Exhibit 99.1

VOLTAIRE LTD.

CONSOLIDATED FINANCIAL STATEMENTS

VOLTAIRE LTD.

CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

The amounts are stated in U.S. dollars in thousands

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders of

VOLTAIRE LTD.

We have audited the consolidated balance sheets of Voltaire Ltd. (the “Company”) and its subsidiaries as of December 31, 2010 and 2009 and the related consolidated statements of operations, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s Board of Directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.

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. 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 the Company’s Board of Directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2010 and 2009 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, on February 7, 2011, Mellanox Technologies Ltd, acquired the Company.

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VOLTAIRE LTD.

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

The accompanying notes are an integral part of the consolidated financial statements.

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VOLTAIRE LTD.

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands, except share and per share data)

The accompanying notes are an integral part of the consolidated financial statements.

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VOLTAIRE LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands)

The accompanying notes are an integral part of the consolidated financial statements.

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VOLTAIRE LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(U.S. dollars in thousands, except share data)

(*) Less than $1

The accompanying notes are an integral part of the consolidated financial statements

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VOLTAIRE LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

The accompanying notes are an integral part of the consolidated financial statements

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VOLTAIRE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 1 - DESCRIPTION OF BUSINESS:

Voltaire Ltd. (the “Company”), an Israeli corporation, was incorporated and commenced operations on April 9, 1997. The Company’s ordinary shares are listed on The Nasdaq Global Market and commenced trading on July 26, 2007.

On November 29, 2010, the Company entered into a merger agreement with Mellanox Technologies, Ltd. (“Mellanox”), a public company according to which each issued and outstanding ordinary share of the Company will be deemed to have been transferred to Mellanox in exchange for the right to receive $8.75 in cash, without interest. In addition, each outstanding option and restricted stock unit of the Company shall be assumed by Mellanox and converted into an option or restricted stock unit of Mellanox using certain conversion ratio.

On February 7, 2011, Mellanox, acquired the Company for approximately $207.7 million in cash.

The Company and its wholly owned subsidiaries, (together with the Company, the “Group”), are engaged in the development, production, marketing and sales of scale out networking solutions.

As of December 31, 2010 the Company depends on a single supplier to manufacture and provide a key component for its switch products.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:

a.                    Accounting principles:

The consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”).

b.             Use of estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Actual results could differ from those estimates.

c.     Functional currency:

The currency of the primary economic environment in which the operations of the Group are conducted is the U.S. dollar (“$” or “dollar”).  The majority of the Group’s revenues are derived in dollars. Purchases of most materials and components are also carried out in dollars. Accordingly, the functional currency of the Group is the dollar.

The dollar figures are determined as follows: transactions and balances originally denominated in dollars are presented in their original amounts.  Balances in foreign currencies are translated into dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. The resulting translation gains or losses are recorded as financial income or expense, as appropriate. For transactions reflected in the statements of operations in foreign currencies, the exchange rates at transaction dates are used. Depreciation and changes in inventories and other changes deriving from non-monetary items are based on historical exchange rates.

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VOLTAIRE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

d.    Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances, including profits from intercompany sales not yet realized outside the Group, have been eliminated upon consolidation.

e.    Cash and cash equivalents:

The Group considers all highly liquid investments purchased with an original maturity of three months or less, that are not restricted, to be cash equivalents. To mitigate risks the Group deposits cash and cash equivalents with high credit quality financial institutions.

f.     Marketable securities:

The Company classifies its investing in marketable securities as available-for-sale. Accordingly, these securities are measured at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of shareholders’ equity. The fair value of quated securities is based on current market value. Realized gains and losses on sales of investments, and a decline in value which is considered as other than temporary, are included in the consolidated statement of operations. Interest and amortization of premium and discount on debt securities are recorded as financial income.

The Company classifies marketable securities as available-for-sale as either current or non-current based on maturities and management’s reasonable expectation with regard to those securities. If management expects to convert securities to cash during the normal operating cycle of the business, then the securities are classified as current assets. Those securities that are not expected to be realized in cash within one year (or normal operating cycle) are classified as non-current.

The Company holds its marketable securities as available-for-sale and marks them to market. The Company typically invests in highly-rated securities, and its policy generally limits the amount of credit exposure to any one issuer. When evaluating investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. Based on the above factors, the Company concluded that unrealized losses on all available-for-sale securities were not other-than-temporary and did not recognize any impairment charges on outstanding securities.

g.    Restricted deposits:

The Group maintains certain cash amounts restricted as to withdrawal or use. The restricted deposits are denominated in U.S. dollars and NIS and presented at cost, plus accrued interest at rates of 0.5% for deposits in U.S. dollars and 2.2% for deposits in NIS per annum as of December 31, 2010.

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VOLTAIRE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

h.   Fair value of financial instruments:

The Group financial instruments are measured at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

i.     Concentration of credit risk:

Financial instruments that potentially subject the Group to a concentration of credit risk consist of cash, cash equivalents, restricted cash and marketable securities, which are deposited in major financial institutions in the United States and Israel, and accounts receivable. The Group’s accounts receivable are derived from revenues earned from customers located in North America, Europe and Asia. The Group performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers. The Group maintains an allowance for doubtful accounts receivable based upon the expected ability to collect the accounts receivable. The Group reviews its allowance for doubtful accounts quarterly by assessing individual accounts receivable and all other balances based on historical collection experience and an economic risk assessment. If the Group determines that a specific customer is unable to meet its financial obligations to the Group, the Group provides an allowance for credit losses to reduce the receivable to the amount management reasonably believes will be collected.

j.                  Inventories:

Inventories include finished goods and raw materials. Inventories are stated at the lower of cost (cost is determined on a “first-in, first-out” basis) or market value. Reserves for potentially excess and obsolete inventories are made based on management’s analysis of inventory levels and future sales forecasts. Once established, the original cost of the Company’s inventory less the related inventory reserve represents the new cost basis of such products.

k.   Property and equipment:

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets: over three years for computers and other electronic equipment, and seven to fifteen years for office furniture and equipment. Leasehold improvements are amortized on a straight-line basis over the term of the lease, or the useful life of the assets, whichever is shorter. Maintenance and repairs are charged to expense as incurred, and improvements are capitalized.

When assets are retired or otherwise disposed of, the cost and accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is reflected in the results of operations in the period realized.

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VOLTAIRE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

l.                  Impairment of long-lived assets:

The Group reviews all long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest charges) of the long-lived assets is less than the carrying amount of such assets, an impairment loss would be recognized, and the assets would be written down to their estimated fair values.

To date, the Group has not recorded any impairment charges relating to its long-lived assets.

m.            Revenue recognition:

The Group generates revenues mainly from the sale of hardware and software products and the provision of extended hardware warranties and support contracts. The Group sells its products mostly to OEMs, distributors, system integrators and value added resellers, all of whom are considered customers from the Group’s perspective.

The software components of the Group products are deemed to be more than incidental to the products as a whole, and therefore, the Group accounts for its product sales in accordance with software revenue recognition accounting guidance.

Revenues from product sales are recognized when persuasive evidence of an agreement exists, delivery of the product to the customer has occurred, the fee is fixed or determinable and collectibility is probable.

Revenues from fixed-price contracts which require significant modification and or customization to customer specifications are recognized using the percentage-of-completion, percentage-of-completion estimates are in man-months of labor. Losses on contracts, if any, are recognized in the period in which the loss is determined.

The Group’s standard shipping term are Freight on Board or Ex-Works Seller’s Premises. The Group relies upon an accepted purchase order as persuasive evidence of an arrangement.

The Group’s standard arrangement with its customers includes no right of return and no customer acceptance provisions. In a limited number of arrangements the Group has deviated from its standard terms by accepting purchase order arrangements from customers that included certain acceptance tests with timescales and trigger points after delivery.  In such cases, the Group does not recognize revenue until all such obligations, timescales and acceptance tests are approved by the customer.

Revenue earned on software arrangements involving multiple elements is allocated to each element based on the relative specific objective fair value (“VSOE”) of the elements. A significant portion of the Group’s product sales include multiple elements. Such elements typically include several or all of the following: hardware, software, extended hardware warranties and support services. When the fair value of a delivered element has not been established, but fair value exists for the undelivered elements, the Company uses the residual method to recognize revenue if the fair value of all undelivered elements is determinable. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue.

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VOLTAIRE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

Revenues from support and extended hardware warranties included in multiple element arrangements are deferred and recognized on a straight-line basis over the term of the applicable service agreement.

The Group provides for potential warranty liability costs in the same period as the related revenues are recorded. This estimate is based on past experience of historical warranty claims and other known factors. The Group grants a one-year hardware warranty and a three-month software warranty on all of its products. In cases where the customer wishes to extend the warranty for more than one year, the Group charges an additional fee. This amount is recorded as deferred revenue and recognized over the period that the extended warranty is provided and the related performance obligation is satisfied.

The VSOE of fair value of the extended warranty and support services is determined based on renewal rates. Deferred revenues are classified as short and long term and recognized as revenues at the time the respective elements are provided.

The Group recognizes revenue net of VAT.

n.               Product warranty:

The Group grants a one-year hardware warranty and a three-month software warranty on all of its products. The Group estimates the costs that may be incurred under its warranty arrangements and records a liability in the amount of such costs at the time product revenue is recognized. This estimate is based on past experience of historical warranty claims and other known factors.  Factors that affect the Group’s warranty liability include the number of installed units, historical and anticipated rates of warranty claims and cost per claim. The Group periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Changes in the Group’s liability for product warranty during the years ended December 31, 2010, 2009 and 2008, are as follows:

o.     Research and development costs:

Research and development costs are charged to the statement of operations as incurred. Based on the Group’s product development process, technological feasibility is established upon the completion of a working model. The Group does not incur material costs between the completion of a working model and the point at which the products are ready for general release.

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VOLTAIRE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

p.               Share-based compensation:

The Company accounts its employees options based on the grant-date fair value method. The fair value of share-based awards is estimated using the Black-Scholes valuation model, the payment transaction is recognized as expense over the requisite service period, net of estimated forfeitures. The Company estimated forfeitures based on historical experience and anticipated future conditions.

The Company recognizes compensation cost for an award with only service conditions that has a graded vesting schedule using the straight-line method over the requisite service period for the entire award.

The Company accounts for equity instruments issued to third party service providers (non-employees) in accordance with the fair value based on an option-pricing model. The fair value of the options granted is revalued over the related service periods and recognized over the vesting period using the straight line method.

q.               Derivatives and Hedging

To protect against the increase in value of forecasted foreign currency cash flow resulting from expenses paid in NIS during the year, the Company adopted certain hedging policies. The Company hedges portions of the anticipated payroll of its Israeli employees, Israeli suppliers expenses and anticipated rent expenses of its Israeli premises denominated in NIS for a period of one to twelve months with forward and options contracts.  The fair value of all derivative instruments is recorded as assets or liabilities at the balance sheet date. Changes in the fair value of these instruments are reported in income or accumulated other comprehensive income (loss), net, depending on the use of the derivative and whether it qualifies for hedge accounting treatment. Gains and losses on derivative instruments qualifying as cash flow hedges are recorded in accumulated other comprehensive income (loss), net, to the extent the hedges are effective, until the underlying transactions are recognized in income. To the extent effective, gains and losses on derivative instruments used as hedges of the Company’s expenses in foreign currency are recorded in Accumulated other comprehensive income (loss), net. Derivative instruments not designated as hedges are marked to market at the end of each accounting period with the change in fair value recorded in income.

As of December 31, 2010, the Company recorded comprehensive income of $337 from its forward and options contracts in respect to anticipated payroll for its Israeli employees, Israeli suppliers expenses and anticipated rent expenses expected in 2011. Such amounts will be recorded in the consolidated statements of operations of 2011. The Company recognized in 2010 net loss of $235 related to forward and options contracts.

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VOLTAIRE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

Fair Value of Derivatives Instruments:

The Effect of Derivatives instruments on the Statement of Operations for the Years Ended December 31, 2010 and 2009 is as follows:

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VOLTAIRE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

r.                 Income Taxes

1. Deferred taxes:

Deferred taxes are determined utilizing the assets and liabilities method, which is based on the estimated future tax effects of the differences between the financial accounting and tax bases of assets and liabilities under the applicable tax laws. Deferred tax balances are computed using the tax rates expected to be in effect when those differences reverse. A valuation allowance in respect of deferred tax assets is provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

2. Uncertain tax positions:

The Group considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. Tax positions are recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the positions will be sustained upon examination. Tax positions that meet the more-likely-than-not threshold are measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a tax position is a matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence.

The Group classified interest and penalties relating to uncertain tax positions within the provision for income taxes.

s.                 Advertising

Cost related to advertising and promotion of products is charged to sales and marketing expense as incurred. Advertising expenses for all years were immaterial.

t.                  Comprehensive income (loss)

Comprehensive income consists of net income (loss) and other gains and losses affecting shareholders’ equity that under generally accepted accounting principles are excluded from the net income (loss). For the Group, such items consist of unrealized gains and losses on available-for-sale securities and derivative instruments.

u.             Segment reporting

The Company has one operating segment.

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VOLTAIRE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

v.                          Newly issued accounting pronouncements:

In September 2009, the EITF reached a consensus on ASC 605-25 Revenue Arrangements with Multiple Deliverables). ASC 605-25 eliminates the criterion for objective and reliable evidence of fair value for the undelivered products or services. Instead, revenue arrangements with multiple deliverables should be divided into separate units of accounting if the deliverables meet several criteria.

The Issue eliminates the use of the residual method of allocation and requires, instead, that arrangement consideration be allocated, at the inception of the arrangement, to all deliverables based on their relative selling price (i.e., the relative selling price method). When applying the relative selling price method, a hierarchy is used for estimating the selling price for each of the deliverables, as follows:

·                  VSOE of the selling price;

·                  Third-party evidence (TPE) of the selling price — prices of the vendor’s or any competitor’s largely interchangeable products or services, in standalone sales to similarly situated customers; and

·                  Best estimate of the selling price.

ASC 605-25 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted if the Company elects to adopt ASC 985-605, concurrently.

In September 2009, the EITF reached a consensus on ASC 985-605 (Certain Revenue Arrangements That Include Software Elements). Entities that sell joint hardware and software products that meet the scope exception (i.e., essential functionality) will be required to follow the guidance in ASC 985-605. ASC 985-605 provides a list of items to consider when determining whether the software and non-software components function together to deliver a product’s essential functionality.

ASC 985-605 must be adopted for arrangements entered into beginning January 1, 2011, and may be early-adopted. The Group does not expect adoption of the updated guidance to have a material impact on its consolidated results of operations or financial condition

In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. In addition, in the reconciliation for fair value measurements using significant unobservable inputs, or Level 3, a reporting entity should disclose separately information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). The updated guidance also requires that an entity should provide fair value measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for Level 2 and Level 3 fair value measurements. The updated guidance is effective for interim or annual financial reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company does not expect adoption of the updated guidance to have a material impact on its consolidated results of operations or financial condition.

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VOLTAIRE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 3 - FAIR VALUE MEASURMENT:

a.                                                          The Group measures its marketable securities and derivative financial instruments at fair value. The Company’s money market funds carried at fair value are generally classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The Company has classified its derivative assets and liabilities within Level 2 of the fair value hierarchy as the valuation inputs are based on quoted prices and market observable data of similar instruments.

The Company classifies its investing in marketable securities as available-for-sale. Accordingly, these securities are measured at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of shareholders’ equity. The Company has classified its marketable securities within Level 2 of the fair value hierarchy as the valuation inputs are based on quoted prices and market observable data of similar instruments.

Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of December 31, 2010:

Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of December 31, 2009:

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VOLTAIRE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 3 - FAIR VALUE MEASURMENT (continued):

b.                                                      The carrying amounts of cash and cash equivalents, marketable securities, restricted deposits, accounts receivable, accounts payable and other accrued liabilities approximate their fair value either because these amounts are presented at fair value or due to the relatively short-term maturities of such instruments. The carrying amounts of the Group’s long-term deposits, other long-term assets and other long-term liabilities approximate their fair value.

NOTE 4 -INVESTMENTS:

The Group’s investments comprised of marketable securities and short term bank deposit.

a.                                                     Marketable securities as of December 31, 2010 and 2009 were as follows :

b.             Short term bank deposit as of December 31, 2010 and 2009 was $0 and $800, respectively.

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VOLTAIRE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 5 - PROPERTY AND EQUIPMENT:

a.              Composition of assets, grouped by major classifications, is as follows:

b.              Depreciation and amortization expenses totaled approximately, $3,496, $2,656, $1,676 for the years ended December 31, 2010, 2009 and 2008, respectively.

NOTE 6 - ACCRUED SEVERANCE PAY:

Israeli labor law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. The severance pay liability of the Company to its employees, which reflects the undiscounted amount of the liability, is based upon the number of years of service and the latest monthly salary, and is partly covered by insurance policies and by regular deposits with recognized severance pay funds. The amounts funded are presented among the investments. The Company may only make withdrawals from the amounts funded for the purpose of paying severance pay. The severance pay expenses were $970, $601 and $917 in the years ended December 31, 2010, 2009 and 2008, respectively of which $433, $500 and $622, respectively were net deposited in funds managed by financial institutions that are earmarked by management to cover severance pay liability in respect of Israeli employees. Gain (loss) on amounts funded in respect of employee rights upon retirement totaled $266, $280 and $ (132) for the years ended December 31, 2010, 2009 and 2008, respectively.

The Company expects to contribute approximately $900 in 2011 to the pension funds and insurance companies in respect of its severance and pension pay obligations.

NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES:

a.                     Royalty commitments

The Company was obligated to pay royalties to the Office of the Chief Scientist (“OCS”) on proceeds from sales of products resulting from the research and development in which the Government participated by way of grants. Under the terms of the Company’s funding from the OCS, royalties of 3.5% are payable on sales, up to 100% of the amount of the grant received by the Company (dollar linked); plus annual interest based on the twelve-month LIBOR, accruing from January 1, 1999.

At the time the grants were received, successful development of the related projects was not assured. In the case of failure of a project that was partly financed by royalty-bearing Government grants, the Company is not obligated to pay any such royalties to the OCS.

Royalty expenses are included in the statement of operations as a component of cost of revenues and totaled to approximately $0, $0, $2,651 for the years ended December 31, 2010, 2009 and 2008, respectively.

In April 2008, the Company paid $2,651 to the Government of Israel in settlement of royalty balance due with respect to the OCS grants to the Company.

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VOLTAIRE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands except share and per share data)

NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):