The private company Telrad is expected to make profit of $3.5 million, on paper atleast, from selling Telrad Hawk NET-I (NetEye) to ECtel (Nasdaq:ECTX).

Telrad is wholly owned by Koor Industries (NYSE:KOR).

In return, Telrad received 850,000 ECtel shares, which when the deal was announced in August were worth $11 million, and are now worth $14 million, after an aggregate 30% climb in the interim.

Telrad might not be able to recognize the capital gains because the deal involves two companies directly and indirectly owned by Koor.

As far as is known, Telrad has not exercised its ECtel stock options. It received a million options at $24 exercise price, and 250,000 shares at $28 exercise price. ECtel shares are expected to climb once Telrad receives the shares and exercises the options.

Koor Vice Chairman and CEO Jonathan Kolber last month said that Telrad is less sexy than ECI Telecom (Nasdaq:ECIL), and that it is mainly an original equipment manufacturer for Nortel (NYSE:NT), but Koor believes that Telrad's business is improving. Kolber was speaking at the annual conference of Israeli companies held by CIBC World Markets in New York. He estimated that in the fourth quarter this year Telrad will at least break even, even though it lost NIS 26 million in the third quarter.

ECtel, whose market cap is $280 million, specializes in hardware and software systems for monitoring networks, identifying and preventing fraud. Like many Israeli firms, it has developed products stemming from demand from the defense sector.

NetEye specializes in preventing fraud on next-generation communications networks. By acquiring it, ECtel has "eliminated" from the market a company that could have become its competitor.