We have audited the accompanying consolidated balance sheets of Vuance Ltd. (the "Company") and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in shareholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2009. These consolidated financial statements are the responsibility of the Board of Directors and management of the Company. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Supercom Asia Pacific Limited (Supercom Asia Pacific), a subsidiary, which statements reflect total assets of 0.5% of the related consolidated totals as of December 31, 2008, and total revenues of 1.6% and 10% of the related consolidated totals for each of the two years in the period ended December 31, 2008. Those financial statements were audited by other auditors, whose reports thereon have been furnished to us. Our opinion, insofar as it relates to the amounts included for Supercom Asia Pacific, is based solely on the reports of the other auditors. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the Board of Directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and subsidiaries as of December 31, 2009 and 2008, and the consolidated results of their operations, and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. The financial statements have been prepared assuming the Company will continue as a going concern. As described in Note 1d, the Company has incurred substantial losses and negative cash flows from operations since its inception and, as of December 31, 2009, the Company had an accumulated deficit of $47,379 thousands and total shareholders' deficit of $6,271 thousands. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management plans with respect to these matters are described in Note 1d. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. FAHN KANNE & CO. Certified Public Accountants (Isr.) Tel-Aviv, ISRAEL 22 July, 2010 Certified Public Accountants Fahn Kanne & Co. is the Israeli member firm of Grant Thornton International Ltd

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE SHAREHOLDERS OF VUANCE LTD.

Fahn Kanne & Co. Head Office Levinstein Tower 23 Menachem Begin Road Tel-Aviv 66184, ISRAEL P.O.B. 36172, 61361 T +972 3 7106666 F +972 3 7106660 www.gtfk.co.il

109

VUANCE LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

The accompanying notes are an integral part of the consolidated financial statements.

December 31, 2008 2009

ASSETS CURRENT ASSETS:

Cash and cash equivalents $ 812 $ 656 Restricted cash deposits 2,150 330 Trade receivables (net of allowance for doubtful accounts of $ 3,478 and $ 3,470_ as of December 31, 2008 and 2009, respectively) 840 857 Other accounts receivable and prepaid expenses 1,074 315 Inventories, net 1,307 82 Assets attributed to discontinued operations 260 1,996

Total current assets 6,443 4,236 SEVERANCE PAY FUND 314 283 PROPERTY AND EQUIPMENT, NET 218 157 OTHER ASSETS:

Goodwill 685 - Intangible assets and deferred charges, net 1,275 6

Total other assets 1,960 6 Total assets $ 8,935 $ 4,682

110

VUANCE LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands, except share data

The accompanying notes are an integral part of the consolidated financial statements.

December 31, 2008 2009

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES: Short-term bank credit $ 299 $ - Trade payables 1,714 982 Employees and payroll accruals 247 462 Accrued expenses and other liabilities 5,007 2,859 Convertible bonds 3,157 430 Liabilities attributed to discontinued operations - 1,599

Total current liabilities 10,424 6,332

LONG-TERM LIABILITIES:

Convertible bonds - 2,624 Long-term loan and others - 1,693 Accrued severance pay 378 304

Total long-term liabilities 378 4,621

COMMITMENTS AND CONTINGENT LIABILITIES

SHAREHOLDERS' EQUITY (DEFICIT):

Share capital: Ordinary shares of NIS 0.0588235 par value -

Authorized 12,000,000 shares as of December 31, 2008 and 2009; Issued and outstanding: 5,259,874 and 5,724,421 shares as of December 31, 2008 and 2009, respectively 82 89

Additional paid-in capital 40,345 41,019 Accumulated deficit (42,294 ) (47,379 )

Total shareholders' equity (deficit) (1,867 ) (6,271 )

Total liabilities and shareholders' equity (deficit) $ 8,935 $ 4,682

111

VUANCE LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands, except share data

The accompanying notes are an integral part of the consolidated financial statements.

Year ended

December 31, 2007 2008 2009

Revenues $ 12,236 $ 18,112 $ 9,304 Cost of revenues 4,992 6,945 3,365 Gross profit 7,244 11,167 5,939

Operating expenses:

Research and development 1,411 1,738 898 Selling and marketing 7,144 9,905 5,131 General and administrative 2,728 2,611 1,648 Other expenses 134 8 130

Total operating expenses 11,417 14,262 7,807

Operating loss (4,173 ) (3,095 ) (1,868 ) Financial expenses, net (4,646 ) (3,087 ) (620 )

Loss before taxes on income (8,819 ) (6,182 ) (2,488 ) Taxes on income (390 ) (137 ) (71 )

Net loss from continuing operations (9,209 ) (6,319 ) (2,559 ) Loss from discontinued operations (2,102 ) (6,039 ) (2,526 )

Net loss $ (11,311 ) $ (12,358 ) $ (5,085 )

Loss per share basic and diluted: Loss from continuing operations $ (2.09 ) $ (1.22 ) $ (0.46 ) Loss from discontinued operations $ (0.48 ) $ (1.17 ) $ (0.46 )

Net loss per share $ (2.57 ) $ (2.39 ) $ (0.92 )

Weighted average number of ordinary sha res used in computing basic and diluted loss per share 4,391,860 5,171,406 5,511,948

112

VUANCE LTD. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFI CIT)

U.S. dollars in thousands, except share data

*Less than 1

The accompanying notes are an integral part of the consolidated financial statements.

Ordinary shares

Number of

Shares

Additional paid-in capital

Accumulated Deficit

Total comprehensive income (loss)

Total shareholders'

equity (deficit)

Share capital

Balance as of January 1, 2007 4,001,126 $ 64 $ 33,562 $ (18,625 ) - $ 15,001 Issuance of shares in connection with

acquisition of subsidiary (see Note 1a) 1,097,426 16 4,319 - - 4,335

Exercise of options 25,968 -* 82 - - 82 Beneficial conversion feature on

convertible bond terms - - 84 - - 84 Stock- based compensation - - 1,072 - - 1,072 Expenses related to the issuance of

shares in a private placement which occurred in previous years - - (30 ) - - (30 )

Issuance of shares due to reverse split 259 - - - - - Net loss - - - (11,311 ) $ (11,311 ) (11,311 ) Total comprehensive loss $ (11,311 )

Balance as of December 31, 2007 5,124,779 $ 80 $ 39,089 $ (29,936 ) $ 9,233 Issuance of shares (see Note 14c) 108,063 2 247 - - 249 Exercise of options 27,032 -* 8 - - 8 Beneficial conversion feature on

convertible bond terms - - 94 - - 94 Stock- based compensation - - 907 - - 907 Net loss - - - (12,358 ) $ (12,358 ) (12,358 ) Total comprehensive loss $ (12,358 )

Balance as of December 31, 2008 5,259,874 $ 82 $ 40,345 $ (42,294 ) $ (1,867 ) Issuance of shares in connection with

acquisition of Intelli-Site (see Note 1a) 202,626 3 68 - - 71

Issuance of shares (see Note 14c) 168,865 3 60 - - 63 Exercise of options 93,056 1 - - - 1 Beneficial conversion feature on

convertible bond terms - - 24 - - 24 Stock- based compensation - - 522 - - 522 Net loss - - - (5,085 ) $ (5,085 ) (5,085 ) Total comprehensive loss $ (5,085 )

Balance as of December 31, 2009 5,724,421 $ 89 $ 41,019 $ (47,379 ) $ (6,271 )

113

VUANCE LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

The accompanying notes are an integral part of the consolidated financial statements.

Year ended December 31, 2007 2008 2009 Cash flows from operating activities :

Net loss $ (11,311 ) $ (12,358 ) $ (5,085 ) Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 225 651 708 Impairment loss - 3,235 1,119 Accrued severance pay (382 ) 16 (74 ) Stock-based compensation 1,072 907 522 Amortization of discount on convertible bonds 268 810 - Amortization of deferred charges 90 159 - Realized loss from sale of marketable securities 1,116 862 - Unrealized loss from marketable securities, net 2,699 - - Loss on sale of property and equipment 58 - - Exchange differences on principal of long-term loan 9 5 - Decrease (increase) in trade receivables 883 1,610 (667 ) Decrease (increase) in other accounts receivable and prepaid expenses (1,943 ) 1,373 644 Decrease (increase) in inventories 32 (1,001 ) 1,008 Increase in trade payables 95 216 163 Increase (decrease) in employees and payroll accruals (234 ) (86 ) 215 Increase (decrease) in accrued expenses and other liabilities 2,433 (1,663 ) (214 )

Net cash used in operating activities (4,890 ) (5,264 ) (1,661 ) Cash flows from investing activities :

Purchase of property and equipment (116 ) (73 ) (100 ) Acquisition of subsidiaries net of cash acquired (Appendix A) (153 ) - - Decrease (increase) in severance pay fund 278 (5 ) 31 Capitalization of software and intangible assets (509 ) - - Restricted cash deposits, net (2,313 ) 1,022 1,745 Proceeds from sale of marketable securities 7,639 3,192 - Amounts carried to deferred charges (52 ) - -

Net cash provided by investing activities 4,774 4,136 1,676 Cash flows from financing activities : Short-term bank credit, net (336 ) 254 (9 ) Principle repayment of convertible bonds - - (79 ) Issuance of share capital, net of issuance costs (30 ) 2 3 Proceeds from exercise of options and warrants, net 82 8 1 Long-term loan received 2,850 - - Payment of liability to a former owner of an acquiree - - (87 ) Principal repayment of long-term loan (2,780 ) (438 ) - Net cash used in financing activities (214 ) (174 ) (171 ) Decrease in cash and cash equivalents (330 ) (1,302 ) (156 ) Cash and cash equivalents at the beginning of the year 2,444 2,114 812 Cash and cash equivalents at the end of the year $ 2,114 $ 812 $ 656

114

VUANCE LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)

U.S. dollars in thousands

(*) Including $68 which represents the acquisition date fair value of contingent consideration to the former owners.

The accompanying notes are an integral part of the consolidated financial statements.

Year ended

December 31, 2007 2008 2009 Supplemental disclosure of cash flows information: Appendix A: Acquisition of subsidiaries net of cash acquired:

Assets and liabilities of the subsidiaries, as of date of purchase: Working capital (excluding cash and cash equivalents) $ 1,157 - $ (62 ) Property and equipment, net (38 ) - (4 ) Intangible assets (1,531 ) - (313 ) Goodwill recognized (3,644 ) - - Shares issued 3,903 - 68 Liabilities to former owner of the acquiree (*) - - 311 $ (153 ) $ - $ -

Cash paid during the year for : Interest $ 415 $ 171 $ 109

Taxes on income, net $ 353 $ 137 $ 31

Supplemental disclosure of non-cash investing and financing activities: Share capital issuance against redemption of note payable to former shareholder of a subsidiary acquired in 2007 $ 432 $ - $ -

Issuance of shares to service providers and officer $ - $ 247 $ 63

1. During 2008, additional goodwill in an amount of $276 was recorded with respect to the acquisition of SHC, as a result of clarification of certain provisions of the acquired entity.

2. During 2008, a modification of terms of convertible bonds with principal amount of $2,500 was determined to be a debt extinguishment.

115

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except per share data)

NOTE 1:- GENERAL

a. Vuance Ltd. (the “Company") was incorporated in 1988 in Israel. The Company’s ordinary shares have been listed for trade on the Euronext Brussels stock market since October 23, 2003. The Company applied for delisting of its shares from the Euronext Brussels stock market, and its application was approved on May 6, 2008, effective August 4, 2008. Since November 5, 2004, the Company’s ordinary shares have also traded on the OTC Bulletin Board. Since August 23, 2007, the ordinary shares of the Company were approved for trade on the NASDAQ Capital Market under the symbol “VUNC” and trading of the stock on the OTC Bulletin Board ceased.

On December 11, 2008, the Company received a letter from the NASDAQ Capital Market advising the Company that it did not comply with the continued listing requirements of Listing Rule 5550(b) (formerly Marketplace Rule 4310(c)(3)), which requires companies to have a minimum of $2,500 in stockholders’ equity, or $35,000 in market value of listed securities, or $500 of net income from continuing operations for the most recently completed fiscal year or two of the three most recently completed fiscal years (the “Listing Requirements” ).

As a result, the NASDAQ Capital Market Staff began reviewing the Company’s eligibility for continued listing on the NASDAQ Capital Market. To facilitate their review, the NASDAQ Capital Market Staff requested that the Company provide on or before December 26, 2008, the Company’s specific plan to achieve and sustain compliance with the NASDAQ Capital Market listing requirements, including the time frame for completion of the plan (the “Plan”). After the Company submitted the Plan, on March 30, 2009, the Company received further correspondence from NASDAQ that it did not comply with the Listing Requirements, and therefore, trading of the Company’s ordinary shares would be suspended at the opening of business on April 8, 2009, and a form 25-NSE would be filed with the SEC removing the Company’s securities from listing and registration on the NASDAQ Capital Market, unless the Company requested an appeal of the delisting decision by NASDAQ.

The Company appealed the NASDAQ determination to a NASDAQ Listings Qualifications Panel (the “Panel”), which automatically stayed the delisting of the Company’s ordinary shares until the Panel reached a decision. On June 17, 2009, the Panel granted the Company’s request for an extension of time to achieve full compliance with the Listing Requirements.

On September 29, 2009, the Company received a NASDAQ Staff Determination letter indicating that the Company failed to comply with the minimum stockholders’ equity requirement of $2.5 million as set forth in Listing Rule 5550(b) (formerly Marketplace Rule 4310(c)(3)). As a result, NASDAQ has notified the Company that its securities will be delisted from the NASDAQ Stock Market and trading in the Company's shares will be suspended effective at the open of business on October 1, 2009.

The Company had been advised by Pink OTC Markets Inc., which operates an electronic quotation service for securities traded over-the-counter, that its securities are immediately eligible for quotation in the Pink Sheets effective as of the open of business on October 1, 2009. The Company's common stock is quoted under the ticker symbol “VUNCF” .

116

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 1:- GENERAL (Cont.)

a. (cont.)

Until January 2010 (the date of the sale of the activities as described below), the Company developed and marketed security solutions for viewing, tracking, locating, credentialing, and managing essential assets and personnel. The Company's solutions encompass electronic access control, urban security, and critical situation management systems as well as long-range Active RFID for public safety, commercial, and government sectors. The Company’s comprehensive product line enables end-to-end solutions that can be employed to overcome security challenges. Its Critical Situation Management System (CSMS) is a mobile credentialing and access control system, designed to meet the needs of Homeland Security and other public initiatives. Due to the sale of activities in January 2010 (see Note 18), the Company intends on focusing on its active RFID products and existing e-ID projects. Regarding the e-ID activity after the closing of the sale of the e-ID Division to OTI, see below.

The Company is headquartered in Israel.

The Company sells its products through centralized marketing offices in U.S, Israel and Hong-Kong.

The Company's subsidiaries includes: Vuance Inc. incorporated in the United States (see b below regarding the presentation of certain activity of Vuance Inc as discontinued operations), SuperCom Asia Pacific Limited incorporated in Hong Kong which focus on marketing, Vuance RFID Inc., (incorporated in Delaware) which focused until the end of 2007 on new technology and solutions for active tracking of people and objects, and commencing in 2008 until the fourth quarter of 2008 engaged in the distribution of locks (see b below regarding the presentation of certain activity of Vuance RFID as discontinued operations), S.B.C. Aviation Ltd., (incorporated in Israel) which began operations in 2007, and focuses on executing perimeter security and a border control project at a European International Airport and PureRFid, Inc., (established after the balance sheet date) which focuses on the marketing and selling of our active RFID solutions.

On July 3, 2007, through its wholly-owned subsidiary, Vuance Inc., the Company entered into an agreement (the “Purchase Agreement”) to acquire all of the issued and outstanding share capital of Security Holding Corp. (“SHC”) from Homeland Security Capital Corporation (OTCBB: HOMS.OB) (“HMSC”) and other minority shareholders (collectively, “Sellers”) for approximately $4,335 in Vuance ordinary shares (and direct expenses of approximately $600 as describe below). The closing date was August 28, 2007. SHC is a Delaware corporation engaged, directly and through its subsidiaries in the business of manufacturing and distributing RFID-enabled solutions, access control and security management systems. As consideration for the acquisition of SHC, the Company issued to the sellers 1,097,426 ordinary shares of the Company. Subject to certain terms and conditions, in the event that the Company seeks to register any of its ordinary shares under the Securities Act of 1933 for sale to the public, then at HMSC’s request, the Company will use its reasonable best efforts to include the Company's Shares owned by HMSC in such registration. The shares were subject to a lock-up period of up to seven calendar quarters after the closing. In addition, during the restriction period, the Company received a right of first refusal to purchase all (but not less than all) of the Company's Shares held by HSMC on certain terms and conditions. HMSC further agreed that at the Closing it will grant an irrevocable power of attorney to the Chairman of the Board of Directors of the Company, to exercise all voting rights related to its Vuance Shares until the sale or transfer of such Vuance Shares by HMSC to an unaffiliated third party in an arm’s-length transaction. As part of the Purchase Agreement, certain Sellers assumed, subject to certain exceptions, certain non-competition and employee non-solicitation undertakings for a period of two years commencing on the date of Closing. According to the Purchase Agreement, the Company guaranteed all of the obligations of Vuance Inc under such agreement.

117

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 1:- GENERAL (Cont.)

a. (cont.)

During the fourth quarter of 2007, the acquired companies (SHC and its subsidiaries) were merged into Vuance Inc.

The acquisition was accounted for under the acquisition method of accounting in accordance with prior business combination GAAPand the Company allocated the purchase price (which included direct acquisition costs) to the tangible and intangible assets acquired and liabilities assumed, based upon their estimated fair values at the date of acquisition.

In September 2007, the Company announced that it had entered into a definitive agreement to acquire, through its US subsidiary, Vuance Inc., the Credentialing Division of Disaster Management Solutions Inc., for approximately $100 in cash.

During the first quarter of 2010, this activity was sold and presented among discontinued operations, see b below.

On March 25, 2009, the Company, through its subsidiary, Vuance Inc., completed the acquisition of certain assets and liabilities of Intelli-Site, Inc. (“Intelli-Site”), pursuant to an asset purchase agreement dated March 6, 2009 with Intelli-Site and Integrated Security Systems, Inc. (“ISSI”). The purchase price was $262, payable in twenty-five installments, 200,000 ordinary shares of the Company and a contingent payment of up to $600, based upon certain conditions, which shall be paid on a quarterly basis, within thirty (30) days of the close of each quarter, and will be made 50% in cash and 50% in the Company's ordinary shares ("Shares"). The number of Shares to be issued to ISSI shall be calculated on the basis of the weighted average closing price of the Company’s ordinary shares for the fifteen (15) trading days preceding the quarterly payment, subject to a minimum of $1.25.

ISSI, or its permitted transferee, agreed to lock-up the Shares, pursuant to which ISSI or its transferee will not offer, sell, transfer or otherwise dispose of the Shares. The restrictions on the transfer of the Shares will expire in eight equal installments, commencing with the end of the first calendar quarter following the date of closing and each of the seven following calendar quarters thereafter. If any Shares are issued after the last day of the eighth calendar quarter following the date of closing, such shares shall not be subject to any transfer restrictions.

The acquisition was accounted for according to the acquisition method of accounting and accordingly, the respective purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition (see Appendix A to the cash flow statement).

The results of operations of Intelli-Site were included in the consolidated financial statements of the Company commencing April, 2009. However, during the first quarter of 2010, this activity was sold and presented among discontinued operations, see b below.

On November 8, 2006, the Company entered into an agreement with On Track Innovations Ltd. ("OTI") (NASDAQ: OTIV), under which OTI agreed to acquire the assets of the Company’s e-ID Division (including, inventory, fixed assets and intangible assets) for consideration consisting of 2,827,200 restricted ordinary shares of OTI. The transaction was completed on December 31, 2006. At the closing, the parties entered into a service and supply agreement pursuant to which the Company agreed to continue to provide services and receive revenues under certain existing ID and e-ID contracts for governmental and commercial projects in Europe, Asia and Africa. OTI agreed to serve as a subcontractor for these projects. See also Note 3 below. The shares of OTI which were subject to certain lock-up agreement were sold by the Company during 2007 and 2008.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

The results of the discontinued operation for the years ended December 31, 2008 and 2009, is presented below:

The assets attributed to the discontinued operations are as follows:

NOTE 1:- GENERAL (Cont.)

b. Discontinued operations

1. During the fourth quarter of 2008, the Company ceased its operations of distribution of locks (which commenced during 2008). The assets attributed to this discontinued operations, as of December 31, 2008, consist of inventory of the activity which includes a write down in an amount of $65. As of December 31, 2009, all the inventory from this activity was sold.

Year ended December 31, 2008

Year ended December 31, 2009

Revenues $ 5 $ 156 Cost of goods $ (4 ) $ (196 ) Selling and marketing $ (273 ) $ (25 ) Net loss $ (272 ) $ (65 )

2. As described in Note 18, in January 2010, the Company signed agreements for the sale of the Company's electronic access control market and the Company's Government Services Division activities. The activities sold meet the definition of a component under ASC Topic 205. Due to the fact, that as of December 31, 2009, such components met the requirements to be classified as held for sale in accordance with the provisions of ASC Topic 360-10, the results of operations of these components and the assets and liabilities attributed thereto were classified as discontinued operations. In addition, the results of operations for the prior periods (2008 and 2007), have been re-classified accordingly.

As of December 31, 2009

Restricted cash deposits 75 Trade receivables 724 Other account receivables 115 Inventories, net 477 Intangible assets, net 517 (*) Property and equipment, net 88 Total $ 1,996

(*) Based on the fair value of the components sold, as agreed with the purchaser, the Company recognized an impairment in a total amount of $1,119 with respect to the remaining balance of goodwill attributed to the sold components ($685) and to certain other intangible assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 1:- GENERAL (Cont.)

b. Discontinued operations (cont.)

The liabilities attributed to the discontinued operations are as follows:

As of December 31,

2009 Short-term bank credit $ 290 Trade payables 907 Accrued expenses and other liabilities 376 Employees payroll accruals 26 Total $ 1,599

The results of the discontinued operations are as follows:

Year ended December 31, 2007

Year ended December 31, 2008

Year ended December 31, 2009

Revenues $ 1,078 $ 2,541 $ 4,944 Cost of goods (608 ) (1,507 ) (2,521 ) Research and development (305 ) (833 ) (930 ) Selling and marketing (1,897 ) (2,019 ) (1,950 ) General and administrative (364 ) (688 ) (761 ) Financial expenses (6 ) (26 ) (124 ) Impairment of goodwill and other intangible assets - (3,235 ) (1,119 ) Net loss $ (2,102 ) $ (5,767 ) $ (2,461 )

c. Concentration of risk that may have a significant impact on the Company:

The Company derives most of its revenues from several major customers. See also Note 16c.

The Company purchases certain services and products used by it to generate revenues in its projects and sales from several sole suppliers. Although there are only a limited number of manufacturers of those particular services and products, management believe that other suppliers could provide similar services and products on comparable terms without affecting operating results.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 1:- GENERAL (Cont.)

d. The Company has incurred substantial losses and negative cash flows from operations since its inception. The Company had an operating cash flow deficit in each of 2007, 2008, and 2009. As of December 31, 2009, the Company had an accumulated deficit of approximately $47,379 and the total shareholders' deficit amounted to $6,271. The Company incurred net losses of approximately $11,311, $12,358 and $5,085 in the years ended December 31, 2007, 2008 and 2009, respectively. The Company expects to have net operating losses and negative cash flows for the foreseeable future, and expects to spend significant amounts of capital to enhance its products and services, develop further sales and operations and fund expansion. As a result, the Company will need to generate significant revenue to achieve profitability. Even if the Company does achieve profitability, the Company may not be able to sustain or increase profitability on a quarterly or annual basis. Continuation of the Company's current operations after utilizing its current cash reserves is dependent upon the generation of additional financial resources either through fund raising or the sale of certain assets and activities of the Company. During the first quarter of 2010 the Company sold certain assets and liabilities of Vuance Inc (see Note 18 regarding sales of activities after the balance sheet date). In addition the Company is exploring several options to raise funds. These matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements have been prepared assuming the Company will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP").

In June 2009, the FASB issued SFAS No. 168, “ The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles ” (the “ASC” OR "the Codification") which later was codified within ASC Topic 105, " Generally Accepted Accounting Principles ". Following SFAS No. 168, the Codification became the single authoritative source for US GAAP (see also Note 2ab (1A)).

a. Use of estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

b. Financial statements in U.S. dollars:

Most of the revenues of the Company and its subsidiaries are received in U.S. dollars. In addition, a substantial portion of the costs of the Company and its subsidiaries are incurred in U.S. dollars. Therefore, management believes that the dollar is the currency of the primary economic environment in which the Company and its subsidiaries operate. Thus, the functional and reporting currency of the Company and its subsidiaries is the U.S. dollar.

Monetary accounts maintained in currencies other than the U.S. dollar are re-measured into U.S. dollars in accordance with the standards of the Financial Accounting Standards Board ("FASB"). All transaction gains and losses from the re-measurement of monetary balance sheet items are reflected in the statements of operations as financial income or financial expenses as appropriate.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

c. Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its subsidiaries (unless the minority shareholders have certain approval or veto rights) in Israel, the United States and Hong -Kong. Material intercompany transactions and balances were eliminated upon consolidation. Material profits from intercompany sales, not yet realized outside the group, were also eliminated.

d. Cash equivalents:

The Company considers unrestricted short-term highly liquid investments originally purchased with maturities of three months or less to be cash equivalents.

e. Restricted cash deposits:

Restricted cash includes: investments in certificates of deposit, which mature within one year, and which are used to secure agreements with customers or banks, and as of December 31, 2008, cash which was pledged to the Company's major convertible bond holder.

f. Marketable securities:

The Company accounts for investments in marketable securities in accordance with ASC Topic 320-10, "Investments -Debt and Equity Securities" (“ASC Topic 320-10”). Management determines the appropriate classification of its investments in marketable securities and commercial paper at the time of purchase and reevaluates such determinations at each balance sheet date.

The marketable securities held by the Company during the reporting periods (years 2007 and 2008) consisted of marketable securities received in connection with the OTI transaction (see Note 1a). Such securities were classified as available-for-sale and were stated at fair value, with unrealized gains and losses (if any) reported in "accumulated other comprehensive income" in a separate component of shareholders’ equity, net of taxes. Realized gains and losses on the sale of such securities, as determined on a specific identified basis, are included in the consolidated statement of operations.

ASC Topic 320-10 and SAB Topic 5M, " Other Than Temporary Impairment of Certain Investments in Equity Securities " require to perform periodic reviews of individual securities to determine whether a decline in the value of a security is other than temporary. Impairment of the value of an investment may be indicated by conditions such as a prolonged period during which the quoted market value of the investment is less than its original cost, the extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer, the intent and ability of the holder to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value and other relevant factors.

When persuasive evidence exists that causes the Company to determine that a decline in market value of equity securities is other than temporary, the unrealized losses that are considered to be other than temporary are charged to income as an impairment charge.

During 2008, the Company sold all its OTI's shares and recognized a loss in an amount of $862 (during 2007, the Company recognized realized and un-realized loss in a total amount of $3,815). As of December 31 2008 and 2009, the Company did not have any investments in marketable securities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

g. Allowance for doubtful accounts:

The allowance for doubtful accounts is determined with respect to specific amounts the Company has determined to be doubtful of collection. In determining the allowance for doubtful accounts, the Company considers, among other things, its past experience with such customers and the information available regarding such customers.

h. Inventories:

Inventories are stated at the lower of cost or market value. Inventory write-offs are mainly provided to cover risks arising from slow-moving items or technological obsolescence. Cost is determined as follows:

Raw materials, parts and supplies - using the “moving average cost" method.

Finished products - on the basis of direct manufacturing costs, with the addition of allocable, indirect manufacturing costs or, using the “moving average cost" method.

i. Investment in a certain majority-owned subsidiary:

The investment in a certain majority-owned company is presented using the equity method of accounting in accordance with ASC Topic 323 - "Investments - Equity Method and Joint Venture s" , due to substantive participation rights held by the minority, which impact the Company’s ability to exert control over the subsidiary. See Note 6.

j. Property and equipment:

Property and equipment are stated at cost, net of accumulated depreciation.

Depreciation is computed using the straight-line method, over the estimated useful lives, at the following annual rates:

% Computers and peripheral equipment 33 Office furniture and equipment 6 - 15 Leasehold improvements Over the shorter of the term of

the lease or the life of the asset

k. Impairment of long-lived assets and intangible assets:

The Company's long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value, less costs to sell.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

l. Convertible Bonds :

1. Beneficial conversion feature:

The Company has considered the provisions of ASC Topic 815 - 40, "Derivatives and Hedging - Contracts in Entity's Own Equity" , and determined that the embedded conversion feature should not be separated from the host instrument because it qualifies for equity classification. Furthermore, the Company applied ASC Topic 470 - 20, "Debt - Debt with Conversion and Other Options " which clarifies the accounting for instruments with beneficial conversion features or contingency adjustable conversion ratios.

The beneficial conversion feature has been calculated by allocating the proceeds received in financing transactions to the convertible instrument and to any detachable warrants included in the transaction, and by measuring the intrinsic value of the convertible instrument based on the effective conversion price as a result of the allocated proceeds.

The amount of the beneficial conversion feature with respect to convertible bonds was recorded as a discount on the convertible bonds with a corresponding amount credited directly to equity as additional paid-in capital. After the initial recognition, the discount on the convertible bonds is amortized as interest expenses over the term of the bonds.

As stated in Note 13, during 2008 the entire discount was recognized as an expense due to a breach of the terms of the convertible bonds.

2. Issuance costs of convertible bonds – deferred charges:

Costs incurred in respect of obtaining financing through issuance of convertible bonds were deferred and expensed as financing expenses over the contractual term of the bonds.

3. Modification (or exchange) of a convertible bonds

The Company applied the provisions of ASC Topic 470 - 50, "Debt - Modifications and Extinguishments", with respect to the modification of terms of convertible debt instruments. According to ASC Topic 470 - 50, the Company concluded that the modification of convertible bonds that occurred during November 2007 did not result in a debt extinguishment and the modification that occurred in June 2008, August 2009 and November 2009 was determined to be a debt extinguishment. See Note 13.

m. Accrued severance pay and severance pay fund:

The liabilities of the Company for severance pay of its Israeli employees are calculated pursuant to Israel's Severance Pay Law. Employees are entitled to one month's salary for each year of employment, or portion thereof. The Company's liability for all its employees is presented under "accrued severance pay". The Company deposits on a monthly basis to severance pay funds and insurance policies. The value of these policies is presented as an asset on the Company's balance sheet.

The deposited funds include accrued income up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the Company’s obligation pursuant to Israel's Severance Pay Law or labor agreements.

Severance expenses for the years ended December 31, 2007, 2008 and 2009 amounted to $57, $108 and $22, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

n. Goodwill and Intangible assets:

Intangible assets are amortized over their useful lives using the straight line method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up, in accordance with ASC Topic 350, "Intangibles - Goodwill and Other" .

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is not amortized, but rather is tested for impairment at least annually or between annual tests, if certain events or indications of impairment occur. Goodwill is tested for impairment at the reporting unit level. As required by ASC Topic 350, the Company compares the fair value of each reporting unit to its carrying value ("step 1"). If the fair value exceeds the carrying value of the reporting unit’s net assets, goodwill is considered not impaired, and no further testing is required. If the carrying value exceeds the fair value of the reporting unit, then the implied fair value of goodwill is determined by subtracting the fair value of all the identifiable net assets from the fair value of the reporting unit. An impairment loss is recorded for the excess, if any, of the carrying value of the goodwill allocated to the reporting unit over its implied fair value ("step 2").

During 2008, the Company recorded an impairment of goodwill in an amount of $3,235. See Note 8.

Due to the sale of activities in January 2010 (see Notes 1b and 18), the Company recorded an impairment of the entire remaining balance of the goodwill which was attributed to the components sold and to certain other intangible assets in a total amount of $1,119.

o. Revenue recognition:

The Company and its subsidiaries generate their revenues from the sale of products, maintenance, royalties and long term contracts (including training and installation).

The sale of products involves the sale of active and passive RFID products, CSMS and raw materials. The Company sells its products in the US through distributors and directly, in Asia Pacific through a local subsidiary, and directly in the rest of the world. Due to the sale of activities in January 2010 (see Note 18), the Company intends on focusing on its active RFID products and its existing e-ID project.

Product sales are recognized in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (“ SAB No. 104”), when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable, collectability is probable, and inconsequential or perfunctory performance obligations remain. If the product requires specific customer acceptance, revenue is deferred until customer acceptance occurs or the acceptance provision lapses.

The Company recognized certain long-term contract revenues in accordance with ASC Topic 605-35, "Construction-Type and Production-Type Contracts" .

Pursuant to ASC Topic 605-35, revenues from these contracts are recognized under the percentage of completion method. The Company measures the percentage of completion based on output or input criteria, such as contract milestones, percentage of engineering completion or number of units shipped, as applicable to each contract.

Provisions for estimated losses on uncompleted contracts are made during the period in which such losses are first identified, in the amount of the estimated loss on the entire contract. As of December 31, 2009, no such estimated losses were identified.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

The Company is entitled to royalties upon the issuance of certificates. Such royalties are recognized when the sales are reported to the Company (usually on a monthly basis).

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

o. Revenue recognition (cont.):

The Company believes that the use of the percentage of completion method is appropriate, since the Company has the ability, using also an independent subcontractor's evaluation, to make reasonably dependable estimates of the extent of progress made towards completion, contract revenues and contract costs. In addition, contracts executed include provisions that clearly specify the enforceable rights of the parties to the contract, the consideration to be exchanged and the manner and terms of settlement. In all cases, the Company expects to perform its contractual obligations and the parties are expected to satisfy their obligations under the contract.

In contracts that do not meet all the conditions mentioned above, the Company utilized zero estimates of profits; equal amounts of revenue and cost are recognized until results can be estimated with sufficient accuracy.

Revenues and costs recognized pursuant to ASC Topic 605-35 on contracts in progress are subject to management estimates. Actual results could differ from these estimates.

The Company is not obligated to accept returned products or issue credit for returned products, unless a product return has been approved by the Company in advance and according to specific terms and conditions. As of December 31, 2009, the Company had an allowance for customer returns in the amount of $31.

Based on past experience, the Company does not provide for warranty costs when revenue is recognized. Warranty period is varying in length from 12 to 36 months.

The Company applies the provisions of ASC Topic 605-25, "Revenue Recognition - Multiple-Element Arrangements" . ASC Topic 605-25 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. For such arrangements, each element of the contract is accounted for as a separate unit when it provides the customer value on a stand-alone basis and there is objective evidence of the fair value of the related unit.

Maintenance and support revenues included in multiple-element arrangements are deferred and recognized on a straight-line basis over the term of the maintenance and support agreement. For these multiple element arrangements, the Company accounts for each unit of the contract (maintenance, support and services) as a separate unit, when each unit provides value to the customer on a stand-alone basis and there is objective evidence of the fair value of the stand-alone unit.

Deferred revenues and customer advances include amounts received from customers for which revenues have not been recognized.

The Company derives revenues mainly from sale of hardware products and long term contracts that include embedded software that management considers to be incidental. Such revenues are recognized as mentioned above. However, in limited circumstances, the Company provides software upgrades in respect of the embedded software of hardware products sold to our customers in the past. Such revenues are recognized when all criteria outlined in ASC Topic 985 -605, "Software - Revenue Recognition" are met: when persuasive evidence of an agreement exists, delivery of the product has occurred (i.e. the services have been provided), no significant obligations under the agreement remain, the fee is fixed or determinable and collectability is probable.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

p. Shipping and handling costs:

Shipping and handling fees billed to customers are reflected as revenues while the related shipping and handling costs are included in cost of revenues. To date, shipping and handling costs have not been material.

q. Research and development costs:

Research and development costs (other than software) are expensed as incurred. Research and development costs incurred in the process of software production before establishment of technological feasibility, are expensed as incurred. Costs of the production of a product m aster incurred subsequent to the establishment of technological feasibility are capitalized according to the principles set forth in ASC Topic 985 - 20, "Costs of Software to Be Sold, Leased, or Marketed" . Based on the Company's product development process, technological feasibility is established upon completion of a detailed program design or a working model.

Capitalized software development costs are amortized on a product-by-product basis commencing with general product release by the greater of the amount computed using: (i) the ratio that current gross revenues from sales of the software product bear to the total of current and anticipated future gross revenues from sales of that software, or (ii) the straight-line method over the estimated useful life of the software product (three years).

r. Income taxes:

The Company and its subsidiaries account for income taxes in accordance with ASC Topic 740-10, "Income Taxes" . This Statement prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

Effective January 1, 2007, the Company adopted an amendment to ASC Topic 740-10. The amendment to ASC Topic 740-10 prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. According to the amendment, tax positions must meet a more-likely-than-not recognition threshold . The Company’s accounting policy is to classify interest and penalties relating to uncertain tax positions under income taxes, however the Company did not recognize such items in its fiscal 2007, 2008 and 2009 financial statements.

s. Concentrations of credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash deposits and trade receivables. The Company's trade receivables are derived from sales to customers located primarily in Europe (including Eastern Europe), the United States and Israel. The Company performs ongoing credit evaluations of its customers' financial condition. The allowance for doubtful accounts is determined with respect to specific debts that the Company has determined to be doubtful of collection. See Note 2g.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

s. Concentrations of credit risk (cont.):

Cash and cash equivalents and restricted cash deposits are deposited with major banks in the United States, Israel and Hong-Kong. Management believes that such financial institutions are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments.

The Company has no significant off-balance-sheet concentration of credit risk, such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

t. Basic and diluted earnings (loss) per share:

Basic earnings (loss) per share are computed based on the weighted average number of ordinary shares outstanding during each year. Diluted earnings (loss) per share are computed based on the weighted average number of ordinary shares outstanding during each year, plus the dilutive potential of stock options and warrants outstanding during the year using the treasury stock method and the dilutive potential, if any, of convertible bonds using the “if- converted method”.

The net loss and the weighted average number of shares used in computing basic and diluted loss per share for the reported periods are as follows:

Year ended December 31, 2007 2008 2009 Net loss used for the computation of basic and diluted loss per share (11,311 ) (12,358 ) (5,085 )

Year ended December 31, 2007 2008 2009 Weighted average number of shares used in the computation of basic and diluted loss per share 4,391,860 5,171,406 5,511,948

All outstanding stock options, warrants and convertible bonds have been excluded from the calculation of the diluted net loss per share for the years ended December 2007, 2008 and 2009, since the effect of the shares issuable with respect of these instruments was anti-dilutive.

The number of potential shares from the conversion of convertible bonds, options and warrants that have been excluded from the calculation were 2,513,927, 2,826,466 and 3,189,071 for the years ended December 31, 2007, 2008 and 2009 respectively.

u. Fair value of financial instruments:

The following methods and assumptions were used by the Company and its subsidiaries in determining their fair value disclosures for financial instruments:

At December 31, 2009 and 2008, the carrying amounts of cash and cash equivalents, restricted cash deposits, current trade receivables, other accounts receivable, trade payables, short-term bank credit, other accounts payable and assets and liabilities attributed to discontinued operation approximate their fair value due to the short-term maturity of such instruments.

As of December 31, 2008, the carrying amount of the convertible bonds approximates their fair value due to the fact that the bonds are presented at principal.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

u. Fair value of financial instruments (cont.):

As of December 31, 2009 the fair value of the convertible bonds are approximately $2,850. Such amount was calculated based on present value of the principal, interest and penalties payment under the amended terms of the bonds, using discount rate of 17.95% which represent, according to management estimate, the interest rate that the Company was required to pay for such bond as of December 31, 2009. (level 3)

v. Accounting for stock-based compensation:

Share-based compensation, including grants of stock options, is recognized in the consolidated statement of operations as an operating expense, based on the fair value of the award on the date of grant. The fair value of stock-based compensation is estimated using an option-pricing model.

The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statement of operations.

The Company estimates the fair value of employee stock options using a Black-Scholes valuation model. The Company amortizes compensation costs using the graded vesting attribution method over the vesting period, net of estimated forfeitures.

w. Advertising costs:

The Company expenses advertising costs as incurred. Advertising expenses for the years ended December 31, 2007, 2008 and 2009, were approximately $139, $58 and $12, respectively.

x. Comprehensive Income:

The Company has no comprehensive income components other than net loss in the reporting periods.

y. Reclassifications:

Certain comparative figures have been reclassified to conform to the current period presentation. The changes did not affect net income, cash flow or shareholders' deficit.

z. Fair value measurements:

The Company applies ASC Topic 820-10 which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and requires disclosures for fair value measures.

In accordance with ASC Topic 820-10, the Company measures and discloses fair value measurements for certain assets and liabilities. Fair value is an exit price, representing the amount that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is required to be determined based on the assumptions that market participants would use to determine the price of an asset or a liability.

As a basis for considering such assumptions, the fair value accounting standard establishes the following fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities . The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

z. Fair value measurements (cont.):

Level 3 - Unobservable inputs are used when little or no market data is available. Level 3 inputs are considered as the lowest priority under the fair value hierarchy.

In determining fair value, companies are required to utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as to consider counterparty credit risk in the assessment of fair value.

On January 1, 2009, the Company adopted the accounting standard for fair value measurement with respect to non-financial assets and liabilities as well. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

aa. Discontinued operations:

The Company applies ASC Topic 205, "Presentation of Financial Statements - Discontinued Operation" . According to ASC Topic 205, when a component of an entity, as defined in this standard, has been disposed of or is classified as held for sale, the results of its operations, including the gain or loss on the disposed component, required to be classified as discontinued operations and the assets and liabilities of such component should be classified as assets and liabilities attributed to discontinued operations if both of the following conditions are met: a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the company as a result of the disposal transaction, and b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. (See also Note 1b).

ab. Recently issued accounting pronouncements:

1. Accounting pronouncements adopted in 2009

A. A SC Topic 105, " Generally Accepted Accounting Principles "

In June 2009, the FASB issued SFAS No. 168, “ The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles ” ( the "ASC" or "the Codification"), a replacement of FASB Statement No. 162. This Statement replaces FASB Statement No. 162, “ The Hierarchy of Generally Accepted Accounting Principles ”. Following SFAS No. 168, The Codification became the single authoritative source for US GAAP. The FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (ASU's). SFAS No. 168 became effective for financial statements issued for interim and annual periods ending after September 15, 2009.

Concurrently with the issuance of SFAS 168, the FASB issued ASU 2009-01, an amendment based on SFAS No. 168 in order to codify SFAS No. 168 within ASC Topic 105, " Generally Accepted Accounting Principles ". This ASU includes SFAS No. 168 in its entirety, including the instructions contained in Appendix B of the statement. The guidance in ASC Topic 105 became effective for financial statements issued for interim and annual periods ending after September 15, 2009.

Applying the guidance in ASC Topic 105 did not impact the Company’s financial condition and results of operations. The Company has revised its references to pre-Codification GAAP in its financial statements for the year ended December 31, 2009.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

ab. Recently issued accounting pronouncements (cont.):

1. Accounting pronouncements adopted in 2009 (cont.)

B. ASC Topic 805, "Business Combinations"

In December 2007, the FASB issued ASC Topic 805, "Business Combinations" , "Business Combinations" ), to change how an entity accounts for the acquisition of a business. ASC Topic 805 replaces the previous standard for business combinations in its entirety.

ASC Topic 805 carries forward the existing requirements to account for all business combinations using the acquisition method (formerly called the purchase method). In general, ASC Topic 805 requires acquisition-date fair value measurement of identifiable assets acquired, liabilities assumed, and non-controlling interests in the acquiree.

The new measurement requirements result in the recognition of the full amount of acquisition-date goodwill, which includes amounts attributable to non-controlling interests. The acquirer recognizes in income any gain or loss on the remeasurement to acquisition-date fair value of consideration transferred or of previously acquired equity interests in the acquiree. Neither the direct costs incurred to effect a business combination nor the costs the acquirer expects to incur under a plan to restructure an acquired business may be included as part of the business combination accounting. As a result, those costs are charged to expense when incurred, except for debt or equity issuance costs, which are accounted for in accordance with other generally accepted accounting principles.

ASC Topic 805 also changes the accounting for contingent consideration, in process research and development, and restructuring costs. In addition, after Statement ASC Topic 805 is adopted, changes in uncertain tax positions or valuation allowances for deferred tax assets acquired in a business combination are recognized as adjustments to income tax expense or contributed capital, as appropriate, even if the deferred tax asset or tax position was initially acquired prior to the effective date of ASC Topic 805.

The Company adopted ASC Topic 805 as of the required effective date of January 1, 2009 and applies its provisions prospectively to business combinations that occur after adoption.

The adoption of ASC Topic 805 did not have a significant effect on the Company’s financial statements.

C. ASC Topic 810 - 10, "Consolidation"

In December 2007, the FASB issued ASC Topic 810-10, "Consolidation" . The Statement changes the accounting for, and the financial statement presentation of, noncontrolling equity interests in a consolidated subsidiary. Under ASC Topic 810-10, all entities are required to report noncontrolling (minority) interests in subsidiaries as a component of consolidated equity in the consolidated financial statements. In addition, the Statement requires transactions between an entity and noncontrolling interests that do not result in deconsolidation to be treated as equity transactions and provides new guidance on accounting for deconsolidation. ASC Topic 810-10 is effective for fiscal years beginning on or after December 15, 2008. The Statement applies prospectively from the effective date except for the presentation and disclosure requirements, which must be applied retrospectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

ab. Recently issued accounting pronouncements (cont.):

1. Accounting pronouncements adopted in 2009 (cont.)

C. ASC Topic 810 - 10, "Consolidation" (cont.)

The Company adopted ASC Topic 810-10 as of January 1, 2009. Due to the fact that there are no noncontrolling (minority) interests, no adjustments have been made to the financial statements.

D. ASC Topic 855, “ Subsequent Events”

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” , which was codified into ASC Topic 855, “ Subsequent Events ”. This standard establishes general standards of accounting and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC Topic 855 is effective for interim or annual financial periods ending after June 15, 2009. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

E. ASC Topic 820, “ Fair Value Measurements and Disclosures”

In April 2009, the FASB issued additional guidance on determining whether a market for a financial asset is not active and a transaction is not distressed for fair value measurements. The new guidance became effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements

2. Accounting pronouncements not yet effective:

A. ASC Topic 605 - 25 “ Revenue Recognition - Multiple -Element Arrangements”

In October 2009, the FASB issued amendments to the accounting and disclosure for revenue recognition. These amendments, effective for fiscal years beginning on or after June 15, 2010 (fiscal year 2011 for the Company), with early adoption permitted, modify the criteria for recognizing revenue in multiple element arrangements and require companies to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. Additionally, the amendments eliminate the residual method for allocating arrangement considerations. The Company is currently evaluating the impact that the adoption would have on its consolidated financial statements.

B. ASC Topic 985 - 605, "Software - Revenue Recognition"

In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-14, Certain Revenue Arrangements That Include Software Elements – a consensus of the FASB Emerging Issues Task Force , to amend the scope of arrangements under ASC 985, Software , 605, “Revenue Recognition” to exclude tangible products containing software components and non-software components that function together to deliver a product’s essential functionality. Such components shall be subject to ASC Topic 605 - 25 “Revenue Recognition - Multiple-Element Arrangements” .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

ab. Recently issued accounting pronouncements (cont.):

2. Accounting pronouncements not yet effective (cont.):

B. ASC Topic 985 - 605, "Software - Revenue Recognition" (cont.)

The amended guidance in ASC 605-25 and ASC 985-605 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early application and retrospective application permitted. The Company expects to prospectively apply the amended guidance in ASC 985-605, concurrently with the amended guidance in ASC 605-25, beginning on January 1, 2011.

The Company is currently evaluating the impact that the adoption would have on its consolidated financial statements.

C. ASC Topic 820, “ Fair Value Measurements and Disclosures”

In January 2010, the FASB updated the “ Fair Value Measurements Disclosures ” accounting standard. This update will require (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). The update clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value, and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs.

As applicable to the Company, the update will become effective as of the first interim or annual reporting period beginning after December 15, 2009, except for the disclosures of the Level 3 roll forward information, which is required for annual reporting periods beginning after December 15, 2010 and for interim reporting periods within those years. The adoption of the new guidance is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

NOTE 3:- MARKETABLE SECURITIES

As consideration for the sale of the e-ID Division (see Note 1a), 2,827,200 ordinary shares of OTI were issued to the Company (hereinafter – "OTI shares") (of which 212,040 shares were received by the Company but related to its consultants).

During 2007, the Company sold 1,414,716 shares of the OTI shares for a total amount of $7,639 and recorded net realized losses in an amount of $1,116. As of December 31, 2007, the Company recorded write-down expenses in an amount of $2,699, due to the decline in the fair market value of the remaining OTI securities that was considered other than temporary. During 2008, the Company sold the remaining, 1,200,444 OTI shares, for a total amount of $3,192 and recorded net realized losses in an amount of $862. Such amounts were presented in the statement of operation within the financial expenses, net.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 4:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

December 31, 2008 2009

Prepaid expenses $ 496 $ 16 Government authorities 413 109 Advance payment to suppliers 63 55 Others 102 135

$ 1,074 $ 315

NOTE 5:- INVENTORIES, NET

December 31, 2008 2009

Raw materials, parts and supplies $ 170 $ 17 Finished products 1,137 65

$ 1,307 $ 82

As of December 31, 2008 and 2009, the inventory is presented net of allowance for slow inventory in the amount of approximately $109, and $51 respectively.

NOTE 6:- INVESTMENT IN A CERTAIN MAJORITY OWNED SUBSIDIARY

In December 1997, the Company set up SuperCom Slovakia, owned equally with another third-party investor, in order to execute a transaction with the Ministry of Interior of the Slovak Republic.

In March 2000, the Company purchased an additional 16% of SuperCom Slovakia, at a nominal value of $1, and granted such third-party investor a loan in an amount of $275, bearing interest of 0.7% per month, for any amounts outstanding. Interest is compounded on the outstanding principal balance of the loan and is to be repaid under the same conditions as the outstanding principal balance.

The third- party investor has an option to buy back 16% of the shares, for $1, upon repayment of the loan to the Company.

The Company currently owns 66% of SuperCom Slovakia's outstanding shares and accounts for the investment using the equity method of accounting, due to the substantive participation rights held by the minority, which impact the Company’s ability to exert control over the subsidiary.

During 2006, the Company wrote down the entire loan balance in that company due to litigation developments regarding this issue and due to low probability of collection. See Note 11c2. During the reported periods , the subsidiary had no operating activity.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 7:- PROPERTY AND EQUIPMENT

December 31, 2008 2009

Cost: Computers and peripheral equipment $ 354 $ 320 Office furniture and equipment 193 198 Leasehold improvements 39 46

586 564 Accumulated depreciation:

Computers and peripheral equipment 243 270 Office furniture and equipment 103 110 Leasehold improvements 22 27

368 407 Depreciated cost $ 218 $ 157

Depreciation expenses for the years ended December 31, 2007, 2008 and 2009, were $38, $73 and $77, respectively.

NOTE 8:- OTHER ASSETS

a. Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2008 and 2009 are as follows:

December 31, 2008 2009 Balance as of January 1 $ 3,644 $ 685 Adjustment (*) 276 - Impairment loss (**) (3,235 ) (685 ) Balance as of December 31 $ 685 $ -

The goodwill resulted from the acquisition of SHC (see Note 1a).

(*) During 2008, the Company adjusted the amount of goodwill resulting from the acquisition of SHC due to:

● Allowance for sales prior to the acquisition in the amount of $202

● Liabilities to employees prior to the transaction date, in the amount of $ 34

● Direct expenses related to the acquisition in the amount of $40

(**) As part of the annual review for impairment, in November 2008, the Company examined the fair value of the intangible assets and the goodwill and in doing so, considered in part, third party expert services. The valuation referred to the U.S. subsidiary as a single reporting unit.

The valuation was conducted on a going concern basis. Since the U.S. subsidiary is closely-held, and thus without a public market for its ownership interests, the appraisal was conducted according to common appraisal practices, and was based on the Free Discounted Cash-Flows ("DCF") method.

In addition, the Company received market indication with respect to the fair value of the U.S. subsidiary in the first quarter of 2009. Based on the above the Company recognized an impairment loss in the amount of $3,235.

During 2009, the Company recognized an impairment of the remaining balance of goodwill which attributed to the components (as described in ASC 360) that have been classified as of December 31, 2009 as discontinued operations. As a result, the impairment was classified in the statements of operations for 2009 within the loss from discontinued operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 8:- OTHER ASSETS (Cont.)

b. Intangible assets and deferred charges

December 31, Amortization period 2008 2009(**)

Cost

Deferred charges (a) Over the contractual life of the bonds $ 255 $ 255

Capitalized research and development costs (b) 3 Years 280 - Patents (c) 3 Years 104 104 Intellectual Property (d), (e) 3 Years (*) 650 - Brand name (e) 5 Years (*) 500 - Customer Base (e) 5 Years (*) 506 -

$ 2,295 $ 359

Accumulated amortization Deferred charges $ 255 $ 255 Capitalized research and development costs 136 - Patents 55 98 Intellectual Property 306 - Brand 133 - Customer Base 135 -

1,020 353 Amortized cost $ 1,275 $ 6

(*) Commencing on the closing date of the acquisition of SHC on August 28, 2007.

(**) Due to sale of activities in January 2010, the Company classified certain intangible assets in an amount of $517, attributed to the activities within the balance "Assets attributed to discontinued operations". (See Notes 18 and 1b.)

a. The deferred charges were incurred in respect of the issuance of convertible bonds during November, 2006 (an additional amount of $52 was recognized during 2007 with respect to those convertible bonds). Due to a breach of certain convertible bond covenants in 2008, among other things, the Company had to accelerate deferred expenses in the amount of $138. See Note 13.

b. During 2007, the Company capitalized an amount of $280, related to the development of its CSMS product.

c. During February 2007, the Company purchased the remaining 20% of Vuance RFID from the minority for an amount of $100, which was attributed to patents.

d. During the third quarter of 2007, the Company acquired the Credentialing Division of Disaster Management Solutions Inc. for an amount of $125. As a result of this transaction the Company allocated costs to Intellectual Property.

e. During the third quarter of 2007, the Company acquired all of the issued and outstanding stock capital of SHC. As described in Note 1a, the Company allocated cost to:

Intellectual Property, Brand name, Customer Base and Goodwill.

Amortization of intangible assets and deferred charges amounted to $277, $737 and $632 for the years ended December 2007, 2008 and 2009, respectively.

Estimated amortization expenses for the next years are $6 in the year 2010.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 9:- BANK CREDIT

a. As of December 31, 2009, Vuance Inc had an account receivable line of credit from Bridge Bank in an aggregate amount of up to $ 1,000, and as of that date the amount of the credit utilized was $290. The credit line bears interest at the WSJ Prime Rate plus an additional 2.5% annualized on the average daily gross financed amount outstanding. The Floor on Prime Rate is 6%. In addition Vuance Inc is required to pay minimum monthly interest of $1.5, plus a Facility fee of $7.5 annually. Bridge Bank has a perfect first position security interest in all of Vuance Inc's current and future assets, including intellectual property and general intangibles.

The weighted average interest rate on the credit line as of December 31, 2009 was approximately 7.5%.

Due to sale of activities in January 2010 (see Notes 18 and 1b), the Company classified the bank credit balance to discontinued operations.

Other than the loan from Bridge Bank, the Company has no other lines of credit from financial institutions .

b. Regarding guarantees and liens - see Note 11b.

NOTE 10:- ACCRUED EXPENSES AND OTHER LIABILITIES

December 31, 2008 2009

Customer advances (*) $ 1,521 $ 37 Deferred revenues 234 20 Accrued expenses (**) 3,161 2,779 Other 91 23

$ 5,007 $ 2,859

(*) As of December 31, 2008 and 2009, an amount of $1,330 and $0, respectively, relates to advances from customers with respect to long term contract.

(**) As of December 31, 2008 and 2009, includes $1,260 and $0, respectively, of interest and financing charges related to convertible bonds, $192 and $386, respectively, related to marketing expenses, $876 and $881, respectively, related to subcontractors of long term contract and $100 and $398, respectively, related to litigation accruals.

NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES

a. Lease commitments:

The Company's facilities and those of certain subsidiaries are rented under several operating lease agreements for periods ending in 2009 - 2014.

On April 18, 2005, the Company signed a lease for new offices in Qadima, (Israel). The lease is for a period of five years commencing on November 1, 2005. The Company has an option to extend the lease period for an additional five years on similar terms. According to the lease, the monthly fee is $16. The Company subleases a portion of these leased facilities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (cont.)

a. Lease commitments (cont.):

The Company's subsidiary in the USA has a facility in Peachtree City, GA. The monthly fee of the facility is $2.4. The lease commenced on March 1, 2008 until February 28, 2013.Vuance, Inc. also leases a facility in Rockville, Maryland for a monthly fee of $4.8 which is subleased for a monthly fee of $4.1. The lease commenced on December 1, 2007 until February 28, 2011.

In 2009, Vuance Inc. signed additional lease agreement in Wisconsin. The monthly lease amount for the facilities is $4.5 with eight months free rent. The lease commenced on January 1, 2010 until December 31, 2014.

SuperCom Asia Pacific leases a facility in Hong Kong for a monthly fee of $4.3.

Future minimum lease commitments under non-cancelable operating leases (excluding the portion sub-leased to third parties) for the years ended December 31, are as follows:

2010 $ 332 2011 92 2012 83 2013 59 2014 54

$ 620

Rent expenses for the years ended December 31, 2007, 2008 and 2009, were approximately $376, $440 and $331, respectively.

b. Guarantees, indemnity and liens:

1. The Company issued a bank guarantee in the amount of $325 to a supplier, related to a certain project of the Company with a European country. As a condition of this guarantee, as of December 31, 2009, the Company deposited $330, which is presented as restricted cash deposits.

2. Under the sale agreement of the e-ID Division to OTI, the Company agreed to indemnify OTI for any breaches of the Company’s representations, warranties, covenants and obligations for twelve months from the closing date (December 31, 2006). The indemnification also covers any claim based on the Company’s alleged infringement on the intellectual property of any third party. As of the date of the approval of these financial statements there was no claim for breach from the OTI.

3. In order to secure the line of credit from Bridge Bank, the Bank received a first position security interest in all of Vuance Inc's current and future assets, including intellectual property and general intangibles. See also Note 9a above.

5. In order to secure an agreement with a customer, the Company provided a bank guarantee in the amount of $75. As a condition of this guarantee, the Company deposited $75 in the bank, which is included as part of assets attributed to discontinued operations.

6. Pursuant to the Amendment Agreements with the convertible bonds holders (see also Note 13), in exchange for security in certain assets of the Company, the Company and the investors agreed to waive compliance and amend certain provisions of the Bond.

7. See also Note 18a and 18b.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

On September 28, 2008, the Department filed a petition (the "Petition") in the Central District Court of Israel (the "Court"), under which the Department requested the approval of the Award as a valid foreign arbitral award under the laws of the State of Israel.

During November 2008, the Company filed with the Court an objection to the Petition and a petition to declare the Award null and void. The Company's objection and petition rely on what the Company believes to be well-based evidence which the Company has against the manner under which the arbitration proceedings were conducted by the Arbitration Court and against their validness and legality. The Company believes that the arbitration proceedings were conducted partially and jeopardized its basic rights. The Company's claims are also corroborated by a contrary legal opinion written in the scope arbitration decision by one of the arbitrators ("Arbitrator").

On February 16, 2009, the Department filed its response to the Company's claims (the "Response"). The Department raised procedural and other claims in its Response, including a monetary claim that the Company filed which is based on the Award and the filing of such claim basically affirms the Company’s acknowledgment that the Award is valid. On March 25, 2009, the Company filed a response to the Department's response and a requisition to order the Arbitrator to testify in the scope of the Petition proceedings.

On June 6, 2009, a preliminary court session was held regarding the Petition. During the session, the Department's counsel claimed that one of the two machines that the Company previously supplied pursuant to the Contract (which machine is priced higher than the amount of the Department's claim) was not supplied to the Department and was transferred by the Company to another Ukrainian governmental authority. It is noted that the Company has documents that evidence that, contrary to the Department's claim, the Company supplied both of the machines directly to the Department.

At a hearing held on September 23, 2009, the Court accepted the Company's application to summon the Arbitrator as a witness, subject to depositing € 5,000 by the Company to ensure coverage of the Arbitrator's expenses. Testimony hearing sessions were scheduled for November 29-30, 2010 (the Company's witnesses) and January 17-18, 2011 (the Petitioner's witnesses).

NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (cont.)

c. Litigation:

1. In April 2004, the Department for Resources Supply of the Ministry of Ukraine (the "Department") filed a claim with the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (the “Arbitration Court”) to declare Contract No. 10/82 (the “Contract”), dated April 9, 2002, between the Company and the Ministry of Internal Affairs of the Ukraine (the "Ministry"), as void due to defects in the proceedings by which the Company was awarded the Contract. In July, 2004, the Arbitration Court declared the Contract as void. On April 27, 2005, the Company appealed the decision to the High Commercial Court of the Ukraine. In May 2005, the Department filed a new statement of claim with the Arbitration Court for restitution of $1,048 paid to the Company by the Department under the Contract. On September 27, 2005, the Company received a negative award issued by the Arbitration Court in the second claim (the "Award"). On December 12, 2005, the Company was informed that the Ukrainian Supreme Court had dismissed its appeal regarding the July 2004 decision. On June 29, 2006, the Ukrainian Supreme Court held that the Arbitration Court award was valid and legal under applicable law.

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VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

Based on the opinion of its legal advisors, the Company believes that the above mentioned Ukrainian Arbitration Court decision is incorrect, as a matter of law, that the Ukrainian government’s claim has no merit and that the Ukrainian Arbitration Proceedings were legally defective. The Company, based on its legal counsels, further believes that there is a good chance that the Petition will be denied. Therefore no provision has been made in the financial statements in respect of the claim for restitution of $1,048.

NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (cont.)

c. Litigation (cont.):

1. (cont.)

2. On October 30, 2003, SuperCom Slovakia, a subsidiary (66%) of Vuance Ltd., received an award from the International Arbitral Center of the Austrian Federal Economic Chamber, in a case against the Ministry of Interior of the Slovak Republic (“the Ministry”) relating to the Agreement on Delivery of Technology, Cooperation and Services signed on March 17, 1998. Upon the Arbitral Award, the Ministry of Interior of the Slovak Republic was ordered to pay SuperCom Slovakia the amount of SKK 80,000,000 (approximately $3,806 as of December 31, 2009) plus interest accruing from March 1999. In addition, the Ministry of Interior of the Slovak Republic was ordered to pay the costs of arbitration in the amount of EUR 42,716 (approximately $61 as of December 31, 2009) and SuperCom Slovakia’s legal fees in the amount of EUR 63,611 (approximately $91 as of December 31, 2009). The Company has begun an enforcement proceeding to collect the arbitral awards. The Ministry of Interior of the Slovak Republic filed a claim with the Commercial Court in Vienna, Austria on February 10, 2004, whereby it challenged and requested to set aside the arbitral award. During September 2005, the Commercial Court of Vienna dismissed the claim. On October 21, 2005, the Ministry of the Interior of the Slovak Republic filed an appeal. On August 25, 2006, the Austrian Appellate Court rejected the appeal and ordered the Ministry to reimburse Supercom Slovakia´s costs of the appellate proceeding in the amount of EUR 6,688 within 14 days. On October 3, 2006, the Company was informed that the Ministry had decided not to file an extraordinary appeal to the Austrian Supreme Court’s decision rejecting its appeal. To date, the Company’s efforts to enforce the Commercial Court’ s decision have been unsuccessful.

3. On December 16, 1999, Secu-Systems Ltd. filed a lawsuit with the District Court in Tel-Aviv-Jaffa jointly and severally against the Company and its former subsidiary, InkSure Ltd. (“InkSure”), seeking a permanent injunction and damages arising from the printing method applied to certain products developed by InkSure. In its lawsuit, Secu-Systems asserted claims of breach of a confidentiality agreement between Secu-Systems and the Company, unjust enrichment of the Company and InkSure, breach of fiduciary duties owed to Secu-Systems by the Company and InkSure and misappropriation of trade secrets and damage to Secu-Systems’ property. On March 15, 2006, the Court denied the breach of contract claim, but upheld the claim for misappropriation of trade secrets and ordered InkSure and the Company to cease all activity involving the use of the confidential knowledge and/or confidential information of Secu-Systems. In addition, the court ordered the Company and Inksure to provide a report certified by an accountant setting forth in full the income and/or benefit received by InkSure and the Company as a result of the infringing activity through the date of the judgment, and ordered the Company and Inksure, jointly and severally, to pay to Secu-Systems compensation in the amount of NIS 100,000 ($26 as of December 31, 2009) and legal expenses as well as attorney’s fees in the amount of NIS 30,000 ($8 as of December 31, 2009) (which was paid during 2006). Secu-Systems has filed an appeal, and the Company and InkSure filed a counter-appeal, on the above ruling.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

On November 1, 2007, the Supreme Court accepted Secu-Systems' appeal and stated that Inksure and the Company have breached the confidentiality agreement. Consequently, the appeal that had been filed by Inksure and the Company was dismissed. The Supreme Court instructed that the case be returned to the District Court for determining the remedies to which Secu-Systems is entitled.

On February 18, 2008, Secu-System filed a petition with the District Court asking that the court allow Secu-System to amend the amount for which it sued as stated in the Statement of Claims to NIS 25,000,000 (approximately $6,623 as of December 31, 2009). The petition is mainly based on the fact that in 2002, Inksure was sold by the Company to a third party for consideration of approximately $6,000 and upon Secu-System's assertion that such amount of consideration constitutes a benefit and/or profit which seems to have been derived from the breach of the confidentiality agreement and upon the assertion that Secu-System is entitled, in light of the Supreme Court's ruling with respect to the breach of the confidentiality agreement, to receive such amount. Another argument made by Secu-System relates to the profit which Inksure allegedly generated from the breach of the confidentiality agreement; this argument is based on an aggregate gross profit of $6,400 according to the financial statements of Inksure for the years 2002-2007.

On March 24, 2008, the Company provided its lawyers with an opinion of a consultant on the subject matter, which included among others the following conclusions:

On September 8, 2009, the court denied Secu-System's petition to increase the amount sued. The only evidence that the court allowed Secu-System to submit in order to prove damage is evidence which can show that the reports which Inksure and the Company submitted are incorrect. The court ordered Secu-System to submit its evidence within 45 days, and further ordered that Inksure would be entitled to submit its evidence within 45 days thereafter.

On December 15, 2009, Secu-System filed affidavits of prime testimony on its behalf and the Company filed a request to strike out the affidavits for being out of scope of the court's decision of September 8, 2009. At this stage the court suggested that the parties try a mediation process in order to endeavor to come to an agreement. All the parties agreed to such suggestion.

In the course of the mediation process, during 2010, an agreement in principle was reached, according to which the mediator will be authorized to determine the sum, within the range between NIS 750,000 (approximately $199 as of December 31, 2009) and NIS 1,000,000 (approximately $265 as of December 31, 2009), which the Company shall pay to Secu-Systems. Pursuant to such agreement in principle, the amount determined by the mediator will be paid by the Company in 10 equal, consecutive monthly installments. It should be noted, however, that a mediation agreement has not been signed yet.

NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

c. Litigation (cont.):

3. (cont.)

a. In light of the cost analysis, the Company had no economic profit from the sale of Inksure's shares.

b. The examination of the results of Inksure's business activity in 2002-2007, as reflected in its financial reports, shows that Inksure has not made any profits, and even suffered losses in the said period. The financial reports also show that Inksure had a negative cash flow in these years, which was financed by bank loans and fundraising.

141

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

The Company made an allowance in the amount of $230 that reflects the expected legal expenses related to this litigation.

The Company has discovered that there are discrepancies between the leased area as it appears in the lease agreement and the space actually possessed by the Company. Consequently, the Company has sent to Somet a set-off notice regarding the excess lease payments that, according to the Company, Somet has collected from the Company since the commencement of the lease period.

The entire dispute has been submitted to an agreed-upon Arbitrator.

A first arbitration session was held on February 19, 2009. At this session, a time table for submitting the statements of claims was set. Accordingly, the Company submitted its statement of defense, as well as a statement of counterclaim on June 14, 2009, and Somet's response to such statements was submitted approximately two weeks before the date set for a testimony hearing. Such hearing was held on August 18, 2009.

Somet's summations were submitted on February 17, 2010. The Company submitted summations on May 30, 2010.

On June 28, 2010, the arbitral award was received, pursuant to which the claim against the Company was accepted and the Company's counterclaim was rejected. In addition, legal expenses in the amount of NIS 20,000 (approximately $5 as of December 31, 2009) were awarded in favor of Somet. In consequence of the arbitral award, the arbitrator handed over to Somet the checks that the Company had drawn and deposited with the arbitrator as security.

As of the filing date of this financial report the Company has not filed a petition seeking to annul the arbitral award.

NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

c. Litigation (cont.):

3. (cont.)

4. On January 20, 2008, the Manufacturers Association of Israel (the "Plaintiff") filed a lawsuit with the labor court in Tel Aviv-Jaffa (the "Court") against Vuance Ltd. ("the Company"), seeking an amount of NIS 82,789 + VAT (as of June 20, 2008 approximately $26 + VAT) for service fees for the years 2001-2007, as well as legal expenses and attorney's fees of the Plaintiff. In addition, the Plaintiff has asked the Court to instruct the Company to submit the necessary documentation, certified by the Company's accountant, needed to calculate the service fees sought by the Plaintiff. During 2008, the Company and the Plaintiff reached a settlement whereby the Company paid $8 as compromise, which amount was included in the 2008 financial statements.

5. Somet HaSharon ("Somet") is the owner of the office building in Qadima where the Company's offices are located in accordance with a lease agreement from 2005.

142

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

c. Litigation (cont.):

6. Vuance Inc. is the defendant in an action filed on March 26, 2010 by two former employees, which are also shareholders of the Company and currently pending in the Circuit Court for Milwaukee County. The two Plaintiffs in that matter claim that each was a party to an Employment Agreement with Vuance Inc. and that Vuance Inc. is in breach of those agreements. Each of the Employment Agreements provides, inter alia, that any disputes arising under or in connection with the Agreement shall be resolved by third-party mediation and, failing that, by binding arbitration. Accordingly, counsel in the matter have agreed to have the dispute mediated by a third party. Counsel have agreed that the time for Vuance Inc. to answer or otherwise respond to the complaint in the matter is indefinitely extended. Together, the Plaintiffs claim they have been damaged in an amount of $168. Vuance Inc. made an allowance of $168, in 2009 that reflects the expected expenses related to this litigation.

d. In a certain transaction, the Company is obligated to pay a certain percentage of the revenues to third parties.

e. The Company is obligated, under certain contracts with one of its manufacturers, to purchase certain blanket orders from such manufacturer, with no specific time requirements.

NOTE 12:- TAXES ON INCOME

a. Measurement of results of operations for tax purposes under the Israeli Income Tax Law (Inflationary Adjustments), 1985.

Until December 31, 2007, the results of operations for tax purposes were measured in terms of earnings in NIS after adjustments for changes in Israel's Consumer Price Index ("CPI"). Commencing January 1, 2008, this law is void and in its place there are transition provisions, whereby the results of operations for tax purposes are to be measured on a nominal basis. As explained in Note 2b, the financial statements are measured in U.S. dollars. The difference between the annual change in Israel's CPI and in the NIS/dollar exchange rate causes a further difference between taxable income and income before taxes shown in the financial statements. In accordance with paragraph 25-3f of ASC TOPIC 740-10-25, Income Taxes (, the Company has not provided for deferred income taxes on the above difference between the functional currency and the tax bases of assets and liabilities.

b. Reduction in corporate tax rates:

On July 25, 2005, the Israeli Parliament passed an amendment to the Income Tax Ordinance (No. 147) - 2005, gradually reducing the tax rate applicable to the Company as follows: in 2006 - 31%, in 2007 - 29%, in 2008 - 27%, in 2009 - 26% and in 2010 and thereafter - 25%.

On July 23, 2009, as part of the Arrangements Law for the period 2009-2010, article 126 of the Income Tax Ordinance (New Version) – 1961 was amended, whereby the corporate tax rate would be gradually reduced commencing in the 2011 tax year and thereafter, as follows: 2011 – 24%, 2012 – 23%, 2013 – 22%, 2014 – 21%, 2015 – 20% and 2016 and thereafter – 18%.

c. Non-Israeli subsidiaries:

Non-Israeli subsidiaries are taxed according to the tax laws of the countries in which they are located.

143

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 12:- TAXES ON INCOME (cont.)

d. Deferred income taxes:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax assets of the Company and its subsidiaries are as follows:

December 31, 2008 2009

Operating loss carryforward $ 10,106 $ 9,809 Reserves and allowances 921 721

Net deferred tax asset before valuation allowance 11,027 10,530 Valuation allowance (11,027 ) (10,530 )

Net deferred tax asset $ - $ -

Deferred income taxes consist of the following:

Domestic $ 6,760 $ 5,701 Valuation allowance (6,760 ) (5,701 )

Foreign 4,267 4,829 Valuation allowance (4,267 ) (4,829 )

$ - $ -

As of December 31, 2009, the Company and its subsidiaries have provided valuation allowances of $10,530 in respect of deferred tax assets resulting from tax loss carryforwards and other temporary differences . Management currently believes that since the Company and its subsidiaries have a history of losses, the deferred tax assets are not considered more likely than not to be realized in the foreseeable future.

e. Net operating loss carryforwards and loss on marketable securities:

Vuance Ltd. has accumulated losses for tax purposes as of December 31, 2009, in an amount of approximately $25,122, which may be carried forward and offset against taxable income in the future for an indefinite period. Vuance Ltd. also has a loss on marketable securities in an amount of $11,261 which may be carried forward and offset against gains on marketable securities and capital gains for an indefinite period. Vuance Ltd. also has a capital loss in an amount of $888 which may be carried forward and offset against capital gains for an indefinite period.

As of December 31, 2009, Vuance's subsidiaries in the United States and Hong Kong have estimated total available carryforward tax losses of $13,690 and $ 1,170, respectively. In Hong-Kong tax losses are available to offset against taxable income, if any, for an indefinite period. In the U.S., tax losses can be carried forward for 20 years. However, utilization of U.S. net operating losses may be subject to a substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. These annual limitations may result in the expiration of net operating losses before utilization. An amount of $3,413 of the carryforward tax losses of the Company's subsidiary in the U.S, is subject to such limitation, due to the SHC acquisition.

144

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 12:- TAXES ON INCOME (cont.)

f. Vuance Ltd has assessments which are considered as final until the tax year ended December 31, 2004.

Vuance’s subsidiaries in the United States and Israel have not received final assessments since their incorporation.

Vuance’s subsidiary in Hong-Kong has an assessment that is considered to be final until the tax year ended December 31, 2000.

g. Loss before taxes on income consists of the following:

Year ended December 31, 2007 2008 2009

Domestic $ (8,173 ) $ (4,854 ) $ (2,011 ) Foreign (646 ) (1,328 ) (477 )

$ (8,819 ) $ (6,182 ) $ (2,488 )

h. Reconciliation of the theoretical tax expense (benefit) to the actual tax expense (benefit):

A reconciliation of theoretical tax expense, assuming all income is taxed at the statutory rate applicable to the income of companies in Israel, and the actual tax expense, is as follows:

Year ended December 31, 2007 2008 2009

Loss before taxes on income, as reported in the consolidated statements of operations $ (8,819 ) $ ( 6,182 ) $ (2,488 )

Statutory tax rate in Israel 29 % 27 % 26 %

Theoretical tax benefit $ (2,557 ) $ ( 1,669 ) $ (647 ) Carryforward losses and other deferred taxes for which a full valuation

allowance was recorded 2,560 2,045 503 Tax expenses related to withholding tax at source 353 137 31 Differences in taxes resulting from rate applicable to foreign subsidiary and

others 34 (376 ) 184 Actual income tax $ 390 $ 137 $ 71

145

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 13:- CONVERTIBLE BONDS

In November 2006, the Company raised $3,156.5 through the issuance of Units consisting of Convertible Bonds and Warrants. Units valued at $2,500 were issued to a single investor, and Units valued at $656.5 were issued to Special Situation Funds (SSF), based on the participation rights provided in a private placement during 2005, which were existing shareholders of the Company. According to their original terms, the Convertible Bonds mature three years from the date of issuance and bear interest at an annual rate of 8% (which was updated as described below). Any withholding and other taxes payable with respect to the interest will be grossed up and paid by the Company (approximately 3% of the principal of the bonds), payment of interest will be net of any tax. Subject to certain redemption provisions, as described below, the Convertible Bonds may be converted at any time, at the option of the investors, into the Company's ordinary shares at an original conversion price of $5 per share (see amendment below). The investors were also granted Warrants entitling them to acquire a total of 134,154 ordinary shares at an original exercise price of $5 per share during the next five years (see amendments below). In respect of this transaction, the Company paid approximately $215 cash as issuance expenses and granted an option to acquire up to 25,000 shares of the Company to a third party, exercisable at an original $5 per share. The fair market value of this grant was $ 40.

If the Company fails to fulfill certain conditions, the investors may accelerate repayment of the principal amount of $3,156.5 of the Convertible Bonds, in which case all interest payable until Maturity Date will immediately become due and payable.

The Company has determined that the embedded conversion feature should not be separated from the host instrument because it qualifies for equity classification. Therefore the transaction was accounted for in accordance with ASC Topic 470 - 20, "Debt - Debt with Conversion and Other Options . The fair market value of the Warrants was determined based on the fair value of the instruments issued using the Black-Scholes pricing model, assuming a risk free rate of 5%, a volatility factor of 78.21%, dividend yields of 0% and an expected life of 2 years. The original expiration date of the Warrants is November 2011 (see amendment below).

As a result, the Company recorded in 2006 an amount of $282 in respect of the Warrants and an amount of $632 as a beneficial conversion feature in respect of the Convertible Bonds, as a credit to shareholders' equity (additional paid in capital). The discount of the bonds as a result of the value assigned to the warrants and the beneficial conversion feature was amortized during the contractual term of the bonds.

In November 2007, due to a breach of certain conditions of the convertible bonds, the investors had the right to accelerate the repayment of the principal amount of the bonds with all the interest payable until the maturity date of the bonds. However, the Company signed an amendment to the agreement with the investors under which the Company was required to pay to one of the investors the abovementioned interest amount ($276) (with any withholding and other taxes payable with respect to the interest (approximately 3% of the principal of the bonds)) and in respect of the other investors, the Company changed the conversion ratio of the bonds to $4.25. In consideration, the investors waived their right to accelerate the repayment of the bonds. The Company accounted for the amendment as a modification of the bonds.

146

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 13:- CONVERTIBLE BONDS (Cont.)

In June 2008, following a breach of the amended terms of the convertible bonds, the Company reached an agreement with one of the investors (with a principal amount of $2,500), under which, among other things, the investor waived the Company's compliance with certain covenants under its Convertible Bonds, in exchange for:

a. Increasing the interest rate to 10% starting March 31, 2008. Any withholding and other taxes payable with respect to the interest will be grossed up and paid by the Company (approximately 3% of the principal of the bonds).

b. Reducing the exercise price of the bond and the warrants to $3 and $2.8, respectively.

c. The Company undertook to place a fixed charge on all income and/or rights in connection with a certain European Airport Project. This charge shall be senior to any indebtedness and/or other pledge and encumbrance, but shall, however, be subject to certain rights of the Company to use part of the income.

d. Certain anti-dilution rights with respect to the warrants held by the investor.

In addition, under certain circumstances, the investor might have the right to demand early payment of partial or full amount of the Convertible Bonds (up to the $2,500 as mentioned above). The Company accounted for the amendment as an extinguishment of the Bonds.

Due to the breach of certain convertible bond covenants, the Company had to recognize, in 2008, financial expenses in the amount of $553, to accelerate deferred expenses in the amount of $138 and to accelerate the remaining discount amounts (attributed to warrants and the beneficial conversion feature) in the amount of $724. In addition, as of December 31, 2008, the Convertible Bond was classified as a current liability

On August 12, 2009, the Company entered into a bond Amendment Agreement (the “Amendment Agreement” ) with one of the investors, with principal amount of $2,500, pursuant to the Amendment Agreement, in exchange for security in certain assets of the Company, inter alia all incomes and/or rights in connection therewith to which the Company and its Subsidiaries are and shall be entitled as a result of the Slovakian Project Arbitral Award, and on all amounts in connection with the project related to the arbitration, the Company and the investor agreed to waive compliance and amend certain provisions of the Bond to, among other things, (i) increase the applicable rate of interest to 12% and by 0.5% every 180 days afterward, (ii) release the Company from certain payments upon the completion of certain payments of principal and interest due under the Bond, and (iii) make monthly payments of $41 against the total amount due under the Bond over an eight (8) year period. The modification was determined to be a debt extinguishment.

On November 9, 2009, the Company entered into an Amendment Agreement (the “Amendment Agreement”) with SSF, the other investor (with a principal amount of $624), pursuant to the Amendment Agreement, in exchange for security in certain assets of the Company, the Company and SSF agreed to waive compliance and amend certain provisions of the Bond to, among other things, (i) increase the applicable rate of interest to 12% and by 0.5% every 180 days afterward, (ii) release the Company from certain payments upon the completion of certain payments of principal and interest due under the Bond, (iii) make monthly payments of $10 against the total amount due under the Bond over an eight (8) year period and (iv) Reducing the exercise price of the bond and the warrants to $3 and $2.8, respectively. The modification was determined to be a debt extinguishment.

As of December 31, 2009, in light of the above amendments, total principal amount of $430 is presented in current liabilities and a total principal amount of $2,624 is presented in long-term liabilities. In addition, an amount of $1,693 (including interest and penalties that it was agreed to be paid after the principal amount is paid), is presented among long-term loan and others.

147

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 13:- CONVERTIBLE BONDS (Cont.)

As of December 31, 2009, the Company is in compliance with covenants under the amended Convertible Bond agreements.

In January 2010, the Company received the investors' consent to sell its EAC and CSMS businesses (as described in Note 18). In addition, the Company created a specific (fixed) charge in favor of the investors on the intellectual property rights belonging to the remaining RFID business of the Company.

NOTE 14:- SHARE CAPITAL

a. The Company’s ordinary shares were listed for trade on the Euronext Brussels stock market, under the symbol “SUP” , (since October 23, 2003) which became “VUNC” after the Company's name change on May 14, 2007. The Company applied for delisting of its shares from the Euronext Brussels stock market, and its application was approved on May 6, 2008, effective August 4, 2008. Since November 5, 2004, the Company’s ordinary shares have also traded on the OTC Bulletin Board under the symbol "SPCBF.OB" which, following the recent name change of the Company became “VUNCF.OB”. Since August 23, 2007, the ordinary shares of the Company were approved for trade on the NASDAQ Capital Market under the symbol “VUNC” and trading on the OTC Bulletin Board ceased.

On December 11, 2008, the Company received a letter from the NASDAQ Capital Market advising the Company that it did not comply with the Listing Requirements.

As a result, the NASDAQ Capital Market Staff began reviewing the Company’s eligibility for continued listing on the NASDAQ Capital Market. To facilitate their review, the NASDAQ Capital Market Staff requested that the Company provide a “Plan” on or before December 26, 2008 (the "Plan"). After the Company submitted the Plan, on March 30, 2009 the Company received further correspondence from NASDAQ that it did not comply with the Listing Requirements, and therefore, trading of the Company’s ordinary shares would be suspended at the opening of business on April 8, 2009, and a form 25-NSE would be filed with the SEC removing the Company’s securities from listing and registration on The NASDAQ Capital Market, unless the Company requested an appeal of the delisting NASDAQ by NASDAQ.

The Company appealed the NASDAQ determination to the Panel, which automatically stayed the delisting of the Company’s ordinary shares until the Panel reached a decision. On June 17, 2009, the Panel granted the Company’s request for an extension of time to achieve full compliance with the Listing Requirements.

On September 29, 2009, the Company received a NASDAQ Staff Determination letter indicating that the Company failed to comply with the minimum stockholders’ equity requirement of $2.5 million as set forth in Listing Rule 5550(b) (formerly Marketplace Rule 4310(c)(3)). As a result, NASDAQ notified the Company that its securities will be delisted from The NASDAQ Stock Market and trading in its shares will be suspended effective at the open of business on October 1, 2009.

The Company was advised by Pink OTC Markets Inc., which operates an electronic quotation service for securities traded over-the-counter, that its securities are immediately eligible for quotation in the Pink Sheets effective as of the open of business on October 1, 2009. The common stock of the Company is quoted under the ticker symbol “VUNCF”.

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VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

As a result of an amendment to Section 102 of the Israeli Tax Ordinance as part of the 2003 Israeli tax reform, and pursuant to an election made by the Company thereunder, capital gains derived by optionees arising from the sale of shares issued pursuant to the exercise of options granted to them under Section 102 after January 1, 2003, will generally be subject to a flat capital gains tax rate of 25%. However, as a result of this election, the Company will no longer be allowed to claim as an expense for tax purposes the amounts credited to such employees as a benefit when the related capital gains tax is payable by them, as the Company had previously been entitled to do under Section 102.

On June 27, 2007, the Compensation Committee and board of directors of the Company approved a new option plan under which the Company may grant stock options to the U.S. employees of the Company and its subsidiaries. Under this new option plan, the Company may grant both qualified (for preferential tax treatment) and non-qualified stock options. On August 15, 2007, the new option plan was approved by the shareholders of the Company at the general shareholders meeting.

NOTE 14:- SHARE CAPITAL

a. (cont.)

On May, 14 2007 a 1 for 5.88235 reverse split of the Company’s ordinary shares became effective for trading purposes. Pursuant to this reverse share split, each 5.88235 ordinary shares of NIS 0.01 par value became 1 ordinary share of NIS 0.0588235 par value. Unless otherwise noted, all share and per share amounts for all periods presented (including numbers of options, warrants and convertible bonds) have been retroactively restated to give effect to this reverse split.

b. During 2007, the Company increased its authorized share capital to 12,000,000 ordinary shares.

c. During 2009 and 2008, 168,865 and 104,513 ordinary shares, respectively, were issued as consideration to settle liabilities to an officer and other payables in an aggregate amount of $63 and $249, respectively and 3,550 ordinary shares were issued during 2008 due to the 2007 reverse split.

d. Shareholders' rights:

The ordinary shares confer upon the holders the right to receive notice to participate and vote in the general meetings of the Company, and the right to receive dividends, if declared.

e. Stock options:

1. In 2003, the Company adopted a stock option plan under which the Company issues stock options (the “Option Plan”). The Option Plan is intended to provide incentives to the Company’s employees, officers, directors and/or consultants by providing them with the opportunity to purchase ordinary shares of the Company. Subject to the provisions of the Israeli Companies Law, the Option Plan is administered by the Compensation Committee, and is designed: (i) to comply with Section 102 of the Israeli Tax Ordinance or any provision which may amend or replace it and the rules promulgated thereunder and to enable the Company and grantees thereunder to benefit from Section 102 of the Israeli Tax Ordinance and the Commissioner’s Rules; and (ii) to enable the Company to grant options and issue shares outside the context of Section 102 of the Israeli Tax Ordinance. Options granted under the Option Plan will become exercisable ratably over a period of three to five years or immediately in certain circumstances, commencing with the date of grant. The options generally expire no later than 10 years from the date of grant. Any options which are forfeited or canceled before expiration become available for future grants.

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VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

As of December 31, 2009, 3,086,508 ordinary shares are available for future grants of options, warrants, shares and other financial instruments.

An additional 217,600 options were granted during 2007 to related parties including directors.

During 2008, the Board of Directors approved grants of options as follows:

In September 2008, the Board of Directors approved a re-pricing of options for 3 executive officers for a total of 149,600 options, which had exercise prices ranging between $2.47 and $14.8235. The re-pricing changed the exercise price of the options to $1.86. The total incremental compensation cost at the date of the modification was $66 of which $59 was recognized during 2008.

In December 2008, the Special General Meeting approved the re-pricing and the extension (if applicable) of 354,617 options held by related parties. See Notes 15a, 15b and 15d. The total incremental compensation cost at the date of the modification amounted to $44 and was recognized as an expense since all the options were fully vested.

On January 9, 2009, according to the board resolution on October 27, 2008 and the Special General Meeting dated December 21, 2008, the Company issued to: a) the Chairman of the Board of Directors; b) a member of the Company's Board of Directors who is also one of the co-founders; c) one of the co-founders of the Company and d) another member of the Company's Board of Directors options to purchase up to: 256,456, 179,966, 126,944 and 42,121 shares of the Company, respectively. The options have an exercise price of NIS 0.0582235 per share, vested immediate and will expire after ten years. The options were issued as a partial payment for certain liabilities to the terms of their appointment with the Company. (See also Note 15d)

On March 12, 2009, the Company issued options to purchase up to 161,718 shares to several employees and ex-employees as a partial payment of their payroll. The options have an exercise price of NIS 0.0582235, vested immediate and will expire after ten years.

NOTE 14:- SHARE CAPITAL (Cont.)

e. Stock options (cont.):

1. (cont.)

2. During 2007, the Board of Directors approved grants of options as follows:

Number of options granted Exercise price

37,400 4.412 71,500 5.100 21,000 4.900 62,333 0.014 47,372 0.058 5,500 4.850 141,500 4.640 34,000 4.120

Number of options granted Exercise price

2,000 3.38 43,000 1.88

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VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

The weighted average fair value of options granted during the reported periods was $2.87, $0.88 and $0.43, per option, for the years ended December 31, 2007, 2008 and 2009, respectively.

The fair value of these options was estimated on the date of grant using the Black & Scholes option pricing model. The following weighted average assumptions were used for the 2007, 2008 and 2009 grants: risk-free rate of 4.05%, 4.24% and 0.75%, respectively, dividend yield of 0%, expected volatility factor of 57.20%, 52.29% and 193.27%, respectively and expected term of 3.6, 4 and 2.08 years, respectively. In 2009, the fair value of only 125,142 options were calculated using the Black & Scholes option pricing model, for all other options granted in 2009, the fair value of the options issued as a partial payment of payroll liability which exercise price was close to nil, was based on the fair value of the shares on the date of the related payroll, which equals the related payroll liability.

The expected volatility was based on the historical volatility of the Company’s stock. The expected term was based on the historical experience and based on Management estimate.

Compensation expenses recognized by the Company related to its share-based employee compensation awards were $1,032, $856 and $483 for the years ended December 31, 2007, 2008 and 2009, respectively.

The following table summarizes the allocation of the stock-based compensation charge

NOTE 14:- SHARE CAPITAL (Cont.)

e. Stock options (cont.):

3. A summary of the Company's stock option activity and related information is as follows:

Year ended December 31 2007 2008 2009

Number of

options

Weighted average exercise

price Number of

options

Weighted average exercise

price Number of

options

Weighted average exercise

price Outstanding at beginning of year 553,902 $ 5.12 1,076,756 $ 4.43 981,462 $ 2.55 (*) Granted 638,205 $ 3.86 45,000 $ 1.95 767,205 $ 0.015 Exercised (25,968 ) $ 3.16 (27,032 ) $ 0.32 (93,056 ) $ 0.015 Canceled and forfeited (89,383 ) $ 5.06 (113,262 ) $ 6.17 (166,435 ) $ 3.30 Outstanding at end of year 1,076,756 $ 4.43 981,462 $ 2.55 (*) 1,489,176 $ 1.34 (*)

Exercisable at end of year 591,485 $ 4.81 663,021 $ 2.51 (*) 1,413,027 $ 1.26 (*)

(*) The weighted average exercise price, presented as of December 31, 2008 and 2009, is after the re-pricing made during 2008, as mentioned above and in Note 15.

Year ended December 31, 2007 2008 2009 Cost of revenues $ 5 $ 16 $ 7 Research and development expenses 336 353 226 Selling and marketing expenses 158 151 43 General and administrative expenses 533 336 207 $ 1,032 $ 856 $ 483

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VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

The options outstanding and exercisable as of December 31, 2009, have been separated into ranges of exercise prices as follows:

The aggregate intrinsic value of the above table represents the total intrinsic value, based on the Company’s stock price of $0.2 as of December 31, 2009, less the weighted average exercise price per range. This represents the potential amount received by the option holders had all option holders exercised their options as of that date.

The total intrinsic value of options exercised during the years ended December 31, 2007, 2008 and 2009 was $62, $53 and $36, respectively, based on the Company’s average stock price of $5.57, $2.26 and $0.4, during the years ended respectively.

A summary of the status of the Entity’s non-vested options granted to employees as of December 31, 2009 and changes during the year ended December 31, 2009 is presented below:

As of December 31, 2009, there was $103 total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the stock option plans, of which, $98 is expected to be recognized during the year 2010 and $5 during the year 2011.

NOTE 14:- SHARE CAPITAL (Cont.)

e. Stock options (cont.):

3. A summary of the Company's stock option activity and related information is as follows (cont.):

Range of exercise price

Options outstanding

as of December 31, 2009

Weighted average

remaining contractual

life (years)

Weighted average exercise

price

Aggregate intrinsic

value

Options exercisable

as of December 31, 2009

Weighted average exercise

price

Aggregate intrinsic

value

$ 0.01 - $ 0.06 736,436 8.91 0.016 $ 136 730,272 0.016 $ 135 $1.10 - $ 1.88 495,417 4.96 1.33 - 460,200 1.33 - $ 2.47 - $ 3.38 33,626 3.25 2.99 - 33,626 2.99 - $ 4.12 - $ 4.90 131,397 3.36 4.46 - 109,262 4.43 - $ 5.00 - $ 5.24 75,300 4.18 5.07 - 62,667 5.08 -

$ 14.82 17,000 2.25 14.82 - 17,000 14.82 - 1,489,176 1.34 1,413,027 1.26

Options

Weighted–average

grant-date fair value

Non-vested at January 1, 2009 318,441 $ 2.21 Granted 767,205 $ 0.43 Vested (including cancelled and exercised) (880,255 ) $ 0.75 Forfeited (129,242 ) $ 2.21 Non-vested at December 31, 2009 76,149 $ 1.15

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

The warrants to consultants, investors (including warrants issued in connection with convertible bonds), outstanding and exercisable as of December 31, 2009, have been separated into ranges of exercise prices as follows:

NOTE 14:- SHARE CAPITAL (Cont.)

f. Private placements and warrants:

1. During 2007 and 2008, the Board of Directors approved a grant of warrants to acquire up to 44,000 and 100,000 shares, respectively, to certain consultants. The exercise prices under the terms of the options range between $0.65 to $5.47 per share. The fair market value of the warrants is $55 and $64, respectively, as computed using the Black & Scholes pricing model with the following weighted average assumption: risk-free interest of 3.00% -4.25%, dividend yield of 0, volatility factor of the excepted market price of the Company’s ordinary shares of 36% and 101.44% , respectively, and expected term of the warrants of 2.38 and 2.90 average years respectively. During 2007 and 2008, the Company recognized $38 and $51, as compensation expenses, respectively. During 2009, no warrants were granted. Regarding investments after the balance sheet date, see Note 18d.

2. A summary of the Company's warrants activity to consultants, investors (including warrants issued in connection with convertible bonds), and related information is as follows:

Year ended December 31 2007 2008 2009

Number of

options

Weighted average exercise

price Number of

options

Weighted average exercise

price Number of

options

Weighted average exercise

price Outstanding at beginning of year 759,916 $ 4.65 782,685 $ 4.64 857,185 $ 3.92 Granted 44,000 $ 4.72 100,000 $ 1.20 - - Exercised - - - - - - Canceled and forfeited (21,231 ) $ 5.00 (25,500 ) $ 5.04 (198,479 ) $ 5.91 Outstanding at end of year 782,685 $ 4.64 857,185 $ 3.92 658,706 $ 3.18 (*)

Exercisable at end of year 747,185 $ 4.63 763,852 $ 4.27 652,040 $ 3.18 (*)

(*) The Weighted average exercise price is after a re-price of the exercise price related to the convertible bonds holders.

Range of exercise price

Options outstanding

as of December 31, 2009

Weighted average

remaining contractual

life (years)

Weighted average exercise

price

Aggregate intrinsic

value

Options exercisable

as of December 31, 2009

Weighted average exercise

price

Aggregate intrinsic

value

$ 0.65 80,000 3.875 $ 0.65 - 80,000 $ 0.65 - $ 2.50 - $ 3.53 459,003 1.32 $ 3.19 - 452,337 $ 3.19 - $ 4.42 - $ 4.85 71,200 4.34 $ 4.67 - 71,200 $ 4.67 -

$ 5 - $ 5.48 48,503 3.25 $ 5.07 - 48,503 $ 5.07 - 658,706 $ 3.18 652,040 $ 3.18

3. The fair value of all the warrants granted as described above was measured based on the fair value of the instruments issued on the date of grant, since, based on the opinion of Company Management, such measurement is more reliable than the fair value of services.

153

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 14:- SHARE CAPITAL (Cont.)

g. Dividends:

In the event that cash dividends are declared in the future, such dividends will be paid in NIS. The Company does not intend to distribute cash dividends in the foreseeable future.

h. Convertible bonds and warrants – see Note 13.

NOTE 15:- RELATED PARTY TRANSACTIONS

a. On October 1, 2001, the Company entered into a consulting agreement with a company owned by the Chairman of the Board of Directors, who was one of the co-founders of the Company.

In consideration of these consulting services, the Company has undertaken to pay $10.5 per month plus motor vehicle expenses. In addition the Company pays $1.5 per month as a director’s fee. During 2007, 2008 and 2009, the Company paid in cash $144, $121 and $32, respectively, pursuant to this agreement. (Regarding the partial payment in options during 2008 and 2009, see Note 15d below.)

In December 2008, according to the Special General Meeting, 296,817 options with an exercise price in the range of $2.4706 to $5 were re-priced to $1.1 and all such options with an expiration date prior to October 27, 2013, shall nonetheless be exercisable until October 27, 2013.

For subsequent events see Note 18e.

b. On October 1, 2001, the Company entered into a consulting agreement with a company owned by a member of the Company's Board of Directors, who was one of the Company's co-founders and a principal shareholder. On January 13 2005, the General Shareholders Meeting approved, inter-alia, the following amendments to the consulting agreement:

● As of the date of the approval of the General Shareholders Meeting, the consideration shall be an amount of $7 per month.

● Upon the termination of the car lease agreement in March 2005, to increase the car lease, to a price of up to NIS 4,200 (approximately $1.1 as of December 31, 2009), (excluding tax) per month.

In addition, the Company pays $1.5 per month as a director’s fee. During 2007, 2008 and 2009, the Company paid in cash $102, $84 and $22, pursuant to this agreement. (Regarding the partial payment in options during 2008 and 2009, see below Note 15d.)

In December 2008, according to the Special General Meeting, 37,400 options with an exercise price in the range of $2.4706 to $5 were re-priced to $1.1 and all such options with an expiration date prior to October 27, 2013, shall nonetheless be exercisable until October 27, 2013.

For subsequent events see Note 18e.

c. On October 1, 2001, the Company entered into a consulting agreement with a company owned by one of the co-founders of the Company.

In consideration for these services, the Company has undertaken to pay $4.6 per month plus motor vehicle expenses . During 2007, 2008 and 2009, the Company paid in cash $71, $58 and $15 respectively, pursuant to this agreement. (Regarding the partial payment in options during 2008 and 2009, see Note 15d below.)

154

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 15:- RELATED PARTY TRANSACTIONS (Cont.)

d. On December 21, 2008, the Special General Meeting of Shareholders approved that as part of a cost cutting plan, all of the Company's non-external directors, will join a temporary arrangement pursuant to which the remuneration payable to them shall be paid in fully vested options to purchase shares of the Company instead of in cash, effective October 1, 2008, for a minimum period of three months, with an option to the Company to extend it from time to time for additional consecutive periods of up to twelve (12) months in the aggregate. In addition (a) all options held by the Participants on October 27, 2008, shall be re-priced so that the exercise price thereof shall be $1.1 (the closing price of the Ordinary Share on said date), and (b) all such options with an expiration date prior to October 27, 2013, shall nonetheless be exercisable until October 27, 2013. (See also Note 14e2.)

e. As of December 31, 2009, the Company accrued $79 expenses arising from related party transactions providing for consulting services ..

f. As of December 31, 2009, the Company accrued $252 as employee and payroll expenses arising from a bridge loan that the Company received from its Chairman of the Board of Directors This loan was paid in full by the Company on January 10, 2010.

NOTE 16:- SEGMENTS, MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATIO N

a. Summary information about geographic areas:

The Company manages its business on the basis of one reportable segment (see Note 1 for a brief description of the Company's business) and follows the requirements of ASC Topic 280, "Segment Reporting".

The following is a summary of revenues from external costumers of the continued operations within geographic areas, based on the location of customers and data regarding long-lived assets:

Year ended December 31, 2007 2008 2009 Total Long-lived Total Long-lived Total Long-lived Revenues Assets(*) Revenues Assets (*) revenues Assets(*) Europe $ 9,003 $ - $ 15,193 $ - $ 8,180 $ - Asia Pacific 1,330 13 310 7 76 4 Africa 823 - 350 - - - United States 709 5,248 1,965 1,842 976 52 Israel 371 613 294 329 72 107 $ 12,236 $ 5,874 $ 18,112 $ 2,178 $ 9,304 $ 163

(*) Long lived asset data includes allocation of intangible assets and goodwill amounts.

155

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 16:- SEGMENTS, MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATIO N (cont.)

b. Summary of revenues from external costumers of the continued operations based on products and services:

Year ended December 31, 2007 2008 2009

Raw materials and equipment $ 8,237 $ 15,048 $ 6,884 Maintenance, royalties and project management 3,999 3,064 2,420

$ 12,236 $ 18,112 $ 9,304

c. Major customer data as a percentage of total sales from external costumers of the continued operations:

Year ended December 31, 2007 2008 2009 Customer A 53 % 30 % 67 %

Customer B 18 % 54 % 21 %

Customer C 9 % * -

(*) Less than 10%.

NOTE 17:- FINANCIAL EXPENSES, NET

Year ended December 31, 2007 2008 2009 Financial expenses:

Interest, amortization of discount, bank charges and fees (*) $ (956 ) $ (2,275 ) $ (592 ) Exchange differences (109 ) - (32 ) Unrealized loss on marketable securities, net (2,699 ) - - Realized loss on sale of marketable securities (1,116 ) (862 ) - Others - (118 ) -

Total financial expenses (4,880 ) (3,255 ) (624 )

Financial income:

Exchange differences - 62 - Interest 234 106 4

Total financial income 234 168 4

Net total $ (4,646 ) $ (3,087 ) $ (620 )

(*) In 2007, 2008 and 2009, includes expenses of $745, $2,214 and $565_related to convertible bonds, respectively. (See Note 13 above.)

156

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 18:- SUBSEQUENT EVENTS

a. On January 28, 2010 (the “Closing Date” ), the Company and its subsidiary Vuance, Inc. completed the sale of certain of the assets (including certain accounts receivable and inventory) and certain of the liabilities (including certain accounts payable) of Vuance Inc. (the “Sale”) related to the Company's electronic access control market (the “Vuance EAC Business”), pursuant to a certain Agreement for Purchase and Sale of Business Assets (the “Purchase Agreement”), dated as of January 9, 2010 between Vuance Inc. and OLTIS Security Systems International, LLC (“OSSI”). On the Closing Date, as consideration for the Sale of the Vuance EAC Business, OSSI paid Vuance Inc. $162 in cash. In addition, OSSI paid off (the “Bridge Bank Payment”) a certain Business Financing Agreement (the “Loan”) between Vuance Inc. and Bridge Bank, National Association in an amount of $290. Further to the Bridge Bank Payment, the Loan was released, and the Company and Vuance Inc. no longer have any liabilities associated with the Loan. The Purchase Agreement includes an indemnification clause pursuant to which, Vuance Inc. agrees to indemnify and hold OSSI harmless from and against any claim or liability of Vuance Inc. or the Company, which may be asserted against OSSI, excepting only to the extent of any business debts and other liabilities which OSSI expressly agrees to pay or assume at the closing date.

As further described in Note 1b2 above, the activity sold meets the definition of a component under ASC Topic 205 and as a result, the operations sold were presented as discontinued operations.

b. On January 29, 2010 (the “Closing Date”), the Company and its subsidiary, Vuance, Inc., completed the sale of certain of the assets and certain of the liabilities of Vuance Inc. (the “Sale”) related to the Company's Government Services Division (the “Vuance CSMS Business”), pursuant to a certain asset purchase agreement (the “Purchase Agreement”) dated as of January 29, 2010 between the Company, Vuance Inc., WidePoint Corporation (“WidePoint”) and Advance Response Concepts Corporation.

On the Closing Date, as consideration for the Sale, WidePoint paid Vuance Inc. $250. In addition, WidePoint agreed to pay Vuance Inc. a maximum earn out of $1,500 over the course of the calendar years 2010, 2011, and 2012, subject to the performance of certain financial requirements of the Vuance CSMS Business during each of those years. The Purchase Agreement includes an indemnification clause pursuant to which, each of the parties shall indemnify and hold harmless the other party in the event of the existence of certain circumstances stipulated in the Purchase Agreement.

As further described in Note 1b2 above, the activity sold meets the definition of a component under ASC Topic 205 and as a result, the operations sold were presented as discontinued operations.

c. On January 21, 2010, the Company incorporated a new wholly-owned subsidiary in the state of Delaware, PureRFid, Inc., to focuses on the marketing and sales for the Company’s active RFID solutions.

157

VUANCE LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

U.S. dollars in thousands (except per share data)

NOTE 18:- SUBSEQUENT EVENTS (cont.)

d. On March 22, 2010, the Company entered into a Subscription Agreement with a private investor, Mr. Yitzchak Babayov (the “Investor”), pursuant to which at a March 23, 2010 closing, the Company issued 1,538,461 ordinary shares of the Company at a par value of NIS 0.0588235 (the “Transaction Shares”) in consideration of a onetime cash payment in the amount of $200. Following the issuance of the Transaction Shares, there are 7,262,882 ordinary shares of the Company issued and outstanding.

Simultaneously with execution of the Subscription Agreement, the Company and the Investor entered into a Warrant Agreement pursuant to which the Investor received a warrant (the “Warrant”) to purchase up to 553,846 ordinary shares of the Company for an exercise price of $0.15 per share. The Warrant has a term of five (5) years and contains standard adjustments for stock dividends, stock splits, reclassification and similar events. The Company intend to ask its shareholders, to approve and ratify at the next annual general meeting, that the purpose of the private placement of the Transaction Shares and Warrant was to provide the Investor with more than twenty five percent (25%) of our issued and outstanding shares in accordance with Israeli law, which exempts such an acquisition from Israeli tender offer requirements

The Transaction Shares and the ordinary shares issuable upon the exercise of the Warrant have not been registered under the Securities Act and may not be offered or sold except pursuant to an effective registration statement or an applicable exemption from the registration requirements of the Securities Act.

e. On July 8, 2010 the board of directors accepted the resignation from the board of directors of Mr. Landman, who is also one of the co-founders of the Company, effective on the same date. In addition the Board of Directors accepted the resignation from the board of directors of Mr. Rozen, who is also one of the co-founders of the Company, effective on July 25, 2010. Tsviya Trabelsi, David Mimon and Menachem Mirski were nominated to join the board upon the resignation of Mr. Rozen. On the same meeting the Board of Directors has appointed Mr. Eyal Tuchman to serve as a director on the Board of Directors until the conclusion of the next annual general meeting of shareholders.

158

__________________________________________

ITEM 19 . Exhibits.

1.1 1 Memorandum of Association of the Company.

1.2 2 Articles of Association of the Company.

2.1 1 Forms of Stock Certificates Representing Ordinary Shares.

4.1 1 The Vuance Ltd. 1999 Employee Stock Option Plan (as Amended and Restated in 2002).

4.1(a) 3 The Vuance Ltd. 2003 Israeli Share Option Plan

4.2 1 Stock Purchase Agreement between Vuance and Elad Ink, dated as of March 4, 2002.

4.3 1 Stock Purchase Agreement between Vuance and ICTS BV, dated as of April 29, 2002.

4.4 1 Stock Purchase Agreement between Vuance and ICTS-USA, Inc., dated as of September 27, 2002.

4.5 5 Asset Purchase Agreement by and among Intelli-Site, Inc., Integrated Security Systems, Inc., Vuance, Inc. and Vuance Ltd. dated as of March 6, 2009.

4.6 Agreement for Purchase and Sale of Business Assets between Vuance, Inc. and OLTIS Security Systems International, LLC, dated as of January 9, 2010.

4.7 Asset Purchase Agreement between Vuance Ltd., Vuance, Inc., WidePoint Corporation and Advance Response Concepts Corporation, dated as of January 29, 2010.

4.8 6 Subscription Agreement and Warrant Agreement between Vuance Ltd. and Mr. Yitzchak Babayov, dated as of March 22, 2010.

8 List of Subsidiaries of Vuance Ltd.

11.1 4 Code of Ethics

12.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act.

12.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act.

13.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act.

15.1 Consent of Fahn, Kanne & Co., a member of Grant Thornton, dated July 22, 2010 .

15.2 Consent of PKF, independent public accountants, dated July 22, 2010 .

1 Previously filed as an exhibit to, and incorporated herein by reference from, the Company’s Registration Statement on Form 20-F filed on September 14, 2004 (File No.: 0-50790).

2 Previously submitted to the Securities and Exchange Commission on, and incorporated herein by reference from, Exhibit A to Exhibit 1 to the Company’s report on Form 6-K submitted on July 5, 2007 (File No.: 000-50790).

3 Previously filed as Exhibit 99.2 to, and incorporated herein by reference from, the Company’s Registration Statement on Form S-8 (File No. 333-121231 filed on December 14, 2004).

4 Previously filed as an exhibit to, and incorporated herein by reference from, the Company’s Annual Report on Form 20-F filed on June 30, 2008 (File No.: 001-33668).

5 Previously filed as exhibits to, and incorporated herein by reference from, the Company’s Annual Report on Form 20-F filed on June 30, 2009 (File No.: 001-33668).

6 Previously filed as exhibits to, and incorporated herein by reference from, Exhibit 10.1 and 10.2 to the Company’s report on Form 6-K submitted on April 5, 2010 (File No.: 001-33668).

159

SIGNATURE

Vuance Ltd. hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the

undersigned to sign this Annual Report on its behalf.

Date: July 22, 2010

160

VUANCE LTD. /s/ Ron Peer By: Ron Peer Its: Chief Executive Officer

Exhibit 4.6

AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS

Between

VUANCE, INC.

And

OLTIS SECURITY SYSTEMS INTERNATIONAL, LLC

Dated as of January 9, 2010

AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS

THIS AGREEMENT is made this 9 th day of January, 2010 between OLTIS Security Systems International, LLC, A Wisconsin Limited Liability Company, (hereinafter “Buyer”) and Vuance, Inc. d/b/a Vuance US, a Delaware corporation duly registered to operate in the State of Wisconsin, with its principal office at 9817 S. 13 th Street Oak Creek Wisconsin, 53154 (hereinafter “Seller”). The Buyer and Seller agree as follows: 1. Purchase and Sale. At the Closing (as defined below) Buyer shall purchase from Seller and Seller shall sell and transfer to Buyer certain items of Seller’s personal property, tangible and intangible, used mainly in the electronic access control ( “EAC” ) market, for the price and terms set forth in this Agreement. Specifically, the following assets will be transferred from the Seller to the Buyer:

A. All tangible and intangible property, including but not limited to, software, firmware, copyrights, trademarks, source code, inventory, computer systems, test fixtures, test computers, parts inventories, documentation, marketing materials, and all other assets, of any kind, belonging to the Intelli-Site product line, once the buyer and seller have agreed to the items they shall be listed and attached to this Agreement, as Exhibit A; and,

B. All tangible and intangible property, including but not limited to, software, firmware, copyrights, trademarks,

source code, inventory, computer systems, test fixtures, test computers, parts inventories, documentation, marketing materials, and all other assets, of any kind, belonging to the MASC product line, Exhibit B; and,

C. All tangible and intangible properly, including but not limited to, software, firmware, copyrights, trademarks,

source code, inventory, computer systems, test fixtures, test computers, parts inventories, documentation, marketing materials, and all other assets, of any kind, belonging to the Compass product line, once the buyer and seller have agreed to the items they shall be listed and attached to this Agreement, as Exhibit C; and,

1

D. All tangible and intangible property, including but not limited to, software, firmware, copyrights, trademarks, source code, inventory, computer systems, test fixtures, test computers, parts inventories, documentation, marketing materials, and all other assets, of any kind, belonging to the Insignia/Clarity product line once the buyer and seller have agreed to the items they shall be listed and attached to this Agreement, as Exhibit D; and,

E. As relates to sub-paragraphs (A), (B), (C) and (D) above, the sale shall specifically include all United States and

foreign patents, patent applications, trademarks (whether registered or unregistered), service marks, trade names, brand names, logos, copyrights and any applications therefor and any other proprietary rights, including, without limitation, software code, know-how, inventions, discoveries and improvements, test data, shop rights, processes, methods and formulae, trade secrets, product drawings, specifications, designs and other technical information, owned by the Seller and belonging to each of the Intelli-Site, MASC, Compass or Insignia/Clarity products or product lines or brands (the “Product Lines”), and,

F. All customer bases and lists associated with each of the Product Lines; and, G. Trade show booth, display fixtures, training computers, laptops, training cases, training related network

equipment constituting part of the Product Lines and all other EAC product support equipment; and

H. All accounts receivable due to Seller as of the Closing Date (as defined below) from any source related to any of

the Product Lines; and

I. All right and title Seller and Parent have in a certain agreement, dated March 6, 2009, between Intelli-Site, Inc.,

Integrated Security Systems, Inc., Vuance, Inc. and Vuance, Ltd., a copy of which is attached hereto as Exhibit E (hereinafter referred to as “The Intelli-Site Agreement” ).

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2. Representations, Warranties and Covenants.

Seller represents, warrants and covenants that: A. Seller has good and merchantable title, free and clear of all third party claims, to all of its assets being sold, except for those

obligations which Buyer is assuming, as referenced in Section 4 of this Agreement. B. The Seller is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of

incorporation. The parent company of the Seller (“Parent”) is a corporation or other entity duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Each of the Seller and Parent has the corporate power and authority to own, operate and lease its properties and assets and to conduct its business as they are now being owned, operated, leased and conducted. Each of the Seller and Parent is duly qualified or licensed to do business as a foreign corporation and is in good standing as a foreign corporation in every jurisdiction in which the conduct of the business or ownership of its properties requires it to be so licensed or qualified or in good standing.

C. The Seller has the corporate power and authority to execute and deliver this Agreement and each other document referenced

herein (the “Agreement Document”) to which it is a party, perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby. The execution and delivery by the Seller of this Agreement and each other Agreement Document, the performance by it of its obligations hereunder and thereunder and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate actions on the part of the Seller and, if required, Parent. This Agreement and each other Agreement Document to which the Seller or Parent is a party constitutes (or will constitute upon the execution thereof) the legal, valid and binding obligation of the Seller or Parent, as applicable, enforceable against the Seller or Parent, respectively, in accordance with its terms, except as enforcement thereof may be limited by bankruptcy laws or similar laws now or hereafter in effect relating to creditors’ rights generally, by general principles of equity or by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

D. The consummation of this Agreement does not violate any law, agreement or restriction to which the Seller or Parent is subject.

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E. The inventories being sold are good and merchantable and suitable for sale in the ordinary course of business, excepting only for any items which are valued at salvage value, if any, as provided for in Exhibit F to be prepared by Seller in accordance with Section 11(B) of this Agreement.

F. All other property, equipment and fixtures being sold are in good operating condition and repair. G. Except as set forth in Exhibit G, Seller has taken all steps and has obtained all authorizations, from all stakeholders, of

whatever type, necessary to consummate this transaction. H. Seller is unaware of any pending or planned litigation concerning the assets which are the subject of the Agreement. I. Section 1.3 e of The Intelli-Site Agreement has not been exercised and all payments relating to The Intelli-Site Agreement are

current. J. Section intentionally left blank Exhibit H intentionally not attached. H. The Seller shall initiate at Buyer’s request to forward of phone calls and internet links (URL’s) to Buyer’s website for all

products related to EAC product sales. I. Seller agrees to waive any Non-Compete /Non Solicitation Agreements that may pertain to any current or former Vuance

employees. Buyer agrees not to solicit the Seller’s current RFID core staff, comprised of: Rhonda Gross; Brenda Gebhardt; and Ed Warzniak.

The Buyer represents, warrants and covenants that: A. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of

incorporation. Buyer has the corporate power and authority to own, operate and lease its properties and assets and to conduct its business as they are now being owned, operated, leased and conducted.

B. The Buyer has the corporate power and authority to execute and deliver this Agreement and each other Agreement Document

to which it is a party, perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby. The execution and delivery by the Buyer of this Agreement and each other Agreement Document, the performance by it of its obligations hereunder and thereunder and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate actions on the part of the Buyer. This Agreement and each other Agreement Document to which the Buyer is a party constitutes (or will constitute upon the execution thereof) the legal, valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms, except as enforcement thereof may be limited by bankruptcy laws or similar laws now or hereafter in effect relating to creditors’ rights generally, by general principles of equity or by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

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3. Price. In consideration of the foregoing, at the Closing Buyer shall (i) assume all of the Accounts Payable of Seller referred to

in paragraph C below, as well as certain obligations of Seller as set forth below, (ii) pay off directly to BridgeBank the loan balance due from Seller, and (iii) pay to Seller a cash payment, to be calculated as follows:

C. The consummation of this Agreement does not violate any law, agreement or restriction to which the Buyer is subject.. D. At the Closing, Buyer shall enter into an Intelli-Site license agreement with Seller, in the form of Exhibit 1, which will

provide, inter alia, for a license fee which is 10% less than the rates currently established by the Seller and that in addition, Seller shall pay in cash 100% of the royalties due to Intelli-Site, Inc. on the sale of hardware by Seller, pursuant to section 1.3 c of the Intelli-Site Agreement.

E. Buyer will assist to coordinated support for MASC equipment at Seller’s office through a local MASC integrator. F. Buyer will assume Seller’s rights and obligations pursuant to Doug Cram rep agreement, a copy of which is attached hereto as

Exhibit J, and pursuant to Seller’s agreement with Joel Konicek, a copy of which is attached hereto as Exhibit J Exhibit J1.

A. Buyer and Seller will agree, prior to Closing, on the value of Accounts Receivable (AR), Inventory (I), Accounts Payable (AP) and the BridgeBank (BB) loan balance. The Purchase price shall be $250,000 if the following equation is true. (AR + I + $50,000) - (AP + BB) = $0

Note: The $50,000.00 listed in the above equation is the agreed value of the tradeshow and training equipment, and any AR which are deemed uncollectible or of questionable collectability.

B. If there is a deviation in the above formula, the purchase price will be adjusted accordingly. For example, if (AR

+ I + $50,000) - (AP + BB) = $100,000, then the purchase price will increase to $350,000. If (AR + I + $50,000) + (AP + BB) = ($100,000) then the purchase price will be reduced to $150,000.

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C. For purposes hereof the AP shall mean all accounts payable invoices specifically related the EAC business of Seller and/or the Racine Unified School District project, including, without limitation, those listed on Exhibit K.

D. Once the Buyer and Seller have agreed to the values of AR, 1, AP and BB under this section, they shall complete

and attach to this Agreement, as Exhibit L, a completed “Final Value Agreement”, in a form to be agreed to by the parties. The Final Value Agreement shall be executed by one representative of the Buyer and Seller, as authorized herein and shall thereupon become an integral part hereof.

E. For the Buyer, the President and CTO shall be authorized to execute the Final Value Agreement. For the Seller,

the President and the VP of Operation, shall be authorized to execute the Final Value Agreement.

F. Buyer will also assume responsibility for $70,000 of Bond Premium due by Seller as related to the Racine

Unified School District project. However, this amount shall be reduced by amounts due to vendors and subcontractors for work completed or materials delivered in connection with said project, for which Seller has not been invoiced or for other reason are not reflected in Accounts Payable. Furthermore, this amount shall be increased by amounts due to Seller and for work completed or materials delivered in connection with said project, for which Seller has not invoiced or for other reason are not reflected in Accounts Receivable.

G. In addition to the foregoing, Buyer will assume liability for all aspects of Seller’s obligations under The Intelli-

Site Agreement.

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4. Indemnification. Seller agrees to indemnify and hold the Buyer harmless from and against any claim or liability of Seller or Parent, which may be asserted against the Buyer, excepting only to the extent of any business debts and other liabilities which the Buyer expressly agrees to pay or assume at Closing.

5. Default / Remedies.

In the event of any default by a party hereto under this Agreement or any agreements incorporated by reference, the parties specifically agree that in addition to any other remedy afforded such party at law, such party may seek an order of specific performance in any USA court of competent jurisdiction. In addition to any damages, such party shall also be entitled to recover its costs of enforcing this Agreement (or any other agreement incorporated by reference), including reasonable attorneys fees.

6. Notices. Any notices required or permitted to be given shall be deemed sufficiently given if sent by U.S. Mail to the parties as follows:

7. Additional Representations. Seller represents to Buyer that as of the date of this Agreement. Seller has no notice or knowledge

of any conditions materially adversely affecting its EAC business or property, except those stated and disclosed on the attached Exhibit M .

H. Furthermore Buyer will assume liability for all aspects of Seller’s obligations under

1. Office leasing agreement Exhibit P 2. All Telephone land line at the Intelisite office 3. 3 Cell Phone lines 4. The Utilities

i. GAS ii. Electricity iii. Internet

5. Employment obligation

To the Seller at: VUANCE Inc. C/O VUANCE Ltd.

1 HaMa’alit Street, Qadima 60920, lsrael

To the Buyer at: OLTIS Security Systems International, LLC P,O, Box 1385

Waukesha, WI 53187 or by personal delivery thereof.

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8. Date and Place of Closing. The closing of the transactions contemplated hereby (the “ Closing ”) shall take place as soon as

practical on such date and time as is mutually convenient for all parties (the “ Closing Date ”), but not later than January 15, 2010, unless such time is extended by all parties in writing. Closing shall be at the office of Buyer’s attorneys, Stack, Fahl & Bagley, LLP, 16535 W. Bluemound Road, Suite 230, Brookfield Wisconsin, or at such other place as the parties may agree in writing.

9. Buyer’s Obligation to Close/Contingencies Buyer’s obligation to close is conditioned upon the following:

10. Assignments. Buyer shall have the right to assign this Agreement to a corporation or a limited liability company or other

business form as Buyer shall choose at its option, provided that any entity to which this Agreement is assigned is at least 80% owned by the Buyer or the principals of Buyer.

11. Contingencies. This Agreement is contingent upon the Seller delivering the following documents to the Buyer within Five (5) days of execution of this Agreement by Buyer and Seller:

A. Documents evidencing that the sale of the assets has been properly authorized by the corporate entity.

B. A complete list of all software, copyrights, trademarks, source code, inventory, computer systems, test fixtures, parts inventories, documentation, marketing materials, booth and display fixtures, and all other assets, of any kind which are being transferred to Buyer, and which shall be attached hereto as Exhibit F and made a part of this Agreement.

a. Buyer’s ability to enter into employment contracts on mutually agreeable terms with Glen Tassin, Norbert Mahoney, and John Ulibarri within 5 days of the date hereof. This condition is waived automatically if Buyer does not notify Seller of its inability to reach mutually agreeable employment contracts by the end of the 5 th day following the date hereof.

b. Receipt of documentation reasonably satisfactory to Buyer evidencing that all parties to The Intelli-Site

Agreement have approved and accepted the assignment of Seller’s rights and obligations under the Intelli-Site Agreement to Buyer.

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C. A uniform commercial code lien search showing the personal property and assets being transferred are free and clear of all liens, other than liens to be released prior to or from the proceeds of closing.

D. A complete list of the Accounts Receivable which the Seller proposes to transfer to Buyer.

E. A complete list of the Accounts Payable which the Seller proposes to transfer to the Buyer.

12. Judgments. Seller warrants and represents that there are no judgments outstanding or unsatisfied against the subject assets being sold or against the Seller affecting such assets or, to [Seller’s actual knowledge, any claims or contemplated claims or lawsuits affecting or potentially affecting such assets.

13. Liens. Seller warrants that between the date hereof and the Closing it shall use commercially reasonable efforts to obtain the consents and release the liens and encumbrances set forth in Exhibit N , and that except for those set forth in said exhibit, no consent or release of lien or encumbrance is required for the consummation of the transactions contemplated hereby.

14. Payment of Vendors. All accounts payable invoices as listed in Exhibit K above will become the sole responsibility of the Buyer, and the Seller will be free from any legal or other binding commitment associated with the said invoices

15. Indemnification. Buyer agrees to indemnify and hold the Seller harmless from and against any claim or liability of Buyer or Seller, which may be asserted against the Seller arising from any and all invoices listed in Exhibit K, excepting only to the extent of amounts indicated on said invoices.

16. Down Payment. Buyer agrees to deposit by wire transfer a sum of fifty thousand ($50,000) dollars in an account specified by Seller no later than Jan 11 2010.10 AM CST In the event of any default or failure to agree on any exhibit by a party hereto under this Agreement or any agreements incorporated by reference, the seller specifically agrees that the deposit shall be returned to an account specified by buyer within 5 business days. Seller agrees the full amount of the deposit shall be credited toward any amounts due at closing from Buyer.

17. Entire Agreement. This Agreement contains the entire agreement of the parties and shall not be modified except in writing signed by all parties who are signatories to this Agreement.

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Dated as to the Buyer at Milwaukee, Wisconsin this 9 TH day of January, 2010. OLTIS Security Systems International, LLC All exhibits mentioned in the agreement will be attached at Closing

Dated as to the Seller at Milwaukee, Wisconsin this 9 th , _ day of January, 2010. Vuance, Inc

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By:

1/9/10 Date

By:

1/9/2010 Date

By:

By:

Date: 1/9/10

Exhibit 4.7

ASSET PURCHASE AGREEMENT

Between

VUANCE LTD.,

VUANCE, INC.,

WIDEPOINT CORPORATION,

And

ADVANCE RESPONSE CONCEPTS CORPORATION

Dated as of January 29, 2010

EXECUTION COPY

ASSET PURCHASE AGREEMENT

DATED AS OF JANUARY 29, 2010,

BY AND AMONG

WIDEPOINT CORPORATION,

ADVANCED RESPONSE CONCEPTS CORPORATION,

VUANCE, INC.

AND

VUANCE, LTD.

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT is made as of January 29, 2010 (the “Agreement”), by and among WidePoint Corporation, a

Delaware corporation (“WidePoint”); Advanced Response Concepts Corporation, a Delaware corporation (“Acquisition”); Vuance, Inc., a Delaware corporation wholly-owned by Vuance, Ltd. (“Vuance”); and Vuance, Ltd., a public company organized in the State of Israel under the Israeli Companies Law, registered with the Registrar of Companies of the State of Israel under company number 52-00-4407-4 (“Parent”). WidePoint, Acquisition, Vuance and Parent are also hereinafter referred to individually as a “party” and collectively as the “parties.”

WHEREAS, Vuance desires to sell to Acquisition and Acquisition desires to acquire from Vuance certain assets and assume certain specific liabilities of Vuance (the “Asset Purchase”) for the consideration and on the terms set forth in this Agreement, with WidePoint also receiving rights, in addition to Acquisition, in the intellectual property portion of the assets being acquired from Vuance, all as described in greater detail in this Agreement and the exhibits attached hereto;

WHEREAS, Parent desires that Vuance, its wholly-owned subsidiary, sell to Acquisition and Acquisition purchase from Vuance certain assets and assume certain specific liabilities of Vuance for the consideration on and the terms set forth in this Agreement, with WidePoint also receiving rights, in addition to Acquisition, in the intellectual property portion of the assets being acquired from Vuance, and in consideration thereof, desires to do all acts necessary to guaranty the performance of Vuance in connection with the Asset Purchase;

WHEREAS, WidePoint desires that Acquisition, its wholly-owned subsidiary, purchase from Vuance and Vuance to sell to Acquisition certain assets and assume certain specific liabilities of Vuance for the consideration on and the terms set forth in this Agreement, with WidePoint also receiving rights, in addition to Acquisition, in the intellectual property portion of the assets being acquired from Vuance;

WHEREAS, certain intellectual property rights used by Vuance in the operation of the Vuance CSMS Business (as herein defined) and related intellectual property have been conceived, developed, made, owned or otherwise by Parent and/or Vuance each of which has effectively and completely transferred all such intellectual property to Vuance prior to the Closing (collectively hereinafter referred to as the “Software Transfers”);

WHEREAS, the Board of Directors of WidePoint and the Board of Directors of Acquisition have determined that the transactions contemplated by this Agreement (the “Transactions”) are in the best interests of WidePoint and Acquisition and their respective stockholders;

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WHEREAS, the Board of Directors of Vuance and Parent, as the sole shareholder of Vuance, have each determined that the

Transactions to which Vuance is a party are in the best interest of Vuance and its sole shareholder;

WHEREAS, the Board of Directors of Parent and, if necessary, the stockholders of Parent have determined that the Transactions are in the best interests of Parent and Vuance and their respective stockholders; and

WHEREAS, the parties desire to enter into this Agreement to set forth and memorialize their mutual understandings and agreements with respect to the subject matter hereof.

NOW, THEREFORE, in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the satisfaction of the terms and conditions set forth herein, the parties hereto intending to be legally bound do hereby agree as follows:

SECTION 1: INCORPORATION BY REFERENCE The foregoing introductory paragraphs of this Agreement are hereby incorporated into this Agreement as if fully set forth herein.

SECTION 2: THE PURCHASE 2.1 Sale and Purchase of Specified Assets. On the Closing Date, effective as of the Closing and subject to the other terms and

conditions of this Agreement, Vuance shall sell, transfer, assign and convey to Acquisition, and Acquisition shall purchase, accept the transfer, conveyance and assume all of Vuance’s right, title and interest in and to all of the Specified Assets (as defined in Section 2.1(a)), and Vuance shall assign to Acquisition, and Acquisition shall assume, the Specified Liabilities of Vuance (as defined in Section 2.1(b)), with WidePoint also receiving rights, in addition to Acquisition, in the intellectual property portion of the assets being acquired from Vuance, all as described in greater detail in this Agreement and the exhibits attached hereto.

(a) Specified Assets. The “Specified Assets” means all Assets relating to the Vuance CSMS Business as of the Effective Time, wherever located and whether or not reflected on the Books and Records of Vuance, including the following Assets, together with the Assets listed on Schedule 2.1(a) hereto and being a portion of (less than all) the Assets reflected on the Closing Balance Sheet (as defined in, and to be prepared in accordance with, Section 3.2), and excluding the Assets specifically excepted below:

(i) All Software owned or jointly owned by Vuance or under development by Vuance which relates the to the Vuance CSMS Business, including but not limited to any Software owned or developed by Parent or any affiliate of Vuance or Parent which is used in the Vuance CSMS Business and/or necessary for the full functionality and/or use of any other Software or business activities involved in the Vuance CSMS Business, all of which shall be solely owned by Vuance prior to the Closing, including any Software of Parent or any affiliate of Vuance or Parent which shall have been completely and effectively transferred to Vuance prior to the Closing.

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(ii) All Intangibles owned by Vuance and/or utilized in the Vuance CSMS Business or under development by Vuance and/or any person or entity affiliated with Vuance, including but not limited to Parent, in all cases with such Intangibles relating to or otherwise utilized in the Vuance CSMS Business, all of which shall have been completely and effectively transferred to Vuance prior to the Closing.

(iii) All of Tangible Property of Vuance which relates to and/or is otherwise utilized in the Vuance CSMS Business.

(iv) All of Vuance’s Contract Rights and Obligations under those certain Contracts set forth on Schedule 2.1(a)(iv) of this Agreement, but excluding Contract Rights and Obligations under:

(A) this Agreement and any other Contracts entered into by Vuance with WidePoint or Acquisition in connection with the Transactions;

(B) Contracts that constitute or evidence Employee Benefit Plans of Vuance;

(C) Contracts under which any rights in and/or any shares or other ownership interest in Vuance and/or Parent (or any of their predecessors) was acquired;

(D) Contracts relating to the formation or acquisition of Vuance, Parent, or any of their respective predecessors;

(E) any Insurance Policies of Vuance; and

(F) any Contracts requiring a Consent that is not obtained on or before the Closing Date (“Non-Assigned Contracts”), provided that, once such Consent is obtained, the Non-Assigned Contracts shall be deemed, automatically and without further action by the parties, to be included in the Specified Assets as of the date such Consent is delivered to WidePoint (such Contracts not excluded by this Section 2.1(a)(iv)(F), including any Non-Assigned Contracts that become Contracts included in any Specified Assets, shall be referred to as the “Assigned Contracts”); provided, however, that until such time as any Non-Assigned Contract becomes an Assigned Contract, Vuance shall hold each such contract in escrow and trust for the sole and exclusive benefit of Acquisition and WidePoint pursuant to Section 11.3, with Vuance directing each party to each such contract to make all payments due to Vuance under such contract from and after the Closing to thereafter be made solely to Acquisition.

(v) All transferable rights under all Permits granted or issued to Vuance or otherwise held by Vuance, in all cases relating to or otherwise utilized in the Vuance CSMS Business.

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(vi) All of Vuance’s rights with respect to telephone numbers, telephone directory listings and advertisements relating

to or otherwise utilized in the Vuance CSMS Business, and all of Vuance’s goodwill in or relating to the Vuance CSMS Business.

(vii) All of Vuance’s Books and Records relating to or otherwise utilized in the Vuance CSMS Business, but excluding Tax Returns and Vuance’s Books and Records relating exclusively to Vuance’s Assets not included in the Specified Assets or to Vuance’s liabilities not included in the Specified Liabilities.

(viii) All of Vuance’s Claims, causes of action and other legal rights and remedies, whether or not known as of the Closing Date, relating to Vuance’s ownership of the Specified Assets and/or the operation of the Vuance CSMS Business, but excluding causes of action and other legal rights and remedies of Vuance: (A) against WidePoint or Acquisition with respect to the Transactions contemplated by this Agreement; or (B) relating exclusively to the Vuance Assets not included in the Specified Assets or to the Vuance liabilities not included in the Specified Liabilities.

(b) Specified Liabilities of Vuance. The “Specified Liabilities of Vuance” means the following specifically described liabilities of Vuance as of the Effective Time, all of which shall be only those liabilities as specifically listed on Schedule 2.1(b) of this Agreement:

(i) The current and long-term liabilities of Vuance incurred in the normal and ordinary course of the Vuance CSMS Business which are specifically listed on Schedule 2.1(b) and also being a portion of (less than all) the liabilities reflected on the Closing Balance Sheet (as defined in, and to be prepared in accordance with, Section 3.2). Notwithstanding the foregoing, the Specified Liabilities shall not include: (A) any current, long-term or deferred liabilities for any Taxes specifically excluded pursuant to Section 2.2(a); (B) any current or long-term notes payable and all accrued interest with respect thereto, other than any current or long-term notes payable or capitalized leases for any of the Specified Assets; (C) any liabilities for overdrafts or any other liabilities with respect to bank accounts; (D) any accrued expenses with respect to Vuance’s Insurance Policies; (E) any liabilities whatsoever to any shareholder, officer, director, or affiliate of Vuance or, unless specifically included in Schedule 2.1(b) , to any employee of Vuance; (F) any current, long-term or deferred liabilities owed to Parent and/or any other affiliate of Vuance or Parent; and (G) any other liabilities of any type, nature and/or amount which are not listed on Schedule 2.1(b).

(ii) The Obligations of Vuance that arise after the Closing Date under any and all Assigned Contracts, but only to the extent that such liabilities arise in the ordinary course of performing such Assigned Contracts, in accordance with their respective terms, after the Closing Date and are not due to any breach, default or other nonperformance by Vuance under any such Assigned Contract prior to Closing. 2.2. No Other Liabilities. Notwithstanding any other provision of this Agreement to the contrary, Acquisition shall not purchase the Specified Assets subject to, and Acquisition shall not in any manner assume or be liable or responsible for any Obligations of Vuance other than the Specified Liabilities, and all Obligations of Vuance other than the Specified Liabilities shall remain the sole responsibility of Vuance after the effectiveness of the Closing. Without limiting the generality of the foregoing, and in addition to the liabilities excluded from the Specified Liabilities under Section 2.1(b), Acquisition shall not in any manner assume or be liable or responsible for, or acquire any Assets of Vuance subject to, any of the following Obligations of Vuance, whether or not reflected on the Closing Balance Sheet:

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(a) Taxes. Except as otherwise provided for in this Agreement, including without limitation in Section 2.3, any

Obligation for any Tax including: (i) any Tax payable by Vuance and/or Parent with respect to the Vuance CSMS Business; and (ii) any Tax payable by Vuance and/or Parent with respect to the ownership, possession, purchase, lease, sale, disposition or use of any of Vuance’s Assets, including but not limited to the Specified Assets, at any time on or before the Closing Date.

(b) Claims and Proceedings. Any Obligation related to or arising out of any Claim or Proceeding existing as of the Effective Time and/or any time thereafter, or based upon a fact, action, failure to act or occurrence that arises prior to the Closing Date.

(c) Post-Closing. Any Obligation of Vuance or Parent that is incurred or arises after the Closing Date, or that relates to any Proceeding of Vuance or Parent or other event relating to Vuance or Parent that occurs or circumstances that exist after the Closing Date.

(d) Transaction Related. Except as otherwise contemplated by this Agreement, any Obligation that was or is incurred by Vuance and/or Parent in connection with the negotiation, execution or performance of this Agreement.

(e) Employees and Benefits. Any Obligation of Vuance or Parent relating to its employees, consultants or affiliates or any benefits provided by Vuance or Parent to any of its employees, consultants or affiliates.

(f) Infringement. Any Obligation arising in connection with or related to any infringement or alleged infringement by Vuance or its employees, consultants or affiliates, including but not limited to Parent, of any Software or Intangible of any Person.

(g) Encumbrances. Other than with respect to Permitted Liens and Specified Contracts, any Encumbrance on or affecting Vuance’s Assets, including the Specified Assets.

2.3. Transfer Taxes/Filing Fees. All filing fees, transfer, sales and other similar taxes arising from the Software Transfers and/or the Asset Purchase shall be borne solely by Vuance and Parent. WidePoint may offset from any payment otherwise due to Vuance under this Agreement any such fees and expenses.

SECTION 3: PURCHASE PRICE AND CLOSING BALANCE SHEET

3.1. Purchase Price and Allocation.

(a) Purchase Price. Subject to the adjustments described in this Section 3, the total purchase price for the Specified Assets (“Purchase Price”) shall consist of: (i) a cash payment by Acquisition to Vuance in the amount of Two Hundred Fifty Thousand United States Dollars ($250,000.00), subject to adjustment as described in Section 3.1(b)(iii) below (the “Cash Amount”), (ii) the assumption by Acquisition of the Specified Liabilities of Vuance, and (iii) the Earnout Amount (as defined in Section 3.3(a)).

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(b) Payment of the Purchase Price. WidePoint shall cause the Purchase Price to be paid as follows:

(i) Closing Payments . At the Closing, WidePoint shall cause Vuance to be paid the Cash Amount of Two Hundred

Fifty Thousand United States Dollars ($250,000.00), subject to any adjustment under Section 3.1(b)(iii) below and subject to reduction as a result of any breach by Vuance, Parent or any of their respective affiliates of this Agreement and/or any other agreements between any of the parties relating to the Transactions.

(ii) Payments Following Closing . The Earnout Amount shall be paid to Vuance as provided in Section 3.3.

(iii) Purchase Price Initial Adjustment. Within five (5) business days prior to the Closing, Vuance shall deliver to Acquisition and WidePoint an estimated balance sheet and an estimated income and expense statement of the Vuance CSMS Business relating only to the Specified Contracts listed in Schedule 3.3 and the Employees (collectively, the “Estimated Interim Financials”) for the period of time commencing from December 1, 2009 and ending on the Closing Date (the “Interim Financial Period”). The Estimated Interim Financials shall include detailed supporting documents which are sufficient for Acquisition and WidePoint to calculate the information contained in the Estimated Interim Financials. At the Closing, Vuance shall deliver to Acquisition and WidePoint updated Estimated Interim Financials for the Interim Financial Period, together with detailed supporting documents which are sufficient for Acquisition and WidePoint to calculate the information contained in the updated Estimated Interim Financials. In the event the updated Estimated Interim Financials delivered at the Closing reflect net income (income greater than expenses) of the Vuance CSMS Business relating only to the Specified Contracts listed in Schedule 3.3 and the Employees for the Interim Financial Period, then Vuance shall pay such net income amount to Acquisition at the Closing or Vuance may elect to have the Cash Amount reduced by the amount of such net income owed by Vuance to Acquisition. In the event the updated Estimated Interim Financials delivered at the Closing reflect a net loss (income less than expenses) of the Vuance CSMS Business relating only to the Specified Contracts listed in Schedule 3.3 and the Employees for the Interim Financial Period, then Acquisition shall pay to Vuance the amount of such net loss amount, up to a maximum payment of One Hundred Twenty Thousand Dollars ($120,000), at the Closing. Within thirty (30) days after the Closing Date, Vuance shall deliver to Acquisition and WidePoint an updated and finalized balance sheet and an updated and finalized income and expense statement (collectively, the “Finalized Interim Financials”) of the Vuance CSMS Business relating only to the Specified Contracts listed in Schedule 3.3 and the Employees for the Interim Financial Period, together with detailed supporting documents which are sufficient for Acquisition and WidePoint to calculate the information contained in the Finalized Interim Financials. In the event the Finalized Interim Financials reflect a greater amount of net income or a lesser amount of net loss as compared to the net income or net loss amounts reflected in the Estimated Interim Financials delivered at the Closing, then Vuance shall pay to Acquisition within thirty (30) days the amount of such difference. In the event the Finalized Interim Financials reflect a lesser amount of net income or a greater amount of net loss as compared to the net income or net loss amounts reflected in the Estimated Interim Financials delivered at the Closing, then Acquisition shall pay to Vuance within thirty (30) days the amount of such difference; provided, however, that notwithstanding anything to the contrary in this Section 3.1(b)(iii), the aggregate maximum additional payment made by WidePoint under this Section 3.1(b)(iii) in addition to the Cash Amount shall not exceed a total of an additional One Hundred Twenty Thousand Dollars ($120,000). In the event of any dispute in this matter, then the parties shall follow the dispute resolution provisions of Section 3.3(b) to resolve such matter.

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(iv) Additional Purchase Price Adjustments . The Purchase Price also shall be reduced by (a) the amounts, if any,

resulting from any breach at any time by Vuance, Parent and/or any of their respective affiliates of this Agreement and/or any other agreements between the parties relating to the Transactions, (b) the amounts, if any, which WidePoint and/or Acquisition pay or become liable at any time which are not part of the Specified Liabilities, and (c) any material adverse change in the balance sheet of the Vuance CSMS Business as of November 30, 2009, which is attached hereto as Schedule 3.1(b)(iv).

3.2. Closing Balance Sheet. Immediately prior to the Closing, Vuance shall prepare or cause to be prepared a consolidated balance sheet of Vuance relating to the Vuance CSMS Business (the “Closing Balance Sheet”) as of the close of business on November 30, 2009 (the “Effective Time”). The Closing Balance Sheet shall be complete, true, accurate and prepared in accordance with Vuance’s historical practices, and be accompanied by schedules setting forth in reasonable detail all Assets and liabilities included therein (excluding any liabilities incurred upon the Closing). Such Closing Balance Sheet or the accompanying schedules shall contain sufficient detail of the tangible Assets and liabilities of Vuance and its subsidiaries for the final determination of the Specified Assets and the Specified Liabilities of Vuance as of the Effective Time. Vuance shall deliver a draft Closing Balance Sheet to WidePoint and Acquisition at least five (5) business days prior to the Closing. 3.3. Earnout. (a) Amount of Earnout . All provisions of Section 3 of this Agreement are subject to this Section 3.3(a). So long as Vuance and/or Parent are not in default of any provision of this Agreement or any Exhibits hereto, then the Purchase Price shall include the right of Vuance to receive an aggregate of up to One Million Five Hundred Thousand United States Dollars ($1,500,000.00) (the “Maximum Earnout Amount”), over the course of calendar years 2010, 2011 and 2012 (the “Earnout Period”), subject to the Vuance CSMS Business acquired by Acquisition from Vuance and thereafter operated by Acquisition or any of its affiliates after the Closing achieving or exceeding the financial requirements as set forth below. Any payment that is earned under this earnout (the “Earnout Payment”) shall be paid after the end of the respective calendar year included in the Earnout Period, as further set forth in Section 3.3(b). Notwithstanding anything contained in this Agreement to the contrary, the first Two Hundred Seventy Thousand United States Dollars ($270,000.00) of the Maximum Earnout Amount earned by Vuance shall be for the sole account of WidePoint and solely retained by WidePoint as reimbursement for certain accounts payable and deferred revenue liabilities assumed by WidePoint in connection with this Agreement.

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(i) Maximum Earnout . All provisions of Section 3 of this Agreement are subject to this Section 3.3(a)(i).

Notwithstanding anything contained in this Agreement to the contrary, the aggregate of all Earnout Payments payable under this Agreement shall not exceed the Maximum Earnout Amount. For purposes of clarity, Schedule 3.3 of this Agreement sets forth in greater detail (a) the Specified Contracts from which Qualified Revenues shall be calculated under the Earnout in this Section 3.3 and (b) examples and sample calculations of Qualified Revenue calculations, earnout calculations, and other information related to the earnouts under this Agreement.

(ii) 2010 Earnout . For the calendar year 2010, the Vuance CSMS Business acquired by Acquisition must achieve Qualified Revenues of greater than Four Million United States Dollars ($4,000,000.00) (the “Minimum Earnout Revenues”) in order to qualify for any Earnout Amount.

(A) For the calendar year of 2010, if the Vuance CSMS Business acquired by Acquisition recognizes Qualified Revenues for that calendar year in excess of the Minimum Earnout Revenues, then Vuance shall be entitled to receive an Earnout Payment equal to twenty percent (20%) of the amount by which such Qualified Revenues recognized for that calendar year exceeded the Minimum Earnout Revenues.

(iii) 2011 Earnout . In the event the Maximum Earnout Amount of $1,500,000.00 is not earned by Vuance for the calendar year 2010, then Vuance shall have the opportunity to earn for the calendar year 2011 the difference between $1,500,000.00 and the actual Earnout Amount earned by Vuance for the calendar year 2010.

(A) For the calendar year of 2011, if the Vuance CSMS Business acquired by Acquisition recognizes Qualified Revenues for that calendar year in excess of the Minimum Earnout Amount of $4,000,000.00 for the calendar year 2011, then Vuance shall be entitled to receive an Earnout Payment equal to twenty percent (20%) of the amount by which such Qualified Revenues recognized for that calendar year exceeded the Minimum Earnout Amount; provided, however, that the aggregate of the Earnout Amounts for the 2010 and 2011 calendar years shall not exceed the Maximum Earnout Amount.

(iv) 2012 Earnout. In the event the Maximum Earnout Amount of $1,500,000.00 is not earned by Vuance in aggregate for the calendar years 2010 and 2011, then Vuance shall have the opportunity to earn for the calendar year 2012 the difference between $1,500,000.00 and the aggregate actual Earnout Amounts earned by Vuance for the calendar years 2010 and 2011.

(A)For the calendar year of 2012, if the Vuance CSMS Business acquired by Acquisition recognizes Qualified Revenues for that calendar year in respect of the U.S. Department of Defense Crime Scene Development Project Contract and the SEPA CTTF Contract only in excess of the Minimum Earnout Amount of $4,000,000.00 for the calendar year 2012, then Vuance shall be entitled to receive an Earnout Payment equal to twenty percent (20%) of the amount by which such Qualified Revenues recognized for that calendar year exceeded the Minimum Earnout Amount; provided, however, that the aggregate of the Earnout Amounts for the 2010, 2011 and 2012 calendar years shall not exceed the Maximum Earnout Amount.

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(b) Calculation and Payment of Earnout Payment(s) . (i) WidePoint shall deliver to Vuance, within thirty (30) days after the

filing by WidePoint of the WidePoint Annual Report on Form 10-K with the Securities and Exchange Commission after the end of each of the calendar years 2010, 2011 and 2012, a statement of the Qualified Collections and Qualified Accounts Receivable which comprise the Qualified Revenues of the Vuance CSMS Business acquired by Acquisition and the achievement or shortfall of the Minimum Earnout Amount for that applicable calendar year of the Earnout Period (“Earnout Statement”). The Earnout Statement shall be prepared in accordance with US GAAP, in all cases as US GAAP is expressly modified by the terms of this Agreement and the Earnout Statement. Notwithstanding anything contained in this Agreement and/or US GAAP to the contrary, (i) the portion of any Earnout Payment which is attributable to Qualified Accounts Receivable shall not be paid to Vuance until thirty (30) days after such Qualified Accounts Receivable are actually collected by and paid to Acquisition and/or WidePoint, (ii) Qualified Accounts Receivable which are equal to or older than one (1) year shall be considered uncollectible and shall no longer be considered as part of any Qualified Revenues nor part of any Earnout Amount or any Earnout Payment, and (iii) all Earnout Payments shall be reduced by (a) the amounts, if any, resulting from any breach by Vuance, Parent and/or any of their respective affiliates of this Agreement and/or any other agreements between the parties relating to the Transactions and (b) the amounts, if any, which WidePoint and/or Acquisition pay or become liable which are not part of the Specified Liabilities.

(i) WidePoint and Vuance shall in good faith attempt to agree upon the amount of the Earnout Payment, if any, within thirty (30) days after the receipt by Vuance of each Earnout Statement. If the parties are able to agree on the amount of the Earnout Payment for a particular calendar year during the Earnout Period, then WidePoint, directly or through one of its subsidiaries, shall make the Earnout Payment within fifteen (15) business days after the expiration of such 30-day period.

(ii) In the event of a dispute regarding an Earnout Payment, the undisputed portion of the Earnout Payment, if any, shall be paid within fifteen (15) business days after an agreement as to the undisputed portion of an Earnout Payment is reached. Any disputed portion of the Earnout Payment shall be determined, at WidePoint’s expense, by WidePoint’s accountants, and WidePoint shall deliver the report of WidePoint’s accountants on the Earnout Payment (“Earnout Report”) to Vuance within thirty (30) days after WidePoint receives such Earnout Report from its accountants.

(iii) Vuance shall notify WidePoint of any objections to the Earnout Report within sixty (60) days after Vuance receives the Earnout Report. If Vuance does not notify WidePoint of any objections to the Earnout Report by the end of that sixty-day period, then the Earnout Report, as prepared by WidePoint’s accountants, shall be considered final on the last day of that sixty (60) day period.

(iv) If Vuance does notify WidePoint of any objections to the Earnout Report by the end of that sixty (60) day period, and WidePoint and Vuance are unable to resolve their differences within fifteen (15) days thereafter, then the disputed items on the Earnout Report shall be reviewed, as soon as reasonably possible, at the expense of Vuance by Vuance’s accountants. Vuance and WidePoint shall instruct their respective accountants to, in good faith, use reasonable efforts to resolve such disputed items to their mutual satisfaction and to deliver a final Earnout Report to Vuance and WidePoint as soon as reasonably possible.

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If Vuance’s accountants and WidePoint’s accountants are unable to resolve any such disputed items within thirty (30) days after receiving such instructions, then the remaining disputed items shall be submitted to either (A) one arbitrator as mutually agreed upon by each of Vuance and WidePoint within thirty (30) days after the expiration of the preceding 30-day period during which Vuance’s accountants and WidePoint’s accountants are unable to resolve any such disputed items or (B) in the event Vuance and WidePoint are not able to mutually agreed upon an arbitrator, then each of Vuance and WidePoint shall select one (1) arbitrator and then those two (2) selected arbitrators shall select a third arbitrator, with such three (3) arbitrators to then meet promptly thereafter to resolve any disputed portion of such Earnout Payment. The decision by such arbitrator(s) shall be binding upon the parties. Vuance and WidePoint shall each pay for fifty percent (50%) of the costs of such arbitration. The arbitrator(s) shall be instructed to deliver a final Earnout Report to Vuance and WidePoint as soon as possible, which shall be final and binding on the parties. Within fifteen (15) business days after the Earnout Report is finalized in accordance with this Section 3.3(b), any unpaid portion of the Earnout Payment, if any, shall be paid to Vuance.

3.4. Currency and Method of Payment. All dollar amounts stated in this Agreement are stated in United States currency, and all payments required under this Agreement shall be paid in United States currency. All payments required under this Agreement shall be paid by ordinary corporate check.

3.5. Prorations. The following prorations relating to the Specified Assets or Specified Liabilities will be made as of the Effective Time, with Vuance remaining liable to the extent such items relate to any time period up to and including the Effective Time if not already taken into account on the Closing Balance Sheet, and with Acquisition becoming liable to the extent such items relate to periods subsequent to the Effective Time. Except as otherwise specifically provided herein, the net amount of all such prorations will be settled and paid at the Closing or as soon thereafter as mutually agreed upon by the parties:

(a) Personal property taxes and assessments, if any, on or with respect to the Specified Assets; provided that special assessments for work actually commenced or levied prior to the date of this Agreement shall be paid by Vuance.

(b) Rents, additional rents and other items payable by Vuance under any lease, license, permit, contract or other agreement or arrangement of Vuance to be assigned to or assumed by Acquisition.

(c) The amount of rents and charges for sewer, water, fuel, telephone, electricity and other utilities; provided that if practicable, meter readings shall be taken at the Effective Time and the respective obligations of the parties determined in accordance with such readings.

(d) All other items normally adjusted in connection with similar transactions.

If the actual expense of any of the above items for the billing period within which the Effective Time falls is not known at the time of the Closing, then the proration shall be made based on the expense incurred in the previous billing period, for expenses billed less often than quarterly, and on the average expense incurred in the preceding three billing periods, for expenses billed quarterly or more often. Vuance agrees to furnish Acquisition and WidePoint with such documents and other records as shall be reasonably requested in order to confirm all proration calculations.

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3.6. Allocation of Consideration. The aggregate consideration, including the Purchase Price and the assumption of the

Specified Liabilities, shall be allocated for tax purposes among the Specified Assets and the noncompetition covenants set forth in Section 7.3 in accordance with Schedule 3.6 . WidePoint, Vuance, Parent and Acquisition will file all Tax Returns and other related forms, reports and documents made by them to any governmental agencies in a manner consistent with such allocation and will not take any position inconsistent with such allocation. To the extent that disclosures of this allocation are required to be made by Vuance to the IRS or any other Tax authority or agency, Vuance will disclose such reports to WidePoint at least thirty (30) days prior to filing with the IRS or any other Tax authority or agency.

SECTION 4: REPRESENTATIONS AND WARRANTIES OF VUANCE AND PARENT

Knowing that WidePoint and Acquisition rely thereon, Vuance and Parent jointly and severally make the following representations and warranties to WidePoint and Acquisition.

4.1. Organization.

(a) Vuance is a corporation validly formed and existing under the Laws of the State of Delaware. Vuance possesses the full corporate power and authority to own its Assets and to conduct its business as and where presently conducted. Vuance is duly qualified or registered to do business in each jurisdiction where such qualification or registration is required by applicable Law. Vuance owns the subsidiaries and affiliated entities set forth on Schedule 4.1 . Except as set forth on Schedule 4.1 , there are no predecessors to Vuance. Schedule 4.1 also states with respect to Vuance: (a) its federal employer identification number; (b) its officers, employees and shareholders; (c) its registered agent and/or office in its jurisdiction of formation (if applicable); (d) all foreign jurisdictions in which it is qualified or registered to do business and its registered agent in each such jurisdiction; (e) its headquarters’ address, telephone number and facsimile number; (f) all fictitious, assumed or other names of any type that are registered or used by it or under which it has done business at any time since its date of formation; and (g) any name changes, recapitalizations, mergers, reorganizations or similar events since its date of formation. Accurate and complete copies of Vuance’s articles of organization and bylaws, each as amended to date (collectively, the “Organizational Documents”), are attached to Schedule 4.1 .

(b) Parent is a public company validly formed and existing under the laws of the country of Israel. Parent possesses the full corporate power and authority to conducts its business as and where presently conducted. Parent is duly qualified or registered to do business in each jurisdiction where such qualification or registration is required by applicable Law.

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4.2. Effect of Agreement.

(a) Each of Vuance’s and Parent’s respective execution and delivery of this Agreement and, as of the Closing, any ancillary

agreements and instruments provided for herein (each an “Ancillary Agreement”) to which Vuance and/or Parent is or will be a party, its consummation of the Asset Purchase and its performance of its obligations hereunder and thereunder: (i) has been duly authorized by all corporate action required by its Organizational Documents and applicable Law ; (ii) is not in violation of and does not constitute a default under its Organizational Documents; (iii) except as set forth in Schedule 4.2(A) , does not constitute a default or breach (immediately or after the giving of notice, passage of time or both) under any Contract or other understanding of any type whatsoever to which Vuance or Parent, respectively, is a party or by which Vuance or Parent, respectively, is bound or to which any of the Assets of Vuance are subject; (iv) does not constitute a violation of any Law, Judgment or Order that is applicable to Vuance or Parent, respectively, or to the business or Assets of Vuance, or to the Asset Purchase, including but not limited to the Software Transfers; (v) except Encumbrances created pursuant to this Agreement in favor of the parties thereto and except as stated on Schedule 4.2(A) , does not result in the creation of any Encumbrance (other than a Permitted Lien) upon, or give to any third party any interest in, any of the business or Assets of Vuance, or any of the interests in Vuance; (vi) except as set forth in Schedule 4.2(A) , does not require the consent of any Person; and (vii) will not have any material financial adverse affect on Parent or Vuance, individually and/or collectively. This Agreement constitutes and, as of the Closing, any Ancillary Agreement to which Vuance or Parent, as applicable, will be a party will constitute, the valid and legally binding agreement of Vuance and Parent, respectively, enforceable against Vuance or Parent, respectively, in accordance with its terms.

4.3. Shareholders and Ownership.

(a) As of the date of this Agreement, Schedule 4.3(A) is an accurate and complete list as of the date hereof of: (i) the full legal names of all shareholders of Vuance and all other persons and entities that have any right to acquire any equity interest in Vuance (including but not limited to stock options and/or warrants); (ii) the addresses of their respective current principal residences; and (iii) their social security numbers or federal tax identification numbers. There are no other record owners of any equity interests of Vuance, or any other securities of Vuance, and there currently are no other issued or outstanding equity securities of Vuance other than its common stock. All securities of Vuance have been duly authorized, validly issued in compliance with all applicable laws, rules and regulations, fully paid, non-assessable, and not subject to any legal or equitable claims nor rights of rescission.

4.4. Financial and Corporate Records. The Books and Records of Vuance are and have been properly prepared and maintained in form and substance adequate for preparing audited financial statements in accordance with US GAAP. Such Books and Records are and have been maintained in form and substance in compliance with US GAAP and all applicable rules and regulations of the Laws to which Vuance are subject. Vuance has made available to WidePoint true and complete copies of its minute books and stock record books to the extent it has or maintains such books (the “Corporate Records”). The Books and Records and Financial Statements, including the Recent Balance Sheet, set forth, and the Closing Balance Sheet shall set forth, complete and correct values of each of the Specified Assets and the Specified Liabilities of Vuance.

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4.5. Compliance with Law.

(a) The operations of Vuance, the conduct of the Vuance CSMS Business, as and where such business presently is conducted,

and the ownership, possession and use of the Assets of Vuance comply, in all material respects, with all applicable Laws. Except as set forth on Schedule 4.5 , Vuance has obtained and currently holds all Permits required for the lawful operation of its business as and where such business is presently conducted, except where the failure to obtain or hold such Permit would not have a Material Adverse Effect. Except as set forth on Schedule 4.5 . Vuance has obtained all exemptive or other necessary relief from each applicable governmental agency as necessary to conduct its business, and currently is operating in compliance with any and all conditions imposed by each applicable governmental agency in granting such relief.

(b) Patriot Act Matters. Each of Vuance and Parent maintains documentation adequate to verify the accurate contact information, including identity and street address, for all its proprietary traders and customers as required by the USA Patriot Act, formerly known as the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”). To the Knowledge of Vuance and Parent: (i) none of the employees, customers or clients of Vuance or Parent is identified as a suspected terrorist or other prohibited individual, entity or organization described on the United States Department of Treasury’s Office of Foreign Assets Control (“OFAC”) “Specially Designated Nationals” (“SDN”) list available at OFAC’s website address ( www.treas.gov.ofac ) as of the date hereof; (ii) no employees, customers or clients have used any proceeds generated from their trading activities for the benefit of individuals, entities or organizations from a country embargoed or restricted by the United States government, as listed on OFAC’s website; (iii) no employees, customers or clients have used the proceeds generated from their activities for any illegal purpose, including money laundering or terrorist financing activities; and (iv) its employees, customers or clients comply with all relevant provisions of the Patriot Act.

4.6. Regulatory Matters.

(a) Vuance and its employees, agents, associates, officers, directors, shareholders, members or contractors who are required to be licensed or registered with any federal and/or state governmental agency by reason of their association with Vuance and/or the Vuance CSMS Business are duly registered as such and such registrations are in full force and effect. All Governmental or Regulatory Entity registration requirements have complied with and such registrations as currently filed, and all periodic reports required to be filed with respect thereto, are accurate and complete in all material respects.

(b) To Vuance’s Knowledge, there are no facts or circumstances pertaining to Vuance that would: (i) cause any Governmental or Regulatory Entity to not approve the transfer of the Vuance CSMS Business and all of the Specified Assets at the time of this Agreement and as of the Closing from Vuance and Parent to Acquisition and WidePoint; or (ii) materially and adversely affect Acquisition’s ability to conduct the Vuance CSMS Business as conducted by Vuance immediately prior to the Closing.

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(c) Except as set forth in Schedule 4.6(C) , neither Vuance, Parent nor any of its respective associated persons (as defined in

Section 3(a)(21) of the Securities Exchange Act of 1934) is subject to any order, directive, adverse notice, or enforcement action by, or party to any written agreement, memorandum of understanding or commitment letter with, or similar undertaking with respect to, or otherwise relating to, the Vuance CSMS Business, has been ordered to pay any civil penalty or fine by, or is a recipient of any supervisory letter from, or has adopted any board or member resolutions at the request or direction of any Governmental or Regulatory Entity that restricts the conduct of its business or that in any manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management, or any other aspect of its business (each, a “Regulatory Agreement”), nor has Vuance, Parent or any of its respective affiliates been advised in any other manner by any Governmental or Regulatory Entity that it is considering issuing or requesting such a Regulatory Agreement. Except as set forth in Schedule 4.6(C) , neither Vuance, Parent nor any of its respective associated persons (as defined in Section 3(a)(21) of the Securities Exchange Act of 1934) has been convicted within the past ten years of any felony or misdemeanor described in Section 15(b)(4) of the Securities Exchange Act of 1934, or is, by reason of any misconduct, permanently or temporarily enjoined from acting in the capacities, or engaging in the activities, described in Section 15(b)(4)(C) of the Securities Exchange Act of 1934.

(d) Schedule 4.6(D) sets forth all Governmental or Regulatory Entities with which Vuance is required to be registered, licensed, and/or file any reports, as of the date of this Agreement; and except as listed on Schedule 4.6(D) or Schedule 4.1 , neither Vuance or any of its respective employees, directors, or shareholders (including Parent), by virtue of their respective activities with respect to the Vuance CSMS Business, is required to be so registered or obtain such a license or similar authorization from any Governmental or Regulatory Entity. Each of Vuance and Parent has not exceeded in any material respect the business activities enumerated in any agreements or other limitations imposed in connection with its registrations, forms and reports filed with any Governmental or Regulatory Entity. Vuance and Parent have each filed all material reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required by Law to file with any Governmental or Regulatory Entity, and Vuance and Parent have each paid all fees and assessments due and payable in connection therewith. The information contained in such registrations, forms and reports was true and complete in all material respects as of the date of filing thereof. Each such registration is in full force and effect on the date of this Agreement. Except as set forth in Schedule 4.6(D) , and except for routine examinations conducted by any Governmental or Regulatory Entity in the regular course of business, no Governmental or Regulatory Entity has initiated any formal or informal Proceeding or investigation into the business or operations of Vuance, Parent or any of its respective subsidiaries or affiliates. Except as set forth on Schedule 4.6(D) , there is no unresolved violation or deficiency identified by, or to Vuance’s Knowledge and/or Parent’s Knowledge threatened by, any Governmental or Regulatory Entity with respect to Vuance, Parent or any of its respective subsidiaries or affiliates.

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4.7. Financial Statements. Schedule 4.7(A) includes accurate and complete copies of the following financial statements of

Vuance: (a) a balance sheet as of each of December 31, 2006, December 31, 2007, and December 31, 2008, for Vuance; and (b) statements of income, statements of shareholders’ equity, and statements of cash flows for the fiscal years ended December 31, 2007 and December 31, 2008. Schedule 4.7(B) includes an accurate and complete copy of a balance sheet of Vuance as of November 30, 2009 (“Recent Balance Sheet”) and related financial statements (collectively, the “Financial Statements”), including statements of income, statements of members’ capital, and statements of shareholders equity prepared by the management of Vuance on an ongoing basis since the beginning of the current fiscal year through November 30, 2009. Each balance sheet included in the Financial Statements fairly presents the financial condition of Vuance as of the date indicated therein. Each of the income statements included in the Financial Statements fairly presents the results of operations of Vuance as of the dates and for the periods indicated. All of the Financial Statements were prepared in accordance with US GAAP, and all adjustments that are necessary for a fair presentation thereof (consisting only of normal recurring adjustments) have been made, and the Financial Statements, including the Recent Balance Sheet, set forth, and the Closing Balance Sheet will set forth, complete and correct values of each of the Specified Assets and the Specified Liabilities of Vuance. All of the normal recurring adjustments made to the Financial Statements are listed on Schedule 4.7(C) .

4.8. Operations Since the Date of the Recent Balance Sheet. Except as set forth on Schedule 4.8 or as specifically identified in this Agreement, from the date of the Recent Balance Sheet to the date of this Agreement and through to the Closing Date:

(a) Vuance has not: (i) created or assumed any Encumbrance other than a Permitted Lien upon any of its business or material Assets; (ii) purchased, leased, sold, abandoned or otherwise acquired or disposed of any business or material Assets; (iii) waived any material right or canceled any debt or claim; (iv) assumed or entered into any material Contract other than this Agreement and any agreement contemplated hereby; or (v) increased, or authorized an increase in, the dividends, distributions, compensation or benefits paid or provided to its shareholders, directors, officers, employees, agents or representatives.

(b) Vuance has not incurred any Obligation, made any loan to any Person, acquired or disposed of any business or material Assets, entered into any Contract or other transaction, or done any of the other things described in Section 4.8(a), involving an amount exceeding Five Thousand United States Dollars ($5,000.00) individually or in the aggregate with respect to all such Persons.

(c) There has been no material casualty loss affecting Vuance or the business, Assets or financial condition of Vuance.

(d) Vuance has not declared or paid any deferred bonuses or compensation due to any shareholder, director, officer, employee, or agent of Vuance, except to the extent such deferred bonuses or compensation was accrued on the Recent Balance Sheet.

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4.9. Tangible Assets. Vuance has good and marketable title to all of its owned tangible Specified Assets, free and clear of any

Encumbrances, except for Permitted Liens and as set forth in the Recent Balance Sheet and Schedule 4.9 . Vuance is the sole and exclusive owner of all the Specified Assets and no other person or entity whatsoever has any right, claim or interest (equitable or otherwise) in any of the Specified Assets. Schedule 4.9 sets forth a list of all equipment leases of Vuance which are part of the Specified Assets and/or Specified Liabilities and which provide for annual payments in excess of One Thousand United States Dollars ($1,000.00) indicating: (a) the name of the lessee and the lessor (including any leases on which Vuance is a guarantor); (b) description of the equipment; (c) current term; (d) monthly rental cost; and (e) lessor.

4.10. Real Property. Schedule 4.10 includes a detailed list of all Real Property leased by Vuance which is a part of the Specified Assets and/or the Specified Liabilities (the “Vuance Leased Premises”), indicating: (a) the name of the tenant and any guarantors; (b) location; (c) term; (d) monthly base rent as of November 30, 2009; and (e) landlord. Vuance has good and marketable leasehold title to the Vuance Leased Premises, free and clear of any Encumbrance except Permitted Liens. None of the Vuance Leased Premises, nor the possession, occupancy, maintenance or use thereof, is in violation of, or breach or default under, any Contract to which Vuance is a party or any Law relating to Vuance’s ownership, possession, occupancy, maintenance or use of the Vuance Leased Premises and no notice or threat from any lessor, Governmental or Regulatory Entity or other Person has been received by Vuance or Parent claiming any violation of, or breach, default or liability under, any Contract to which Vuance is a party or any Law relating to Vuance’s ownership, possession, occupancy, maintenance or use of the Vuance Leased Premises, or requiring or calling attention to the need for any work, repairs, construction, alteration, installations or environmental remediation thereat by Vuance, Parent or any of its respective affiliates.

4.11. Environmental Matters. Neither Vuance, or its directors, officers, employees or shareholders has placed or caused to be placed, and there are no, Hazardous Substances in, on, under or migrating from the Vuance Leased Premises (except as in accordance with applicable law). The Vuance Leased Premises and the operations of Vuance thereon have been and currently are being operated by the Vuance in compliance with applicable Environmental Laws.

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4.12. Software and Other Intangibles. Set forth on Schedule 4.12 is an accurate and complete list of all Software and other

Intangibles: (a) owned or under development by Vuance or any person or entity affiliated with either Vuance and/or Parent which is used in whole or in part in the Vuance CSMS Business (together, the “Vuance Software”); or (b) used or licensed by Vuance and which is used in whole or in part in the Vuance CSMS Business, in each case including a product description, the language in which it is written and the type of hardware platform(s) on which it runs (other than, in each case, standard commercial Software products used by Vuance for administrative and/or operational purposes). Schedule 4.12 identifies each item of Vuance Software that is owned by or licensed by a third-party, as applicable, and licensed or sub-licensed to Vuance by such third party as of the date hereof. No other Software or Intangibles (other than standard commercial Software products used by Vuance for administrative and/or operational purposes) are used by Vuance in the operation of Vuance CSMS Business, and except as described on Schedule 4.12 , no rights of any third party are necessary to license, sublicense, sell, modify, update, and/or create derivative works for the Software listed on Schedule 4.12 . The Vuance Software will adequately perform the functions for which it/they are intended to enable the Qualified Revenues of Acquisition over the Earnout Period to provide for the maximum Earnout Amount, based upon current market conditions and anticipated business. Except as set forth on Schedule 4.12 , Vuance has good title to, or has the right to use, all of the Software and other Intangibles listed on Schedule 4.12 , free and clear of any Encumbrance. Except as set forth on Schedule 4.12 , all of the Vuance Software was created as a work for hire (as defined under U.S. copyright law) by regular full time employees of Vuance. With respect to the Vuance Software: (i) Vuance maintains machine-readable master-reproducible copies, source code listings, technical documentation and user manuals for the most current releases or versions thereof (except that the technical documentation and user manuals are current through October 10, 2009 and for all earlier releases or versions thereof currently being supported by them; (ii) in each case, the machine-readable copy substantially conforms to the corresponding source code listing; and (iii) it is written in the language set forth on Schedule 4.12 , for use on the hardware set forth on Schedule 4.12 with standard operating systems; (iv) it can be maintained and modified by reasonably competent programmers familiar with such language, hardware and operating systems; and (v) in the case of the most recent version of all Vuance Software that is currently used in the operation of the Vuance CSMS Business, it operates in accordance with the user manual therefore without material operating defects. None of the Vuance Software or, to Vuance’s Knowledge, other Intangibles listed on Schedule 4.12 , or their respective past or current uses by Vuance, including the preparation, distribution, marketing or licensing, has violated or infringed upon, or is violating or infringing upon, any Software, technology, patent, copyright, trade secret or other Intangible of any Person. Except as set forth on Schedule 4.18 to Vuance’s Knowledge, no Person is violating or infringing upon, or has violated or infringed upon at any time, any of the Vuance Software or other Intangibles listed on Schedule 4.12 . Except as set forth on Schedule 4.12 , none of the Vuance Software or other Intangibles listed on Schedule 4.12 is owned by or registered in the name of any current or former owner, member, partner, shareholder, executive, member-manager, employee, salesman, agent, customer, representative or contractor of Vuance or Parent nor does any such Person have any interest therein or right thereto, including the right to royalty payments. Vuance has maintained all trade secrets and copyrights with respect to the Vuance Software listed on Schedule 4.12 . Except as set forth on Schedule 4.12 , neither Vuance or Parent has disclosed or delivered to any escrow agent or to any other Person, or permitted the disclosure to any escrow agent or to any other Person of, the source code (or any aspect or portion thereof) of any past, present or future version of any Vuance Software. Except as set forth on Schedule 4.18 , no Proceeding is pending or, to Vuance’s Knowledge, is being or has been threatened, nor has any claim or demand been made, which challenges the legality, validity, enforceability or ownership of any license, sublicense or other Contract covering or relating to any Software or Intangible listed on Schedule 4.12 . Except with respect to demonstration or trial copies, no portion of any Vuance Software or Intangibles contains any “back door,” “time bomb,” “Trojan horse,” “worm,” “drop dead device,” “virus” or other software routines or hardware components intentionally designed by Vuance to permit unauthorized access or to disable or erase software, hardware, or data without the consent of the user. Set forth on Schedule 4.12 are all Internet domain names used in the operation of the Vuance CSMS Business (“Domain Names”). Except as set forth on Schedule 4.12 . Vuance is the registrant of all Domain Names, and all registrations of Domain Names are in good standing until at least the dates set forth on Schedule 4.12 . To Vuance’s Knowledge, no action has been taken or is pending to challenge rights to, suspend, cancel or disable any Domain Name, registration therefor or the right of Vuance to use a Domain Name. Vuance has all right, title and interest in and to, and rights to use the Domain Names on the Internet and otherwise in the operation of the Vuance CSMS Business as a trade-mark and/or trade name. There is no governmental prohibition or restriction on the use of any of the Vuance Software in any jurisdiction in which Vuance uses the Vuance Software or has used the Vuance Software since 2006, or on the export or import of the Vuance Software from or to any such jurisdiction. Except as set forth on Schedule 4.12 , Vuance is the sole owner of, and has good and marketable title to, and all right, title and interest in and to all databases compiled and maintained by Vuance or Parent in connection with the Vuance CSMS Business. Except as specified on Schedule 4.12 , (and except for the individual rights of any Person in or to information contained within any such database that relates to such Person), no Person other than Vuance has any right or interest of any kind or nature in or to such databases. Except as set forth on Schedule 4.12 no person: (i) is violating or infringing upon, or has violated or infringed upon at any time, any right of Vuance in or to such databases; or (ii) is breaching or has breached at any time any duty or obligation owed to Vuance in respect of such databases. Except as set forth in Schedule 4.12 , neither the past nor current use of any such database or the information contained therein in the Vuance CSMS Business: (i) has violated or infringed upon, or is violating or infringing upon, the rights of any Person; or (ii) breaches any duty or obligation owed to any Person; or (iii) violates the privacy or any Law relating to the privacy of any Person.

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4.13. Contracts.

(a) Schedule 4.13 is an accurate and complete list of all of the following types of Contracts included in the Vuance CSMS

Business to which Vuance is a party or by which Vuance is bound as of the date of this Agreement (collectively, and as supplemented pursuant to Section 9.2(e), the “Specified Contracts”), grouped into the following categories: (a) Contracts from which Qualified Revenues shall be calculated under the Earnout in Section 3.3; (b) agreements with customers, including shareholders, and any other entities from which revenues relating to the Vuance CSMS Business may be derived at any time; (c) Contracts for the lease of the Vuance Leased Premises or otherwise concerning the Vuance Leased Premises used by Vuance; (d) loan agreements, mortgages, notes, guarantees and other financing Contracts; (e) Contracts for the purchase, lease and/or maintenance of computer equipment and other equipment, Contracts for the purchase, license, lease and/or maintenance of Software under which Vuance is the purchaser, licensee, lessee or user, and other supplier Contracts; (f) employment, consulting and sales representative Contracts (excluding Contracts which constitute Employee Benefit Plans listed on Schedule 4.16 , and excluding oral Contracts with employees for “at will” employment); (g) Contracts under which any rights in and/or ownership of Software, technology or other Intangible of Vuance, or any prior version thereof, or any part of the customer base, business or assets of Vuance, or any shares or other ownership interest in Vuance (or any of its predecessors) was acquired, as well as any other Contracts relating to Software, technology or other Intangible of Vuance , including but not limited to any royalty agreements or rights agreements; and (h) other material Contracts (excluding Contracts which constitute Insurance Policies listed on Schedule 4.19 and excluding this Agreement.) A description of each oral Specified Contract is included on Schedule 4.13 , and copies of each written Specified Contract have been delivered to WidePoint and Acquisition. Except as set forth on Schedule 4.13 , each of the customers of the Vuance CSMS Business have signed and are bound by a written Contract that is similar in all material respects to one of the form agreements that are attached to Schedule 4.13 . Except as set forth on Schedule 4.13 , with respect to each of the Specified Contracts, Vuance is not in default thereunder and there has not occurred any event that would constitute a default thereunder with the passage of time, the giving of notice, or both. Except as set forth on Schedule 4.13 , to Vuance’s Knowledge, none of the other parties to any Specified Contract is in default thereunder and there has not occurred any event that would constitute a default thereunder with the passage of time, the giving of notice or both. Except as set forth on Schedule 4.13 , neither Vuance nor Parent has given or received any notice of default or notice of termination with respect to any Specified Contract, and each Specified Contract is in full force and effect in accordance with its terms, and subject to obtaining the consents indicated on Schedule 4.2(A), upon consummation of the transactions contemplated by this Agreement will continue to be legal, valid, binding, enforceable and in full force and effect on the terms substantially identical to those in effect immediately prior to the consummation of such transactions. The Specified Contracts are all the material Contracts necessary and sufficient to operate the Vuance CSMS Business as currently operated.

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4.14. Employees and Independent Contractors. Schedule 4.14 includes a list of all of the Employees of Vuance as of the date

of this Agreement, and: (a) their titles or responsibilities; and (b) their current salaries or wages and all bonuses, commissions and incentives paid at any time during the past twelve months. Schedule 4.14 also includes a list of all independent contractors performing services for Vuance as of the date of this Agreement relating to the Vuance CSMS Business. Vuance has never been a party to or bound by any union or collective bargaining Contract, nor is any such Contract currently in effect or being negotiated by or on behalf of Vuance. As of the Closing Date, none of the Employees of Vuance will be entitled to receive any severance payment upon the termination of their employment with Vuance. Except as limited by any employment Contracts listed on and attached to Schedule 4.13 and except for any limitations of general application which may be imposed under applicable employment Laws, Vuance has the right to terminate the employment of each of its Employees at will and without incurring any penalty or liability. Vuance is in compliance in all material respects with all Laws respecting employment practices. Except as set forth on Schedule 4.14 , no unresolved claim has been asserted by any of the Employees arising out of or related to his or her employment with Vuance and/or the termination thereof. Except as set forth on Schedule 4.14 , each of Vuance’s current Employees has signed an employee agreement which contains certain restrictive covenants substantially in the form attached to Schedule 4.14 . Except as indicated on Schedule 4.14 , since January 1, 2009, no Employee of Vuance having an annual salary of $25,000.00 or more has indicated to Vuance or to such Employee’s appropriate manager an intention to terminate or has terminated his or her employment with Vuance. To the Vuance’s Knowledge, the Transactions will not materially adversely affect relations with any Employees of Vuance.

4.15. Employee Benefit Plans.

(a)Vuance does not have, and never has had, any ERISA Affiliates.

(b) Schedule 4.15(B) sets forth an accurate and complete list of all of the Employee Benefit Plans which Vuance has in the past or currently maintains or contributes to or in which any employee or leased employee of Vuance participates. Those Employee Benefit Plans which are ERISA Plans are separately identified. Except as set forth on Schedule 4.15(B) , Vuance: (i) has not established, maintained or contributed to or been obligated to contribute to any Employee Benefit Plans and has no current or contingent obligation to contribute to any Employee Benefit Plan; (ii) does not have any plan or commitment to establish any Employee Benefit Plan or modify any Employee Benefit Plan currently in effect (except to the extent required by law); and (iii) has never maintained, established, sponsored, participated in, contributed to, or been obligated to contribute to any plan subject to Title IV or ERISA or Section 412 of the Code, and at no time has Vuance or any ERISA Affiliate contributed to or been requested to contribute to any “multiemployer plan” as such term is defined in ERISA or to any plan described in Section 413(c) of the Code.

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(c) Except as set forth on Schedule 4.15(C) , Vuance has provided WidePoint with: (i) accurate and complete copies of all plan

documents governing each Employee Benefit Plan; (ii) accurate and complete lists of the participants in each Employee Benefit Plan; (iii) the most recent annual report (Form Series 5500) filed with respect to each ERISA Plan for which such filing is required, including all schedules and other attachments thereto; (iv) the most recent summary plan description, and all subsequent summaries of material modification, with respect to each ERISA Plan; (v) the most recent IRS determination with respect to the qualification of any Vuance 401(k) Savings Plan; (vi) all discrimination tests performed with respect to any Vuance 401(k) Savings Plan; and (vii) all current administrative service agreements, group annuity Contracts, group insurance contracts, and similar written agreements and contracts relating to any Employee Benefit Plan.

(d) Except as set forth on Schedule 4.15(D) , Vuance has timely amended all Vuance 401(k) Savings Plans with respect to the so called “GUST Amendments” and has made a timely application to the IRS for a favorable determination letter with regard to such amendments or the time to make such amendments and a timely application to the IRS for a favorable determination of opinion letter has not expired. Except as set forth on Schedule 4.15(D) , Vuance has no reason to believe that any Vuance 401(k) Savings Plan is not a qualified plan within the meaning of Section 401 of the Code and otherwise in full compliance with the provisions of the Code both in form and in operation.

(e) With respect to each Employee Benefit Plan, Vuance will have made, on or before the Closing Date, all contributions required to be made on or prior to such date.

(f) None of the Employee Benefit Plans promises or provides retiree medical or other retiree welfare benefits to any person except as required by COBRA and/or any similar state law and Vuance has not represented, promised, or contracted to provide such retiree benefits to any employee, former employee, director, consultant or other person except as required by COBRA and/or any similar state law.

(g) Except as set forth on Schedule 4.15(G) , all Employee Benefit Plans are, and have been, maintained and administered in material compliance with their provisions and with all applicable Laws, including ERISA, COBRA, the Family Medical Leave Act of 1993, the Women’s Health and Cancer Rights Act, the Newborns’ and Mothers’ Health Protection Act, and the Health Insurance Portability and Accountability Act of 1996, the Code, and any similar provisions of state law applicable to employees of Vuance, as such have been amended, and the regulations and rulings promulgated thereunder. Vuance and all fiduciaries of the Employee Benefit Plans have complied with the provisions of the Employee Benefit Plans and with all applicable Laws including ERISA and the Code and the regulations and rulings thereunder. No “prohibited transaction” within the meaning of section 4975 of the Code or sections 406 or 407 or ERISA, and not otherwise exempt under section 408 or ERISA, has occurred with respect to any ERISA Plan.

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(h) Except to the extent disclosed on Schedule 4.15(H) , neither the execution and delivery of this Agreement nor the

consummation of the Transactions will: (i) result in any payment (including any severance, unemployment compensation or golden parachute payment) becoming due from Vuance under any Employee Benefit Plans; (ii) increase any benefits otherwise payable under any Employee Benefit Plans; or (iii) result in the acceleration of the time of payment or vesting of any such benefits to any extent. Each Employee Benefit Plan can be amended, terminated or otherwise discontinued in accordance with its terms without liability to Vuance or any ERISA Affiliate.

(i) There are no pending Proceedings that have been asserted or, to Vuance’s Knowledge, threatened with regard to Employee Benefit Plans, the Assets of any of the trusts under such plans, the plan sponsor, the plan administrator or any fiduciary of any such plan (other than routine benefit claims), and, to Vuance’s Knowledge, there are no facts which could form the basis for any such Proceeding. Except as set forth on Schedule 4.15(I) , there are no investigations or audits of any Employee Benefit Plans, any trusts under such plans, the plan sponsor, the plan administrator or any fiduciary of any such plan that have been instituted or, to Vuance’s Knowledge, threatened, and, to Vuance’s Knowledge, there are no facts which could form the basis for any such investigation or audit. Except as set forth on Schedule 4.15(I) , no event has occurred nor will occur which will result in Vuance having any liability after the Closing Date in connection with any Employee Benefit Plan established, maintained, contributed to or to which there has been an obligation to contribute (currently or previously) by it or any ERISA Affiliate, other than liability to make contributions or pay benefits as they become due under the terms of such plans in the normal course.

(j) Vuance does not now, nor has it ever had the obligation to maintain, establish, sponsor, participate in, or contribute to any Employee Benefit Plan for the benefit of any employee, former employee, director or consultant of Vuance or any ERISA Affiliate who performs services outside of the United States.

4.16. Customers and Prospective Customers. Schedule 4.16 is a complete list of all customers and prospective customers of the Vuance CSMS Business as of the date of this Agreement, and for each such prospective customer the list indicates the name, address and contact person thereat, and for each such customer the list indicates: (a) name and address; (b) number of years as a customer with the Vuance CSMS Business; and (c) account balances for customers, in each case, as of December 31, 2007, December 31, 2008, and November 30, 2009. Except as set forth on Schedule 4.16 , from January 1, 2002, to the date hereof, none of the customers of the Vuance CSMS Business has given notice or otherwise indicated that it will or intends to terminate or not renew its contract before the scheduled expiration date or otherwise terminate its relationship with Vuance. To Vuance’s Knowledge, the Transactions will not materially adversely affect relations with any of the customers or prospective customers of the Vuance CSMS Business.

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4.17. Tax Matters.

(a) Provision For Taxes. The provision made for Taxes on the Financial Statements is sufficient for the payment of all Taxes

at the date of the Financial Statements and for all years and periods prior thereto. Since the date of the Financial Statements, Vuance has not incurred any Taxes other than Taxes incurred in the ordinary course of business consistent in type and amount with past practices. The charges, accruals, and reserves for Taxes with respect to Vuance for any tax period (or portion thereof) ending on or before Closing Date (a “Pre-Closing Tax Period”) (including any Pre-Closing Tax Period for which no Tax Return has yet been filed) reflected on the books of Vuance (excluding any provision for deferred income taxes) are adequate to cover such Taxes.

(b) Tax Returns Filed. Schedule 4.17(B) is an accurate and complete list of all Tax Returns filed by Vuance since inception. Accurate and complete copies of all federal, state, local and foreign income, franchise and sales and use Tax Returns on such list have been made available or delivered to WidePoint. Except as set forth on Schedule 4.17(B) : (i) all Tax Returns required to be filed by or on behalf of Vuance have been timely filed; (ii) all such Tax Returns were true, correct, and complete in all respects; (iii) all Taxes owed thereon by Vuance have been paid or adequately accrued; (iv) Vuance has not extended the time within which to file any Tax Return; and (v) no claim has ever been made by an authority in a jurisdiction where Vuance does not file Tax Returns that Vuance is or may be subject to Tax by that jurisdiction or authority.

(c) Withholding. Vuance has duly withheld and paid all Taxes which it is required to withhold and pay in connection with amounts paid or owing to any employee, independent contractor, creditor, member, agent, representative, contractor, supplier, or other third party of Vuance.

(d) Tax Audits. The federal and state income or franchise Tax Returns of Vuance have never been audited by the Internal Revenue Service or by the appropriate state taxing authority for any period. Vuance has not received from the Internal Revenue Service or from the Tax authorities of any state, county, local or other jurisdiction (i) any notice of underpayment of Taxes or other deficiency which has not been paid nor (ii) any objection to any Tax Return they have filed. There are no outstanding agreements or waivers extending the statutory period of limitations applicable to any Tax Return with respect to a Tax assessment or deficiency. No officer (or employee responsible for Tax matters) of Vuance expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax of Vuance either: (A) claimed or raised by any authority in writing; or (B) as to which any of the officers (and employees and agents responsible for Tax matters) of Vuance have any knowledge.

(e) Consolidated Group. Except as set forth on Schedule 4.17(E) , Vuance has never ever been a member of an affiliated group of corporations that filed a consolidated tax return. Vuance does not have any liability for the Taxes of any person or entity under Reg. § 1.1502-6 (or any corresponding or similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.

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(f) Other. Vuance has not: (i) filed any consent or agreement under Section 341(f) of the Internal Revenue Code of 1986, as

amended (the “Code”); (ii) applied for any Tax ruling; (iii) entered into a closing agreement as described in Code Section 7121 or otherwise (or any corresponding or similar provision of state, local, or foreign Tax law) with any Tax authority; (iv) filed an election under Section 338(g) or Section 338(h)(10) of the Code (nor has a deemed election under Section 338(e) of the Code occurred); (v) made any payments, or been a party to an agreement (including this Agreement) that under any circumstances could obligate it to make payments (either before or after the Closing Date) that will not be deductible because of Section 162(m) or Section 280G of the Code; or (vi) been a party to any Tax allocation or Tax sharing agreement. Vuance is not and never was a “United States real property holding company” within the meaning of Section 897 of the Code. There are no liens or other security interests for Taxes on the assets of Vuance, except for liens for current Taxes not yet due and payable. No property of Vuance is subject to a tax benefit transfer lease subject to the provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954; is “tax-exempt use property” within the meaning of Section 168(h) of the Code; or secures any debt the interest on which is exempt from Tax under Section 103 of the Code. Vuance has neither agreed, nor is required to make, any adjustment under Section 263A, Section 481, or Section 482 of the Code (or any corresponding or similar provision of state, local or foreign law) by reason of a change in accounting method or otherwise. Vuance does not have in effect any election for federal income tax purposes under Sections 108, 168, 338, 341, 441, 471, 1017, 1033, 1502, or 4977 of the Code. Vuance has made an election under Section 754 of the Code and such election has not been revoked and is currently in effect. Vuance has not been the “distributing corporation” (within the meaning of Section 355(c)(2) of the Code) with respect to a transaction described in Section 355 of the Code within the three-year period ending as of the date of this Agreement. Vuance has not participated in an international boycott as defined in Code Section 999. Vuance does not have a permanent establishment in any foreign country, as defined in any applicable Tax treaty or convention between the United States of America and such foreign country. Vuance is in compliance with the terms and conditions of any applicable Tax exemptions, Tax agreements or Tax orders of any government to which they may be subject or which they may have claimed, and the transactions contemplated by this Agreement will not have any adverse effect on such compliance. Vuance will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (A) installment sale or open transaction disposition made on or prior to the Closing Date; or (B) prepaid amount received on or prior to the Closing Date.

(g) Pass-through Entities. Schedule 4.17(G) lists every corporation, limited liability company, partnership, and other entity, whether or not such entity is disregarded for Tax purposes, in which Vuance has an ownership interest.

(h) Tax Positions. Vuance has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code § 6662. Vuance has not received a tax opinion with respect to any transaction relating to Vuance other than a transaction in the ordinary course of business. Vuance is not the direct or indirect beneficiary of a guarantee of tax benefits or any other arrangement that has the same economic effect with respect to any transaction or tax opinion relating to Vuance. Vuance is not a party to an understanding or arrangement described in Section 6111(d) or Section 6662(d)(2)(C)(iii) of the Code. Vuance is not a party to a lease arrangement involving a defeasance of rent, interest or principal.

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(i) Tax Classification. Vuance is classified and taxed as a corporation for all federal, state, and local income and franchise Tax

purposes.

4.18. Proceedings and Judgments. Except as described on Schedule 4.18 : (a) no Proceeding is currently pending or, to Vuance’s or Parent’s Knowledge, threatened against Vuance, or against Parent in connection with Vuance; (b) no Judgment is currently outstanding against Vuance, or against Parent in connection with Vuance; and (c) no breach of contract, breach of warranty, tort, negligence, infringement, product liability, discrimination, wrongful discharge or other claim of any nature (collectively, “Claims”) has been asserted since January 1, 2005, or, to Vuance’s Knowledge, threatened by or against Vuance, by or against Parent in connection with Vuance, and, to Vuance’s and Parent’s Knowledge, there is no basis for any such claim against Vuance. As to each matter described on Schedule 4.18 , accurate and complete copies of all pertinent pleadings, Judgments, correspondence and other legal documents have been made available to WidePoint and Acquisition.

4.19. Insurance. Schedule 4.19 is an accurate and complete list of all Insurance Policies (excluding Insurance Policies that constitute Employee Benefit Plans described on Schedule 4.15 ) currently owned or maintained by Vuance which cover any portion of the Vuance CSMS Business. Except as indicated on Schedule 4.19 , all such Insurance Policies are on an “occurrence” rather than a “claims made” basis. Vuance has not received written notice of cancellation with respect to any such current Insurance Policy. Except as indicated on Schedule 4.20, accurate and complete copies of all Insurance Policies described on Schedule 4.19 , have been delivered or made available to WidePoint and Acquisition. Each such Insurance Policy is in full force and effect. Except as described on Schedule 4.19 . there are no claims in connection with the Vuance CSMS Business that are pending under any of the Insurance Policies described on Schedule 4.19 in excess of $5,000, individually or in the aggregate.

4.20. Questionable Payments. None of the executives, the member-managers, representatives, agents or employees of Vuance: (a) has used or is using any funds of Vuance for any illegal contributions, gifts, entertainment or other unlawful expenses relating to political activity; (b) has used or is using any funds of Vuance for any direct or indirect unlawful payments to any foreign or domestic government officials or employees; (c) has violated or is violating any provision of the Foreign Corrupt Practices Act of 1977; (d) has established or maintained, or is maintaining, any unlawful or unrecorded fund of monies or other properties of Vuance; (e) has made any false or fictitious entries on the Books and Records of Vuance; or (f) has made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature using funds of Vuance or otherwise on behalf of Vuance.

4.21. Related Party Transactions. Except as described on Schedule 4.21 , and except for any employment Contracts listed on Schedule 4.13 and Employee Benefit Plans set forth on Schedule 4.15 , there are no real estate leases, personal property leases, loans, guarantees, Contracts, transactions, understandings or other arrangements of any nature between or among Vuance on the one hand, and any current or former owner, shareholder, member, manager, employee, or controlling Person of Vuance (or any of its predecessors) or any Affiliate (as such term is defined for the purposes of the Securities Exchange Act of 1934, as amended), of Vuance (or any of its predecessors) on the other hand with respect to the Vuance CSMS Business.

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4.22. Brokerage Fees. No Person acting on behalf of Vuance or Parent is or shall be entitled to any brokerage or finder’s fee in

connection with the Transactions.

4.23. Acquisition Proposals . Except as set forth on Schedule 4.23 , since January 1, 2008, Vuance has not, directly or indirectly, solicited, initiated or responded to any inquiries or proposals from, or participated in any discussions or negotiations with any Person or group (other than WidePoint and its officers, employees, representatives and agents and any Governmental or Regulatory Entities) concerning any sale of all or substantially all of the Vuance CSMS Business.

4.24. Full Disclosure. No representation or warranty made by Vuance or Parent in this Agreement (as modified by the schedules to this Agreement, as supplemented pursuant to Section 6.8 (the “Disclosure Schedules”)): (a) contains any untrue statement of any material fact; or (b) omits to state any fact that is necessary to make the statements made, in the context in which made, not false or misleading in any material respect. The copies of documents attached to or specifically identified or referenced in the Disclosure Schedules, are accurate and complete and are not missing any amendments or modifications thereto (except as indicated on the Disclosure Schedules). Since the date of the Recent Balance Sheet no fact has occurred that has not been disclosed to WidePoint in this Agreement (including the Disclosure Schedules, as supplemented pursuant to Sections 6.8 and 9.2(e) of this Agreement), or otherwise in writing, that has had or, so far as can be reasonably foreseen, will have a Material Adverse Effect or a material adverse effect on the business or financial condition of Acquisition after the Closing and (in each case, which Material Adverse Effect or material adverse effect is or will be material under either US GAAP or applicable legal principles to Vuance or the Vuance CSMS Business or the business of Acquisition after the Closing, as applicable, or any material adverse effect on the ability of any party to perform their respective obligations under this Agreement; provided, however, that none of the following shall constitute a Material Adverse Effect for purposes of this Section 4.24: (x) any circumstance, change or effect affecting generally the United States economy or world equity markets or any material portion thereof; (y) any circumstance, change or effect arising out of, resulting from or relating to the announcement or pendency of the Transactions or compliance with the terms of, or the taking of any action required by, this Agreement; or (z) any circumstance, change or effect arising out of, resulting from or relating to any act or omission of WidePoint or any of its affiliates.

4.25. Financial Adequacy. Vuance and Parent are each financially solvent, able to pay its respective Obligations as they become due, and each of them is without any material risk of filing for bankruptcy, being declared bankrupt, and/or not continuing its respective business as a “going concern.”

4.26. [Intentionally Omitted.]: REPRESENTATIONS AND WARRA NTIES OF WIDEPOINT AND ACQUISITION

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Knowing that Vuance is relying thereon, WidePoint and Acquisition, jointly and severally, make the following representations and

warranties to Vuance, each of which is true and correct on the date hereof, shall remain true and correct to and including the Closing Date.

5.1. Organization. WidePoint is a corporation that is validly existing and in good standing under the Laws of the State of Delaware. Acquisition is a corporation, validly existing and in good standing under the Laws of the State of Delaware. WidePoint and Acquisition each possess the full power and authority to own their respective Assets and conduct their respective businesses as and where presently conducted. All of the issued and outstanding shares of capital stock of Acquisition are owned by WidePoint.

5.2. Effect of Agreement. Each of WidePoint’s and Acquisition’s execution, delivery and performance of this Agreement, and its consummation of the Transactions: (a) has been duly authorized by all necessary actions by the Board of Directors of both WidePoint and Acquisition, as applicable, and has been duly authorized by all necessary action on behalf of each WidePoint and Acquisition, as applicable; (b) does not constitute a violation of or default under their respective organizational documents; (c) does not constitute a default or breach (immediately or after the giving of notice, passage of time or both) under any Contract to which WidePoint or Acquisition is a party or by which WidePoint or Acquisition is bound; (d) does not constitute a violation of any Law, Judgment or Order that is applicable to them or to their respective businesses or Assets, or to the Transactions; and (e) except as set forth on Schedule 5.2 , does not require the consent of or approvals, or filings or registrations with, any Person. This Agreement constitutes the valid and legally binding agreement of each of WidePoint and Acquisition, enforceable against each of them in accordance with its terms.

5.3. Regulatory Matters. To the actual knowledge of Steve Komar and James McCubbin, there are no facts or circumstances pertaining to WidePoint or Acquisition that would: (a) cause any Governmental or Regulatory Entity to not approve the purchase of the Vuance CSMS Business and the Specified Assets from Vuance by Acquisition; (b) cause any Governmental or Regulatory Entity to revoke or materially restrict any authorizations held by Vuance as a result of the Asset Purchase; (c) cause any Governmental or Regulatory Entities whose approval is necessary to permit consummation of the transactions contemplated hereby to not approve of the transactions contemplated by this Agreement; or (d) materially and adversely affect Acquisition’s ability to conduct the Vuance CSMS Business after the Closing as conducted by Vuance immediately prior to Closing.

5.4. Brokerage Fees. No Person acting on behalf of WidePoint or Acquisition is or shall be entitled to any brokerage or finder’s fee in connection with the Transactions.

5.5. Operations of Acquisition. As of the Closing Date and immediately prior to the Closing, Acquisition will not be engaged in any activities whatsoever other than the taking of actions necessary for the performance of its obligations hereunder, and will have no assets (including without limitation subsidiaries or investments or other ownership interests in any other Person ) or liabilities of any kind whatsoever.

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SECTION 6: CERTAIN OBLIGATIONS PENDING CLOSING

6.1. Access. Between the date of this Agreement and the Closing Date, Vuance shall, upon reasonable notice and in a manner

not unduly disruptive to the daily operations of Vuance: (a) permit WidePoint and its authorized representatives to have reasonable access to the facilities and offices of Vuance with respect to the Vuance CSMS Business during normal business hours, observe the operations of Vuance, meet with the officers and employees of the Vuance, and audit, examine and copy the files, books and records of Vuance with respect to the Vuance CSMS Business; (b) provide to WidePoint and its authorized representatives all information concerning Vuance, and its business, Assets and financial condition, that WidePoint reasonably requests; and (c) shall accommodate in good faith any reasonable requests by WidePoint to contact customers, proprietary traders, prospects and suppliers of Vuance with respect to the Vuance CSMS Business.

6.2. Conduct of Business. Between the date of this Agreement and the Closing Date, except with the prior written consent of WidePoint, which shall not be unreasonably withheld or delayed, or as otherwise expressly contemplated by this Agreement or disclosed in the Disclosure Schedules hereto:

(a) Current Practices. Vuance shall: (i) conduct its business in a diligent manner and comply in all material respects with all Laws and Orders applicable to it; (ii) not make any material change in its business practices; and (iii) use its commercially reasonable efforts to preserve its business organization intact with respect to the Vuance CSMS Business in all material respects, keeping available the services of its current officers, employees, salesmen, agents and representatives, and maintaining the good will of its customers, suppliers and other Persons having business relations with it. Thomas Connell II, Jason St. Amand, and Lester Stout, who are actively involved in the management or software development of Vuance, shall remain actively involved in managing the Vuance CSMS Business, consistent with their past practices.

(b) Consult with WidePoint. When reasonably requested by WidePoint, the management of each of Vuance and Parent shall consult with the management of WidePoint, or its representatives, as to the Vuance CSMS Business.

(c) Outside the Ordinary Course. Except in the ordinary course of its business consistent with its past practices, and except in connection with Assets not included in the Specified Assets or Obligations not included in the Specified Liabilities, Vuance shall not: (i) create or assume any Encumbrance upon any of its business or the Specified Assets except for Permitted Liens; (ii) incur any Obligation relating to or affecting any of the Specified Assets or that would constitute a Specified Liability; (iii) make any loan or advance that would constitute a Specified Liability; (iv) assume, guarantee or otherwise become liable for any Obligation of any third party that would constitute a Specified Liability; (v) commit for any capital expenditure that would constitute a Specified Liability; (vi) sell, abandon or otherwise dispose of any Specified Assets; (vii) waive any right or cancel any debt or claim included in the Specified Assets; (viii) assume or enter into any Contract other than this Agreement (and any other Contract contemplated herein); (ix) increase, or authorize an increase in, the compensation or benefits paid or provided to any of its directors, members, officers, employees, salesmen, agents or representatives involved with the Vuance CSMS Business; or (x) do anything else outside the ordinary course of its business consistent with its past practices, whether or not specifically described in any of the foregoing clauses, that impacts a Specified Asset or would constitute a Specified Liability.

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(d) In the Ordinary Course. Even in the ordinary course of its business consistent with its past practices, Vuance shall not: (i)

incur any Obligation relating to or affecting any of the Specified Assets or that would constitute a Specified Liability, or enter into any Contract (excluding customer Contracts and related commitments entered into in the ordinary course of business consistent with past practices), involving, in any single case, an amount exceeding $5,000.00, individually or in the aggregate; or (ii) make any distribution to a shareholder or affiliate.

(e) Other Business Requirements. Vuance shall use commercially reasonable efforts to: (i) maintain or cause to be maintained the Specified Assets, the Vuance Leased Premises, and its Tangible Property in good condition, ordinary wear and tear excepted; (ii) maintain its Contracts, Employee Benefit Plans, Insurance Policies and Permits in full force and effect; (iii) repair, restore or replace any of its Tangible Property that is damaged, destroyed, lost or stolen; (iv) comply in all material respects with all applicable Laws; (v) properly file all Tax Returns and reports required to be filed by it; and (vi) fully pay when due all Taxes payable by it.

(f) Other Limitations. Vuance shall not: (i) breach or cause a breach by it under any material Contract, Employee Benefit Plan, Insurance Policy, Permit or Law; (ii) adopt or enter into any new Employee Benefit Plan or modify any existing Employee Benefit Plan with respect to the Vuance CSMS Business, except if such amendment is required by the Code, ERISA or other applicable Law or is contemplated by this Agreement; (iii) participate in any merger, consolidation, reorganization, sale of assets, or creation of any Obligation affecting any of the Specified Assets and/or the Specified Liabilities of Vuance, other than the Transactions; (iv) begin to engage in any new type of business affecting or relating to the Vuance CSMS Business; (v) acquire the business or any bulk Assets of any other Person affecting or relating to the Vuance CSMS Business; (vi) completely or partially liquidate or dissolve; or (vii) terminate any part of its business affecting or relating to the Vuance CSMS Business.

(g) Good Standing. Except as specifically provided for in this Agreement, Vuance shall maintain its existence and good standing in its jurisdiction of formation and, as applicable, each jurisdiction where it is qualified or registered to do business as a foreign corporation. Vuance shall not amend its Organizational Documents.

(h) Commitments. Vuance shall not enter into any Contract that commits it to take any action or omit to take any action that would be inconsistent with any of the provisions of this Section 6.2 or any other provisions of this Agreement.

6.3. Certain Business Matters. Vuance shall fully pay all deferred bonuses and similar special compensation due to employees or consultants of Vuance that shall have been accrued before Closing.

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6.4. Acquisition Proposals. Except as contemplated by this Agreement, between the date of this Agreement and the Closing

Date, Vuance shall not, and Vuance shall use its commercially reasonable efforts to cause each and every director, officer, employee, representative or agent of Vuance, not to, directly or indirectly, solicit, initiate, encourage or respond to any inquiries or proposals from, or participate in any discussions or negotiations with, or provide any non-public information to, any Person or group (other than WidePoint and its officers, employees, representatives and agents or in connection with the Asset Purchase and the Software Transfers) concerning any bulk sale of any Assets of Vuance, any sale of equity interests or other securities of Vuance, or any merger, consolidation or similar transaction involving Vuance. Vuance shall immediately advise WidePoint, and communicate to WidePoint the terms of, any such inquiry or proposal received by any or all of them.

6.5. Vuance Consents. Between the date of this Agreement and the Closing Date, Vuance shall in good faith use commercially reasonable efforts to obtain all Consents listed on Schedule 6.5 and all other Consents necessary to permit the transactions contemplated by this Agreement to be consummated without causing any violation of, or any breach or default under, any applicable Law or any Contract to which Vuance is a party or by which Vuance is bound.

6.6. WidePoint Consents. Between the date of this Agreement and the Closing Date, WidePoint shall in good faith use commercially reasonable efforts to obtain all Consents listed on Schedule 6.6 and all other Consents necessary to permit the transactions contemplated by this Agreement to be consummated without causing any violation of, or any breach or default under, any applicable Law or any material Contract to which WidePoint is a party or by which WidePoint is bound.

6.1. Notice of Changes.

(a) Between the date of this Agreement and the Closing Date, Vuance and Parent shall promptly advise WidePoint, in writing, of any fact of which any of them obtain knowledge that causes a breach of its representations and warranties made as of the date of this Agreement, or if any of them becomes aware of the occurrence after the date of this Agreement of any fact that would (except as expressly contemplated by this Agreement, including the Disclosure Schedules hereto) cause or constitute a breach of any representation or warranty of any of them (other than a representation or warranty that by its terms speaks as of the date of this Agreement) had such representation or warranty been made as of the time of occurrence or discovery of such fact. Should any such fact require any change in the Disclosure Schedules if the Disclosure Schedules were dated the date of the occurrence or discovery of any such fact, Vuance and Parent will promptly deliver to WidePoint an update in writing to the Disclosure Schedules specifying such change (a “Disclosure Schedule Change”). Such Disclosure Schedule Change shall become part of the Disclosure Schedules and any representation or warranty herein which is affected by such updated information shall be deemed to have been supplemented or amended accordingly and any breach of a representation and warranty relating to such updated information shall be deemed cured. The parties hereto acknowledge and agree that any Disclosure Schedule Change may include exceptions to any representation and warranty herein, regardless of whether any schedule of exceptions was provided for or contemplated with respect to such representation and warranty as of the date hereof; provided, however, that WidePoint and Acquisition shall have the option to terminate this Agreement without any liability whatsoever in the event of any adverse Disclosure Schedule Change.

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(b) Between the date of this Agreement and the Closing Date, WidePoint and Acquisition shall promptly advise Vuance, in

writing, of any fact of which any of them obtains knowledge and that, if existing or known as of the date of this Agreement, would have been required to be set forth or disclosed in or pursuant to this Agreement.

6.8. Commercially Reasonable Efforts. Vuance, Parent, Acquisition and WidePoint shall each use commercially reasonable efforts to consummate the transactions contemplated by this Agreement as of the earliest practicable date. Neither Vuance, Parent, Acquisition nor WidePoint shall take, or cause to be taken, or to the best of their ability permit to be taken, any action that would impair the prospect of completing the transactions contemplated by this Agreement, except actions required to be taken under or in order to comply with applicable Law.

6.9. Regulatory Applications.

(a) Vuance, Parent, Acquisition and WidePoint shall cooperate and use their respective commercially reasonable efforts to prepare all documentation, to effect all filings and to obtain all permits, registrations, consents, approvals and authorizations of all Governmental or Regulatory Entities necessary to consummate the transactions contemplated by this Agreement. Vuance and WidePoint agree that they will consult with the other with respect to the obtaining of all material permits, consents, approvals and authorizations of Governmental or Regulatory Entities necessary or advisable to consummate the Transactions, including without limitation any necessary SEC, NYSE/AMEX, or other approval, and each will keep the other parties apprised of the status of material matters relating to completion of the transactions contemplated hereby.

(b) Vuance and WidePoint agree, upon request, to furnish the other parties to this Agreement with all information concerning itself, its affiliates, directors, officers, employees and stockholders, members and partners and such other matters as may be reasonably necessary or advisable in connection with any filing, notice or application made by or on behalf of such other party to any third party or Governmental or Regulatory Entity.

6.10. Confidentiality. Unless and until the Closing occurs, each party shall, and shall cause its respective directors, officers, counsel and other authorized representatives and affiliated parties to, hold in strict confidence, and not disclose to any other Person, and not use in any way except in connection with the consummation of the transactions contemplated by this Agreement, all information obtained from the other parties to this Agreement or their respective representatives in connection with the Transactions. In the event that this Agreement is terminated or the Transactions shall otherwise fail to be consummated, each party shall cause all copies of documents or extracts thereof it holds and data as to the other parties to be destroyed or returned to the party that originally provided such documents. In the event the Transactions are consummated, then (i) the parties shall issue a joint press release relating to the Transactions which is mutually acceptable to Vuance and Acquisition and (ii) after the Closing Date WidePoint will retain, or will cause Acquisition to retain, all Books and Records of Vuance relating to the Specified Assets and the Specified Liabilities for not less than twelve (12) months following the end of the tax period to which such Books and Records relate.

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6.11. HSR Act Compliance. The parties represent and agree that the Transactions will not require any party to file or cause to be

filed with the Federal Trade Commission and/or the United States Department of Justice any information under the HSR Act. In the event any filing or information is required to be filed under the HSR Act, then WidePoint shall have the option to terminate this Agreement without any liability whatsoever.

SECTION 7: COVENANTS OF VUANCE AND PARENT

7.1. Certain Acknowledgements. From and after the Closing Date, each of Vuance and Parent expressly acknowledges that:

(a) WidePoint expends substantial time and money, on an ongoing basis, to train its employees, maintain and expand its services, product offerings and customer base, and improve and develop its Software, technology, databases, products and services.

(b) In connection with the Transactions, during their tenure as a shareholder, consultant and/or employee of Vuance before Closing, and, if applicable, during their tenure as an employee of, or a consultant to, Acquisition after Closing, the persons executing employment agreements with Acquisition who are currently employed by Vuance have had and will continue to have access to, receive, learn, develop and/or conceive proprietary and confidential knowledge and information relating to the Vuance CSMS Business and the Specified Assets; such knowledge and information must be kept in strict confidence to protect Vuance and Acquisition and to maintain WidePoint’s competitive positions in the marketplace; and such knowledge and information would be useful to competitors of WidePoint for indefinite periods of time.

(c) The covenants of this Section 7 (the “Covenants”) are a material part of the agreement among the parties hereto and are an integral part of the obligations of the parties hereto; the Covenants are supported by good and adequate consideration; and the Covenants are reasonable and necessary to protect the legitimate business interests of WidePoint and Acquisition.

7.2. Nondisclosure Covenants. At all times after the Closing Date, except with WidePoint’s prior written consent, or except in connection with the proper performance of services for and as an employee of or consultant to WidePoint, neither Vuance nor Parent shall, directly or indirectly, in any capacity:

(a) Communicate, publish or otherwise disclose to any Person (other than its counsel, auditors or agents who are bound by appropriate confidentiality obligations) or use for the benefit of any Person, any confidential or proprietary property, knowledge or information of WidePoint, Acquisition, Vuance (with respect to the Vuance CSMS Business), their respective affiliates, or concerning any of their respective business, Software, Assets or financial condition, no matter when or how such knowledge or information was acquired, including: (i) the identity of customers and prospects, their specific requirements, and the names, addresses and telephone numbers of individual contacts at customers and prospects; (ii) prices, renewal dates and other detailed terms of customer and supplier contracts and proposals; (iii) pricing policies, marketing and sales strategies, methods of delivering products and services, and product and service development projects and strategies; (iv) source code, object code, formats, user manuals, technical manuals and other documentation for Software products; (v) screen designs, report designs and other designs, concepts and visual expressions for Software products; (vi) designs, concepts, know-how, user manuals, technical manuals and other documentation for trading systems, communications networks and related technologies; (vii) employment and payroll records; (viii) forecasts, budgets and other nonpublic financial information; and (ix) expansion plans, management policies, methods of operation, and other business strategies and policies.

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(b) Use any proprietary Software, technology, products or services or other confidential or proprietary knowledge or

information of WidePoint, Acquisition, Vuance (with respect to the Vuance CSMS Business), or any of its affiliates, no matter when or how acquired, for any purpose not in furtherance of the businesses and interests of WidePoint and/or Acquisition, including but not necessarily limited to for purposes of designing, developing, marketing and/or selling any Software, technology, products or services that are similar to (visually or functionally) or competitive with any proprietary Software, technology, products or services of the Vuance CSMS Business.

7.3. Noncompetition Covenants.

(a) During the period beginning on the Closing Date and ending on the fifth (5 th ) anniversary of the Closing Date, except with WidePoint’s prior written consent, neither Vuance nor Parent, nor any entity owned or controlled directly or indirectly by Vuance or Parent, shall, directly or indirectly, in any capacity, at any location in the United States of America:

(i) Communicate with or solicit any Person who is or during such period becomes a customer, prospect, supplier, salesman, agent or representative of, or a consultant to, the Vuance CSMS Business operated by Acquisition and/or WidePoint, in any manner that interferes or might interfere with such Person’s relationship with WidePoint, Acquisition or their affiliates, or in an effort to obtain any such Person as a customer, supplier, salesman, agent or representative of, or a consultant to, any other Person that conducts a business competitive with or similar to all or any part of the Vuance CSMS Business operated by Acquisition and/or WidePoint.

(ii) Market or sell, in any manner other than in furtherance of the business and interests of WidePoint, Acquisition or their affiliates, any Software, technology, products or services that is similar to (visually or functionally) or competitive with any proprietary Software, technology, products or services of the Vuance CSMS Business operated by Acquisition and/or WidePoint.

(iii) Establish, own, manage, operate, finance or control, or participate in the establishment, ownership, management, operation, financing or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any Person that conducts a business competitive with or similar to all or any part of the Vuance CSMS Business operated by Acquisition and/or WidePoint.

(iv) Disparage, denigrate or belittle in any manner reasonably likely to be seen, overheard or communicated to any party outside of WidePoint any proprietary Software, technology, products or services of Acquisition or any of its subsidiaries no matter when or how acquired.

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(v) Knowingly solicit or encourage or attempt to influence, or cause any third party to encourage or attempt to

influence, any Employee who was employed by Vuance or Parent at any time during the two (2) year period prior to the date hereof to leave the employment of Acquisition.

(b) In furtherance of the non-competition provisions of this Section 7.3, each of Vuance and Parent shall execute a Non-Competition Agreement as attached to this Agreement as Exhibit H-l .

(c) During the period beginning on the Closing Date and ending on the fifth (5 th ) anniversary of the Closing Date, Parent and Vuance shall provide the services and products listed in Schedule 7.3(c) to any Person in the United States of America pursuant to either a preferred reseller agreement or a joint teaming agreement in the form attached to Schedule 7.3(c) with Acquisition and/or WidePoint.

7.4. Enforcement of Covenants. As of the Closing Date, each of Vuance and Parent expressly acknowledges that it would be extremely difficult to measure the damages that might result from any breach of the Covenants, and that any breach of the Covenants will result in irreparable injury to WidePoint and Acquisition for which money damages could not adequately compensate. If a breach of the Covenants occurs, WidePoint and Acquisition shall be entitled, in addition to all other rights and remedies that WidePoint and Acquisition may have at law or in equity, to have an injunction issued by any competent court enjoining and restraining any of Vuance, Parent, and all other Persons involved therein from continuing such breach. The existence of any claim or cause of action that any of Vuance, Parent, or any such other Person may have against WidePoint or Acquisition shall not constitute a defense or bar to the enforcement of any of the Covenants. If WidePoint or Acquisition must resort to litigation to enforce any of the Covenants that has a fixed term, then such term shall be extended for a period of time equal to the period during which a breach of such Covenant was occurring, beginning on the date of a final court order (without further right of appeal) holding that such a breach occurred or, if later, the last day of the original fixed term of such Covenant.

7.5. Scope of Covenants. If any Covenant, or any part thereof, or the application thereof, is construed to be invalid, illegal or unenforceable, then the other Covenants, or the other portions of such Covenant, or the application thereof, shall not be affected thereby and shall be enforceable without regard thereto. If any of the Covenants is determined to be unenforceable because of its scope, duration, geographical area or other factor, then the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such Covenant shall then be enforceable in its reduced or limited form.

7.6. Post-Closing Covenants.

(a) From and after the Closing, for a minimum period of sixty (60) days after Closing, Vuance and/or Parent, as necessary, shall forward to WidePoint at an address designated by WidePoint in writing all correspondence, electronic mail and other information received by Vuance or Parent in connection with the Vuance CSMS Business, including but not limited to information received at the “Gardner” Vuance.com address, the “ gov@vuance.com “ address and/or such other additional addresses as set forth in Schedule 7.6 . In addition, Vuance shall maintain all system domains and domain names listed in Schedule 7.6 for a minimum period of sixty (60) days after Closing and shall grant WidePoint access to all such domains during such sixty-day period.

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(b) As of the date of this Agreement, Vuance has certain outstanding and incomplete obligations of Vuance under Phase 1 of a

contract with the Delaware State University (“DSU”). The outstanding and incomplete obligations of Vuance under Phase 1 of such contract with DSU include, but are not limited to, (i) Vuance continuing to provide hardware, software and services to develop and complete work for DSU involving the Vuance MASC system, the Vuance Pure RF technology, and such other items as required under Phase 1 of such contract between Vuance and DSU; (ii) Vuance completing the installation and full functionality of the Vuance MASC system in the Vuance Leased Premises located in Gardner, Massachusetts, which after the Closing shall be items in the Vuance Leased Premises that shall be solely owned by Acquisition; (iii) Vuance completing its obligations with respect to the installation, configuration and full functionality of the test lab in the Vuance Leased Premises in accordance with the DSU contract; and (iv) Vuance providing and completing all other aspects of the Vuance obligations under Phase 1 of the DSU contract. Vuance has already been fully paid by DSU under this contract, but Vuance has not completed its work and deliverable requirements under such DSU contract. Vuance covenants to complete all requirements under Phase 1 of the DSU contract within sixty (60) days from the Closing under this Agreement. Vuance understands and agrees that Acquisition and WidePoint will be seeking to provide future work for DSU and that the failure by Vuance to promptly and completely satisfy all obligations under Phase 1 of the DSU contract within such 60-day period will be a breach of this Agreement.

7.7. Guaranty. For and in consideration of the consummation of the Asset Purchase as set forth herein, Parent hereby unconditionally and irrevocably guarantees the prompt and complete satisfaction and performance of Vuance’s obligations hereunder, in strict accordance with the terms of this Agreement. If Vuance does not perform its obligations in strict accordance with the terms of this Agreement, Parent shall promptly perform and satisfy Vuance’s obligations on behalf of Vuance or cause Vuance to promptly perform such obligations. Parent waives the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof, to the extent permitted by Law. Parent’s liability under this guaranty is not conditioned or contingent upon the genuineness, validity, regularity or enforceability of this Agreement. Parent waives any right to require WidePoint to proceed against Vuance or any other Person or pursue any other remedy in WidePoint’s power whatsoever. WidePoint may, at its election, exercise or decline or fail to exercise any right or remedy it may have against Vuance without affecting or impairing in any way the liability of Parent hereunder. Parent waives any defense arising by reason of any disability or other defense of Vuance or by reason of the cessation from any cause whatsoever of the liability of Vuance. Parent waives any setoff, defense or counterclaim that Vuance may have against WidePoint. Parent waives any defense arising out of the absence, impairment or loss of any right of reimbursement or subrogation or any other rights against Vuance. Until all of the obligations of Vuance have been performed in full and to the complete satisfaction of WidePoint, Parent shall have no right of subrogation or reimbursement for claims arising out of or in connection with this Agreement or other rights against Vuance, and Parent waives any right to enforce any remedy that WidePoint now has or may hereafter have against Vuance. Parent waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this guaranty. Parent assumes the responsibility for being and keeping itself informed of the financial condition of Vuance and of all other circumstances bearing upon the risk of nonperformance of any obligation of Vuance, including but not limited to any indemnity obligation, warrants to WidePoint that it will keep so informed, and agrees that absent a request for particular information by Parent, WidePoint shall have no duty to advise Parent of information known to WidePoint regarding such condition or any such circumstances.

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SECTION 8: CLOSING CONDITIONS

8.1. Conditions to Vuance’s Obligations To Effect the Asset Purchase. Each obligation of Vuance and Parent to be

performed on the Closing Date shall be subject to the satisfaction of each of the conditions stated in this Section 8.1, except to the extent that such satisfaction is waived by Vuance in writing.

(a) WidePoint’s Representations. All representations, warranties and certifications made by WidePoint and Acquisition in this Agreement, including in any Disclosure Schedule, shall be true and correct in all respects as of the Closing Date (except that representations and warranties that by their terms speak as of the date of this Agreement or some other date shall be so true and correct only as of such specified date); provided, however, that neither Vuance nor Parent shall be entitled to claim the condition set forth in this Section 8.1(a) has not been satisfied if: (i) any of them knows that any representation, warranty or certification made by WidePoint or Acquisition is untrue or incorrect; (ii) none of them has provided WidePoint with notice of such untruth or incorrectness and adequate opportunity to prepare and deliver a disclosure schedule update with respect to such matter prior to the Closing; and (iii) the matter which Vuance or Parent knows to be untrue or incorrect is the basis upon which the condition set forth in this Section 8.1(a) is claimed to be unsatisfied.

(b) WidePoint’s Performance. All of the covenants and agreements in this Agreement to be satisfied or performed by WidePoint or Acquisition on or before the Closing Date shall have been satisfied or performed in all material respects.

(c) Absence of Proceedings. No Proceeding shall have been instituted, no Judgment shall have been issued, and no new Law shall have been enacted, on or before the Closing Date, that seeks to or does prohibit or restrain, or that seeks damages as a result of, the consummation of or any of the Transactions.

(d) Approval by Shareholders of Vuance and Parent. Vuance and Parent shall have received all necessary approval(s) from the Vuance shareholders and, if required or warranted, the Parent shareholders, with respect to the Asset Purchase and this Agreement, together with the approval(s) from any other Person having any rights which require obtaining an approval for the Transactions.

(e) Absence of Adverse Changes. Since the date of this Agreement, there shall not have been any change which would have an adverse effect on the business, financial condition or results of operations of WidePoint taken as a whole, which adverse effect is or will be material, under either US GAAP or applicable legal principles, to WidePoint or WidePoint’s business, provided, that, none of the following shall constitute a material adverse effect for purposes of this Section 8.1(e): (i) any circumstance, change or effect generally affecting companies acting in the same industry as WidePoint, including, without limitation, any change in the accounting rules, Laws or regulations generally affecting such industry; (ii) any circumstance, change or effect affecting generally the United States economy or world equity markets or any material portion thereof; (iii) any circumstance, change or effect arising out of, resulting from or relating to the announcement or pendency of the Transactions or compliance with the terms of, or the taking of any action required by, this Agreement; or (iv) any circumstance, change or effect arising out of, resulting from or relating to any act or omission of Vuance or Parent.

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(f) Regulatory Matters Representations. The representations and warranties made by WidePoint and Acquisition in Section

5.3 shall be true and correct in all material respects (without giving effect to any disclosure schedule changes with respect thereto).

(g) Consents. All of the Consents identified as “Material Consents” on Schedules 6.5 or 6.6 shall have been obtained.

(h) Regulatory Approvals. Copies of all Consents of Governmental and Regulatory Authorities listed in Schedules 6.5 or 6.6 shall have been obtained. Additionally, none of the consents referred to above shall include any condition applicable to Acquisition’s operations after the Closing which is, in the reasonable judgment of WidePoint, materially adverse in any manner to Acquisition’s operations after the Closing; provided, however, that any condition that constitutes a requirement that Acquisition comply and Acquisition’s operations be conducted in accordance with applicable Law shall not be deemed to be materially adverse for purposes of this Section 8.1(h).

(i) Receipt of Deliveries. Vuance shall have received the deliveries required to be delivered by WidePoint and Acquisition pursuant to Section 9.3.

8.2. Conditions to WidePoint’s and Acquisition’s Obligations To Effect the Asset Purchase. Each obligation of WidePoint and Acquisition to be performed on the Closing Date shall be subject to the satisfaction of each of the conditions stated in this Section 8.2, except to the extent that such satisfaction is waived by WidePoint, in writing.

(a) Representations of Vuance and Parent. All of the representations, warranties and certifications made by Vuance and Parent in this Agreement, including in any Disclosure Schedule (as modified by any Disclosure Schedule Change) shall be true and correct in all respects as of the Closing Date (except that representations and warranties that by their terms speak as of the date of this Agreement or some other date shall be so true and correct only as of such specified date); provided, however, that neither WidePoint nor Acquisition shall be entitled to claim the condition set forth in this Section 8.2(a) has not been satisfied if: (i) either of them knows that any representation, warranty or certification made by Vuance or Parent is untrue or incorrect; (ii) neither of them has provided Vuance with notice of such untruth or incorrectness and adequate opportunity to prepare and deliver a Disclosure Schedule Change with respect to such matter prior to the Closing; and (iii) the matter which WidePoint or Acquisition knows to be untrue or incorrect are the basis upon which the condition set forth in this Section 8.2(a) is claimed to be unsatisfied.

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(b) Performance of Vuance and Parent. All of the covenants and agreements in this Agreement to be satisfied or performed

by Vuance and/or Parent on or before the Closing Date shall have been satisfied or performed in all material respects.

(c) Absence of Proceedings. No Proceeding shall have been instituted, no Judgment shall have been issued, and no new Law shall have been enacted, on or before the Closing Date, that seeks to or does prohibit or restrain, or that seeks damages as a result of, the consummation of or any of the Transactions.

(d) Absence of Adverse Changes. Since the Date of this Agreement, there shall not have been any change which would have a Material Adverse Effect or any material casualty loss affecting the Specified Assets or financial condition of the Vuance CSMS Business which would have a Material Adverse Effect or any material change in the Specified Liabilities, in each case which Material Adverse Effect is or will be material under either US GAAP or applicable legal principles to Vuance or the Vuance CSMS Business; provided, that, none of the following shall constitute a Material Adverse Effect for purposes of this Section 8.2(d): (i) any circumstance, change or effect arising out of, resulting from or relating to the announcement or pendency of the Transactions or compliance with the terms of, or the taking of any action required by, this Agreement; (ii) any circumstance, change or effect affecting generally the United States economy or world equity markets or any material portion thereof; (iii) any circumstance, change or effect arising out of, resulting from or relating to an announcement of the Transactions, if WidePoint and Acquisition have pre-approved such announcement in writing; or (iv) any circumstance, change or effect arising out of, resulting from or relating to any act or omission of WidePoint or any of its affiliates.

(e) [INTENTIONALLY OMITTED]

(f) Consummation of Intellectual Property and Capital Asset Transfers. Prior to the Closing, all necessary entities, including but not limited to Parent, shall have transferred to Vuance all assets, including but not limited to the Software Transfers, all other software and related intellectual property rights, and all capital assets, which are used in the Vuance CSMS Business pursuant to the transfer documents attached hereto as Exhibit A.

(g) Intellectual Property Assignments. Prior to the Closing, the individuals and entities set forth on Schedule 8.2(G) shall have executed and delivered to Vuance a Bill of Sale and Assignment and Assumption Agreement in substantially the form attached hereto as Exhibit A, providing for the assignment from such individuals and entities to Vuance of any and all rights such Persons may have with respect to any and all intellectual property and other Assets used in the Vuance CSMS Business. At the Closing, Vuance shall have executed and delivered the forms of intellectual property assignment agreements attached hereto as Exhibit D- l and Exhibit D- 2, providing for an assignment from Vuance of any and all intellectual property rights Vuance may have with respect to any and all intellectual property used in the Vuance CSMS Business.

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(h) Written Agreements With Consultants and Employees. Prior to Closing, each of the persons named in Schedule 8.2(H)

(A) shall enter into and execute the employment agreements attached hereto as Exhibit E-l with Acquisition. In addition, Prior to Closing, each of the persons named in Schedule 8,2(H)(B) shall enter into and execute the employment letters attached hereto as Exhibits H-2 through H-9 .

(i) Consents. All of the Consents identified as “Material Consents” on Schedules 6.5 or 6.6 shall have been obtained.

(j) Regulatory Approvals. Copies of all Consents of Governmental and Regulatory Authorities listed in Schedules 6.5 or 6.6 shall have been obtained. Additionally, none of the consents referred to above shall include any condition applicable to Acquisition’s operations after the Closing which is, in the reasonable judgment of WidePoint, materially adverse in any manner to Acquisition’s operations after the Closing; provided, however, that any condition that constitutes a requirement that Acquisition comply and Acquisition’s operations be conducted in accordance with applicable Law shall not be deemed to be materially adverse for purposes of this Section 8.2(j).

(k) Minimum Financial Condition. The Specified Assets shall be subject to certain minimum amounts, the Specified Liabilities shall be subject to certain maximum amounts, and the Vuance CSMS Business to be acquired by Acquisition shall be subject to certain minimum financial requirements, all as to be mutually agreed upon by Vuance, Acquisition and WidePoint prior to the Closing and set forth in Schedule 8.2(K) hereto.

SECTION 9: CLOSING AND OBLIGATIONS AT CLOSING

9.1. Closing. The closing of the Transaction (the “Closing”) will take place at the offices of Foley & Lardner LLP, 3000 K Street, N.W., Sixth Floor , Washington, D.C. 20007 or at such other place as the parties hereto mutually agree, at 12 p.m., local time on: (a) the fifth business day following the day all conditions set forth in Section 8 have been satisfied, or if permissible, waived in accordance with this Agreement; or (b) on such other date mutually agreeable to the parties hereto on which all such conditions have been satisfied, or if permissible, waived in accordance with this Agreement (such date on which the Closing occurs shall be the “Closing Date”). At the Closing there shall be delivered to WidePoint, Acquisition and Vuance the certificates and other documents and instruments required to be delivered under Sections 8 and 9.

9.2. Vuance’s Obligations at Closing. At the Closing, Vuance or Parent shall deliver, or cause to be delivered, as applicable, the following to WidePoint:

(a) Specified Assets. Possession and control of the Vuance CSMS Business, all of the Specified Assets, the Vuance Leased Premises and all of Vuance’s Tangible Property, including all applicable keys, access cards and other entry devices.

(b) Documents of Transfer. Such bills of sale, assignments, deeds, endorsements, affidavits, and other instruments and documents of sale, transfer, assignment and conveyance as WidePoint may reasonably require in order to lawfully and effectively sell, transfer, assign and convey to Acquisition all right, title and interest in and to all of the Specified Assets, in each case in form reasonably acceptable to WidePoint, dated as of the Closing Date, and duly executed and, if necessary, acknowledged by Vuance and any other necessary entities.

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(c) Compliance Certificates. A certificate executed by the an officer of each of Vuance and Parent, in each case with respect

to itself, that each of the representations, warranties and certifications made by such party in this Agreement, including in any Disclosure Schedules (as modified by any Disclosure Schedule Change) is true and correct in all respects as of the Closing Date (except that representations and warranties that by their terms speak as of the date of this Agreement or some other date shall be true and correct only as of such date), and that all of the covenants and agreements in this Agreement to be satisfied or performed by such party on or before the Closing Date have been satisfied or performed in all material respects.

(d) Update of Certain Information. A document or set of documents identifying: (i) all Specified Contracts (grouped by the categories set forth in Section 4.14) to which Vuance is a party or by which Vuance is bound that have been entered into or by which Vuance has become bound subsequent to the date hereof and through the Closing Date; (ii) all Specified Contracts terminated subsequent to the date hereof and through the Closing Date which are terminable at will or which by their terms terminate prior to the Closing Date; (iii) all new Employees who have been hired by Vuance and all independent contractors who have been engaged by Vuance, in each case subsequent to the date hereof and through the Closing Date with respect to the Vuance CSMS Business and the applicable information regarding each such employee, and independent contractor required to be set forth with respect to employees and independent contractors in Schedule 4.14 ; (iv) all bonuses paid or adjustments to compensation of the Employees made in the ordinary course of business, consistent with Vuance’s past practice, subsequent to the date of this Agreement and through the Closing Date; and (v) each new customer of the Vuance CSMS Business who has become such subsequent to the date hereof and through the Closing Date and the applicable information regarding each such customer required to be set forth with respect to customers in Schedule 4.16 .

(e) Consents. The original signed copies of all Consents, including but not limited to landlord consents, identified as “Material Consents” on Schedule 4.2 (the “Material Consents”), to the extent obtained prior to the Closing.

(f) Certified Approvals of Vuance and Parent. Certified copies of the approvals of the respective officers, Board of Directors and shareholders of Vuance and Parent, as and if required under this Agreement, authorizing and approving this Agreement and the consummation of the Transactions to which Vuance and Parent are a party.

(g) Incumbency Certificate of Vuancen and Parent. Incumbency certificates relating to each person executing (as an officer or otherwise on behalf of another person) this Agreement and any other document or instrument executed and delivered to WidePoint or Acquisition by Vuance and Parent pursuant to the terms hereof.

(h) [Intentionally Omitted]

(i) Opinion of Counsel. An opinion of Shelowitz & Associates PLLC, counsel to Vuance, and an opinion of Yossi Avraham & Co., counsel to Parent, addressed to WidePoint and dated the Closing Date, with respect to matters set forth in Exhibit F-l and Exhibit F-2, respectively.

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(j) Other Documents. All other agreements, certificates and instruments reasonably requested by WidePoint in order to fully

consummate and make effective the Transactions and carry out the purposes and intent of this Agreement, including but not limited to all Exhibits and schedules referenced in this Agreement.

9.3. WidePoint’s and Acquisition’s Obligations at Closing. At the Closing, WidePoint and Acquisition shall deliver the following to Vuance:

(a) Purchase Price. The Cash Amount, subject to adjustment in accordance with this Agreement, and such other consideration as required by Section 3 hereof.

(b) Assumption of Liabilities. Such undertakings and instruments of assumption as Vuance may reasonably require in order to evidence the assumption by Acquisition of the Specified Liabilities, in each case in a form reasonably acceptable to Vuance, dated as of the Closing Date, and duly executed and, if necessary, acknowledged by Acquisition.

(c) Compliance Certificate. A certificate executed by the chief executive officer or chief financial officer of WidePoint and a certificate executed by an officer of Acquisition that each of the representations, warranties and certifications made by WidePoint and Acquisition in this Agreement, including in any Disclosure Schedule (as modified by any Disclosure Schedule Change) is true and correct as of the Closing Date (except those representations and warranties that by their terms speak as of the date of this Agreement or some other date shall be true and correct only as of such date) and that all of the covenants and agreements in this Agreement to be satisfied or performed by WidePoint or Acquisition on or before the Closing Date have been satisfied or performed in all material respects.

(d) Certified Resolutions. A certified copy of the resolutions of the Board of Directors of both WidePoint and Acquisition authorizing and approving this Agreement and the consummation of the Transactions with respect to each of WidePoint and Acquisition.

(e) Incumbency Certificates. Incumbency certificates relating to each person executing on behalf of WidePoint or Acquisition (as a corporate officer or otherwise on behalf of another person) this Agreement any other document or instrument executed and delivered to Vuance by WidePoint or Acquisition pursuant to the terms hereof.

(f) Other Documents. All other agreements, certificates and instruments reasonably requested by Vuance in order to fully consummate and make effective the Transactions and carry out the purposes and intent of this Agreement.

SECTION 10: TERMINATION, AMENDMENT AND WAIVER

10.1. Termination. This Agreement may be terminated, and the Transactions contemplated hereby may be abandoned, at any time prior to the Closing Date:

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(a) by mutual written agreement of the parties hereto duly executed and delivered;

(b) by either WidePoint or Acquisition, on one hand, or Vuance on the other hand, upon written notification to the non-

terminating party by the terminating party:

(i) at any time after December 31, 2009, if the Asset Purchase shall not have been consummated on or prior to such date and such failure to consummate the Asset Purchase is not caused by a breach of this Agreement by the terminating party;

(ii) if any Governmental or Regulatory Entity, the taking of action by which is a condition to the obligations of Vuance, WidePoint or Acquisition to consummate the Transactions, shall have determined not to take such action and all appeals of such determination shall have been taken and have been unsuccessful;

(iii) if there has been a material breach of any representation, warranty, covenant or agreement on the part of the non-terminating party set forth in this Agreement which breach cannot be cured or has not been cured within thirty (30) days following receipt by the non-terminating party of notice of such breach from the terminating party or assurance of such cure reasonably satisfactory to the terminating party shall not have been given by or on behalf of the non-terminating party within such thirty (30) day period;

(iv) if any court of competent jurisdiction or other competent Governmental or Regulatory Entity shall have issued an Order making illegal or otherwise restricting, preventing or prohibiting the Asset Purchase or any of the other Transactions.

(c) WidePoint if between the date of this Agreement and the Closing Date any Disclosure Schedule Change delivered by Vuance or Parent pursuant to this Agreement discloses, in the reasonable business judgment of WidePoint, a new event or condition or events or conditions which, either individually or in their aggregate, could have a detrimental effect, including but not limited to a Material Adverse Effect, to Vuance or the Vuance CSMS Business, provided that: (i) WidePoint shall have notified Vuance within ten (10) business days after such delivery that WidePoint believes, in its reasonable business judgment, the Disclosure Schedule Change(s) disclose event(s) or condition(s) which either individually or in the aggregate could have such a detrimental effect; (ii) WidePoint shall have negotiated in good faith with Vuance with respect to appropriate adjustments (if any) to the terms of this Agreement to reflect such new event(s) or condition(s); and (iii) the parties shall have failed to agree on such adjustments; provided, further, that none of the following shall constitute a detrimental effect for purposes of this Section 10.1(c): (A) any circumstance, change or effect affecting generally the United States economy or world equity markets or any material portion thereof; (B) any circumstance, change or effect arising out of, resulting from or relating to the announcement or pendency of the Transactions or compliance with the terms of, or the taking of any action required by, this Agreement; or (C) any circumstance, change or effect arising out of, resulting from or relating to any act or omission of WidePoint or any of its affiliates.

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10.2. Effect of Termination. If this Agreement is validly terminated by either WidePoint or Acquisition on the one hand, or

Vuance on the other, pursuant to Section 10.1, this Agreement will forthwith become null and void and there will be no liability or obligation on the part of either WidePoint and Acquisition on one hand or Vuance, and Parent on the other (or any of their respective representatives or affiliates), except: (i) that nothing contained herein shall relieve any party hereto from liability for breach of its representations, warranties, covenants or agreements contained in this Agreement; and (ii) that the provisions of Sections 6.11 and 14.1 and, except as provided in the next succeeding sentence, the provisions with respect to expenses in Section 14.2 will continue to apply following any such termination. Notwithstanding any other provision in this Agreement to the contrary, upon termination of this Agreement pursuant to Section 10.1(b)(iii), Vuance and Parent will remain liable to WidePoint and Acquisition for any breach of this Agreement by Vuance or Parent existing at the time of such termination, and WidePoint and Acquisition will remain liable to Vuance and Parent for any breach of this Agreement by WidePoint or Acquisition existing at the time of such termination, and WidePoint and Acquisition or Vuance and Parent, as applicable, may seek such remedies, including damages and fees of attorneys, against the other with respect to any such breach as are provided in this Agreement or as are otherwise available at Law or in equity.

10.3. Amendment. This Agreement may be amended, supplemented or modified by action taken by or on behalf of the respective duly authorized officer or manager, as the case may be, of each of the parties hereto at any time prior to the Closing, whether prior to or after adoption of this Agreement by Vuance’s sole shareholder, but after such adoption and approval only to the extent permitted by applicable Law. No such amendment, supplement or modification shall be effective unless set forth in a written instrument duly executed by or on behalf of each party hereto.

10.4. Waiver. Subject to the other terms and conditions of this Agreement, at any time prior to the Closing any party hereto, by action taken by or on behalf of its duly authorized officer or manager, as the case may be, may to the extent permitted by applicable Law: (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto; (b) waive any inaccuracies in the representations and warranties of the other parties hereto contained herein or in any document delivered pursuant hereto; or (c) waive compliance with any of the covenants, agreements or conditions of the other parties hereto contained herein. No such extension or waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party extending the time of performance or waiving any such inaccuracy or non-compliance. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion.

SECTION 11: CERTAIN OBLIGATIONS OF VUANCE AND PAREN T AFTER CLOSING

11.1. Transition and Cooperation. From and after the Closing Date: (a) Vuance and Parent shall fully cooperate to transfer to WidePoint the control and enjoyment of the Vuance CSMS Business and the Specified Assets; (b) none of Vuance or Parent shall in bad faith, take any action or fail to take any action directly or indirectly, alone or together with others, which obstructs or impairs the smooth assumption by WidePoint through Acquisition of the Vuance CSMS Business; and (c) Vuance and Parent shall promptly deliver to WidePoint all correspondence, papers, documents and other items and materials received by any of them or found to be in their possession that constitute Books and Records of Vuance transferred to Acquisition pursuant to this Agreement.

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11.2. Use of Names. Beginning immediately after the Closing Date, Vuance and Parent shall not use, and shall cease all existing

use, of all entity names, fictitious names, product names and other names that are included as part of the Specified Assets, except as may be necessary to perform their obligations hereunder or as may be necessary to exercise any rights or take any actions relating to the Assets of Vuance that are not Specified Assets or the Obligations of Vuance that are not Specified Liabilities. Upon WidePoint’s or Acquisition’s request, Vuance and Parent shall promptly sign all Consents and other documents that may be necessary to allow Acquisition to use or appropriate the use of any name used by Vuance at any time on or before the Closing Date and included in the Specified Assets.

11.3. Contract Matters . After the Closing, each Contract (“Transferred Contract”) as to which (a) the Contract Rights of Vuance are included in the Specified Assets, and (b) Consent to the assignment thereof from Vuance to Acquisition may be required under such Transferred Contract or applicable Law but was not obtained on or before the Closing Date, shall be handled in accordance with the following provisions, to the fullest extent permitted pursuant to such Transferred Contracts and applicable Law:

(a) Consent. Vuance and Parent shall use commercially reasonable efforts (which shall not include payment for obtaining a Consent) to cooperate with Acquisition in Acquisition’s efforts to obtain Consent to the assignment of such Transferred Contract. If and when Consent to assignment of such Transferred Contract is obtained, such Transferred Contract shall no longer be subject to the provisions of this Section 11.3.

(b) Subcontracting. Vuance and Parent shall use commercially reasonable efforts to make available to Acquisition all Contract Rights and other benefits of such Transferred Contract, on a subcontract or sublease basis or in some other appropriate manner reasonably requested by WidePoint to the fullest extent permitted pursuant to the Transferred Contract and applicable Law, and Acquisition shall be considered an independent subcontractor or sublessee of Vuance, or an agent of Vuance, with respect to all matters concerning such Transferred Contract. Without limiting the foregoing, Acquisition shall be considered Vuance’s agent for purposes of (i) collecting all amounts that may be due from the other party or parties to , such Transferred Contract; and (ii) negotiating or otherwise handling all disputes and issues that may arise in connection with such Transferred Contract, other than such disputes or issues as to which Vuance and/or Parent are obligated to indemnify WidePoint or Acquisition hereunder. Until Consent to assignment of each Transferred Contract is obtained, Acquisition shall use commercially reasonable efforts to perform in accordance with the provisions of such Transferred Contract. Acquisition shall be entitled to retain all payments due from the other party or parties under the Transferred Contracts. Without Acquisition’s prior written consent, Vuance shall not agree to any amendment, modification, extension, renewal, termination or other change in the terms of such Transferred Contract, nor shall Vuance exercise any Contract Right under such Transferred Contract.

(c) Buyer’s Instructions. At Acquisition’s direction and expense, Vuance and Parent shall (a) notify the other party or parties to such Transferred Contract that Acquisition is Vuance’s subcontractor, sublessee or agent with respect thereto and that all further payments, notices and other communications with respect thereto shall be directed to Acquisition; (b) agree to such amendments, modifications, extensions, renewals, terminations or other changes in the terms of such Transferred Contract as Acquisition determines, in its sole discretion, are advisable; and (c) exercise any Contract Right under such Transferred Contract at such time and in such manner as Acquisition determines, in its sole discretion, to be advisable.

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(d) Collateral Assignment. Effective as of the Closing Date, Vuance hereby collaterally assigns to Acquisition, and grants to

Acquisition a security interest in, all of Vuance’s contract rights under such Transferred Contract and all cash and non-cash proceeds thereof, as security for the prompt and timely satisfaction and performance of Vuance’s obligations under this Section 11.3. Vuance shall deliver to Acquisition at Closing possession of any original executed copy of such Transferred Contract in the possession of Vuance. Effective as of the Closing Date, Vuance hereby appoints Acquisition as Vuance’s attorney to take such actions, in Vuance’s name and on its behalf, as such attorney determines, in its sole discretion, to be necessary or advisable to protect, perfect and continue perfected the security interest granted hereunder including the execution and filing of such financing statements and other instruments and documents as such attorney determines, in its sole discretion, to be necessary or advisable for such purposes.

(e) Further Assurances. At any time and from time to time after the Closing Date, at Acquisition’s request and expense, and without further consideration, Vuance and Parent shall promptly execute and deliver all such further agreements, certificates, instruments and documents, and perform such further actions, as Acquisition may reasonably request in order to fully consummate the transactions contemplated hereby and carry out the purposes and intent of this Agreement. Without limiting the generality of the foregoing, Vuance shall timely file all Tax Returns and pay all Taxes required to be filed and paid with respect to the Assets, business and operations of Vuance for all periods beginning before and ending on the Closing Date.

SECTION 12: OPERATIONS OF ACQUISITION AFTER CLOSING

12.1. Acquisition’s Operations during Earnout Period. During the Earnout Period, WidePoint and Acquisition agree that Acquisition’s Operations shall be conducted in accordance with the commercially reasonable directions of the Board of Directors of Acquisition, taking into account, among other things, the impact of their decisions on the ability of Vuance to qualify to receive the Earnout Amount and the amount of any such Earnout Amount; provided, however, that notwithstanding anything contained in this Agreement to the contrary, in the event WidePoint and/or Acquisition determines in its commercially reasonable business judgment that it is not commercially reasonable to continue to operate the business of Acquisition with the Specified Assets and Specified Liabilities acquired in the Transactions, then WidePoint and Acquisition shall not have any further obligations to support the Vuance CSMS Business as acquired by Acquisition under this Agreement, and nothing herein shall affect the sole and exclusive ownership by Acquisition of the Specified Assets.

(b) The Board of Directors of Acquisition from and after the Closing shall consist of Steve Komar, James McCubbin and Daniel Turissini.

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(c) The executive officers of Acquisition from and after the Closing shall be Thomas Connell, Jr. as President and Chief

Executive Officer, and James McCubbin, as Chief Financial Officer, Treasurer, and Secretary.

SECTION 13: INDEMNIFICATION

13.1. Indemnification Adjustment. The Purchase Price shall be reduced from time to time by the full aggregate amount (the “Indemnification Adjustment”) owed to WidePoint or Acquisition under this Section 13 as adjusted, if applicable, to reflect the provisions of Sections 13.6 and 13.7, as a result of any Indemnification Matters (as defined in Section 13.5).

13.2. Indemnification by Vuance and Parent. From and after the Closing Date, Vuance, and Parent shall, jointly and severally, indemnify and hold harmless WidePoint, Acquisition, and their respective successors and permitted assigns, and their respective directors, officers, employees, agents and representatives, from and against any and all actions, suits, claims, demands, debts, liabilities, obligations, losses, damages, costs, expenses, judgments and settlements, including reasonable attorney’s fees and court costs (excluding any of the foregoing to the extent reserved on the Closing Balance Sheet) incurred by such persons, arising out of or caused by, directly or indirectly, any of the following:

(i) Any breach by Vuance and/or Parent of any warranty or representation made by Vuance or Parent in or pursuant to this Agreement;

(ii) Any failure or refusal by Vuance and/or Parent to satisfy or perform any covenant of such person in this Agreement

required to be satisfied or performed by any or all of them; (iii) Any matter, event or condition specified in a Disclosure Schedule Change, other than matters, events or conditions as to

which WidePoint has provided a prior written consent pursuant to Section 6.2 hereof; (iv) Any deficiency, adjustment or assessment for Taxes made against or imposed upon Vuance (or any of its predecessors or

successors); (v) Any Obligation of Vuance other than those expressly included in the Specified Liabilities including: (i) any of the types of

Obligations specifically excluded from the Specified Liabilities under Section 2.2; (ii) any such Obligation that may be imposed upon Acquisition as a result of the failure by Vuance to comply with any bulk sales, bulk transfer, fraudulent conveyance or similar Law of any jurisdiction that may be applicable to some or all of the Transactions contemplated by this Agreement; and (iii) any such Obligation that may be imposed upon Acquisition or its affiliates as a result of any Law under which Acquisition or its affiliates may have successor liability for any Tax or other Obligations of Vuance for all periods ending on or before the Closing Date and the pre-Closing portion of any period that begins before the Closing Date and ends after the Closing Date.

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13.3. Limitation of Indemnification. No indemnification is provided hereunder with respect to any financial projection, pro

forma statement or forward-looking statement.

13.4. WidePoint’s Indemnification. From and after the Closing Date, WidePoint shall indemnify and hold harmless Vuance and its directors, officers, employees, representatives, heirs, estates, personal representatives and agents, from and against any and all actions, suits, claims, demands, debts, liabilities, obligations, losses, damages, costs, expenses, judgments and settlements, including reasonable attorney’s fees and court costs incurred by such persons, arising out of or caused by, directly or indirectly, any of the following:

(a) Any breach by WidePoint or Acquisition of any warranty or representation made by WidePoint or Acquisition in or pursuant to this Agreement;

(b) Any failure or refusal by WidePoint or Acquisition to satisfy or perform any covenant of such person in this Agreement required to be satisfied or performed by either or both of them;

(c) Any Obligations arising after the Closing Date with respect to Specified Contract or Specified Liability; and

( d) Any Obligations arising after the Closing Date with respect to Transferred Contracts subject to the provisions of Section 11.3; and

(e) Except to the extent to which indemnification is provided pursuant to Section 13.2. and except for Obligations of Vuance or Parent pursuant to this Agreement, any Obligations of Acquisition or any of its subsidiaries arising from or attributable to all periods beginning after the Closing Date and the post-Closing portion of any period that begins before the Closing Date and ends after the Closing Date.

13.5. Indemnification Procedures. With respect to each event, occurrence or matter (an “Indemnification Matter”) as to which WidePoint or Acquisition, on the one hand, or Vuance on the other hand, as applicable (the “Indemnitee”) is entitled to indemnification from the other, as applicable (the “Indemnitor”) under Section 13.2 or Section 13.4:

(a) Within ten (10) days after the Indemnitee receives written documents underlying the Indemnification Matter or, if the Indemnification Matter does not involve a third party action, suit, claim or demand, promptly after the Indemnitee first has actual knowledge of the Indemnification Matter, the Indemnitee shall give notice to the Indemnitor (“Claim Notice”) of the nature of the Indemnification Matter and the amount demanded or claimed in connection therewith (“Claim Amount”), together with copies of any such written documents. Failure to give such notice shall not affect the Indemnitor’s duty or obligations under this Section 13, except: (i) to the extent Indemnitor is prejudiced thereby; or (ii) as otherwise provided in Section 13.5(c).

(vi) Any Proceeding or Claim against Acquisition or WidePoint by or on behalf of any employee of Vuance who is not employed by Acquisition at the Closing.

(vii) Any Proceeding or Claim against Acquisition by or on behalf of any Person who, after the Closing hereunder, purchases or

receives any equity interest in Vuance, which Proceeding relates to Vuance, its business, Assets or ownership. (viii) Any Proceeding or Claim against Acquisition or WidePoint by or on behalf of any Person who, before or after the Closing

hereunder, asserts any claim against Vuance or Parent relating to Vuance, its business, Assets or ownership.

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(b) If a third party action, suit, claim or demand is involved, then, upon receipt of notice from the Indemnitee of such third

party action, suit, claim or demand (“Indemnification Notice”), the Indemnitor shall, at its expense and through counsel of its choice, promptly assume and have sole control over the litigation, defense or settlement (the “Defense”) of the Indemnification Matter, except that: (i) the Indemnitee may, at its option and expense and through counsel of its choice, participate in (but not control) the Defense; (ii) if the Indemnitee reasonably believes that the handling of the Defense by the Indemnitor may have a material adverse effect on the Indemnitee, its business or financial condition, or its relationship with any customer, prospect, supplier, employee, salesman, consultant, agent or representative, then the Indemnitee may, at its option and expense and through counsel of its choice, assume control of the Defense, provided that the Indemnitor shall be entitled to participate in the Defense at its expense and the Indemnitee shall not consent to any Judgment or agree to any settlement without the Indemnitor’s prior written consent, which consent shall not be unreasonably withheld; (iii) the Indemnitor shall not consent to any Judgment, or agree to any settlement, without the Indemnitee’s prior written consent, which consent shall not be unreasonably withheld; and (iv) if the Indemnitor does not promptly assume control over the Defense or, after doing so, does not continue to prosecute the Defense in good faith, the Indemnitee may, at its option and through counsel of its choice and at the Indemnitor’s expense, assume control over the Defense and the Indemnitee shall not consent to any Judgment or agree to any settlement, without the Indemnitor’s prior written consent, which consent shall not be unreasonably withheld. In any event, the Indemnitor and the Indemnitee shall fully cooperate with each other in connection with the Defense, including by furnishing all available documentary or other evidence as is reasonably requested by the other.

(c) The final amount owed by the Indemnitor to the Indemnitee (if any) shall be determined by a final Judgment (without further right of appeal) or by a settlement agreement or similar Contract executed by the parties involved, and shall be adjusted, if applicable, to reflect the provisions of Sections 13.6 and 13.7 (“Indemnification Amount”). At any time after such Judgment is rendered or such settlement agreement or similar Contract is executed, the Indemnitee may give notice to the Indemnitor (“Payment Notice”) demanding payment of the Indemnification Amount.

(d) In cases where the Indemnitors are Vuance and/or Parent, the final amount owed by the Indemnitor to the Indemnitee shall be automatically deducted from the Purchase Price until it is depleted, and thereafter Vuance, and/or Parent shall, subject to the other provisions of this Section 13, be liable, jointly and severally, for the payment of any portion of such final amount remaining to be paid within five (5) business days after Payment Notice is given.

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(e) In cases where the Indemnitor is WidePoint, WidePoint shall pay the Indemnification Amount to Vuance within five (5)

business days after the Payment Notice is given. Such payment may be made either by submitting payment by wire transfer of immediately available United States federal funds or by certified check.

13.6. Limits on Indemnification. Indemnitor’s liability under this Section 13 shall be limited as follows:

(a) Deductible. No amount shall be payable by the Indemnitor under this Section 13 unless and until the aggregate amount otherwise payable by such Indemnitor under this Section 13 exceeds Five Thousand Dollars ($5,000.00) (the “Deductible”), in which event such Indemnitor shall pay only the amount payable by such Indemnitor under this Section 13 in excess of the Deductible amount and all future amounts that become payable by such Indemnitor under this Section 13 from time to time thereafter.

(b) Time Period. With respect to all Indemnification Matters, the Indemnitor shall not be liable as to any such Indemnification Matter for which the Indemnitee does not give a Claim Notice to the Indemnitor in accordance with Section 13.5(a) within twenty-four (24) months following the Closing Date.

13.7. Exceptions to Limitations. None of the limitations set forth in Section 13.6 shall apply in the case of any Indemnification Matter involving; (a) intentional misrepresentation, fraud or a criminal matter; (b) record or beneficial ownership of any of the equity interests of Vuance; (c) a Disclosure Schedule Change; (d) title to or infringement caused by any Software, technology, service or product which, at any time before Closing, was marketed, licensed, maintained, supported, owned, or claimed to have been owned by Vuance; (e) Taxes; (f) the representations and warranties contained in Sections 4.12 and 4.13; (g) the representations and warranties contained in Section 4.18; (h) the covenants and agreements set forth in Section 13.2; (i) any indemnification claim made by WidePoint pursuant to Sections 14.2(e), 14.2(f) or 14.2(g); (k) any indemnification claim made by Vuance or Parent pursuant to Sections 13.4(c), (d) or (e); and (1) covenants or other obligations to be performed after Closing.

SECTION 14: OTHER PROVISIONS

14.1. Publicity. At all times after the Closing Date, without the prior written consent of the other parties, no party hereto shall make any public announcement regarding the Transactions, except as required by the applicable regulations or rules of the SEC, NYSE/AMEX or any Governmental or Regulatory Entities.

14.2. Fees and Expenses. Except as otherwise expressly set forth in this Agreement, WidePoint shall pay all of the fees and expenses incurred by it and/or Acquisition on the one hand, and Vuance shall pay all of the fees and expenses incurred by it and Parent on the other hand, in negotiating and preparing this Agreement (and all other Contracts and documents executed in connection herewith or therewith) and in consummating the Transactions.

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14.3. Notices. All notices, consents or other communications required or permitted to be given under this Agreement shall be in

writing and shall be deemed to have been duly given when delivered personally or one (1) business day after being sent by a nationally recognized overnight delivery service, postage or delivery charges prepaid or five (5) business days after being sent by registered or certified mail, return receipt requested, postage charges prepaid. Notices also may be given by prepaid facsimile and shall be effective on the date transmitted if confirmed within 48 hours thereafter by a signed original sent in one of the manners provided in the preceding sentence. Notices shall be sent to the parties at their respective addresses set forth below. Any party may change its address for notice and the address to which copies must be sent by giving notice of the new addresses to the other parties in accordance with this Section 14.3, provided that any such change of address notice shall not be effective unless and until received.

If to WidePoint or Acquisition to: Mr. James T. McCubbin

WidePoint Corporation One Lincoln Centre 18W140 22 nd Street, Suite 104 Oakbrook Terrace, Illinois 60181

with a copy to: Foley & Lardner LLP 3000 K Street, N.W. Washington, D.C. 20007-5143 Fax No. (202) 672-5399 Attention: Thomas L. James, Esquire If to Vuance or Parent: Vuance, Inc. c/o Vuance Ltd. Sagid House “Ha’Sharon Industrial Park” P.O. Box 5039 Qadima 60920, ISRAEL Attention: Eyal Tuchman Vuance Ltd. Sagid House “Ha’Sharon Industrial Park’ P.O. Box 5039 Qadima 60920, ISRAEL Attention: Eyal Tuchman

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14.4. Survival. All representations, warranties and covenants made in this Agreement or pursuant hereto shall survive the date

of this Agreement, the Closing Date and the consummation of the Transactions, subject to the provisions of Section 13.6.

14.5. Interpretation of Representations. Each representation and warranty made in this Agreement or pursuant hereto is independent of all other representations and warranties made by the same parties, whether or not covering related or similar matters, and must be independently and separately satisfied. Exceptions or qualifications to any such representation or warranty shall not be construed as exceptions or qualifications to any other representation or warranty.

14.6. Reliance by Parties. Notwithstanding the right of WidePoint and Acquisition, on the one hand, and Vuance and Parent, on the other, to investigate the business, Assets and financial condition of Vuance, WidePoint and Acquisition respectively, and notwithstanding any knowledge obtainable by WidePoint, Acquisition or Vuance, as a result of such investigations, WidePoint, Acquisition on the one hand and Vuance and Parent, on the other have the unqualified right to rely upon and have relied upon, each of the representations and warranties made by Vuance and Parent on the one hand, and WidePoint and Acquisition on the other, in this Agreement.

14.7. Entire Understanding. This Agreement, together with the Annexes, Exhibits and Schedules (including the Disclosure Schedule Changes) hereto, states the entire understanding among the parties with respect to the subject matter hereof, and supersedes all prior oral and written communications and agreements, and all contemporaneous oral communications and agreements, with respect to the subject matter hereof, including all confidentiality letter agreements and letters of intent previously entered into among some or all of the parties hereto. No amendment or modification of this Agreement shall be effective unless in writing and executed as provided for in Section 10.3 hereof.

14.8. Parties in Interest. This Agreement shall bind, benefit and be enforceable by and against WidePoint and Acquisition and their respective successors and assigns, and Vuance and Parent and their respective successors and permitted assigns. No party shall in any manner assign any of its or his rights or obligations under this Agreement without the express prior written consent of the other parties.

with a copy to: Shelowitz & Associates PLLC

11 Penn Plaza, 16th Floor New York, New York 10001 Fax. No. (646) 328-4569 Attention: Mitchell C. Shelowitz

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14.9. Waivers. Except as otherwise expressly provided herein, no waiver with respect to this Agreement shall be enforceable

unless in writing and signed by the party against whom enforcement is sought. Except as otherwise expressly provided herein, no failure to exercise, delay in exercising, or single or partial exercise of any right, power or remedy by any party, and no course of dealing between or among any of the parties, shall constitute a waiver of, or shall preclude any other or further exercise of, any right, power or remedy.

14.10. Severability. If any provision of this Agreement is construed to be invalid, illegal or unenforceable by a court of competent jurisdiction, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto.

14.11. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original hereof, and it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart hereof.

14.12. Section Headings. Section and subsection headings in this Agreement are for convenience of reference only, do not constitute a part of this Agreement, and shall not affect its interpretation.

14.13. References. All words used in this Agreement shall be construed to be of such number and gender as the context requires or permits.

14.14. Controlling Law. THIS AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWA RE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.

14.15. Jurisdiction and Process. In any action between or among any of the parties, whether arising out of this Agreement or otherwise: (a) each of the parties irrevocably consents to the exclusive jurisdiction and venue of the federal and state courts located in the State of Delaware; (b) if any such action is commenced in a state court, then, subject to applicable law, no party shall object to the removal of such action to any federal court located in the State of Delaware; (c) each of the parties irrevocably waives the right to trial by jury; (d) each of the parties irrevocably consents to service of process by first class certified mail, return receipt requested, postage prepaid, to the address at which such party is to receive notice in accordance with Section 14.3; and (e) the prevailing parties shall be entitled to recover their reasonable attorneys’ fees and court costs from the other parties.

14.16. No Third-Party Beneficiaries. Except as provided in Section 14.8, and with respect to the persons indemnified under Section 13, no provision of this Agreement is intended to or shall be construed to grant or confer any right to enforce this Agreement, or any remedy for breach of this Agreement, to or upon any Person other than the parties hereto, including any customer, prospect, supplier, employee, contractor, salesman, agent or representative of Vuance.

14.17. Bankruptcy Qualification. Each representation or warranty made in or pursuant to this Agreement regarding the enforceability of any Contract shall be qualified to the extent that such enforceability may be effected by bankruptcy, insolvency and other similar Laws or equitable principles (but not those concerning fraudulent conveyance) generally affecting creditors’ rights and remedies.

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14.18. No Assignment. No party may assign this Agreement without the prior written consent of the other parties to this

Agreement.

SECTION 15: DEFINED TERMS Certain defined terms used in this Agreement and not specifically defined in context are defined below in this Section 15. Where any group or category of items or matters is defined collectively in the plural number, any item or matter within such definition may be referred to using such defined term in the singular number. Words of any gender used in this Agreement shall be held and construed to include any other gender, unless the context otherwise requires.

15.1. “Acquisition” shall have the meaning set forth in the introductory paragraphs of this Agreement.

15.2. “Acquisition’s Operations” means the continuation of the operation of the Vuance CSMS Business after Closing by Acquisition under WidePoint’s control (and no other business that may be operated by Acquisition before, as of, or after the Closing), as such business operations may be expanded, contracted or otherwise changed after Closing as a result of: (a) expansion or contraction of services, offerings or customer base; (b) development of product enhancements or improvements; (c) development of new releases or new versions of products having substantially similar functional capabilities and market scopes; (d) discontinuance of unsuccessful services, products, product enhancements, product releases or other projects; and (e) other factors generally affecting the Acquisition’s and/or WidePoint’s overall business or the financial services industry; in all cases ((a) through (e)) subject to the applicable provisions of Section 12.1.

15.3. “Ancillary Agreement” shall have the meaning set forth in Section 4.2.

15.4. “Asset Purchase” shall have the meaning set forth in the introductory paragraphs of this Agreement.

15.5. “Assets” means any real, personal, mixed, tangible or intangible property of any nature, including Cash Assets, prepayments, deposits, escrows, accounts receivable, tangible assets (including Tangible Property), Real Property, Software, Contract Rights, Intangibles and goodwill, and any claims, causes of action and other legal rights and remedies, in all cases relating only to the Vuance CSMS Business, including but not limited to those Assets listed on Schedule 2.1(a) hereto.

15.6. “Assigned Contracts” shall have the meaning set forth in Section 2.1 (a)(iv)(F)

15.7. “Books and Records” means all files, documents, instruments, papers, books and records relating to the Vuance CSMS Business, regardless of the medium in which such records were created or currently reside, including without limitation the Specified Contracts, financial statements and related work papers and letters from accountants, budgets, pricing guidelines, ledgers, journals and policies and procedures, but specifically excluding Tax Returns, minute books, stock record books, stock transfer ledgers, stock certificates, membership interest certificates and books, and membership interest transfer ledgers.

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15.8. “Cash Amount” shall have the meaning set forth in Section 3.1(a).

15.9. “Cash Assets” means any cash on hand, cash in bank or other accounts, readily marketable securities, and other cash-

equivalent liquid assets of any nature.

15.10. “Claim Amount” shall have the meaning set forth in Section 13.5(a).

15.11. “Claim Notice” shall have the meaning set forth in Section 13.5(a).

15.12. “Claims” shall have the meaning set forth in Section 4.18.

15.13. “Closing” shall have the meaning set forth in Section 9.1.

15.14. “Closing Balance Sheet” shall have the meaning set forth in Section 3.2.

15.15. “Closing Date” shall have the meaning set forth in Section 9.1.

15.16. “COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, Code Section 4980B, ERISA Sections 601-609.

15.17. “Code” shall mean the Internal Revenue Code of 1986 as amended from time to time.

15.18. “Consent” means any consent, approval, order or authorization of, or any declaration, filing or registration with, or any application, notice or report to, or any waiver by, or any other action of, by or with, any Person, which is necessary in order to take a specified action or actions in a specified manner and/or to achieve a specified result.

15.19. “Contract” means any written or oral contract, agreement, instrument, order, arrangement, commitment or understanding of any kind or nature, including, but not limited to, sales orders, purchase orders, leases, subleases, data processing agreements, maintenance agreements, license agreements, sublicense agreements, loan agreements, promissory notes, security agreements, pledge agreements, deeds, mortgages, guaranties, indemnities, warranties, employment agreements, consulting agreements, sales representative agreements, joint venture agreements, buy-sell agreements, subscriber agreements, clearing agreements, options or warrants.

15.20. “Contract Right” means any right, power or remedy of any kind or nature under any Contract, including rights to receive property or services or otherwise derive benefits from the payment, satisfaction or performance of another party’s Obligations, rights to demand another party accept property or services or take or refrain from taking any other actions, and rights to pursue or exercise remedies or options.

15.21. “Corporate Records” shall have the meaning set forth in Section 4.4.

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15.22. “Deductible” shall have the meaning set forth in Section 13.6(a).

15.23. “Defense” shall have the meaning set forth in Section 13.5(b).

15.24. “Disclosure Schedule Change” shall have the meaning set forth in Section 6.7(a).

15.25. “Disclosure Schedules” shall have the meaning set forth in Section 4.24.

15.26. “Domain Names” shall have the meaning set forth in Section 4.12.

15.27. “Earnout Amount” shall have the meaning set forth in Section 3.3(a).

15.28. “Earnout Payment” shall have the meaning set forth in Section 3.3(a).

15.29. “Earnout Period” shall have the meaning set forth in Section 3.3(a).

15.30. “Earnout Report” shall have the meaning set forth in Section 3.3(b)(ii).

15.31. “Earnout Statement” shall have the meaning set forth in 3.3(b).

15.32. “Effective Time” shall have the meaning set forth in Section 3.2.

15.33. “Employee” shall mean only those employees of Vuance who are set forth on Schedule 15.33 and involved in the Vuance

CSMS Business who will be hired by Acquisition as part of the Transactions .

15.34. “Employee Benefit Plans” means any compensation, incentive, fringe or benefit plan, program, policy, commitments or other similar arrangements under which any employee, former employee, director or consultant of or to Vuance, or any of its ERISA Affiliates, or any beneficiary or any such individual, is covered, is eligible for coverage or has benefit or compensation rights or with respect to which Vuance or any ERISA Affiliates has or may have any liability.

15.35. “Encumbrance” means any lien, superlien, security interest pledge, right of first refusal, mortgage, easement, covenant, restriction, reservation, conditional sale, prior assignment or other encumbrance, claim, burden or charge of any nature.

15.36. “Environmental Laws” means all applicable Laws (including consent decrees and administrative orders legally binding on the applicable party) governing the public health and safety and protection of the environment, including those governing the use, generation, handling, storage and disposal or cleanup of Hazardous Substances, all as amended.

15.37. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

15.38. “ERISA Affiliate” means any trade or business, whether or not incorporated, which is a member of a controlled group or which is under common control with Vuance within the meaning of Section 414 of the Code or which is a member of an “affiliated service group” within the meaning of Section 414 of the Code, which includes Vuance.

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15.39. “ERISA Plan” means any Employee Benefit Plan which is an “employee benefit plan” within the meaning of Section 3(3)

of ERISA.

15.40. “Financial Statements” shall have the meaning set forth in Section 4.7.

15.41. “US GAAP” means generally accepted accounting principles under then current United States accounting rules and regulations, consistently applied. When used in connection with Acquisition’s and its subsidiaries’ financial reporting, US GAAP shall be applied consistently with Vuance’s past practices; provided, however, in no event shall the consistent application of historical accounting policies used by Vuance have priority over US GAAP as applied to the consolidated financial reporting of WidePoint, regardless of materiality.

15.42. “Governmental or Regulatory Entity” means any court, tribunal, arbitrator, authority, agency, commission, official, contracting officer or other similar person, or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision.

15.43. “Hazardous Substances” means: (a) any substance, waste, contaminant, pollutant or material that has been defined, designated or regulated by any United States federal government authority, or any state or local government authority having jurisdiction over any Real Property, including the Vuance Leased Premises, as hazardous, dangerous or toxic pursuant to any applicable Environmental Law of any state in which any Real Property, including the Vuance Leased Premises, is located or any United States Law; and (b) asbestos, polychlorinated biphenyls (“PCB’s”), petroleum, petroleum products and urea formaldehyde.

15.44. “HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

15.45. “Indemnification Adjustment” shall have the meaning set forth in Section 13.1.

15.46. “Indemnification Amount” shall have the meaning set forth in Section 13.5(c).

15.47. “Indemnification Matters” shall have the meaning set forth in Section 13.5.

15.48. “Indemnification Notice” shall have the meaning set forth in Section 13.5(b)

15.49. “Indemnitee” shall have the meaning set forth in Section 13.5.

15.50. “Indemnitor” shall have the meaning set forth in Section 13.5.

15.51. “Insurance Policy” means any public liability, product liability, general liability, comprehensive, property damage, vehicle, life, hospital, medical, dental, disability, worker’s compensation, key man, fidelity bond, theft, forgery, errors and omissions, directors and officers liability or other insurance policy of any nature.

15.52. “Intangible” means any name, corporate name, fictitious name, trademark, trademark application, service mark, service mark application, trade name, brand name, product name, slogan, trade secret, know-how, patent, patent application, copyright, copyright application, design, logo, formula, invention, product right, technology or other intangible asset of any nature, whether in use, under development or design, or inactive. Intangibles do not include the name “Vuance.”

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15.53. “IRS” means the United States Internal Revenue Service.

15.54. “Judgment” means any order, writ, injunction, citation, award, decree or other judgment of any nature of any foreign,

federal, state or local court, governmental body, administrative agency, regulatory authority or arbitration tribunal.

15.55. “Laws” means all laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision or of any Governmental or Regulatory Entity.

15.56. “Material Adverse Effect” means any material adverse effect on: (a) the financial condition or results of operations of the Vuance CSMS Business; (b) the exclusive ownership and intellectual property rights held by Vuance with respect to any Software used in the Vuance CSMS Business; or (c) any of the Assets of third parties which are material to and used by Vuance in the Vuance CSMS Business as conducted immediately prior to Closing and are not readily replaceable.

15.57. “Material Consents” shall have the meaning set forth in Section 9.2(e).

15.58. “Maximum Earnout” shall have the meaning set forth in Section 3.3(a)(i).

15.59. “Non-Assigned Contracts” shall have the meaning set forth in Section 2.1(a)(iv)(F).

15.60. “Obligation” means any debt, liability or obligation of any nature, whether secured, unsecured, recourse, nonrecourse, liquidated, unliquidated, accrued, absolute, fixed, contingent, ascertained, unascertained, known, unknown or otherwise.

15.61. “OFAC” shall have the meaning set forth in Section 4.5(b).

15.62. “Order” means any legally binding writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Entity, in each case whether preliminary or final.

15.63. “Organizational Documents” shall have the meaning set forth in Section 4.1(a).

15.64. “Parent’s Knowledge” or “to the knowledge of Parent” means that neither the record owners of any equity shares of Parent, nor any of the other Persons listed on Schedule 15.8(B) , have any actual knowledge or implied knowledge that the statement made is incorrect. For this purpose, “implied knowledge” means all information available in the books, records and files of Vuance and/or Parent and all information that individuals holding similar positions in a business comparable to the Vuance CSMS Business should reasonably have been expected to know in the course of operating and managing the business and affairs of Vuance or Parent, respectively.

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15.65. “Patriot Act” shall have the meaning set forth in Section 4.5(b).

15.66. “Payment Notice” shall have the meaning set forth in Section 13.5(c).

15.67. “Permit” means any license, permit, approval, waiver, order, authorization, right or privilege of any nature, granted,

issued, approved or allowed by any foreign, federal, state or local governmental body, administrative agency or Governmental or Regulatory Entity.

15.68. “Permitted Liens” means: (a) liens for current taxes and assessments not yet past due; (b) liens of landlords, carriers, mechanics, materialman and repairman incurred in the ordinary course of business for sums not yet past due; (c) all recorded Encumbrances that could not reasonably be expected to have a Material Adverse Effect; and (d) all other liens which when taken individually and in the aggregate do not materially detract from the value of the Assets as now used, or materially interfere with any present or presently intended use of those Assets.

15.69. “Person” means any individual, sole proprietorship, joint venture, corporation, limited liability company, partnership, association, cooperative, trust, estate, governmental body, administrative agency, Governmental or Regulatory Entity or other entity of any nature.

15.70. “Pre-Closing Tax Period” shall have the meaning set forth in Section 4.17(a).

15.71. “Proceeding” means any demand, written claim, suit, action, litigation, investigation by any Governmental or Regulatory Entity, arbitration, administrative hearing or other proceeding by any Governmental or Regulatory Entity of any nature.

15.72. “Purchase Price” shall have the meaning set forth in Section 3.1(a).

15.73. “Qualified Revenues” shall mean the sum of “Qualified Collections” plus “Qualified Accounts Receivable.” Qualified Collections shall mean with respect to each of the calendar years 2010 and 2011, the actual collection and physical receipt of revenues in connection with all the Specified Contracts listed on Schedule 3.3 in respect of such year. Qualified Collections shall mean with respect to the calendar year 2012, the actual collection and physical receipt of revenues in connection with only the U.S. Department of Defense Crime Scene Development Project Contract and the SEPA CTTF Contract listed on Schedule 3.3 in respect of such year. Qualified Accounts Receivable shall mean with respect to each of the calendar years 2010 and 2011, the net accounts receivable properly recognized by Acquisition under US GAAP in connection with all the Specified Contracts listed on Schedule 3.3 in respect of such year. Qualified Accounts Receivable shall mean with respect to the calendar year 2012, the net accounts receivable properly recognized by Acquisition under US GAAP in connection with only the U.S. Department of Defense Crime Scene Development Project Contract and the SEPA CTTF Contract listed on Schedule 3.3 in respect of such year. Qualified Revenues shall also include the following, if applicable: proceeds from the sale, assignment, transfer, leasing, licensing or other disposition of the Specified Contracts (or, if such transaction occurs in the year 2012, of only the U.S. Department of Defense Crime Scene Development Project Contract and the SEPA CTTF Contract) by Acquisition or any of its affiliates during the Earnout Period.

15.74. “Real Property” means any real estate, land, building, condominium, town house, structure or other real property of any nature, all shares of stock or other ownership interests in cooperative or condominium associations or other forms of ownership interest through which interests in real estate may be held, and all appurtenant and ancillary rights thereto, including easements, covenants, water rights, sewer rights and utility rights.

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15.75. “Recent Balance Sheet” shall have the meaning set forth in Section 4.7.

15.76. “Regulatory Agreement” shall have the meaning set forth in Section 4.6(c).

15.77. “SEC” means the United States Securities and Exchange Commission.

15.78. “SDN” shall have the meaning set forth in Section 4.5(b).

15.79. “Software” means any computer program, operating system, applications system, firmware or software of any nature

related to the Vuance CSMS Business as conducted immediately prior to Closing, whether operational, under development or inactive, including all object code, source code, algorithm processes, formulae, interfaces, navigational devices, menu structures or arrangements, icons, operational instructions, scripts, commands, syntax, screen design, report design and other designs, concepts, and visual expressions, technical manuals, user manuals and other documentation therefor, whether in machine-readable form, programming language or any other language or symbols, and whether stored, encoded, recorded or written on disk, tape, film, memory device, paper or other media of any nature, including but not limited to the items listed in Schedule 15.79 .

15.80. “Software Transfers” shall have the meaning set forth in the introductory paragraphs of this Agreement.

15.81. “Specified Assets” shall have the meaning set forth in Section 2.1(a).

15.82. “Specified Contracts” shall have the meaning set forth in Section 4.13(a) and the Contracts listed on Schedule 3.3 .

15.83. “Specified Liabilities of Vuance” shall have the meaning set forth in Section 2.1(b).

15.84. “Tangible Property” means any furniture, fixtures, leasehold improvements, vehicles, office equipment, computer equipment, other equipment and all forms, supplies or other tangible personal property of any nature.

15.85. “Tax” or “Taxes” shall mean any federal, state, local, territorial, provincial, or foreign income, net income, gross receipts, single business, unincorporated business, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code § 59A), customs duties, capital stock, franchise, profits, gains, withholding, FICA, social security (or similar), payroll, unemployment, disability, workers compensation, real property, personal property, ad valorem, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether or not disputed.

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15.86. “Tax Returns” shall mean any return, declaration, report, estimate, claim for refund, or information return or statement

relating to, or required to be filed in connection with, any Taxes, including any schedule, form, statement, or attachment thereto, and including any amendment thereof.

15.87. “Transactions” shall have the meaning set forth in the introductory paragraphs of this Agreement.

15.88. “Transferred Contract” shall have the meaning set forth in Section 11.3.

15.89. “Vuance CSMS Business” for purposes of this Agreement only, shall mean the collective business of Vuance relating to its Government Services Division, including but not limited to the following: (a) the operation by Vuance of identity management and information protection, and other activities related or incidental thereto; and (b) the development, maintenance, enhancement and provision of Software, services, products and operations for identity management and information protection, that provide functionality the same as, substantially similar to or an extension or evolution of the functionality contained in the Software and related Software products used, licensed or owned at any time by Vuance, and/or any affiliates of Vuance prior to the Closing Date.

15.90. “Vuance Group Insurance Plan” shall mean all Insurance Policies that constitute group medical, dental, hospitalization, health, disability and related Employee Benefit Plans of Vuance.

15.91. “Vuance Interests” means al the ownership interests of Vuance outstanding immediately after the Software Transfers and immediately prior to the Asset Purchase.

15.92. “Vuance’s Knowledge” or “to the Knowledge of Vuance” means that neither the record owners of any equity shares of Vuance, nor any of the other Persons listed on Schedule 15.8(A) . have any actual knowledge or implied knowledge that the statement made is incorrect. For this purpose, “implied knowledge” means all information available in the books, records and files of Vuance and/or Parent and all information that individuals holding similar positions in a business comparable to the Vuance CSMS Business should reasonably have been expected to know in the course of operating and managing the business and affairs of Vuance or Parent, respectively.

15.93. [Intentionally Omitted]

15.94. “Vuance Leased Premises” shall have the meaning set forth in Section 4.10.

15.95. “Vuance Software” shall have the meaning set forth in Section 4.12.

15.96. “WidePoint Group” shall mean WidePoint and all existing and future subsidiaries of WidePoint, including Acquisition.

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[BALANCE OF PAGE INTENTIONALLY BLANK]

60

WITNESS THE DUE EXECUTION AND DELIVERY HEREOF AS OF THE DATE FIRST STATED ABOVE.

[Signature page to Asset Purchase Agreement]

WIDEPOINT CORPORATION By:

Name: Title:

VUANCE INC.

By:

Name: Eyal Tuchman Title: CEO

ADVANCED RESPONSE CONCEPTS CORPORATION

By:.

Name: Title:

VUANCE LTD.

By:

Name: Eyal Tuchman Title: CEO

61

EXHIBIT A - EVIDENCE OF ASSET TRANSFER DOCUMENT(S) FROM PARENT AND AFFILIATES TO VUANCE

EXHIBIT A

BILL OF SALE AND ASSIGNMENT AND ASSUMPTION AGREEMEN T

This Bill of Sale and Assignment and Assumption Agreement (the “Bill of Sale and Assignment and Assumption Agreement” ) is

made of this 29 th day of January, 2010, by and between Vuance, Inc., a Delaware corporation ( “Assignee” ) and Vuance Ltd., a company formed under the laws of the State of Israel ( “Assignor” ), pursuant to that certain Asset Purchase Agreement, dated as of January 29, 2010 (the “Purchase Agreement” ) , by and among Assignor, Assignee, Advance Response Concepts Corporation ( “Advance Response” ) , and WidePoint Corporation.

WHEREAS, pursuant to the Purchase Agreement, Assignor agreed to sell, transfer and assign to Assignee certain of their assets as identified in the Purchase Agreement; and

WHEREAS, execution of this Bill of Sale and Assignment and Assumption Agreement is a condition of the Closing; and

WHEREAS, Assignor and Assignee entered into that certain Asset Purchase Agreement among Disaster Management Solutions, Inc., Thomas Connell, II, Assignor and Assignee as of August 23, 2007, attached hereto as Schedule 1 (the “DMS Agreement” ); and

WHEREAS, Assignor owns certain Specified Assets (as defined in the Purchase Agreement) acquired through the DMS Agreement that are being sold to Advance Response.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, subject to the terms of the Purchase Agreement, the parties hereto hereby act and agree as follows:

1. Conveyance and Assump tion. Assignor hereby transfers, assigns, conveys and delivers to Assignee, its successors and assigns, to have and hold forever, and Assignee hereby accepts from Assignor, all of Assignor’s rights, title and interest in, to and under the Specified Assets that Assignor holds pursuant to the DMS Agreement, as set forth in Schedule 2 attached hereto (the “Parent Assets” ), and Assignee accepts and assumes the Parent Assets, and hereby assumes, undertakes, and agrees to pay, perform, fulfill and discharge, from and after the date hereof the Specified Liabilities of Vuance (as defined in the Purchase Agreement) associated with the Parent Assets in accordance with the terms and conditions thereof. Except for the Specified Liabilities of Vuance associated with the Parent Assets, Assignee is not assuming and is not liable for any other liabilities, debts or obligations of Assignor whatsoever.

2. Power of Attorney . Assignor appoints Assignee, its successors and assigns, as the true and lawful attorney-in-fact of Assignor, with full power of substitution, having full right and authority, in the name of Assignor to collect or enforce for the account of Assignee, liabilities and obligations of third parties under the Parent Assets set forth in Schedule 2; to institute and prosecute all proceedings that Assignee may deem proper in order to enforce any claim to obligations owed under the Parent Assets, to defend and compromise any and all actions, suits or proceedings in respect of the Parent Assets, and to do all such acts in relation to the Parent Assets that Assignee may deem advisable. Assignor agrees that the above-stated powers are coupled with an interest and shall be irrevocable by Assignor.

3. Payment of Amounts Due . Assignor hereby authorizes and directs all obligors under the Parent Assets to deliver any

warrants, checks, drafts or payments to be issued or paid to Assignor pursuant to the Parent Assets to Assignee; and Assignor further authorizes Assignee to receive such warrants, checks, drafts or payments from such obligors and to endorse Assignee’s name on them and to collect all funds due or to become due under the Parent Assets.

4. Payments Held in Trust . Any payment that may be received by Assignor to which Assignee is entitled by reason of this Bill of Sale and Assignment and Assumption Agreement shall be received by Assignor as trustee for Assignee, and will be delivered to Assignee within five business days of receipt thereof without commingling with any other funds of Assignor.

5. Further Assurances . Assignor and Assignee at the request of the other and without further consideration, hereby agree to execute and deliver after the date of this Bill of Sale and Assignment and Assumption Agreement such other instruments or documents and to take such additional actions as may be reasonably requested by the other party in order to effect or complete the assumption contemplated hereby.

6. Consummation of Purchase Agreement . This Bill of Sale and Assignment and Assumption Agreement is intended to evidence the consummation of the assignment by Assignor and assumption by Assignee of the Parent Assets and the Specified Liabilities of Vuance associated with the Parent Assets contemplated by the Purchase Agreement. Assignor and Assignee by their execution of this Bill of Sale and Assignment and Assumption Agreement each hereby acknowledges and agrees that neither the representations and warranties nor the rights and remedies of any party under the Purchase Agreement shall be deemed to be enlarged, modified or altered in any way by this Bill of Sale and Assignment and Assumption Agreement. Any inconsistencies or ambiguities between this Bill of Sale and Assignment and Assumption Agreement and the Purchase Agreement shall be resolved in favor of the Purchase Agreement.

7. Waiver . The terms and provisions of this Bill of Sale and Assignment and Assumption Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions.

8. Governing Law . This Bill of Sale and Assignment and Assumption Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflict of law principles thereof.

9. Miscellaneous . This Bill of Sale and Assignment and Assumption Agreement (i) shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, (ii) may be executed in one or more counterparts, and by the parties hereto in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and (iii) may be modified or amended only by written agreement executed by each of the parties hereto.

IN WITNESS WHEREOF, the parties have caused this Bill of Sale and Assignment and Assumption Agreement to be executed and delivered as a document under seal as of the date first above written.

ASSIGNEE: VUANCE, INC.

By: Name: Eyal Tuchman Title: CEO ASSIGNOR: VUANCE LTD.

By: Name: Eyal Tuchman

Title: CEO

IN WITNESS WHEREOF, the parties have caused this Bill of Sale and Assignment and Assumption Agreement to be executed and

delivered as a document under seal as of the date first above written.

ASSIGNEE: VUANCE, INC. By: Name: Eyal Tuchman Title: CEO ASSIGNOR: VUANCE LTD. By: Name: Eyal Tuchman

Title: CEO

SCHEDULE 1

DMS Agreement

SCHEDULE 2

PARENT ASSETS

Line P/N Description Qty Note

12 F-SFW-500915 SY-Server vcr 7.xx 3 S.W 14 G-BI-012080 DC CONTROLER PCB 6005 1 H.W 15 G-EP-170010 BUNDLE IPU KIT PC CLC10 3 H.W 16 G-WT-240000 LINE FILTER FN 281-6-06 32 H.W 17 NES.P.200.002 WIFI SENAO NCB3220 1 H.W 18 P-ACC-504827 AC STROB SLS 3001-ML WOKK3001 1 H.W 20 P-ACC-504863 HOT SHOE ADAPTOR to FLASH C-770 5 H.W 21 P-ACC-504887 100X120CM BLUE SCREEN + SCROLLER 1 H.W 23 P-ACC-505035 BATTERY HOLDER DRW #44 8 H.W 24 P-ACC-505040 POWER CONVERTER PLATE DRW #46 8 H.W 25 P-ACC-505055 MAIN PLATE DRW #39 3 H.W 26 P-ACC-505065 RUBBER LEG 27 H.W 35 P-EP-163240 LINE FILTER BZV04/A1020/04 73 H.W 38 P-EP-200382 CHARGER FOR 12V SLA 1.8A 2 H.W 40 P-EP-500480 12 TO 9V BOARD FOR SC CONTROLLER 3 H.W 44 P-EP-502060 MAIN PLUG MALE JR21PK-16P 10 H.W 45 P-EP-502065 MAIN PLUG FEMALE JR21RK-16S 21 H.W 46 P-EP-502070 MAIN PLUG COVER JRC21RC 6 H.W 49 P-EP-503046 CutOff-LVLD 12V 20A 2 H.W 50 P-EP-503050 Battery Charger 13.8V-8A 110/220 2 H.W 51 P-EP-503055 Indoor DB-15 to RJ-45 Adapter 2 H.W 54 P-EP-503075 Female Connector For Pannel 7 19 H.W 55 P-EP-503080 male Connector For Cable 7 33 H.W 56 P-EP-503085 Female Connector Cover 32 H.W 57 P-EP-503086 Male Connector Cover 18 H.W 58 P-EP-503120 Male Connector 5 pin 11 H.W 59 P-EP-503125 Female Connector (for 5 pin) 7 H.W 60 P-EP-503130 Female Connector Cover (5 pin) 8 H.W 62 P-EP-503145 Dual Poles Rocker Switch (Black) 9 H.W 63 P-EP-503150 Sealing Boot for Rocker Switch 13 H.W 64 P-EP-503180 RJ-45 Push-Pull Connector 5 H.W 65 P-EP-503185 RJ-45 Feed Through Connector 6 H.W 66 P-EP-503I90 9WAY Solder SKT FR MT Waterproof 4 H.W 79 P-SP-011262 COVER SWITCH for CANON 6005 3 H.W 81 P-SP-500728 CONVEYOR BELT GLAS/TEFL 26.4X4.1 1 H.W

82 P-SP-500740 Mounting Fork S-24105 8 H.W 84 P-SP-501090 Tube Adapter 9 H.W 85 P-SP-501095 Tube 250mm 9 H.W 87 P-SP-501115 Front Brace 4 H.W 88 P-SP-501125 SDA Case (Black) 4 H.W 89 P-SP-501130 SDA Brace 4 H.W 90 P-SP-501150 Front Holder 3 H.W 91 P-SP-501155 Rear Holder 3 H.W 92 P-SP-501175 Tripod Main Leg 6 H.W 93 P-SP-501180 Tripod Adjustable Leg 3 H.W 94 P-SP-501210 Adapter Tube 17 H.W 95 P-SP-501230 Tube end Plug 10 H.W 96 P-SP-501240 Upper Wooden Plate 4 H.W 97 P-SP-501245 Side Lower Wooden Plate - 1 4 H.W 98 P-SP-501250 Side Lower Wooden Plate - 2 4 H.W 99 P-SP-501255 Hand Knob M6x20 16 H.W 100 P-SP-501275 Nylon Cover 1 H.W 101 P-SP-501295 Tie Belt 50cm black (scotch) 15 H.W 102 P-SP-501360 Eyelet for Belt 6 H.W 103 P-SP-501390 Wire Holder 1 8 H.W 104 P-SP-501395 Wire Holder 2 8 H.W 105 P-SP-501400 Wire Holder 3 9 H.W 106 P-SP-501405 Wire Holder 4 11 H.W 107 P-SP-501425 Hand Knob M8 41 H.W 109 P-SP-501435 FAN BRACKET 14 H.W 110 P-SP-501440 FILTER BRACKET 14 H.W 111 P-SP-501445 FINGERPRINT BRACKET 8 H.W 112 P-SP-501450 LCD BRACKET 7 H.W 113 P-SP-501455 READER BRACKET 8 H.W 114 P-SP-501460 LCD PANEL 10 H.W 115 P-SP-501465 READER PANEL 6 H.W 116 P-SP-501480 FRAME 4 H.W 117 P-SP-501510 FILTER FOAM 1 H.W 118 P-SP-501540 Hand Knob Ml0x20 22 H.W 124 Tripod 6 H.W 125 Yellow DynaGate - Columbus 2 H.W 126 Orange Tripod battery 2 H.W 127 Black Tripod battery 1 H.W 128 P-TP-141760 Orange Pelican suitcase 2 H.W 131 S-ES-MOM001DGU Enrollment Station (full) - Bucks I H.W 132 S-CS-MOM001DGU Command station suitcase 1 H.W 133 SDA -4A 1 H.W

EXHIBIT B - [INTENTIONALLY OMITTED]

EXHIBIT C - [INTENTIONALLY OMITTED]

EXHIBIT D - 1 – ASSIGNMENT OF INTELLECTUAL PROPERTY FROM PARENT AND VUANCE TO ACQUISITION AND

WIDEPOINT

EXHIBIT D- 1

INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT

This INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT (“Agreement”) is made and entered into effective as of January 29, 2010

(the “Effective Date”), by and among Vuance, Inc., a Delaware corporation with a principal place of business at 213 School Street, Suite 301, Gardner, Massachusetts 01440 (“Seller”); Advanced Response Concepts Corporation, a Delaware corporation with a principal place of business at 18W100 22nd Street, Suite 104, Oakbrook Terrace, Illinois 60181 (“Purchaser”); and WidePoint Corporation, a Delaware corporation with a principal place of business at 18W100 22nd Street, Suite 104, Oakbrook Terrace, Illinois 60181 (“WidePoint”).

WHEREAS, Purchaser, WidePoint, Seller and Vuance, Ltd., a public company organized in the foreign country of Israel under the Israeli Companies Law, registered with the Registrar of Companies of the State of Israel under company number 52-00-4407-4 (“Parent”) are, this same day, entering into an Asset Purchase Agreement (“Purchase Agreement”) pursuant to which Purchaser is purchasing certain of the assets of Seller and the business conducted therewith, which Purchase Agreement provides for Seller to enter into this Agreement for the benefit of Purchaser and WidePoint and as an inducement for Purchaser and WidePoint to enter into the Purchase Agreement with Seller and Parent;

WHEREAS, the agreement by Seller to enter into this Agreement is a condition of the Closing, as defined in the Purchase Agreement;

WHEREAS, Seller desires to sell, assign, grant, convey, and transfer all tangible and intangible intellectual property, software and related information and data of Seller to Purchaser and WidePoint, and Purchaser and WidePoint desire to buy and acquire all such intellectual property, software and related information and data, as is, all in accordance with the terms and conditions of this Agreement (the “Assigned IP”), with such Assigned IP being all the intellectual property of Seller listed in Exhibit A hereto which is used by Seller in the Vuance CSMS Business (as defined in the Purchase Agreement); and

Now, THEREFORE, in consideration for the promises and considerations set forth in this Agreement, the consideration set forth in the Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto intending to be legally bound do hereby agree as follows:

1. Conveyance of Rights to Assigned IP . Effective upon the Closing under the Purchase Agreement, Seller hereby transfers, grants, conveys, assigns, and relinquishes exclusively to Purchaser and WidePoint all of the rights, titles, and interests of Seller in and to the Assigned IP, including, without limitation, the following corporeal and incorporeal things arising from, related to or incident to the Assigned IP:

(a) All rights, title and interest in and to and possession of the object code, source code and any programming code constituting the Assigned IP and any of its component parts;

(b) All rights, title and interest in and to and possession of all data pertaining to any user of the Assigned IP, including,

without limitation, any and all: (i) user identification information, (ii) user scores, (iii) data relating to items, and (iv) data relating to intervals associated with the selection of individual items of the assessment contained in the Assigned IP and any and all related data;

(c) All rights, title and interest in and to and possession of all media on which the Assigned IP is stored;

(d) All rights, title and interest in and to and possession of all documentation, system configurations, error reports, commented source code and any related correspondence or memoranda that arise from or are otherwise related to the Assigned IP or its component parts;

(e) All copyright interests arising from or otherwise pertaining to the Assigned IP, together with all other copyright interests accruing by reason of international copyright conventions or the laws of any foreign jurisdiction;

(f) All rights, title and interest in and to the concepts, designs, methods, algorithms, inventions, discoveries, improvements, trade secrets, trademarks, know-how, confidential information, and all other intellectual property arising from, related to or otherwise pertaining to the Assigned IP; and

(g) All of the rights, title, interest, and benefit of Seller in, to, and under all agreements, contracts, licenses, and leases, if any, entered into by Seller, or having Seller as a beneficiary, pertaining to the Assigned IP, including (without limitation) the rights of Seller as licensee and remarketer of any third-party and open source software components (the “Third Party Software Components”) contained in the Assigned IP.

2. Short Form Assignment . Notwithstanding anything contained herein to the contrary and without in any way reducing any of the rights or obligations of the parties contained in this Agreement, the parties acknowledge that in order to allow disclosure of a signed contract evidencing the assignment executed herein, the Purchaser shall deliver the Assignment of Intellectual Property Agreement in the form attached hereto as Exhibit B (the “Short Form Assignment”) to such requesting third parties. Delivery of the Short Form Assignment and execution thereof shall not reduce the rights or obligations of the parties pursuant to this Agreement, and contains the same Assigned IP as is set forth in Exhibit A attached hereto.

3. Delivery of Physical Objects . Within five (5) days after the Effective Date (or such later date as Purchaser or WidePoint shall specify), Seller shall deliver to Purchaser and WidePoint (i) its entire inventory of all copies of the Assigned IP in both object code and source code form and all copies of the user information database; (ii) a master copy of the Assigned IP in both source code and object code form, each of which shall be in a form suitable for further copying; and (iii) all other items to be delivered in accordance with Sections 1 and 2 that exist in tangible form (with the items set forth in subsections (i), and (ii) of this Section 3 to be referred to herein as the “Deliverables” and the Assigned IP are also herein referred to collectively as the “Intellectual Property”) Purchaser shall bear all costs incurred in transporting the Deliverables to a location to be designated in writing by Purchaser or WidePoint. In addition, on the date that Seller delivers each copy of the Intellectual Property as set forth in this Section 3 to Purchaser and WidePoint, Seller shall delete and purge or shall cause to be deleted and purged all copies of the Assigned IP (in both object and source code) and any related user data and information and/or documentation related to the Assigned IP from any system owned or controlled by the Seller.

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4. Intellectual Property Performance.

(a) Seller represents, warrants and covenants that the Intellectual Property delivered to Purchaser and WidePoint in

accordance with this Agreement will be identical in composition, functionality and performance to that which is being used or has been used by Seller as of the most recent date closest to the date of this Agreement, as well as the versions of the Intellectual Property shown or otherwise presented to WidePoint and its management.

(b) Seller represents, warrants and covenants that, to its knowledge, the Intellectual Property delivered to Purchaser and WidePoint in accordance with this Agreement will not cause any unplanned interruption, disruption or other failure of the operations of, or accessibility to, the Intellectually Property or the information systems of Purchaser, WidePoint or any of their respective customers through any device, method or means, including, without limitation, any virus, lock up, time bomb, key lock, device, program and/or disabling code. Without limiting the generality of the foregoing, under no circumstances will Seller knowingly deny Purchaser, WidePoint or any of the respective customers or agents of Purchaser and/or WidePoint with access (either physical or online) to the Intellectual Property after the Effective Date.

5. Warranties of Title . Except for the rights of the owners of the Third Party Software Components:

(a) Seller represents and warrants that Purchaser and WidePoint shall receive, pursuant to this Agreement as of the Effective Date, complete and exclusive rights, title, and interest in and to all tangible and intangible property rights existing in all the Assigned IP.

(b) Seller represents and warrants that it has either developed or acquired the Intellectual Property entirely through its own efforts for its own account and that the Intellectual Property is free and clear of all liens, claims, encumbrances, rights, or equities whatsoever of any third party.

(c) Seller represents and warrants that, to its knowledge, the Intellectual Property does not infringe any patent, copyright, or trade secret of any third party; that the Intellectual Property is fully eligible for protection under applicable copyright law and has not been forfeited to the public domain; and that the source code and system specifications for the Intellectual Property are accurate and complete and have been maintained in confidence.

(d) Seller represents that, to its knowledge, all rights, title and interests in the Intellectual Property is vested solely and exclusively in Seller, with no other person or entity having any rights with respect thereto, including but not limited to any income, royalty or profit sharing rights.

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(e) Seller represents and warrants that, to its knowledge, there are no agreements or arrangements in effect with respect

to the marketing, distribution, licensing, or promotion of the Intellectual Property by any independent salesperson, distributor, sublicensor, or other remarketer or sales organization.

6. Third -Party Software Components . Seller represents and warrants that it has duly obtained the right and license to use, copy, modify, and distribute the software components contained in the Intellectual Property; that the Intellectual Property contains no other software components in which any third party may claim superior or joint ownership; and that the Intellectual Property is not a derivative work of any other software programs not owned in their entirety by Seller. Seller further represents and warrants that Seller has at all times complied with the terms, conditions and obligations set forth in the Intellectual Property.

7. Release . Seller hereby releases and forever discharges by this Agreement, Purchaser, WidePoint and each of its respective past and present officers, directors and shareholders (each a “Releasee”, collectively “Releasees”), from and against any claim, known or unknown, that Seller may have based on any software development services performed by Seller or any of its respective employees or consultants for Seller and/or any Releasee prior to the date of this Agreement.

8. Further Assurances . Seller shall execute and deliver such further conveyance instruments and take such further actions as may be necessary or desirable to evidence more fully the transfer of ownership of the Assigned IP to Purchaser and WidePoint. Seller therefore, to the extent reasonably requested by Purchaser and/or WidePoint and at the sole cost and expense of Purchaser, agrees:

(a) to execute, acknowledge, and deliver any affidavits or documents of assignment and conveyance regarding the Intellectual Property;

(b) to provide testimony in connection with any proceeding affecting the right, title, or interest of Purchaser in the Intellectual Property; and

(c) to perform any other acts deemed necessary to carry out the intent of this Assignment Agreement.

9. Protection of Trade Secrets . For purposes of this Agreement, “Intellectual Property Trade Secret” means the whole or any portion or phase of any scientific or technical information, design, process, flow-chart, procedure, algorithm, user data, formula, or improvement included in the Intellectual Property that is valuable and not generally known to the business concerns engaged in the development or marketing of products competitive with the Intellectual Property. From and after the date of execution hereof, and for so long thereafter as the data or information remains Intellectual Property Trade Secrets, Seller shall not use, disclose, or permit any person not authorized in writing by Purchaser and WidePoint to obtain any Intellectual Property Trade Secrets (whether or not the Intellectual Property Trade Secrets are in written or tangible form), except as specifically authorized in writing by Purchaser and WidePoint.

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10. Acknowledgement of Rights . In furtherance of this Agreement, Seller hereby acknowledges that, from and after the Effective Date of this Agreement, Purchaser and WidePoint have acceded to all rights, titles, and standings of Seller to:

(a) institute and prosecute all suits and proceedings and take all actions that Purchaser or WidePoint, in its respective sole discretion, may deem necessary or proper to collect, assert, or enforce any claim, right, or title of any kind in and to any and all of the Assigned IP; and

(b) defend and compromise any and all such action, suits, or proceedings relating to such transferred and assigned rights, title, interest, and benefits, and perform all other such acts in relation thereto as Purchaser or WidePoint, in its respective sole discretion, deems advisable.

11. Payment . The consideration under the terms of the Purchase Agreement shall serve as the consideration for the sale, assignment, grant, conveyance and transfer of the Deliverables and Intellectual Property from Seller to Purchaser and WidePoint under this Agreement.

12. Successors and Assigns , Seller may not assign or delegate its rights or obligations under this Agreement without the prior written consent of each of Purchaser and WidePoint. Purchaser and WidePoint may assign this Agreement and any of its respective rights and obligations hereunder without the prior written consent of Seller. Subject to the foregoing, this Agreement will be for the benefit of the successors and assigns of Purchaser and/or WidePoint, and will be binding on Seller and any of its assignees as may be permitted by WidePoint and Purchaser.

13. Notices . Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows, with notice deemed given as indicated: (a) by personal delivery, when delivered personally; (b) by overnight courier, upon written verification of receipt; (c) by telecopy or facsimile transmission, upon acknowledgment of receipt of electronic transmission; or (d) by certified or registered mail, return receipt requested, upon verification of receipt. Notice shall be sent to the addresses set forth above or to such other address as either party may specify in writing.

14. Governing Law and Jurisdiction . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware without giving effect to any conflict of laws provisions in any other jurisdiction. All parties hereby consent to subject matter jurisdiction, personal jurisdiction and venue in the appropriate federal or state court located in or serving the State of Delaware for disputes under this Agreement.

15. Entire Agreement . This Agreement and the Purchase Agreement constitutes the entire agreement between the parties relating to the subject matter hereof and supersedes all prior or contemporaneous oral or written agreements concerning this subject matter.

16. Severability . If any provision of this Agreement is held by a court of law to be illegal, invalid or unenforceable: (a) that provision shall be deemed amended to achieve as nearly as possible the same economic effect as the original provision; and (b) the legality, validity and enforceability of the remaining provisions of this Agreement shall not be affected or impaired thereby.

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17. Modification and Waiver . No term or provision hereof will be considered waived by either party, and no breach excused

by either party, unless such waiver or consent is in writing and signed by the party waiving or consenting to the breach. The waiver by either party of, or consent by either party to, a breach of any provision of this Agreement shall not operate or be construed as a waiver of, consent to, or excuse of any other or subsequent breach. This Agreement may be amended or modified only in writing by mutual agreement of authorized representatives of the parties.

18. Advice of Counsel . Each party acknowledges that, in executing this Agreement, such party has had the opportunity to seek the advice of independent legal counsel, and has read and understood all of the terms and provisions of this Agreement. This Agreement shall not be construed against either party by reason of the drafting or preparation hereof.

19. Headings for Reference Only . The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Assignment Agreement.

20. Third Party Rights . Nothing contained in this Agreement, whether express or implied, is intended to confer any rights or remedies upon any persons other than the Parties hereto and their respective successors and assigns; nor is anything in this Agreement intended to relieve or discharge the obligations or liabilities or any third person to either party or this Agreement nor shall any provision hereof give any third person any right of subrogation or action over either party.

21. Injunctive Relief for Breach . Seller agrees that its obligations under this Agreement are of a unique character that gives them particular value; the breach by Seller of any of such obligations will result in irreparable and continuing damage to Purchaser and WidePoint for which there will be no adequate remedy at law; and, in the event of such breach, Purchaser and WidePoint each will be entitled to injunctive relief and/or a decree for specific performance, provided that such relief shall not be the exclusive form of relief for Purchaser or WidePoint.

22. Counterparts . This Agreement may be executed in counterparts, each of which may be signed and transmitted by facsimile with the same validity as if it were an ink-signed document.

[Signatures on Following Page - Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date(s) shown below.

[Signature Page to Intellectual Property Assignment and License Agreement]

Attest (Seal): VUANCE, INC.

By:

By: Name: Eyal Tuchman Name: Eyal Tuchman Title: Secetery Title: CEO Attest (Seal): ADVANCED RESPONSE CONCEPTS

CORPORATION By: By: Name: James T. McCubbin

Title: Secretary Name: Denise M.B. Finnance

Title: President Attest (Seal); WIDEPOINT CORPORATION By: By: Name: James T. McCubbin

Title: Secretary Name: Steve L. Komar

Title: Chairman & Chief Executive Officer

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EXHIBIT A – ASSIGNED IP

Intellectual Property Transferred from Vuance Ltd. to Vuance, Inc.:

Line P/N Description Qty Note

12 F-SFW-500915 SY-Server ver 7.xx 3 S.W 14 G-BI-012080 DC CONTROLER PCB 6005 1 H.W 15 G-EP-170010 BUNDLE IPU KIT PC CLC10 3 H.W 16 G-WT-240000 LINE FILTER FN 281-6-06 32 H.W 17 NES.P.200.002 WIFI SENAO NCB3220 1 H.W 18 P-ACC-504827 AC STROB SLS 3001-ML WOKK3001 1 H.W 20 P-ACC-504863 HOT SHOE ADAPTOR to FLASH C-770 5 H.W 21 P-ACC-504887 100X120CM BLUE SCREEN + SCROLLER 1 H.W 23 P-ACC-505035 BATTERY HOLDER DRW #44 8 H.W 24 P-ACC-505040 POWER CONVERTER PLATE DRW #46 8 H.W 25 P-ACC-505055 MAIN PLATE DRW #39 3 H.W 26 P-ACC-505065 RUBBER LEG 27 H.W 35 P-EP-163240 LINE FILTER BZV04/A1020/04 73 H.W 38 P-EP-200382 CHARGER FOR 12V SLA 1.8A 2 H.W 40 P-EP-500480 12 TO 9V BOARD FOR SC CONTROLLER 3 H.W 44 P-EP-502060 MAIN PLUG MALE JR21PK-16P 10 H.W 45 P-EP-502065 MAIN PLUG FEMALE JR21RK-16S 21 H.W 46 P-EP-502070 MAIN PLUG COVER JRC21RC 6 H.W 49 P-EP-503046 CutOff-LVLD 12V 20A 2 H.W 50 P-EP-503050 Battery Charger 13.8V-8A 110/220 2 H.W 51 P-EP-503055 Indoor DB-15 to RJ-45 Adapter 2 H.W 54 P-EP-503075 Female Connector For Pannel 7 19 H.W 55 P-EP-503080 male Connector For Cable 7 33 H.W 56 P-EP-503085 Female Connector Cover 32 H.W 57 P-EP-503086 Male Connector Cover 18 H.W 58 P-EP-503120 Male Connector 5 pin 11 H.W 59 P-EP-503125 Female Connector (for 5 pin) 7 H.W 60 P-EP-503130 Female Connector Cover (5 pin) 8 H.W 62 P-EP-503145 Dual Poles Rocker Switch (Black) 9 H.W 63 P-EP-503150 Sealing Boot for Rocker Switch 13 H.W 64 P-EP-503180 RJ-45 Push-Pull Connector 5 H.W 65 P-EP-503185 RJ-45 Feed Through Connector 6 H.W 66 P-EP-503190 9WAY Solder SKT FR MT Waterproof 4 H.W 79 P-SP-011262 COVER SWITCH for CANON 6005 3 H.W 81 P-SP-500728 CONVEYOR BELT GLAS/TEFL 26.4X4.1 1 H.W

82 P-SP-500740 Mounting Fork S-24105 8 H.W 84 P-SP-501090 Tube Adapter 9 H.W 85 P-SP-501095 Tube 250mm 9 H.W 87 P-SP-501115 Front Brace 4 H.W 88 P-SP-501125 SDA Case (Black) 4 H.W 89 P-SP-501130 SDA Brace 4 H.W 90 P-SP-501150 Front Holder 3 H.W 91 P-SP-501155 Rear Holder 3 H.W 92 P-SP-501175 Tripod Main Leg 6 H.W 93 P-SP-501180 Tripod Adjustable Leg 3 H.W 94 P-SP-501210 Adapter Tube 17 H.W 95 P-SP-501230 Tube end Plug 10 H.W 96 P-SP-501240 Upper Wooden Plate 4 H.W 97 P-SP-501245 Side Lower Wooden Plate - 1 4 H.W 98 P-SP-501250 Side Lower Wooden Plate - 2 4 H.W 99 P-SP-501255 Hand Knob M6x20 16 H.W 100 P-SP-501275 Nylon Cover 1 H.W 101 P-SP-501295 Tie Belt 50cm black (scotch) 15 H.W 102 P-SP-501360 Eyelet for Belt 6 H.W 103 P-SP-501390 Wire Holder 1 8 H.W 104 P-SP-501395 Wire Holder 2 8 H.W 105 P-SP-501400 Wire Holder 3 9 H.W 106 P-SP-501405 Wire Holder 4 11 H.W 107 P-SP-501425 Hand Knob M8 41 H.W 109 P-SP-501435 FAN BRACKET 14 H.W 110 P-SP-501440 FILTER BRACKET 14 H.W 111 P-SP-501445 FINGERPRINT BRACKET 8 H.W 112 P-SP-501450 LCD BRACKET 7 H.W 113 P-SP-501455 READER BRACKET 8 H.W 114 P-SP-501460 LCD PANEL 10 H.W 115 P-SP-501465 READER PANEL 6 H.W 116 P-SP-501480 FRAME 4 H.W 117 P-SP-501510 FILTER FOAM 1 H.W 118 P-SP-501540 Hand Knob Ml0x20 22 H.W 124 Tripod 6 H.W 125 Yellow DynaGate - Columbus 2 H.W 126 Orange Tripod battery 2 H.W 127 Black Tripod battery 1 H.W 128 P-TP-141760 Orange Pelican suitcase 2 H.W 131 S-ES-MOM001DGU Enrollment Station (full) - Bucks 1 H.W 132 S-CS-MOM001DGU Command station suitcase 1 H.W 133 SDA -4A] 1 H.W

Non-CSMS Applications (Vuance Ltd – SUPERCOM IP) Name Description Language Runs On MiniMap This application is used to map/unmap

smartcards for various projects. Dephi Windows XP

CPA This is used to write/read data from smartcards using proprietary Vuance methods, (non-piv)

Dephi Windows 32bit

VUANCE_ACG.exe This software is used to generate valid license keys for the smartgate software that runs on DAP’s.

? assumed Delphi

Windows 2000+

Non-CSMS Libraries (Vuance Ltd – SuperCom IP) Name Description Language Runs On VUANCE_CDM.dll A SmartCard Access library Dephi Windows 2000+ TLVToXMLCom.dll This takes the data from the

VUANCE_CDM.dll raw TLV data and converts it to an XML document for consump-tion of the underlying application.

Dephi Windows 2000+

SyServer.dll This is a pieces of IRMS software used to connect to the SyServer software.

? CE 4.2

IRMS Applications (Vuance Ltd – SuperCom IP) Name Description Language Runs On SGCECom This provides the communications for the

smartgate software. C# CE 4.2 (DAP)

SGCETerm This is the main SmartGate program on the handheld

C# CE 4.2 (DAP)

LDrivers This is a link layer application to connect the SGCETerm application with the hardware devices on the DAP.

C++ CE 4.2 (DAP)

Buck Has something to do with the Bucks County IRMS project. Beyond this we have little knowledge about this project.

? ?

PTFTerm This is the same as SGCETerm just with slight changes for the Bucks county project.

C# CE 4.2 (DataStrip)

DataFetcher This product is used to synchronize data between multiple IRMS installations

C# Windows

SGCEConf This is the smartgate configuration program C# CE 4.2 (DAP) SGCEDBUP This is the handheld Database update

program synchronizing DAP handhelds and program.

C# CE 4.2 (DAP)

SGCEKeyMan This software is used to make sure a licenseKey is used with the handheld

C# CE 4.2 (DAP)

CDD This is a QA application for showing data that is saved to the SmartCard

C# Windows

DB_Sync This is a DB Sync application for IRMS for a specific project

C# Windows

SmartGate Rebranded Falcon access control software. Used for IRMS

? Windows XP

SyServer v6.0 Communications software for communicating with smartgate windows software and smartgate handheld software.

? Windows XP

CSMS Applications Databases Name Description Language Runs On RAPTOR (DMS) The raptor database SQL Script MSSQL Cannonball (CSMS) The messaging database SQL Script MSSQL Condor The Condor (Crime Scene) database SQL Script MySQL SecurityClearance (CSMS) An original concept for dealing with security

clearances for the federal government. Never used.

SQL backup file MSSQL

RAPTOR Name Description Language Runs On RaptorPhotoEditor (CSMS) Crop previously saved photos from the

raptor database, analyze the image for PIV compliance and update the photo.

C# Windows XP+

Raptor Web (DMS) This is the main web application for RAPTOR.

C# Windows Server 2003

RAPTORWebServices (CSMS) This is the web services that expose the underlying RAPTOR database.

C# Windows Server 2003

EmailGrabber (CSMS)

Used to retrieve e-mail addresses and names for Chester county

C# Windows Sever 2003

RaptorUtilities (DMS)

An Object library for standard utilities that Raptor has

C# Windows

MessagingGateway (CSMS)

Used in Raptor web application for sending messages between users within the application and external to the application

C# Windows Server 2003

RaptorEngine (DMS) Is a content generation engine which builds the forms for both RaptorWeb and Connect

C# Windows

RaptorXMLWriter (CSMS)

This takes the RAPTOR data and writes/reads XML data for the CPA

C# Windows XP+

RaptorDataAccess (Connect) (DMS)

The Connect Application C# Windows XP+

Enroll An Extension of the connect application used for enrollment.

C# Windows XP+

FingerPrintCapture (CSMS)

Capture and store finger print images and INCITS template data

C# Windows XP+

RaptorPhotoCapture (CSMS)

Capture and analyze photos for PIV compliance.

C# Windows XP+

RaptorConnectionService (CSMS)

This is a windows service to managing the connection between software on the machine and the RAPTOR instance on the server

C# Windows XP+

DataConnectionService (CSMS) This is a class that allows the propogation of data between the software and the Raptor-ConnectionService

C# Windows XP+

ConnectLicenseKey-Generator (CSMS)

This creates license keys for the Connect application suite

C# Windows XP+

RaptorMobile (DMS) The Handheld application C# Windows Mobile 6 or CE RaptorCardEncoding (DMS) This allows for the encoding of FlashCOS

cards for the RegionV program. C# Windows XP

WindowsService (CSMS) The RAPTOR windows service used for sending e-mail notifications and reminders.

C# Windows Server 2003

AJAXEnabledWebSitel (CSMS) This is the skills data entry application. C# Windows Server

ConfigurationDownload (CSMS)

Downloads connection information for connect and other software

C# Windows XP+

RaptorSCDO (CSMS) This is a RAPTOR SmartCard Data Object library

C# Windows XP+

Raptor Service (CSMS) RAPTOR Forms (DMS) A bunch of XML files that cover the

following items: XML Any

a. BaseLineVitals b. Biometrics c. Emergency Contact d. Form Template e. Insurancelnfo f. Medical Force Protection g. Medicalln formation h. Medical Surgery i. NFPA1582 j. Persons k. Persons Family 1. Pulmonary Vitals m. Questions n. Skill Customization o. Skills p. Training q. Vacinations

CardProcessing (DMS)

A Card printing library C# Windows XP+

CardPrintConcept (DMS)

SmartCardDesigner (CSMS)

A visual editor for smart card template design

C# Windows XP+

CardPrintUtility (DMS) A utility used to print cards C# Windows XP+ Condor (CSMS) Name Description Language Runs On CMSDBUpdate Crime Scene database update C# Windows XP+ CMSDBQueue Crime Scene message queue C# Windows XP+

CMSDBService Crime Scene database client/server synchronization service library

C# Windows XP+

Sync Service Crime Scene Synchronization Service C# Windows XP+ Condor Crime Scene Management and evidence

collection system C# Windows XP+ With extra work

for Tablets CommonData Provides a common means of passing data

between programs C# Windows XP+

Login Plugin for loging in C# Windows ObservationPad Plugin for observation recording C# Windows Scene Wizard Plugin for Createing a new crime scene C# Windows WebBrowser Plugin for allowing access to certain web

sited from within Condor C# Windows

InternalMessaging Commong Plugin architecture C# Windows ApplicationLogging This allows Event Viewer logging C# Windows Shell Application This is a basic application for dealing with

plugins C# Windows

Common Data (CSMS) Name Description Language Runs On CMSPivData Read, write and validate PIV cards C# Windows XP+ CMSPivForms A library of forms for use by PIV

applications C# Windows XP+

CMSPivLS Scan, Analyze and display finger print images and minutia data points

C# Windows XP+

CMSPivXM Extract finger printes from scanned images. Match as scanned finger print to a finger print already stored on a smartcard

C# Windows XP+

LaunchKey Generate and validate keys to keep applications from being executed outside of the main applications

C# Windows XP+

Photo Capture A ware Photo Capture library routines using Aware middleware

C# Windows XP+

X509Lib X509 certificate library routines C# Windows XP+ FieldTester Uses an algorithm that compares user typed

information and database data then compares them allowing for a certain percentage of error.

C# Windows

CaptchTester Creates a image in code and distorts it and allows for a user to enter the code seen in the image.

C# Windows Server 2003

SignatureLib Integerates software with topaz signature capture hardware

C# Windows

WebAutomation A library used for screen scraping data from the web

C# Windows

SmartCard (dll + source) Used for reading/writing smartcards C# Windows TLVCoder Converts data to and from TLV C# Windows GenerateMessagingProxy A utility to geterate the messaging gateway

proxy. C# Windows

Additional (CSMS) Name Description Language Runs On ElectronicValidation A webservice for electronic verification C# Windows Server 2008 VerificationWebsite A admin and user website for administering

accounts for the electronic verification C# Windows Server 2008

AuditLogger A webservice for logging C# Windows Server

Legacy (DMS) Name Description Language Runs On DMSPocketPCClient Original RAPTOR handheld C# Windows Mobile 5 RaptorHHSetup Raptor handheld setup C# Windows Mobile 5 RaptorHHClient An updated RAPTOR handheld to work

with RAPTOR SmartCards. C# Windows Mobile 5

TemplateLoader Was used to ServiceConfiguration Configures the RAPTOR windows server C# Windows Server 2003

U.S. Patent Application No. 12/146,394 NPI Emergency Responder Credentialing System and Method Matter no. 126647 (Polsinelli Law) U.S. Patent Application No. 12/146,393 NP2 Emergency Responder Credentialing System and Method Matter no. 126648 (Polsinelli Law) U.S. Patent Application No. 12/146,392 NP3 Emergency Responder Credentialing System and Method Matter no. 126649 (Polsinelli Law) U.S. Patent Application No. 60/945,947 System and Method of Providing Trusted Information Regarding Emergency Responders Reference #TCOPT01 (IP Strategies, Intelelctual Property Law)

Patents:

EXHIBIT B

Short Form Assignment

EXHIBIT D-2 – INTELLECTUAL PROPERTY ASSIGNMENT AND LICENSE AGREEMENT FROM PARENT AND VUANCE TO

ACQUISITION AND WIDEPOINT

EXHIBIT D- 2

ASSIGNMENT OF INTELLECTUAL PROPERTY

WHEREAS, the undersigned persons and entities (the “ Assignor ”), being the sole owner of all the intellectual property listed in

Exhibit A hereto (“Intellectual Property”) which is used by Vuance, Inc. in the Vuance CSMS Business (as defined in the Purchase Agreement referenced below); and

WHEREAS, Advanced Response Concepts Corporation, a corporation formed under the laws of Delaware, and WidePoint Corporation, a corporation formed under the laws of Delaware (collectively, the “ Assignee ”), are desirous of acquiring the entire and exclusive right, title and interest in and to the Intellectual Property,

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto intending to be legally bound do hereby as follows:

[BALANCE OF PAGE INTENTIONALLY BLANK]

(1) Assignor represents and warrants that (i) it is the sole and exclusive owner of all the Intellectual Property and (ii) it is the person listed in Schedule 8.2(G) of the Purchase Agreement (as defined below).

(2) Further to the Purchase Agreement, Assignor hereby assigns, conveys, transfers, and sets over to Assignee, the entire and exclusive

right, title and interest of Assignor in and to the Intellectual Property, including the right to sell, license, transfer, reverse engineer, improve, and make derivative works or modifications thereof.

(3) This instrument is furnished pursuant to Section 8.2(g) of the Asset Purchase Agreement, dated as of January 29, 2010, by and among

WidePoint Corporation, Advanced Response Concepts Corporation, Vuance, Inc. and Vuance, Ltd. (“ Purchase Agreement ” ). (4) Assignor, without further consideration, diligently and in good faith, shall (a) execute and deliver to Assignee such other documents,

instruments, and consents as Assignee reasonably may require to consummate more effectively the assignment, conveyance, and transfer contemplated hereby, and (b) take all further actions necessary or desirable to carry out the purposes of this instrument and the assignment, conveyance, and transfer contemplated hereby as Assignee reasonably may request.

Assignment of Vuance CSMS Business Intellectual Property

Executed January 29, 2010 ASSIGNOR: VUANCE, INC.

By: Name: Eyal Tuchman Title: CEO

2

Assignment of Vuance CSMS Business Intellectual Property

EXHIBIT A - INTELLECTUAL PROPERTY Intellectual Property Transferred from Vuance Ltd. to Vuance, Inc.:

Line P/N Description Qty Note

12 F-SFW-500915 SY-Server ver 7.xx 3 S.W 14 G-BI-012080 DC CONTROLER PCB 6005 1 H.W 15 G-EP-170010 BUNDLE IPU KIT PC CLC10 3 H.W 16 G-WT-240000 LINE FILTER FN 281-6-06 32 H.W 17 NES.P.200.002 WIFI SENAO NCB3220 1 H.W 18 P-ACC-504827 AC STROB SLS 3001-ML WOKK3001 1 H.W 20 P-ACC-504863 HOT SHOE ADAPTOR to FLASH C-770 5 H.W 21 P-ACC-504887 100X120CM BLUE SCREEN +

SCROLLER 1 H.W

23 P-ACC-505035 BATTERY HOLDER DRW #44 8 H.W 24 P-ACC-505040 POWER CONVERTER PLATE DRW #46 8 H.W 25 P-ACC-505055 MAIN PLATE DRW #39 3 H.W 26 P-ACC-505065 RUBBER LEG 27 H.W 35 P-EP-163240 LINE FILTER BZVO4/A1020/04 73 H.W 38 P-EP-200382 CHARGER FOR 12V SLA 1.8A 2 H.W 40 P-EP-500480 12 TO 9V BOARD FOR SC CONTROLLER 3 H.W 44 P-EP-502060 MAIN PLUG MALE JR21PK-16P 10 H.W 45 P-EP-502065 MAIN PLUG FEMALE JR21RK-16S 21 H.W 46 P-EP-502070 MAIN PLUG COVER JRC21RC 6 H.W 49 P-EP-503046 CutOff-LVLD 12V 20A 2 H.W 50 P-EP-503050 Battery Charger 13.8V-8A 110/220 2 H.W 51 P-EP-503055 Indoor DB-15 to RJ-45 Adapter 2 H.W 54 P-EP-503075 Female Connector For Pannel 7 19 H.W 55 P-EP-503080 male Connector For Cable 7 33 H.W 56 P-EP-503085 Female Connector Cover 32 H.W 57 P-EP-503086 Male Connector Cover 18 H.W 58 P-EP-503120 Male Connector 5 pin 11 H.W 59 P-EP-503125 Female Connector (for 5 pin) 7 H.W 60 P-EP-503130 Female Connector Cover (5 pin) 8 H.W 62 P-EP-503145 Dual Poles Rocker Switch (Black) 9 H.W 63 P-EP-503150 Sealing Boot for Rocker Switch 13 H.W 64 P-EP-503180 RJ-45 Push-Pull Connector 5 H.W 65 P-EP-503185 RJ-45 Feed Through Connector 6 H.W 66 P-EP-503190 9WAY Solder SKT FR MT Waterproof 4 H.W 79 P-SP-011262 COVER SWITCH for CANON 6005 3 H.W 81 P-SP-500728 CONVEYOR BELT GLAS/TEFL 26.4X4.1 1 H.W

3

Assignment of Vuance CSMS Business Intellectual Property

82 P-SP-500740 Mounting Fork S-24105 8 H.W 84 P-SP-501090 Tube Adapter 9 H.W 85 P-SP-501095 Tube 250mm 9 H.W 87 P-SP-501115 Front Brace 4 H.W 88 P-SP-501125 SDA Case (Black) 4 H.W 89 P-SP-501130 SDA Brace 4 H.W 90 P-SP-501150 Front Holder 3 H.W 91 P-SP-501155 Rear Holder 3 H.W 92 P-SP-501175 Tripod Main Leg 6 H.W 93 P-SP-501180 Tripod Adjustable Leg 3 H.W 94 P-SP-501210 Adapter Tube 17 H.W 95 P-SP-501230 Tube end Plug 10 H.W 96 P-SP-501240 Upper Wooden Plate 4 H.W 97 P-SP-501245 Side Lower Wooden Plate -1 4 H.W 98 P-SP-501250 Side Lower Wooden Plate - 2 4 H.W 99 P-SP-501255 Hand Knob M6x20 16 H.W 100 P-SP-501275 Nylon Cover 1 H.W 101 P-SP-501295 Tie Belt 50cm black (scotch) 15 H.W 102 P-SP-501360 Eyelet for Belt 6 H.W 103 P-SP-501390 Wire Holder 1 8 H.W 104 P-SP-501395 Wire Holder 2 8 H.W 105 P-SP-501400 Wire Holder 3 9 H.W 106 P-SP-501405 Wire Holder 4 11 H.W 107 P-SP-501425 Hand Knob M8 41 H.W 109 P-SP-501435 FAN BRACKET 14 H.W 110 P-SP-501440 FILTER BRACKET 14 H.W 111 P-SP-501445 FINGERPRINT BRACKET 8 H.W 112 P-SP-501450 LCD BRACKET 7 H.W 113 P-SP-501455 READER BRACKET 8 H.W 114 P-SP-501460 LCD PANEL 10 H.W 115 P-SP-501465 READER PANEL 6 H.W 116 P-SP-501480 FRAME 4 H.W 117 P-SP-501510 FILTER FOAM 1 H.W 118 P-SP-501540 Hand Knob M10x20 22 H.W 124 Tripod 6 H.W 125 Yellow DynaGate - Columbus 2 H.W 126 Orange Tripod battery 2 H.W 127 Black Tripod battery 1 H.W 128 P-TP-141760 Orange Pelican suitcase 2 H.W 131 S-ES-MOM001DGU Enrollment Station (full) - Bucks 1 H.W 132 S-CS-MOM001DGU Command station suitcase 1 H.W 133 SDA -4A 1 H.W]

4

Assignment of Vuance CSMS Business Intellectual Property

Non-CSMS Applications (Vuance Ltd - SUPERCOM IP) Name Description Language Runs On MiniMap This application is used to map/unmap

smartcards for various projects. Dephi Windows XP

CPA This is used to write/read data from smartcards using proprietary Vuance methods. (non-piv)

Dephi Windows 32bit

VUANCE_ACG.exe This software is used to ? assumed Windows 2000+ generate valid license keys for the smartgate

software that runs on DAP’s. Delphi

Non-CSMS Libraries (Vuance Ltd - SuperCom IP) Name Description Language Runs On VUANCE_CDM.dll A SmartCard Access library Dephi Windows 2000+ TLVToXMLCom.dll This takes the data from the

VUANCE_CDM.dll raw TLV data and converts it to an XML document for consumption of the underlying application.

Dephi Windows 2000+

SyServer.dll This is a pieces of IRMS software used to connect to the SyServer software.

? CE 4.2

IRMS Applications (V uance Ltd - SuperCom IP) Name Description Language Runs On SGCECom This provides the communications for the

smartgate software. C# CE 4.2 (DAP)

SGCETerm This is the main SmartGate program on the handheld

C# CE 4.2 (DAP)

LDrivers This is a link layer application to connect the SGCETerm application with the hardware devices on the DAP.

C++ CE 4.2 (DAP)

Buck Has something to do with the Bucks County IRMS project. Beyond this we have little knowledge about this project.

? ?

PTFTerm This is the same as SGCETerm just with slight changes for the Bucks county project.

C# CE 4.2 (DataStrip)

5

Assignment of Vuance CSMS Business Intellectual Property

DataFetcher This product is used to synchronize data between multiple IRMS installations

C# Windows

SGCEConf This is the smartgate configuration program C# CE 4.2 (DAP) SGCEDBUP This is the handheld Database update

program synchronizing DAP handhelds and program.

C# CE 4.2 (DAP)

SGCEKeyMan This software is used to make sure a licenseKey is used with the handheld

C# CE 4.2 (DAP)

CDD This is a QA application for showing data that is saved to the SmartCard

C# Windows

DB_Sync This is a DB Sync application for IRMS for a specific project

C# Windows

SmartGate Rebranded Falcon access control software. Used for IRMS

? Windows XP

SyServer v6.0 Communications software for communicating with smartgate windows software and smartgate handheld software.

? Windows XP

CSMS Applications Databases Name Description Language Runs On RAPTOR (DMS) The raptor database SQL Script MSSQL Cannonball (CSMS) The messaging database SQL Script MSSQL Condor The Condor (Crime Scene) database SQL Script MySQL SecurityClearance (CSMS)

An original concept for dealing with security clearances for the federal government. Never used.

SQL backup file MSSQL

RAPTOR Name Description Language Runs On RaptorPhotoEditor (CSMS)

Crop previously saved photos from the raptor database, analyze the image for PIV compliance and update the photo.

C# Windows XP+

6

Assignment of Vuance CSMS Business Intellectual Property

RaptorWeb (DMS) This is the main web application for

RAPTOR. C# Windows Server 2003

RAPTORWebService’s (CSMS) This is the web services that expose the underlying RAPTOR database.

C# Windows Server 2003

EmailGrabber (CSMS) Used to retrieve e-mail addresses and names for chester county

C# Windows Sever 2003

RaptorUtilities (DMS) An Object library for standard utilities that Raptor has

C# Windows

MessagingGateway (CSMS) Used in Raptor web application for sending messages between users within the application and external to the application

C# Windows Server 2003

RaptorEngine (DMS) Is a content generation engine which builds the forms for both RaptorWeb and Connect

C# Windows

RaptorXMLWriter (CSMS) This takes the RAPTOR data and writes/reads XML data for the CPA

C# Windows XP+

RaptorDataAccess (Connect) (DMS)

The Connect Application C# Windows XP+

Enroll An Extension of the connect application used for enrollment.

C# Windows XP+

FingerPrintCapture (CSMS) Capture and store finger print images and INCITS template data

C# Windows XP+

RaptorPhotoCapture (CSMS) Capture and analyze photos for PIV compliance.

C# Windows XP+

RaptorConnectionService (CSMS)

This is a windows service to managing the connection between software on the machine and the RAPTOR instance on the server

C# Windows XP+

DataConnectionService (CSMS) This is a class that allows the propogation of data between the software and the RaptorConnectionService

C# Windows XP+

ConnectLicenseKeyG enerator (CSMS)

This creates license keys for the Connect application suite

C# Windows XP+

RaptorMobile (DMS) The Handheld application C# Windows Mobile 6 or CE

7

Assignment of Vuance CSMS Business Intellectual Property

RaptorCardEncoding (DMS)

This allows for the encoding of FlashCOS cards for the RegionV program.

C# Windows XP

WindowsService (CSMS) The RAPTOR windows service used for sending e-mail notifications and reminders.

C# Windows Server 2003

AJAXEnabledWebSitel (CSMS) This is the skills data entry application. C# Windows Server ConfigurationDownload (CSMS)

Downloads connection information for connect and other software

C# Windows XP+

RaptorSCDO This is a RAPTOR SmartCard C# Windows XP+ (CSMS) Data Object library RaptorService (CSMS) RAPTOR Forms (DMS) A bunch of XML files that cover the

following items: XML Any

a. BaseLine Vitals b. Biometrics c. EmergencyContact d. FormTemplate e. Insurancelnfo f. Medical ForceProtection g. Medicallnformation h. MedicalSurgery i. NFPA1582 j. Persons k. PersonsFamily 1. PulmonaryVitals m. Questions n. SkillCustomization o. Skills p. Training q. Vacinations

CardProcessing A Card printing library C# Windows XP+ (DMS) CardPrintConcept (DMS) SmartCardDesigner (CSMS)

A visual editor for smart card template design

C# Windows XP+

8

Assignment of Vuance CSMS Business Intellectual Property

CardPrintUtility (DMS) A utility used to print cards C# Windows XP+ Condor (CSMS) Name Description Language Runs On

CMSDBUpdate Crime Scene database update C# Windows XP+ CMSDBQueue Crime Scene message queue C# Windows XP+ CMSDBService Crime Scene database client/server

synchronization service library C# Windows XP+

SyncService Crime Scene Synchronization Service C# Windows XP+ Condor Crime Scene Management and evidence

collection system C# Windows XP+ With extra work

for Tablets CommonData Provides a common means of passing data

between programs C# Windows XP+

Login Plugin for loging in C# Windows ObservationPad Plugin for observation recording C# Windows SceneWizard Plugin for Createing a new crime scene C# Windows WebBrowser Plugin for allowing access to certain web

sited from within Condor C# Windows

InternalMessaging Commong Plugin architecture C# Windows ApplicationLogging This allows Event Viewer logging C# Windows ShellApplication This is a basic application for dealing with

plugins C# Windows

Common Data (CSMS) Name Description Language Runs On CMSPivData Read, write and validate PIV cards C# Windows XP+ CMSPivForms A library of forms for use by PIV

applications C# Windows XP+

CMSPivLS Scan, Analyze and display finger print images and minutia data points

C# Windows XP+

CMSPivXM Extract finger printes from scanned images. Match as scanned finger print to a finger print already stored on a smartcard

C# Windows XP+

9

Assignment of Vuance CSMS Business Intellectual Property

LaunchKey Generate and validate keys to keep applications from being executed outside of the main applications

C# Windows XP+

PhotoCaptureAware Photo Capture library routines using Aware middleware

C# Windows XP+

X509Lib X509 certificate library routines C# Windows XP+ FieldTester Uses an algorithm that compares user typed

information and database data then compares them allowing for a certain percentage of error.

C# Windows

CaptchTester Creates a image in code and distorts it and allows for a user to enter the code seen in the image.

C# Windows Server 2003

SignatureLib Integerates software with topaz signature capture hardware

C# Windows

WebAutomation A library used for screen scraping data from the web

C# Windows

SmartCard (dll + source) Used for reading/writing smartcards C# Windows TLVCoder Converts data to and from TLV C# Windows GenerateMessagingProxy A utility to geterate the messaging gateway

proxy. c# Windows

Additional (CSMS) Name Description Language Runs On ElectronicValidation A webservice for electronic verification C# Windows Server 2008 VerificationWebsite A admin and user website for administering

accounts for the electronic verification C# Windows Server 2008

AuditLogger A webservice for logging C# Windows Server 2008

10

Assignment of Vuance CSMS Business Intellectual Property

Patents: U.S. Patent Application No. 12/146,394 NPI Emergency Responder Credentialing System and Method Matter no. 126647 (Polsinelli Law) U.S. Patent Application No. 12/146,393 NP2 Emergency Responder Credentialing System and Method Matter no. 126648 (Polsinelli Law) U.S. Patent Application No. 12/146,392 NP3 Emergency Responder Credentialing System and Method Matter no. 126649 (Polsinelli Law) U.S. Patent Application No. 60/945,947 System and Method of Providing Trusted Information Regarding Emergency Responders Reference #TCOPT01 (IP Strategies, Intelelctual Property Law)

Legacy (DMS) Name Description Language Runs On DMSPocketPCClient Original RAPTOR handheld C# Windows Mobile 5 RaptorHHSetup Raptor handheld setup C# Windows Mobile 5 RaptorHHClient An updated RAPTOR handheld to work

with RAPTOR SmartCards. C# Windows Mobile 5

TemplateLoader Was used to ServiceConfiguration Configures the RAPTOR windows server C# Windows Server 2003

11

EXHIBITS E-l – MANAGER EMPLOYMENT AGREEMENT

EXHIBIT F -1 – OPINION FROM VUANCE, INC. COUNSEL

EXHIBIT F - 1

January 29, 2010 WidePoint Corporation and Advanced Response Concepts Corporation 18W100 22 nd Street, Suite 104 Oakbrook Terrace, Illinois 60181 Gentlemen: We are counsel for Vuance, Inc., a Delaware corporation ( “Vuance” ) , which is a wholly owned subsidiary of Vuance, Ltd., a company organized in the State of Israel ( “Parent” ) . We provide this legal opinion further to the transactions contemplated by that certain Asset Purchase Agreement, dated as of January 29, 2010 (the “Agreement”), by and among WidePoint Corporation, a Delaware corporation ( “WidePoint” ) , Advanced Response Concepts Corporation, a Delaware corporation ( “Acquisition” ) , Vuance, and Parent. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Agreement. The Agreement, all disclosure schedules and exhibits thereto, and all other agreements annexed to the Agreement are hereinafter collectively referred to as the “Transaction Documents.” For purposes of this opinion, we have examined the Transaction Documents. We have also examined such other certificates and documents as we deemed appropriate.

SHELOWITZ & ASSOCIATES PLLC • ATTORNEYS AT LAW • 11 PENN PLAZA 16TH FLOOR • NEW YORK, NY 10001 • WWW.SALAWS.COM

1. In rendering the foregoing opinion, we have, without investigation or inquiry, assumed the genuineness of all signatures on behalf of all persons on all instruments reviewed by us and the conformity to executed originals of all documents presented to us as copies.

2. As a basis for the opinions herein, we have examined originals or copies, certified or otherwise identified to our satisfaction, of

such corporate records of Vuance, certificates of directors, officers and representatives of Vuance, certificates of public officials and other documents of or pertaining to Vuance as we deemed necessary or relevant as a basis for the opinions hereinafter expressed.

3. The opinions expressed herein are expressly limited to United States Federal law, the laws of the State of New York and the

General Corporation Law of the State of Delaware. Given that we are not admitted to practice in, and do not opine on matters relating to the laws of the States of Wisconsin or Massachusetts, our statements relating to Wisconsin and Massachusetts are based solely on our review of certificates of good standing dated as of January 12, 2010.

4. We render no opinion in relation to any representation or warranty made or given in the Transaction Documents by any of the

parties thereto. We take no position and render no opinion as to the enforceability of the Transaction Documents.

Vuance, Inc. Legal Opinion January 29, 2010 Page 2

Based upon and subject to the foregoing, and subject to the qualifications and exceptions noted in this opinion letter, we express the

following opinions, all of which are expressly qualified to our knowledge, that:

SHELOWITZ & ASSOCIATES PLLC • ATTORNEYS AT LAW • 11 PENN PLAZA 16TH FLOOR • NEW YORK, NY 10001 • WWW.SALAWS.COM

5. Any reference to “our knowledge” or “knowledge” or any variation thereof shall mean the actual knowledge of the attorneys in this firm of the existence or absence of any facts that would contradict our opinions set forth above.

6. We have not undertaken any independent investigation to determine the existence or absence of facts that have been disclosed

to us, and no inference as to our knowledge of the existence or absence of such facts should be drawn from the fact of our representation of Vuance. There can be no assurance that all material facts were disclosed to us and we have relied to a large extent upon the statements of representatives of Vuance as to the materiality of the facts disclosed to us.

1. Vuance is a corporation duly incorporated, validly existing and in good standing as of January 12, 2010, under the laws of the State of Delaware. As of January 12, 2010, Vuance is in good standing in the States of Massachusetts and Wisconsin. To our knowledge, such good standing status has not changed since January 12, 2010.

2. As of the date hereof, the shareholder and directors of Vuance have duly executed shareholder and board resolutions

authorizing execution and delivery of the Transaction Documents. The Transaction Documents have been duly executed by an authorized signatory of Vuance.

3. Except as set forth in schedules attached to and made part of the Agreement, (a) there is no litigation, arbitration, or other

judicial proceeding pending against Vuance, (b) Vuance is not subject to any continuing settlement agreement or other similar written agreement with any court, administrative agency or entity or other federal, state or local governmental entity, or any judgment, order, writ, injunction, decree or award of any such governmental entity or arbitrator, and (c) there are no third parties with any rights in or claims against the Assets being sold to Acquisition, other than the third party lien holders as listed in the schedules attached to the Agreement.

Vuance, Inc. Legal Opinion January 29, 2010 Page 3

This opinion is limited to the matters stated herein and no opinion is implied or may be inferred beyond the matters expressly stated. This opinion speaks as of the date hereof only, and we expressly disclaim any obligation to advise you of any change in any matter set forth herein. This opinion is furnished to you solely in connection with the Closing and is not to be used, circulated, quoted, or otherwise referred to for any other purpose without our express prior written permission.

SHELOWITZ & ASSOCIATES PLLC • ATTORNEYS AT LAW • 11 PENN PLAZA 16TH FLOOR • NEW YORK, NY 10001 • WWW.SALAWS.COM

Very truly yours,

SHELOWITZ & ASSOCIATES PLLC

EXHIBIT F -2 – OPINION FROM VUANCE, LTD. COUNSEL

EXHIBIT F - 2

January 28, 2010 WidePoint Corporation and Advanced Response Concepts Corporation 18W100 22 nd Street, Suite 104 Oakbrook Terrace, Illinois 60181 Gentlemen:

We have served as counsel for Vuance, Ltd., a public company organized in the State of Israel under the Israeli Companies Law, registered with the Registrar of Companies of the State of Israel under company number 52-00-4407-4 (“Parent”), in connection with the transactions contemplated by the Asset Purchase Agreement, dated as of December 1, 2009 (the “Agreement”), by and among WidePoint Corporation, a Delaware corporation (“WidePoint”), Advanced Response Concepts Corporation, a Delaware corporation (“Acquisition”), Vuance, Inc., a Delaware corporation, and Parent. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Agreement. The Agreement, all disclosure schedules and exhibits thereto are hereinafter collectively referred to as the “Transaction Documents.”

As used in this opinion and unless otherwise expressly stated herein, the expression “to our knowledge”, “known to us” or similar language with reference to matters of fact means that our knowledge is based upon the records, documents, instruments and certificates described above and the current actual knowledge (but not including any constructive or imputed notice of any information) of the lawyers currently of this firm who have devoted substantive attention to the transactions contemplated by the Transaction Documents.

As to various questions of fact related to this opinion, including the factual elements included in determinations of materiality, we have relied upon certificates or comparable documents, or upon oral statements, of Parent, the certifications and representations of Vuance and Parent set forth in the Transaction Documents and upon certificates of government and other public officials. We have not examined any records of courts, administrative tribunals or any other similar entity in connection with our opinions expressed herein. No inference as to our knowledge of the existence or absence of any fact should be drawn from our representation of Parent in connection with the transactions contemplated by the Transaction Documents or the rendering of the opinion set forth below.

For purposes of this opinion, which we are rendering as required by the provisions of the Agreement, we have examined the Agreement and all other Transaction Documents. We have also examined such other certificates and documents as we deemed appropriate to the opinions set forth herein.

In such examination we have assumed and have not independently verified; (i) the conformity to original documents of all copies (whether facsimiled, photostatic or otherwise) submitted to us; (ii) the due authorization, execution and delivery of all documents (except as to due authorization, execution and delivery by Parent), and that (except as to Parent) such documents are the valid, binding and enforceable obligations of such signatories or parties; and (iii) the legal capacity of all signatories or parties to the Transaction Documents (other than Parent).

The opinions hereinafter expressed are subject to the following qualifications:

o We express no opinion as to the effect of applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors, including, without limitation, laws relating to fraudulent transfers or conveyances, preferences and equitable subordination;

o We express no opinion as to any provision that purports to define, waive or set standards for materiality, good faith, reasonableness, fair dealing, best efforts, diligence or the like;

o We express no opinion as to any provision providing for the exclusive jurisdiction or venue of a particular court or purporting to waive rights to (or set a method for) service of process or objections to the laying of venue or to forum on the basis of forum non convenience, in connection with any litigation arising out of or pertaining to the Transaction Documents;

o We express no opinion as to the effect of rules of law governing specific performance, injunctive relief or other equitable remedies (regardless of whether any such remedy is considered in a proceeding at law or in equity) including, without limitation, the discretion of any court of competent jurisdiction in awarding specific performance or injunctive relief and other equitable remedies;

2

o We are members of the Israel Bar only and express no opinion as to any matter relating to the laws of any jurisdiction other than the laws of the State of Israel, whether or not specifically so stated. We have considered such questions of Israeli law for the purpose of rendering this opinion, as we have deemed necessary. Our opinion is based solely on our interpretation of such Israeli laws and of the documents examined by us and, therefore, no assurance can be made or is being made herein, that a court will rule as set forth in our opinion, and our interpretation may be challenged by the court; and

o We express no opinion as to the effect of foreign laws, judicial determinations or governmental actions affecting creditors’ rights or Parent’s performance of its obligations under the Agreement or any of the other Transaction Documents.

On the basis thereof, we express the following opinions:

1. Parent is duly incorporated and organized and is validly existing under the laws of its jurisdiction of incorporation. As of the Closing Date, Parent continues to be validly existing under the laws of its jurisdiction of incorporation.

2. As of the date of the execution of the Agreement, Parent had all necessary corporate power and authority to execute and deliver each of the Transaction Documents, to perform its obligations thereunder and to consummate its portion of the transactions contemplated thereby. As of the Closing Date, Parent has all necessary corporate power and authority to execute and deliver each of the Transaction Documents, to perform its obligations thereunder and to consummate the transactions contemplated thereby.

3. The signatures of all persons signing all Transaction Documents in the name of Parent are genuine and authorized, Parent has full power and authority to execute, to deliver and to perform its obligations under the Transaction Documents and under the documents required to be delivered and performed thereunder, and all such documents have been duly authorized by all necessary action on the part of Parent, have been duly executed by Parent, have been duly delivered by Parent.

4. The execution and delivery of the Transaction Documents by Parent and the compliance with the terms thereof, including the closing thereunder and the sale and transfer of all the Specified Assets from Vuance to Acquisition, do not and will not contradict or violate: (a) to our knowledge, any Israeli court ruling or decree, any decision of an Israeli quasi-judicial body or any Israeli administrative order or decision concerning Parent; (b) the Memorandum or Articles of Association of Parent; (c) to our knowledge, any provision of applicable Israeli law, regulation, rule, order or decree of any competent authority.

5. Except as set forth in schedules attached to and made part of the Agreement, to our knowledge, there is no claim, action, suit, litigation, proceeding, arbitration or investigation of any kind, at law or in equity (including actions or proceedings seeking injunctive relief), pending or threatened against Parent in Israel which challenges the validity of any of the Transaction Documents or the transactions contemplated thereby.

3

6. We are not aware of any liens of any third parties in Israel on the Specified Assets.

7. Our firm has been representing the Parent in certain litigation proceedings taken against the Parent in Israel, as listed in Annex A to this opinion.

This opinion is limited to the matters referred to herein and should not be construed as extending to any other matter or document not referred to herein. This opinion is rendered solely for your benefit in connection to the Transaction Documents and may not be relied upon by any other person or by you in any other context, without our prior written consent,

This opinion is based upon currently existing statutes, rules, regulations and judicial decisions, and we disclaim any obligation to advise you of any changes in any of these sources of law or subsequent legal or factual developments which might affect any matters or the opinion set forth herein.

Very truly yours,

Yossi Avraham & Co., Advocates

4

Annex A - Legal Proceeding s

1. A lawsuit filed by Secue-System Ltd. against Vuance Ltd. and InkSure Ltd. in the District Court in Tel-Avjv relating a printing method applied to certain products developed by InkSure Ltd., seeking a permanent injunction and damages for breach of confidentiality agreement by Inksure Ltd., unjust enrichment, breach of fiduciary duties and misappropriation of trade secrets and damages to Secu- System Ltd.’s property.

2. A petition filed by the Department of Resources and Supply of the Ministry of Ukraine (the “ Department” ) in the Central Discrict

Court of Israel, under which the Department requested the approval of an award given by a Ukraine Arbitration Court pursuant to which Vuance Ltd. was requied to pay $1,048,000 to the Department, as a valid foreign award under the laws of the State of Israel.

3. Arbitration between Vuance Ltd. and Somat Hasharon Ltd. ( “ Somat” ), the landlord of Vuance Ltd.’s offices in Israel, regarding the

actual size of the office space leased to Vuance Ltd. for the purpose of calculation of lease payments due to Somat.

5

EXHIBITS H-l – VUANCE AND PARENT NON-COMPETITION AGREEMENT

EXHIBIT H- l

NON-COMPETITION AGREEMENT

This NON-COMPETITION AGREEMENT (this “Agreement”), dated as of January 29, 2010, is made by and between ADVANCED

RESPONSE CONCEPTS CORPORATION, a Delaware corporation with executive offices at 18W100 22nd Street, Suite 104, Oakbrook Terrace, Illinois 60181 (“Buyer”); WIDEPOINT CORPORATION, a Delaware corporation with executive offices at 18W100 22nd Street, Suite 104, Oakbrook Terrace, Illinois 60181 (“WidePoint”); VUANCE, INC., a Delaware corporation wholly-owned by Vuance, Ltd. with executive offices at 213 School Street, Suite 301, Gardner, Massachusetts 01440 (“Seller”); and VUANCE, LTD., a public company organized in the foreign country of Israel under the Israeli Companies Law, registered with the Registrar of Companies of the State of Israel under company number 52-00-4407-4 (“Parent”).

WHEREAS, Buyer, WidePoint, Seller and Parent are, this same day, entering into an Asset Purchase Agreement (“Purchase Agreement”) pursuant to which Buyer is purchasing certain of the assets of Seller and the business conducted therewith, which Purchase Agreement provides for Seller and Parent to enter into this Agreement for the protection of Buyer and WidePoint;

WHEREAS, the agreement by Seller and Parent to enter into this Agreement is a condition of the Closing, as defined in the Purchase Agreement; and

WHEREAS, the competition by Seller and/or Parent with Buyer would have a detrimental and damaging effect on Buyer and would undermine the parties’ intentions in entering into the Purchase Agreement.

NOW THEREFORE, in consideration for Ten Dollars ($10.00), the promises and considerations set forth in this Agreement, the consideration set forth in the Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto intending to be legally bound do hereby agree as follows:

1. Non-Compete . Seller and Parent each agree that for a period of five (5) years from the date hereof (the “Non-Compete Period”) Seller and Parent, and any entity owned (directly or indirectly in any percentage) by Seller or Parent or any entity affiliated with Seller or Parent, will not own, manage, control, participate in, consult with, render services for or in any manner engage in any Competitive Business (as defined below) with Buyer or WidePoint, or knowingly request, induce or attempt to influence any currently or then existing customers of Buyer or WidePoint, including the customers of Seller and/or Parent, to curtail any business they are currently, or in the last 36 months have been, transacting with Seller, Parent, Buyer, WidePoint (collectively, the “Non-Compete”). Furthermore, during the Non-Compete Period, Seller and Parent shall not, without the prior written consent of both Buyer and WidePoint, directly or indirectly, knowingly solicit or encourage or attempt to influence, or cause any third party to encourage or attempt to influence, any employee who was employed by Seller at any time during the two (2) year period prior to the date hereof to leave the employment of Buyer. Nothing herein will prevent Seller or Parent from being a passive owner of not more than 1% of the outstanding stock of any class of a corporation which is engaged in a Competitive Business of Buyer and/or WidePoint and which is publicly traded, so long as Seller and Parent have no participation in the business of such corporation. Seller and Parent each agrees that the restraint imposed under this paragraph 1 is reasonable and not unduly harsh or oppressive.

2. Definitions .

3. Enforceability . If, at the time of enforcement of any provision of this Agreement, a court holds that the restrictions stated

herein are unreasonable or unenforceable under circumstances then existing, the parties hereto agree that the maximum period, scope, or geographical area reasonable or permissible under such circumstances will be substituted for the stated period, scope or area.

4. Damages . The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement; therefore, in the event of a breach by Seller or Parent of any of the provisions of this Agreement, Buyer, WidePoint or their respective successors or assigns may, in addition to other rights and remedies existing in its favor, apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof.

5. Governing Law; Jurisdiction . All questions concerning the construction, validity and interpretation of this Agreement shall be governed by the internal law, and not the law of conflicts, of the State of Delaware. All parties hereby consent to subject matter jurisdiction, personal jurisdiction and venue in the appropriate federal or state court located in or serving the State of Delaware for disputes under this Agreement.

(a) “Competitive Business” shall mean engaging in “Business” within the “Restricted Territory.” (b) “Business” shall mean any government services related to homeland security advisory systems, identity initiatives,

management of domestic incidents, integration and use of screening information, critical infrastructure identification, prioritization, and protection, national preparedness; terrorist-related screening procedures, maritime security, aviation security, public health and medical preparedness, biometrics for identification and screening to enhance national security, crime scene processing & evidence recovery; as well as, the U.S. Homeland Security Presidential Directive and National Security Presidential Directive requirements related to PIV cards, electronic passports, TWIC, registered traveler, REAL ID, first responder and other related security initiatives within the United States of America or any global application of same, or any other related businesses which Seller is engaged in as of and prior to the date hereof.

(c) “Restricted Territory” shall mean anywhere in the United States of America.

6. Complete Agreement and Amendments . This Agreement contains the complete agreement and understanding of the parties with respect to the subject hereof and it may only be amended by a written instrument signed by all parties hereto.

7. Successors and Assigns . This Agreement shall be binding upon the successors and assigns of the parties. Each affiliate of Buyer shall be a third party beneficiary of this Agreement but the consent of such affiliates shall not be necessary to amend this Agreement.

8. Counterparts . This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. The parties further agree that facsimile signatures or signatures scanned into .pdf (or similar) format and sent by electronic mail shall be deemed original signatures.

[The next page is the signature page.]

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written.

[Signature page to Non-Competition Agreement – Vuance and Parent]

Attest (Seal): VUANCE,1NC.

By:

By: Name: Eyal Tuchman Name: Eyal Tuchman Title: Secetery Title: CEO Attest (Seal): VUANCE, LTD.

By:

By: Name: Eyal Tuchman Name: Eyal Tuchman Title: Secetery Title: CEO Attest (Seal): ADVANCED RESPONSE CONCEPTS CORPORATION By: By: Name: James T. McCubbin

Title: Secretary Name: Denise M.B. Finnance

Title: President Attest (Seal): WIDEPOINT CORPORATION By: By: Name: James T. Mccubbin

Title: Secretary Name: Steve L. Komar

Title: Chairman and Chief Executive Officer

EXHIBITS H-2 THROUGH H-9 – NON-MANAGER EMPLOYMENT AGREEMENTS

Exhibit 8

SUBSIDIARIES OF VUANCE LTD. AS OF JUNE 30, 2010

* Vuance – RFID Inc. has an Israeli wholly-owned subsidiary, Vuance RFID Ltd.

Name of Subsidiary Jurisdiction of Organization Percent Owned Vuance, Inc. (formerly SuperCom, Inc.) United States 100% SuperCom Asia Pacific Limited Hong Kong 100% Vuance – RFID Inc.* United States 100% S.B.C. Aviation Ltd. Israel 100% SuperCom Slovakia A.S. Slovakia 66% PureRFid, Inc. United States 100%

Exhibit 12.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT T O

SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002 I, Ron Peer, certify that:

1. I have reviewed this annual report on Form 20-F of Vuance Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the Company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect the Company’s internal control over the financial reporting; and

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: July 22, 2010 /s/ Ron Peer

Ron Peer Chief Executive Officer

Exhibit 12.2 CERTIFICATION OF DIRECTOR PURSUANT TO

SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002 I, Eyal Tuchman, certify that:

1. I have reviewed this annual report on Form 20-F of Vuance Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the Company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect the Company’s internal control over the financial reporting; and

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: July 22, 2010 /s/ Eyal Tuchman

Director

Exhibit 13.1

SECTION 906 CERTIFICATION

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND DIRECT OR PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY

ACT OF 2002

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Vuance Ltd. (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Annual Report on Form 20-F for the fiscal year ended December 31, 2009 (the “Form 20-F”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act of 1934, and the information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the

Company and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: July 22, 2010 /s/ Ron Peer

By: Ron Peer Title: Chief Executive Officer

Dated: July 22, 2010 /s/ Eyal Tuchman

By: Eyal Tuchman Title: Director

Exhibit 15.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have issued our report dated July 22, 2010 accompanying the consolidated financial statements included in the Annual Report of Vuance Ltd. on Form 20-F for the year ended December 31, 2009. We hereby consent to the incorporation by reference of said report in the Registration Statements of Vuance Ltd. on Form S-8 (File No. 333-121231, effective December 14, 2004). Fahn Kanne & Co. Certified Public Accountants (Isr.) Tel-Aviv, Israel July 22, 2010

Exhibit 15.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use of our auditors’ report dated June 26, 2009 on the financial statements of SuperCom Asia Pacific Limited for the year ended December 31, 2008 in the Annual Report (Form 20-F) of Vuance Ltd. filed with the United States Securities and Exchange Commission. PKF Certified Public Accountants Hong Kong, China July 22, 2010