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Annual Goodwill Impairment Test

International Accounting Standard (IAS) 36

Related to Baran Telecom Inc. As of December 31, 2010

Baran Group Ltd. 2 BTI Annual Goodwill Impairment Test

March 30, 2011 Sason Shilo, CFO Baran Group Ltd. Bet Dagan Israel _____________________

Dear Mr. Shilo,

Further to your request, Variance Economic Consulting Ltd. (“Variance”) has performed

valuation services for Baran Group Ltd. (hereinafter “Baran”). The objective of our services is in

reference to the annual goodwill impairment test related to the acquisition of Baran Telecom Inc.

(“BTI” or the “Company”), acquired from O2 Wireless Solutions Inc., as of December 31, 2010

(hereinafter “Valuation Date”). Our analysis is based on international Accounting Standard no.

36 (“IAS 36”) – titled: The Impairment of Assets.

It is our understanding that Baran is testing its goodwill for impairment as per IAS 36. As was

reported to us by the management of Baran (hereinafter “Management”), the goodwill tested for

impairment is attributed to BTI.

Scope of Work

Our engagement is limited to performing the annual goodwill impairment test and our

assessment was done under the terms and conditions incorporated in our engagement letter

dated February 6, 2011. This valuation report is intended solely for the information and use of the

Management, Baran’s independent auditors, the Company’s legal counsel, and in documents filed

with the Israeli Securities and Exchange Commission. It is not to be used, circulated, quoted, or

otherwise referred to for any other purpose, including, but not limited to, the registration, purchase,

or sale of securities, nor is it to be filed with or referred to, in whole or in part, in a registration

statement or any other document.

Methodology

Under IAS 36, goodwill will be tested for impairment at the cash-generating unit on an annual basis, and under certain circumstances, between tests. If the carrying amount of a cash-generating unit to which goodwill has been allocated exceeds its recoverable amount, IAS 36 requires the excess to be recognized as an impairment loss for goodwill. Any excess remaining after the carrying amount of goodwill has been reduced to zero is then recognized by being


allocated to the other assets of the unit pro rata with the carrying amount of each asset in the unit.

For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units or groups of units.

Management has determined BTI as a cash-generating unit according to the provisions of IAS

36.

Summary of findings

The accompanying report provides detailed explanations of our findings. This summary of our

findings should be read in conjunction with the detailed assumptions and explanations, which

are included in the report.

The carrying amount of BTI for the analysis as of the Valuation Date is valued at $16.2 million.

Based on our analysis, the recoverable amount of BTI is estimated at $13.3 million.

Since the carrying amount of BTI exceeds its recoverable amount, we believe an

impairment should be recognized.


Sources of Information

Our analysis is based on information provided by Management, including but not limited to:

� BTI 2008-2010 financial statements � BTI budget for 2011 and projected forecasts � Public financial and industry information � Discussions with Management

In our valuation, we relied upon the information as provided by Management together with public financial and industry sources. We have not audited this data, and have not independently assessed this data for accuracy and reasonableness beyond a general assessment of market conditions. Our conclusion is dependent on such information being complete and accurate in all material respects. We are unrelated to Baran, and have no current or expected interest in the Company or its assets. The fees paid for our services in no way influenced the results of our analyses. Additional standards rule under which this assignment was performed are included in Appendix A to this report. We are pleased to provide this valuation service to Baran, and should you have any questions regarding our analysis, please contact us at +972 -3-6121551.

Sincerely,

_______________________

Ram Levy, C.P.A

Variance Economic Consulting Ltd.


Table of Contents

1. Overview ........................................................................................................ 6

2. Company Overview....................................................................................... 9

3. Market Overview.......................................................................................... 14

4. Goodwill Impairment Test .......................................................................... 17

5. Valuation Analysis ...................................................................................... 20

6. Conclusion................................................................................................... 23

Appendix A - Limiting Conditions ................................................................... 24

Appendix B - Calculation of Cost of Capital ................................................... 25

Appendix C – BTI Projected Performance ...................................................... 26

Appendix D – Valuation Methodologies.......................................................... 27

Appendix F – Independent Expert's Profile .................................................... 28


1. Overview

1.1 Background

Baran is a global company publicly traded since 1992 in the Tel Aviv Stock Exchange (TASE)

and on the NASDAQ since November 2002 (NASDAQ: BRAN, TASE: BRAN). With over 1,800

employees worldwide, Baran has offices in many countries, including Israel, the United States,

Germany, Romania, the Netherlands, Thailand, Vietnam, Uzbekistan, Canada, and Russia.

Baran is a global engineering and contracting firm and a market leader among Israeli

companies that provide engineering services. Its core business is providing engineering,

construction, project management and consulting services, either as full project and engineering

solution on a turnkey basis or as tailor-made engineering, procurement and construction

management services, to various industry sectors.

Baran's Communication Division:

The Communication Division is a leading solutions provider, specializing in the provision of fast

rollout turnkey packages and full EPCM services for the deployment of network infrastructures,

telecommunication equipment installation and various telecommunication-related projects in

global markets.

The Communication Division serves global customers through the following subsidiaries:

• Baran Telecom Inc., U.S.A

• Baran International Inc., U.S.A

• Bartec Inc., Canada

• Baran Raviv Telecom Ltd., Israel

• Yesodot Barniv Ltd., Israel

• Baran Telecom Networks GmbH, Germany

• Westmontage GmbH, Germany

• Baran Raviv Telecom (Thailand) Ltd.

• Baran (Vietnam) Ltd.

• Bartec Engineering LLC, Usbekistan


On November 14, 2002, Baran acquired O2, a U.S. public company engaged in the provision of

solutions and external services for wireless communication networks and infrastructure. The

acquisition was structured as a merger between BTI, a wholly owned subsidiary of Baran, and

O2. In view of the nature of its operations, O2 was included as part of the Baran’s

communications division, as the North American headquarter.

The total purchase price was approximately $5.9 million, including the market value of the

shares issued in the amount of $ 3.7 million and acquisition costs, in the amount of $2.2 million.

The purchase price has been allocated to the fair value of the assets (tangible and intangible)

and liabilities acquired, resulting in goodwill of approximately $19.4 million.

1.2 Goodwill Track Record

On November 14, 2002, pursuant to the acquisition, Baran allocated the purchase price paid to the

assets and liabilities acquired for financial reporting purposes as required under the provisions of

International Financial Reporting Standard (IFRS) 3.

This report includes an annual goodwill impairment test, as of December 31, 2010. The

total goodwill balance, as of the Analysis Date is $7,968 thousands.

1.3 Purpose, Scope and Source of Information

Variance has performed an independent analysis with respect the Company annual goodwill

impairment test as per IAS 36– titled: The Impairment of Assets, as of December 31, 2010.

Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants, at the Valuation Date, neither being under any

compulsion to buy or to sell, and both having reasonable knowledge of relevant facts.

This valuation report is intended solely for the information and use of Management, Baran

independent auditors and the respective companie's legal counsel, and in documents filed with

the Security and Exchange Commission. It is not to be used, circulated, quoted, or otherwise

referred to for any other purpose, including, but not limited to, the registration, purchase, or sale

of securities, nor is it to be filed with or referred to, in whole or in part, in a registration statement

or any other document.

In our assessment, we relied upon financial and other information as provided by Baran’s

management, together with public financial and industry sources. Our conclusion is dependent


on such information being complete and accurate in all material respects. We have not audited

the data we received, and our assessment is based on the general reasonableness of the data

and overall market conditions.

Our assessment includes the following sources:

• BTI historical financial information for the years 2008-2010;

• BTI forecasted budget for years 2011;

• Market research of wireless infrastructure market;

• Publicly available information and the data research market;

• Discussions held with Baran’s Management.


2. Company Overview

2.1 BTI

US-based, Baran Telecom Inc. is a provider of outsourced integrated network solutions to the

wireless telecommunications industry, enabling customers to rapidly plan, design, deploy, and

maintain their wireless telecommunications networks. BTI is part of Baran Americas, which

consist of BTI, as well as Bartec Canada, Baran USA Inc, Bartec Engineering, Baran

International, Baran Chile and Baran Guatemala.

BTI has expertise in the major wireless and wire line telecommunications technologies and

provides objective solutions to its customers by remaining technology and vendor independent.

BTI offers its clients a comprehensive solution, from pre-deployment planning through network

installation, maintenance and optimization.

BTI's Customers The following is a brief description of the Company's customers activities:

• Goodman Networks continues to work with Baran on the AT&T Turf program in a

number of markets (PNW, TX, AR, WI-IL, GA). This account has the potential of

reaching $18-$20 million in 2011.

• Light squared: Baran signed a TK contract with LS, since then LS has signed an

agreement with both Metro and Sprint. Denver will be one of the first markets for Baran

to build.

• Ericsson: Baran is trying to work its way back in, in Chicago as well as getting in on ER’s

wireline side with Uverse, a long time Baran customer. ER also has 15,000 new sites

with Sprint, and likely to need many resources.

• Huawei: Baran have been awarded a TK contract with Huawei for 58 sites mostly in

Maine. Baran has a good chance to obtain the remaining 80 sites of the same Project.

Baran was also awarded 404 site audits for Huawei in South Texas, which may turn into

full installation and decom of sites. Total project size is 805 sites. These are Huawei’s

first two projects in the US and Baran will be invovled in both.

• EMI: This is the potential Railroad project, EMI, a Texas based company, has contracts

to fab 25,000 towers for leading US railways companies. Baran is in the process of

teaming with them to offer a full TK back to the rail companies.

• SAI: Small scale activities in the East Coast are also expected to develop.


• Verizon: Small scale activities for Baran with them in North Carolina, expected to grow.

Management Work Plan The competition between Verizon and AT&T over 3G / 4G LTE coverage triggers vast new build

outs budgets being released by these carriers nationwide. Baran intends to capitalize on this.

Management forecasts an increase in revenues to approximately $39 million based on

the following customer's activities:

Customer Description Potential

revenue ($) Probability for

2011 2011 revenue

forecast

GOODMAN LTE AND CONSTRUCTION 30,500,000 62% 18,910,000

LIGHTSQUARD

SITE WALKS AND CONSTRUCTION 13,000,000 70% 9,100,000

SAI CONSTRUCTION 1,840,000 100% 1,840,000 VERIZON CONSTRUCTION 1,500,000 90% 1,350,000 Huawei CONSTRUCTION 10,000,000 80% 8,000,000

39,200,000

Management plan is based on the following key data:

� The wireless industry has continued to show growth especially in the data area

due to the popularity of phones such as the iPhone and Blackberries. These

phones are showing strong sales, and increase pressure on the capacity of

wireless networks.

� Existing carriers are expected to continue expanding their networks and new

players such as Huawei and Lightsquared (both signed Master Service

Agreements with Baran) are expected to launch large projects in the USA this

year;

� New technology - The deployment of the 4G LTE technology will require carriers

to deploy new antenna, lines and modifications of their existing sites as well as

deploy new equipment; Baran is already providing LTE construction services in

Georgia and North Texas.

� The telecom infrastructure market is expected to continue to grow thoughout the

USA, for the next 2-3 years.


2.2 Financial Analysis

Income Statements

The historical financial statements of BTI have been analyzed in order to understand its past

performance and operating trends. Baran provided us with the Company’s financial statements.

During the last years, as a result of the worldwide economic crisis, a significant economic

downturn occured in the telecommunications industry. This impact on wireless infrastructure

spending, while mobile cellular operators further trimmed their capex budgets and carriers have

tightened budgets and equipment spending.

The following table shows BTI operating results for 2008-2010: All amounts in USD (000’s)

31/12/2008 31/12/2009* 31/12/2010 Revenues

48,208 21,037 18,008 Total COGS

38,098 21,894 15,268 Gross Profit

10,110 -

857 2,740 % of gross profit 21% -4% 15% Operating Expenses:

General and Administrative 7,786 -1 6,103 Bad debts 4,771 -1,180 -261 Depreciation 231 199 129 Total Operating Expenses 12,788 - 982 5,971 Income (Loss) from Operations (2,678) 125 (3,231)

-6% 1% -18%

(*) Note: 2009 figures reflect one time classifications made by the Company with regard to G&A

expeses, which were directly attributed to projects cost of goods.


Revenues – Revenues have decreased by approximately 56% from $48.2 million in 2008 to

$21 million in 2009 , decreasing by 14% and reached $18 million in 2010. The decrease in

revenues is attributed to the overall economic slowdown and sharp decrease in wireless

infrustructure spending.

Despite the recovery of the global wireless infrastrucure during 2010, deployment of 4G LTE in

US, which is the main growth engine of this market, was postponed to 2011. New agreements

with carriers were signed during the second halh of 2010, while LTE projects were dated to

2011.

Based on Management analysis, revenues do not diveded equaly throughout the quarters and

the first quarter of each year is characterized with low level of revenues in reference to the

following quarters.

Gross Profit - Gross profit, as a percentage of revenues, decreased from 21% in 2008 to 15% in

2010. The decrease in gross margin is mainly attributed to the decrease in revenues.

G&A expenses - G&A expenses decreased from $12.8 million in 2008 to $6 million in 2010.

The decrease in G&A expenses is mainly attributed to an amount allowed for doubtful accounts

totaled at $4.2 million, in 2008. G&A expenses as a percentage of revenues, exluding allowance

for doubtful amounts, increased from approximately 16% in 2008 to 34% in 2010. According to

Management analysis, 2010 G&A expenses include one-time reserve for legal settalments of

approximately $1.4 million.

Income (Loss) From Operation - Loss from operation summed at $2.7 million in 2008 while in

2009 the company income from operation summed at $0.1. In 2010, loss from operation

summed at $3.2 million, reflecting loss of 18% of revenues.

Loss from operation, net from one-time allowance for bad debts and reserve for legal and

settlements, totaled $2.1 million, reflecting loss of 12% of revenues.


The following table presents BTI balance sheet as of December 31, 2010 (un-audited) in $000’s:

31/12/2010

Cash & Equivalents 1,094 Trade Receivables 4,059 Other Receivables 97 Revenue Accrual 5,801 Inter-Company Accounts Receivable 6,117 Total Current Assets 17,168 Software capitalization 8Fixed Assets 644 Goodwill 7,968 Deferred taxes 1,989 Total Net Assets 27,777 Accounts Payable 1,825 Accrued expenses 143 Notes Payable 1,100

Cost Accrual 222 Other Payables 218 Total Current Liabilities 3,508 Litigation reserve 30 LT Employee contract 40 Notes Payable 28,596 Owners' Equity 4,397)(Total Liabilities and Owners' Equity 27,777


3. Market Overview

3.1 The Global Wireless Infrastructure Market

The global wireless infrastructure service landscape has been evolving at a rapid rate over the

last decade. The financial crisis and the gloomy economic environment in 2009 did make a dent

in the growth of mobile networks, with operators cutting spending in many parts of the world.

This was also a time for the wireless marketplace to reflect and chart a course of action for

dealing with a new set of devices, applications and services, and to prepare for the 4G

revolution.

While slight, the growth for 2010 nevertheless represents a turnaround from the 19.6 percent

decline in infrastrucuture spending recorded during 2009, when levels plunged in the wake of

the global economic recession. With the expected recovery of carrier spending in the region,

Europe’s share of global infrastructure capital expenditures will account for 29.6 percent of the

world total—second only to that of Asia-Pacific at 45.8 percent and well ahead of North America

at 16.3 percent. In particular, the share of North America has steadily declined in the last five

years, and the area will continue to face serious challenges related to the wireless infrastructure

subscriber base given the approaching saturation of the market.

Spending on wireless infrastructure is a key component of overall wireless capital

expenditures—considered an important metric in determining the health of the industry. Other

areas of wireless capital spending include expenditures for software upgrades and

maintenance, as well as capital spending on site procurements.


LTE equipment expenditure is expected to ramp up quickly in 2011. ABI Research estimates

that LTE equipment spending will grow 120% in 2011 to reach almost $1 billion. This increase is

supported by more than 185 deployments and trials around the world. While LTE’s first soft-

commercial launches were in Europe, it is in the US that the most aggressive rollout of 4G

services is taking place in order to underpin 4G consumer and enterprise services. MetroPCS

has commitments to introduce half a dozen Android LTE smartphones in early 2011. Verizon is

planning to make ten LTE devices available by mid-2011. AT&T and T-Mobile are bringing

forward their LTE plans.

Despite the hype and rhetoric surrounding 4G, the wireless infrastructure deployment market is

still largely dominated not just by 3G upgrades but even by 2G (GSM-EDGE) swap-outs and

coverage buildouts. While mobile voice service revenues are declining in many developed

markets, equipment spending on 2.xG infrastructure has not gone away. In fact

GSM/GPRS/EDGE equipment outlay is likely to represent approximately 31% of the market, or

more than $17.5 billion, in 2011.

iSupli projects that the global mobile infrastructure market will return to modest growth of 3.6%

in 2011. The migration to 4G LTE, will help drive this growth in 2011 and beyond.

During the last two years, 2009 and 2010, carriers have invested in incremental technology

upgrades to 3.5G – as opposed to investing directly in 4G technologies. In 2011, iSuppli expects

carriers to start transitioning to 4G LTE as data traffic on their networks grow at an exponential

rate.

3.2 Competative Landscape

The network infrastructure services marketplace is highly competitive. Numerous network

infrastructure service providers offer services comparable to those offered by BTI.

The demand for network infrastructure services is influenced by the following parameters:

• Growth in wireless customers and voice traffic on wireless networks;

• Introduction of new technologies and products;

• The growth of data networks;

• The availability and cost of capital to finance network expansion;

• Regulation; and

• Economic conditions.


BTI’s competitors include the following:

• Wireless carriers and tower companies, and equipment suppliers who employ in-house

personnel to provide network infrastructure services;

• Local, national, and multi-national engineering firms;

• Larger companies serving regional, national, and international markets; and

• Smaller companies providing specialized services to local markets.

The following table summarize BTI’s competitors information (source: Capital IQ):

Million Last 12 Months 4 Years Average Margins (%) Revenue $ EBIT $ Gross EBIT EBITDA

Keppel Telecommunications & Transportation Ltd. (SGX:K11)

108 12 31.01% 8.80% 14.68%

Shenandoah Telecommunications Co. (NasdaqGS:SHEN)

177 37

71.54% 26.17% 46.39% Tecnomen Lifetree Oyj (HLSE:TEM1V)

61 -8 80.01% -3.34% 3.73%

Linktone Ltd. (NasdaqGM:LTON)

69 050.62% 1.88% 5.46%

net mobile AG (XTRA:N1M) 94 1 22.39% 0.96% 5.40% Eyes Vision Corp. (KOSE:A031310)

89.2 -1.7 27.52% -5.20% -2.36%

Teletouch Communications Inc. (OTCPK:TLLE)

45 338.99% -0.30% 2.70%

Purple Communications, Inc. (OTCPK:PRPL)

109 -26 37.26% -17.56% -11.30%

Average 44.92% 1.43% 8.09%

Key Findings:

• The avearge EBIT margin during the last 4 years WAS 1.43%;

• During the last 4 years the gross margin has declined from 50% to 40%;

• The operting margin during the last 4 years had remained stable.


4. Goodwill Impairment Test

4.1 General

The objective of IAS 36 is to prescribe the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable amount. An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, the asset is described as impaired and the Standard requires the entity to recognize an impairment loss. The Standard also specifies when an entity should reverse an impairment loss and prescribes disclosures.

4.2 Identification of the Cash Generating Unit

For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer’s cash-generating units1, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated shall:

(a) Represent the lowest level within the entity at which the goodwill is monitored for internal management purposes; and

(b) Not be larger than a segment based on either the entity’s primary or the entity’s secondary cash-generating format determined in accordance with IAS14 Segment Cash-generating.

BTI was identified as a cash-generating unit since it has independent economic

characteristics and discrete financial information available.

4.3 Goodwill Impairment Test Methodology

Under IAS 36, goodwill will be tested for impairment at the cash-generating unit on an annual

basis, and under certain circumstances, between tests.

Measuring recoverable amount The recoverable amount of a cash-generating unit is the higher of its fair value less costs to sell

and its value in use. It is not always necessary to determine both an asset’s fair value less costs

to sell and its value in use. If either of these amounts exceeds the asset’s carrying amount, the

asset is not impaired and it is not necessary to estimate the other amount.


Fair value less costs to sell is the amount obtainable from the sale of an asset or cash-

generating unit in an arm’s length transaction between knowledgeable, willing parties, less the

costs of disposal.

Value in use is the present value of the future cash flows expected to be derived from an asset

or cash-generating unit.

The following elements shall be reflected in the calculation of an asset’s value in use:

• An estimate of the future cash flows the entity expects to derive from the asset;

• Expectations about possible variations in the amount or timing of those future cash flows;

• The time value of money, represented by the current market risk-free rate of interest;

• The price for bearing the uncertainty inherent in the asset; and

• Other factors, such as liquidity, that market participants would reflect in pricing the future

cash flows the entity expects to derive from the asset.

Estimates of future cash flows shall include:

• Projections of cash inflows from the continuing use of the asset;

• Projections of cash outflows that are necessarily incurred to generate the cash inflows

from continuing use of the asset (including cash outflows to prepare the asset for use) and

can be directly attributed, or allocated on a reasonable and consistent basis, to the asset;

• Net cash flows, if any, to be received (or paid) for the disposal of the asset at the end of its

useful life.

Future cash flows shall be estimated for the asset in its current condition. Estimates of future

cash flows shall not include estimated future cash inflows or outflows that are expected to arise

from: (a) A future restructuring to which an entity is not yet committed; or (b) Improving or

enhancing the asset’s performance.

Estimates of future cash flows shall not include:

• Cash inflows or outflows from financing activities; or

• Income tax receipts or payments.

1 A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.


Recognizing and measuring an impairment loss A cash-generating unit to which goodwill has been allocated shall be tested for impairment

annually, and whenever there is an indication that the unit may be impaired, by comparing the

carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. If the

recoverable amount of the unit exceeds the carrying amount of the unit, the unit and the

goodwill allocated to that unit shall be regarded as not impaired. If the carrying amount of the

unit exceeds the recoverable amount of the unit, the entity shall recognize the impairment loss.

An impairment loss shall be recognized for a cash-generating unit (the smallest group of cash-

generating units to which goodwill or a corporate asset has been allocated) if, and only if, the

recoverable amount of the unit (group of units) is less than the carrying amount of the unit

(group of units). The impairment loss shall be allocated to reduce the carrying amount of the

assets of the unit (group of units) in the following order:

(a) First, to reduce the carrying amount of any goodwill allocated to the cash-generating unit

(group of units); and

(b) Then, to the other assets of the unit (group of units) pro rata on the basis of the carrying

amount of each asset in the unit (group of units).

However, an entity shall not reduce the carrying amount of an asset below the highest of:

(a) Its fair value less costs to sell (if determinable);

(b) Its value in use (if determinable); and

(c) Zero.

The amount of the impairment loss that would otherwise have been allocated to the asset shall

be allocated pro rata to the other assets of the unit (group of units).


5. Valuation Analysis

5.1 General

According to the IAS 36, the recoverable amount of the cash-generating unit should be determined and compared to its carrying amount including goodwill and intangible assets. If the carrying amount of the unit exceeds the recoverable amount of the unit, the entity shall recognize the impairment loss. Based on our discussions with Management, we defined the cash-generating unit to be BTI.

5.2 BTI Carrying Amount

In order to determine BTI carrying amount, the following steps were taken:

• The Goodwill balance, related to BTI, as of the Valuation Date, is $7,968 thousand;

• We added operational assets in the amount of $10,601 thousand;

• We subtracted operational liabilities in the amount of $2,408 thousand;

The following table presents the Enterprise' group of assets carrying amount calculation as of

the Valuation Date:

Carrying Amount Calculations US $000s Goodwill 7,968 Plus: Operational Assets 10,601 Less: Operational Liabilities (2,408) Total carrying amount 16,161

The following table presents the operational asset and liabilities of BTI, as of the Valuaton Date:

Operational Assets US $000s Trade Receivables 4,059 Other Receivables 97 Earnings in Excess of Billings 5,801 Property & Equipment, Net 644 Total Operational Assets 10,601 Operational Liabilities Accounts Payable 1,825 Accrued expenses 143 Cost Accrual 222 Other Payables 218 Total Operational Liabilities 2,408

As presented in the table, the carrying amount of BTI as of the Valuation Date is_$16.2 million.


5.3 BTI Recoverable Amount

As described in section 3.5, the recoverable amount of a cash-generating unit is the higher of its

fair value less costs to sell and its value in use. If either of these amounts exceeds the asset’s

carrying amount, the asset is not impaired and it is not necessary to estimate the other amount.

In order to find BTI’s recoverable amount we calculated the value in use of BTI using the Income Approach (See Appendix D for discussion of valuation methodologies).

The income approach utilizes a procedure generally known as the discounted cash flow ("DCF")

method of valuation. The value determined under the DCF analysis reflects the operations and

cost structure of the BTI, and it is generally considered the best indicator of value when

sufficient projected and historical operating results are available. Since we estimated fair value

of the BTI as a going concern, we believe the DCF is the best indicator of its value. In estimating

the projected future performance of the BTI, various assumptions were made using the past

performance of BTI as well as data provided by Management including Company’s budget for

2011 and 5 years forecasts.

The following assumptions were made (For P&L and Cash Flow projection, see Appendix C):

• Revenues – Management budgeted revenues for year 2011 to reach $39,000

thousands, reflecting 115% growth. Based on our analysis as to BTI's actual historical

performance Vs. Management's forecast, we assumed revenues in 2011 would amount

to $31,500 thousand, reflecting 75% growth rate. For 2012 we assumed an annual

growth of 20%, which will gradually decrease to 5% in year 2015, based on the

estimated long term growth rates of the industry.

• Cost of Goods Sold - Based on financial data provided by Management, we assumed

cost of goods sold, as a percentage of net sales, would constitute 83% of revenues in

2011, decreasing and reach 77% of revenues from 2015 and beyond.

• General and Administrative - General and administrative expenses include mostly

general expenses which are not related to any specific project. Based on discussion with

Management, we understood that G&A expenses consist of 50% fixed costs and 50%

variable costs. Therefore, G&A expenses growth will derive from total revenues

projected growth rates. G&A expenses for 2010 are based on BTI's budget.


• Income Tax - According to IAS 36, income tax payments shall not be included in calculating the recoverable amount.

• Capital Expenditures - Capital expenditures were assumed to be $150K per annum, based on Management’s projections.

• Working Capital Investment - We adjusted net income to reflect changes in working

capital requirements. Working capital assumptions were based on BTI's history as well as

Management projections as follow:

o Accounts receivables days – 75

o Payable days – 45

o Other current assets and accured liabilities were calculated as

precentage of revenues.

• Residual Year - In calculating the residual value, a normalized available cash flow was

estimated for fiscal year 2016. Normalized available cash flow is estimated to grow at 3%.

• Weighted average cost of capital - WACC was estimated at 16% in accordance with the

wireless industry parameters. The WACC for pre-tax cash flows was estimated at 22.5% (for detailed calculation of WACC see Appendix B).

5.4 Valuation Summary

Based on our analysis, we estimate the BTI's operation, as of the Valuation Date, to be in the

range of $12.7-$14.0 million (for detailed calculation, refer to Appendix C):

.K,30013$Date is Valuationgenerating unit as of the -e amount of the cashhe recoverablT


5.5 Sensativity Analysis

The following table shows BTI recoverable amount in a range of different long term growth rate

(residual year) and cost of capital rates:

13,282 21% 22% 23% 24% 25%1% 13,769 12,851 12,414 11,277 10,598 3% 14,840 13,783 13,282 11,993 11,230 5% 16,180 14,934 14,349 12,858 11,987 Growth Rate

WACC

Conclusion

The carrying amount of BTI for the analysis as of the Valuation Date is valued at $16.2 million.

As explained in the preceding section, the recoverable amount of BTI is estimated at $13.3

million.

Since the carrying amount of BTI exceeds its recoverable amount, we believe that animpairment loss of $2.9 million should be recognized.

.


Appendix A - Limiting Conditions

This report has been prepared solely for Management as requested under the provisions of IFRS 3 including discussions with Baran’s auditors, and should not be relied upon for any other purpose. Unless required by law, it shall not be provided to any third party without our prior written consent. While our work has involved an analysis of financial reports, financial information and accounting records, our engagement does not include an audit in accordance with generally accepted auditing standards of Baran’s existing business records. Accordingly, we assume no responsibility and make no representations with respect to the accuracy or completeness of any information provided by, and on behalf of Baran. All detailed information and related supporting documents utilized by Variance in the process of purchase price allocation are maintained in Variance’s work papers. These work papers are the property of Variance and are available for your review upon request. Variance shall have ownership (including, without limitation, copyright ownership) and all rights to use and disclose its ideas, concepts, know-how, methods, techniques, processes and skills and adaptations thereof (including, without limitation, generalized features of the sequence, structure and organization of any works of authorship) in conducting its business, and Baran shall not assert or cause to be asserted against Variance or its personnel any prohibition or restraint from so doing. Projections are related to future events and based on assumptions, which may not necessarily remain valid for the whole of the relevant period. Consequently, this information cannot be relied upon to the same extent as that derived from audited accounts for completed accounting periods. We express no opinion as to how closely the actual results will correspond to those projected by Management. The valuation of companies and businesses is not a precise science and the conclusions arrived at in many cases will be subjective and dependent on the exercise of individual judgment. Therefore, there is no indisputable single value and, as such, we normally express our opinion on the value as falling within a likely range. However, as our purpose requires the expression of a single value, we have adopted a value at the mid-point of our valuation range. While we consider our value/range of potential values to be both reasonable and defensible based on the information available to us, others may place a different value on the business. Finally, the results of our valuation analysis do not constitute a Solvency Opinion or a Fairness Opinion and should not be relied upon as such. Furthermore, the analysis we perform should not be taken to supplant any procedures that you should undertake in your consideration of a transaction.


Appendix B - Calculation of Cost of Capital

When applying the Income Approach, the costs are discounted to their present value equivalent

using a rate of return that reflects the relative risk of the investment, as well as the time value of

money. This return, known as the weighted average cost of capital, (“WACC”), is calculated by

weighting the required returns on interest-bearing debt and common equity capital in proportion

to their estimated percentages in an expected industry capital structure. We have determined that, as of the Valuation Date, the WACC of BTI was approximately 16%, as follows, and

the pre-tax WACC of BTI is ≈ 23%:

BTIWeighted Average Cost of Capital ("WACC")

A. Market Based Capital StructureEquity 85.0%Debt 15.0%

B. Cost of Equity

Cost of Equity = Rf + B*(Rp) + Ssp = 17.61%

Rf - Risk-free Rate 20 Years U.S Tresury bonds = 4.13%Rp - Equity Risk Premium. Incremental return demanded by an average investor = 6.5%B - Beta - a measure of the systematic risk or individual price volatility relative to the market = 1.15Ssp - U.S. Small Stock Premium = 6%

C. Cost of Debt

Cost of Debt = Bond Rate * (1 - T) = 4.84%

T - Effective Tax Rate = 41%B - Bond rate = 8.20% 6.50%

D. Weighted Average Cost of Capital ("WACC")Weighted

Cost of Debt 4.84% 15.00% 0.73%Cost of Equity 17.61% 85.00% 14.96%

Rounded WACC 16.00%

(1) Long-term market risk premium.

(2) Wireless indutsry's Beta (Demodaran, January 2011)

(3) Average yield of BBB rated bond as of December 31, 2010


Appendix C – BTI Projected Performance

BTI Projected Profit and Loss Statements ($000):

31/12/2011 31/12/2012 31/12/2013 31/12/2014 31/12/2015 Normalized

Management Forecast 39,000 47,580 57,096 67,373 77,479

Revenues 31,500 37,800 43,470 47,817 50,208 51,714Total Revenue Growth 75% 20% 15% 10% 5% 3%Cost of Goods Sold Labor 6,521 7,447 8,564 9,420 9,891 10,188Materials 3,150 3,402 3,695 3,825 4,017 4,137Subcontractors 12,600 15,120 17,388 19,127 20,083 20,686Others Direct 3,830 4,213 4,529 4,755 4,874 4,947Total COGS 26,100 30,181 34,175 37,127 38,865 39,958Gross Profit 5,400 7,619 9,295 10,690 11,343 11,757Gross Margin 17% 20% 21% 22% 23% 23%Operating Expenses: General and Administrative 5,150 5,665 6,090 6,394 6,554 6,653Depreciation 144 174 204 219 234 150Total Operating Expenses 5,294 5,839 6,294 6,613 6,788 6,803Income (Loss) from Operations 106 1,780 3,001 4,077 4,555 4,954Operating Margin 0.3% 4.7% 6.9% 8.5% 9.1% 9.6%

BTI Projected Free Cash Flows ($000):

31/12/2011 31/12/2012 31/12/2013 31/12/2014 31/12/2015 NormalizedPre-tax Income 106 1,780 3,001 4,077 4,555 4,954Plus: Depreciation 144 174 204 219 234 150Less: Capital Expenditures (150) (150) (150) (150) (150) (150)Less: Working Capital Investment (Increase)/Decrease (206) (1,708) (1,538) (1,195) (644) (406)Available Cash Flow (106) 95 1,517 2,950 3,995 4,548Residual Value 24,000Partial Period Adjustment 0.5 1.5 2.5 3.5 4.5 5.5Present Value Factor 0.903 0.737 0.602 0.491 0.401 0.327Present Value of Available Cash Flow (96) 70 913 1,449 1,602 9,343


Appendix D – Valuation Methodologies

Fair market value is generally described as the price at which property or a business would

change hands between a willing buyer and a willing seller, neither being under any compulsion

to buy or to sell and both having equal knowledge of relevant facts.

In general, three valuation methodologies are available to determine the fair market value of a business enterprise:

Income Approach - The income approach utilizes a procedure generally known as the

discounted cash flow ("DCF") method of valuation. This typically involves a projection of income

and expense and other sources and uses of cash, the assignment of a terminal (or residual)

value at the end of the projection period that is reasonably consistent with the key assumptions

and long-term growth potential of the business, and a determination of an appropriate discount

rate that reflects the risk of achieving the projections. The present value of aggregate annual

free cash flows plus the terminal value represents the total capital or the net asset value of the

operating entity, which equals the combined debt and equity capital or enterprise value of the

company.

Market Comparable Approach - The market comparable approach is a generally accepted

valuation technique used in evaluating a privately held business entity, or a division or

subsidiary of a publicly traded corporation. This approach examines either publicly traded

companies or acquisitions of privately held companies within the same industry as the subject

business entity. Market-derived multiples based on such measures as earnings, book value,

cash flow and revenues are typically applied to the appropriate financial indicators of the subject

entity to determine a range of total capital values for the business.

Cost Approach - The underlying premise when using the cost approach is that the book value

or cost of an asset is equal to its fair market value. Certain adjustments are made to assets on

a case-by-case basis if this premise does not hold true.


Appendix F – Independent Expert's Profile

Variance is an independent consulting firm specializing in financial and business consulting services. Our team provides financial and economic analysis to a diverse range of local and international clients. We have a proven track record in assisting leading businesses in IPOs, investment decisions, economic valuations, M&A, and financial reporting. We meet the highest standards of US, Israeli, and international professional accounting bodies. For further detail and a partial list of our clients please refer to our website: www.variance.co.il.

Variance has vast experience in different fields as following:

• Enterprise Valuation, Mergers and Acquisitions, and Due Diligence.

• Financial instruments – provide full-value assessments of financial instruments and derivatives (using financial models such as Black-Scholes-Merton closed form model, Binominal model, and Monte Carlo simulation), in accordance with financial accounting standards IAS 39, and IAS 32, and the FAS133 American standard.

• Share Based Compensation - provide "Fair Value" assessments for Employee Stock Options Plans (ESOP) (using valuation methods such as Black-Scholes-Merton closed form model, Binominal model, and Monte Carlo simulation), in accordance with financial accounting standards (FAS 123(r), IFRS2. Professional support and advisement for new stock-based compensation plans.

• Valuation of the Post-Employment Benefits in accordance with International Accounting Standard IAS 19 using actuarial models.

• Equity valuation (for common and preferred shares), Goodwill Impairment, Purchase Price Allocation (PPA), financial instruments and derivatives assessments, Passive Foreign Investment Company (PFIC), IP Value. Our valuations comply with the highest standards of US, Israeli, and international professional accounting bodies.

• Business Plans and Transaction Support - business plans preparation for companies in all stages of development. Escorting financial transactions.

• Build-Operate-Transfer (BOT) Projects - financial consulting for concession-based projects (public-private partnerships, i.e. BOTs, PPPs, etc.,) and privatizing infrastructure projects.


Ram Levy, C.P.A. (Isr.), MBA

Mr. Levy brings many years of experience in finance and business consulting, working with a

wide range of Israeli and international companies. His expertise covers public and private

companies in many industries, from hi-tech and bio-tech, to real estate and heavy industry.

Mr. Levy has extensive experience in valuations, budgeting and control, analysis of mergers,

joint ventures, compensation plans, economic feasibility studies, and financial consulting

services. Prior to Variance, he was as a senior manager at Price Waterhouse Coopers

Corporate Finance. Mr. Levy’s experience also includes working as Vice President Business

Development at Spectronics Ltd. and as a financial consultant in number of leading firms.

Mr. Levy holds a BSc in accounting from the College of Management, Israel, a BA in Life

Sciences (Honors) and a MBA (Finance) from Bar Ilan University.

Assaf Segal, MBA

Assaf provides in-depth consulting for international and local clients in a wide range of

industries, including: telecommunications, Internet, biotech, industrial, and financial sectors.

He also has many years of experience in economic consulting and company valuations,

ventures and financial instruments for investments, M&A and IPOs. Previously Assaf

founded a start-up software company. He also held a managerial position at PwC Corporate

Finance and was an Economic Department manager at the North American division of

Amdocs Inc (located in St. Louis, USA).

Assaf's experience also includes risk management and house account ("Nostro") trading at the

Union Bank of Israel, and as an economist for capital markets in the Research Department of

the Bank of Israel.

Assaf holds a BA in Economics and Statistics, and an MBA (Finance and Information Systems)

from the Hebrew University of Jerusalem.

Amnon Alon, MBA Amnon brings to his role years of experience in wide range of economic activities. His

experience includes consulting services for private and public companies on economic

valuations, Purchase Price Allocation (PPA), transaction advisory, and financial modeling.

Prior to joining Variance, he worked at Israel Discount Bank, infrastructure and project finance

Division, as a project manager and analyst. In this position, he took part in a wide range of PPP

( BOT/PFI) projects and real estate projects’ financing.

Amnon holds a bachelor's degree from the University of Maryland in Economics and an MBA in

finance from Johns Hopkins University, Carey Business School. He graduated both with honors.

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