Including the effects of the Cost and Charges, net income for the three and nine months ended September 30, 2003, were $740,000 and $1 million or $0.06 and $0.08 per fully diluted share, respectively, based on approximately 13.4 and 12.6 million weighted average shares outstanding, respectively, compared with net loss of $(2) million and $(12) million or ($0.16) and ($0.99) per fully diluted share, respectively, based on approximately 12.2 million weighted average shares outstanding for the same periods in 2002.

        As of September 30, 2003, the Company had cash, cash equivalents and other financial investments of $51.1 million, and shareholders’ equity of $52.4 million. Financial income net, for the third quarter totaled $1.9 million, of which $1.1 million was attributed to financial capital gains on marketable securities.

        Commenting on the third quarter results, Zvi Halperin, President and Chief Financial Officer of Optibase, said, “We are pleased to report continued revenue growth and profitability, smaller operating losses, as well as further customer acceptance of the MGW 5100 by telecom operators in North America and in the international markets.

        “We are not only pleased with the revenue growth in the Telco market but also by the general positive reaction to our flagship product in this space, the MGW 5100. The market is still in its infancy and we are further developing it via alliances with other best of breed solutions such as the one recently announced with Samsung Electronics, Orca Interactive and Kassena in which Samsung will serve as a prime contractor for an integrated end-to-end TV over xDSL solution. Alliances of this kind enhance our position and reach in the marketplace as they enable faster and simpler deployment of advanced video services by telecom operators.

        “As it has been less than a year since we began serving the Telco market with the introduction of the MGW 5100, we do not yet have the history upon which to accurately estimate short-term revenue trends on a quarter to quarter basis. Nevertheless, we are confident in the opportunities that this market holds for Optibase and in the overall potential of the MGW 5100 as a significant revenue generator for the Company both in the short and long term.

        Mr. Halperin continued, “During the third quarter we participated in IBC, where we unveiled a new product for enterprise video platforms, the MPEG MovieMaker 400. This MPEG-4 hardware video encoder is ideal for organizations that want to implement surveillance, training, video conferencing and business TV applications. The product was well received and its commercial release remains on schedule for the fourth quarter of 2003. Our MPEG-2 encoder line, the MovieMaker 200 continues to be integrated into new digital media applications such as digital signage and narrowcasting in point of sale, point of information and corporate communications areas. To this end we have recently announced that the encoders are compatible with Sony’s NSP-100, a leading IP network appliance.”

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