Camtek Ltd. — Annual Report 2006

Nov 9, 2009

20-F/A 1 zk97438.htm Created by EDGAR Ease Plus (EDGAR Ease+) Project: \Backup\edgar filing\Camtek Ltd\97438\a97438.eep Control Number: 97438 Rev Number: 1 Client Name: Camtek Ltd Project Name: 20-F/A Firm Name: Zadok-Keinan Ltd 20-F/A MARKER FORMAT-SHEET="Scotch Rule Top-TNR" FSL="Workstation" MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation"

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549

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FORM 20-F/A (Amendment No. 1)

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(Mark One)

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o Registration statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

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or

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x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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For the fiscal year ended December 31, 2006

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or

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o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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or

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Shell Company pursuant to Section 13 or is (d) of the Securities Exchange Act of 1934 \ Date of event requiring this shall Company report ___________

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For the transition period from ________ to ________

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Commission file number 000-30664

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Camtek Ltd. (Exact name of Registrant as specified in its charter)

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Israel (Jurisdiction of incorporation or organization)

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Ramat Gavriel Industrial Zone, P.O. BOX 544, Migdal Ha’Emek, Israel (Address of principal executive offices)

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Securities registered or to be registered pursuant to Section 12(b) of the Act: Ordinary Shares, nominal value 0.01 New Israeli Shekel per share (Title of each Class)

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Nasdaq Global Market (Name of each Exchange on which registered)

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Securities registered or to be registered pursuant to Section 12(g) of the Act: None

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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

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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:

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30,040,855 Ordinary Shares, par value NIS 0.01

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

o Yes x No

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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.

o Yes x No

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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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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x Yes o No

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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.

o Large Accelerated Filer o Accelerated Filer x Non-Accelerated Filer

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

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Item 17 o Item 18 x

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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).

o Yes x No

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EXPLANATORY NOTE

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This Amendment No. 1 to the Annual Report on Form 20-F for the fiscal year ended December 31, 2006 (the “Annual Report”) is being filed by Camtek Ltd. (the “Registrant”) with the Securities and Exchange Commission for the sole purpose of filing the audit report of Brightman Almagor & Co. and Goldstein Sabo Tevet in Item 18 of the Annual Report.

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This Amendment No. 1 consists of a cover page, this explanatory note, the financial statements, as amended, required by Item 18, the exhibit index, the signature page and the required certifications of the principal executive officer and principal financial officer of the Registrant.

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Other than expressly set forth herein, this Amendment No. 1 does not, and does not purport to, amend or restate any other information contained in the Annual Report nor does this Amendment No. 1 reflect any events that have occurred after the Annual Report was filed.

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ITEM 18. Consolidated Financial Statements.

CAMTEK LTD.

Consolidated Financial Statements December 31, 2006 and 2005

CAMTEK LTD.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public
Accounting Firm	F – 2
Consolidated Balance Sheets	F – 3
Consolidated Statements of Operations	F – 4
Consolidated
Statements of Comprehensive Income	F – 5
Consolidated Statements of Shareholders’
Equity And Comprehensive Income (Loss)	F – 6
Consolidated Statements of Cash Flows	F – 7
Notes to Consolidated Financial Statements
as of December 31, 2006	F – 8 to F – 29

Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Camtek Ltd.

We have audited the accompanying consolidated balance sheet of Camtek Ltd. and subsidiaries (“the Company”) as of December 31, 2006 and the related consolidated statements of operations, comprehensive income, shareholders’ equity and comprehensive income and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 2006 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Camtek Ltd. and subsidiaries as of December 31, 2006 and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2Q to the consolidated financial statements, effective January 1, 2006, the Company adopted the fair value method of accounting for stock-based compensation as required by Statement of Financial Accounting Standard No. 123R – “Share Based Payment”.

/s/ Somekh Chaikin Somekh Chaikin Certified Public Accountants (Israel) Member firm of KPMG International

Tel Aviv, June 28, 2007

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REPORT OF INDEPENDENT REGISTRATED PUBLIC ACCOUNTING FIRMS

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To the Shareholders of Camtek Ltd.

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We have audited the accompanying consolidated balance sheets of Camtek Ltd. (the “Company”) and its subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss) and cash flows for each of the three years then ended. 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 audits.

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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 management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

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In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2005 and 2004 and the consolidated results of their operations, and their cash flows for each of the three years then ended, in conformity with U.S. generally accepted accounting principles.

●	●
Brightman Almagor & Co.	Goldstein Sabo Tevet
Certified Public Accountants	Certified Public Accountants
A member firm of Deloitte Touche Tohmatsu

Tel Aviv, Israel March 12, 2006.

F - 2

CAMTEK LTD.
Consolidated Balance Sheets
(In thousands)

2006		2005
U.S. Dollars
ASSETS
CURRENT ASSETS
Cash and cash equivalents	23,358		8,714
Marketable securities (Note 3)	2,099		2,101
Accounts receivable, net (Note 11b,c)	29,434		26,412
Inventories (Note 4)	41,414		24,942
Due from affiliates	180		290
Other current assets (Note 5)	2,372		2,817
Deferred tax (Note 17)	65		-
Total current assets	98,922		65,276
FIXED ASSETS (Note 6)
Cost	15,927		14,405
Less - Accumulated depreciation	5,198		4,442
Fixed assets, net	10,729		9,963
Deferred tax (Note 17)	369		-
Other assets, net (Note 7)	786		-
Total assets	110,806		75,239
LIABILITIES
CURRENT LIABILITIES
Accounts payable –trade	11,801		8,678
Due to affiliates	814		-
Other current liabilities (Note 8)	12,831		8,721
Total current liabilities	25,446		17,399
Convertible loan (Note 9)	5,000		5,000
Liability for employee severance benefits
(Note 10)	222		222
Total liabilities	30,668		22,621
SHAREHOLDERS’ EQUITY (Note 13)
Ordinary shares NIS 0.01 par value,
authorized 100,000,000 shares, issued 31,052,474 in 2006 and 28,095,516 in
2005, outstanding 30,040,855 in 2006 and 27,083,897 in 2005	132		125
Additional paid-in capital	59,420		43,732
Deferred stock-based compensation	-		(221	)
Accumulated other comprehensive loss
Unrealized loss on marketable securities	(1	)	(2	)
Retained earnings	21,580		9,977
	81,131		53,611
Treasury stock, at cost (1,011,619 shares
in 2006 and 2005)	(993	)	(993	)
Total shareholders’ equity	80,138		52,618
COMMITMENTS AND CONTINGENT LIABILITIES (Note 11)
Total liabilities and
shareholders’ equity	110,806		75,239

See accompanying notes to consolidated financial statements

F – 3

CAMTEK LTD.
C onsolidated Statements of Operations
(In
thousands)

2006		2005		2004
U.S. Dollars
Revenues:
Sales of
products	92,470		56,987		63,353
Service fees	7,585		6,045		4,066
Total
revenues (Note 15)	100,055		63,032		67,419
Cost of
revenues:
Cost of
products sold	42,600		28,262		28,193
Cost of
services	5,842		4,519		3,168
Total cost
of revenues	48,442		32,781		31,361
Gross profit	51,613		30,251		36,058
Research and
development costs	11,831		8,469		7,328
Selling,
general and administrative expenses (Note 16a)	27,850		18,760		15,953
Aborted
share issuance expenses (Note 16c)	-		-		1,122
Total
operating expenses	39,681		27,229		24,403
Operating
income	11,932		3,022		11,655
Financial
expenses, net (Note 16b)	(288	)	(320	)	(359	)
Income
before income taxes	11,644		2,702		11,296
Income taxes
(Note 17)	(41	)	-		(499	)
Net income	11,603		2,702		10,797
Net income
per ordinary share:
Basic	0.40		0.10		0.40
Diluted	0.39		0.10		0.39
Weighted
average number of ordinary shares outstanding:
Basic	29,176		27,253		27,114
Diluted	29,553		27,586		27,800

See accompanying notes to consolidated financial statements

F – 4

CAMTEK LTD.
Consolidated
Statements of Comprehensive Income
(In thousands)

2006		2005		2004
U.S. Dollars
Net income	11,603		2,702		10,797
Other comprehensive income:
Realization of loss on available for sale securities, net of taxes
(nil)	2		-		-
Unrealized holding loss on available for sale securities arising
during the year, net of taxes (nil)	(1	)	(2	)	-
Comprehensive income	11,604		2,700		10,797

See accompanying notes to consolidated financial statements

F – 5

CAMTEK LTD.
Consolidated Statements of Shareholders’ Equity And Comprehensive
Income (Loss)
(In
thousands, except share data)

Shares	U.S. Dollars	Shares		U.S. Dollars
Balances at January 1, 2004	28,065,038	125	(1,011,619	)	43,801		(560	)	-		(3,522	)	(993	)	38,851
Exercise of share options	20,728	-	-		-		-		-		-		-		-
Cancellation of share options	-	-	-		(69	)	69		-		-		-		-
Amortization of share options	-	-	-		-		128		-		-		-		128
Net income	-	-	-		-		-		-		10,797		-		10,797
Balances at December 31, 2004	28,085,766	125	(1,011,619	)	43,732		(363	)	-		7,275		(993	)	49,776
Exercise of share options	9,750	-	-		15		-		-		-		-		15
Cancellation of share options	-	-	-		(15	)	15		-		-		-		-
Amortization of share options	-	-	-		-		127		-		-		-		127
Unrealized loss on marketable Securities	-	-	-		-		-		(2	)	-		-		(2	)
Net income	-	-	-		-		-		-		2,702		-		2,702
Balances at December 31, 2005	28,095,516	125	(1,011,619	)	43,732		(221	)	(2	)	9,977		(993	)	52,618
Application of new accounting Standard 123R	-	-	-		(221	)	221		-		-		-		-
Share issuance, net of issuance expenses*	2,525,252	6	-		14,442		-		-		-		-		14,448
Exercise of share options	431,706	1	-		701		-		-		-		-		702
Share based compensation expense	-	-	-		766		-		-		-		-		766
Realization of loss on marketable securities	-	-	-		-		-		2		-		-		2
Unrealized loss on marketable securities	-	-	-		-		-		(1	)	-		-		(1	)
Net income	-	-	-		-		-		-		11,603		-		11,603
Balances at December 31, 2006	31,052,474	132	(1,011,619	)	59,420		-		(1	)	21,580		(993	)	80,138

• Net of issuance expenses at the amount of $560 thousand.

See accompanying notes to consolidated financial statements

F – 6

CAMTEK LTD.
Consolidated Statements of Cash Flows
(In
thousands)

2006		2005		2004
U.S. Dollars
Cash flows from operating activities:
Net income	11,603		2,702		10,797
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization	794		658		747
Loss (gain) on disposal of fixed assets	24		(6	)	(4	)
Gain from marketable securities, net	(6	)	-		-
Amortization of unearned compensation	766		127		128
Provision for bad debts, net	647		(30	)	146
Accrued severance pay	-		-		(190	)
Changes in operating assets and
liabilities:
Accounts receivable	(4,099	)	(4,154	)	(8,958	)
Inventories	(16,472	)	(50	)	(11,205	)
Deferred tax	(434	)	-		-
Due to affiliates, net	924		189		2,173
Other current assets and deferred expenses	(229	)	(724	)	823
Accounts payable - trade	3,123		463		1,230
Other current liabilities	4,110		626		2,457
Net cash provided by (used in) operating
activities	751		(199	)	(1,856	)
Cash flows from investing activities:
Purchase of marketable securities	(3,891	)	(2,103	)	-
Proceeds from sale of marketable securities
available for sale	3,900		-		-
Purchase of fixed assets	(1,582	)	(673	)	(829	)
Purchase of intangible assets	(114	)	-		-
Proceeds from disposal of fixed assets	-		18		25
Net cash used in investing activities	(1,687	)	(2,758	)	(804	)
Cash flows from financing activities:
(Decrease) increase in short-term bank
credit	-		(2,335	)	35
Net proceeds from issuance of ordinary
shares	14,448		-		-
Exercise of share options	702		15		-
Long-term convertible loan	-		5,000		-
Aborted share issuance expenses	-		-		(1,122	)
Net cash provided by (used in) financing
activities	15,150		2,680		(1,087	)
Effect of exchange rate changes on cash	430		(150	)	51
Net increase (decrease) in cash and cash
equivalents	14,644		(427	)	(3,696	)
Cash and cash equivalents at beginning of
the year	8,714		9,141		12,837
Cash and cash equivalents at end of the
year	23,358		8,714		9,141
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest	422		405		450
Income taxes	27		216		479

See accompanying notes to consolidated financial statements

F – 7

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 1 – BUSINESS

Camtek Ltd. (“Camtek”), an Israeli corporation, is a majority owned (61.9%) subsidiary of Priortech Ltd., an Israeli corporation listed on the Tel-Aviv Stock Exchange. Camtek designs, develops manufactures and markets automatic optical inspection systems (“AOI systems”) and related products. Camtek’s AOI systems are used for yield enhancement for various applications in the electronic supply chain industry. The main applications along this supply chain are the production of Microelectronics, Printed Circuit Boards (PCB) and Electronic packaging. Camtek’s activities are conducted in one reportable business segment.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

A.	Principles of Consolidation
	The accompanying consolidated financial statements, which include the
accounts of Camtek and its subsidiaries (collectively the “Company”), are
prepared in accordance with U.S. generally accepted accounting principles.
All material intercompany balances and transactions have been eliminated in
consolidation.
B.	Use of Estimates
	The
preparation of the consolidated financial statements in conformity with U.S.
generally accepted accounting principles 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 revenues and expenses
during the reporting period. Actual results may differ from those estimates.
C.	Foreign currency transactions:
	The
functional currency of the Company is the U.S. Dollar. Most of the revenue
generated by the Company is from outside of Israel and a majority thereof are
received in U.S. Dollars. In addition, materials and components purchased and
marketing expenses incurred are either paid for in U.S. Dollars or in New
Israeli Shekels (“NIS”) linked to changes in the U.S. Dollar/NIS exchange
rate. A significant portion of the Company’s expenses are incurred in Israel
and paid for in NIS. Transactions not denominated in U.S. Dollar are
recorded upon their initial recognition according to the exchange rate in
effect on the date of the transaction. Exchange rate differences arising upon
the settlement of monetary items or upon reporting the Company’s monetary
items at exchange rates different from that by which they were initially
recorded during the period, or reported in previous financial statements, are
charged to financial income or expense. Foreign currency income
(expenses) included in financial income (expenses), net, resulting from
transactions not denominated in U.S. Dollars amounted to $(435), $(238) and
$89 thousand in 2006, 2005 and 2004, respectively.
D.	Cash equivalents
	All highly
liquid investments purchased with maturity of three months or less are
considered to be cash equivalents.
E.	Marketable securities
	The Company
accounts for its investments in marketable securities in accordance with
Statement of Financial Accounting Standard (“SFAS”) No. 115 “Accounting for
Certain Investments in Debt and Equity Securities”.
	As of
December 31, 2006 all marketable securities are designated as
available-for-sale and accordingly are recorded at fair value. Unrealized
holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as
a separate component of other comprehensive income until realized.

F – 8

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

F.	Allowance for doubtful accounts
	The allowance for doubtful accounts is Management’s best estimate of
the probable loss inherent to existing accounts receivable. In the
appropriate allowance, Management bases its estimate on information at hand
about specific debtors, including aging of the balance, assessment of the
underlying security received, the history of write-offs, relationships with
the customers and the overall credit worthiness of the customers.
G.	Inventories
	Inventories consist of completed AOI systems, AOI systems partially
completed and components, and are recorded at the lower of cost, determined
by the moving - average basis, or market.
H.	Fixed assets
	Fixed assets
are stated at cost less accumulated depreciation, and are depreciated over
their estimated useful lives on a straight-line basis.
	Annual rates
of depreciation are as follows:

Building	2%
Machinery and equipment	10

• 33% | | Office furniture and equipment | 6
• 20% | | Automobiles | 15% |

| | Leasehold improvements are amortized by the straight-line method over the lower of the lease term or the estimated useful economic life. | | --- | --- | | I. | Other assets | | | Other assets, comprised of intellectual property, are capitalized at cost and amortized, beginning with the first year of utilization, over its expected life of ten years. | | J. | Long-lived assets | | | The Company applies SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This Statement requires that long-lived assets be 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 undiscounted future cash flows expected to be generated by the asset or used in its disposal. If the carrying amount of the long lived asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as computed by subtracting the fair market value of the asset from its carrying value. | | K. | Fair values of financial instruments | | | The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and amounts due from affiliates approximate fair value because of the short-term duration of those items. Marketable securities are carried at quoted market prices, which represent fair value. The carrying amounts of short-term bank credit, convertible loan and amounts due to or from Priortech Ltd. approximate fair value because the interest rates on such debt approximate the market rate. |

F – 9

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

L.	Revenue recognition
	The Company
recognizes revenue from sales in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 104 “SAB 104” and Financial
Accounting Standard Board’s Emerging Issues Task Force (“EITF”) Issue No.
00-21, “Revenue Arrangements with Multiple Deliverables”. Accordingly, the
Company recognizes revenue from sales of its products when the products are
installed at the customer’s premises and are operating in accordance with its
specifications, signed documentation of the arrangement, such as a signed
contract or purchase order, has been received, the price is fixed or
determinable, and collectibility is reasonably assured.
	Service
revenues consist mainly of revenues from maintenance contracts and are
recognized ratably over the contract period.
	Non-standard
warranty is deferred as unearned revenue and is recognized ratably as revenue
when the applicable warranty term period commences.
M.	Warranty
	The Company
records a liability for product warranty obligations at the time of sale
based upon historical warranty experience. The term of the warranty is
generally twelve months.
	Changes in
the product warranty obligations are as follows:

2006		2005
U.S. Dollars (In thousands)
Beginning of year	1,162		1,703
Change in estimates	(442	)	-
New warranties	2,020		2,003
Reductions	(1,683	)	(2,544	)
End of year	1,057		1,162

N.	Income taxes
	The Company
accounts for income taxes in accordance with SFAS No. 109, “Accounting for
Income Taxes” (“SFAS No. 109”). This Statement prescribes the use of the
liability method whereby deferred tax asset and liability account balances
are determined based on differences between 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 provides a valuation allowance, if necessary, to reduce deferred tax
assets to their estimated realizable value.
O.	Research and development
	Research and
development costs are expensed as incurred.
P.	Earnings
per ordinary share
	Basic earnings per
ordinary share is calculated using only weighted average ordinary shares
outstanding. Diluted earnings per share, if relevant, gives effect to
dilutive potential ordinary shares outstanding during the year. Such dilutive
shares consist of incremental shares, using the treasury stock method, from
the assumed exercise of share options.
	In the years ended
December 31, 2006 ,2005 and 2004, the effect of the exercise of
outstanding share options is dilutive, and was included in computing diluted
earning per ordinary share.
	In
the year ended December 31, 2006 and 2005, the effect of warrants and
conversion of convertible loan is anti-dilutive, and has not been included in
computing dilutive earning per ordinary share.

F – 10

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Q.
Prior to fiscal 2006, the Company applied the intrinsic value method
as prescribed in Accounting Principles Board Opinion No. 25, “Accounting
for Stock Issued to Employees” (APB No. 25), and related
interpretations, in accounting for stock options granted under the stock
option plan. Under the intrinsic value method, compensation cost is
recognized if the exercise price of the Company’s employee stock options was
less than the market price of the underlying stock on the date of the grant.
Effective January 1, 2006, the Company adopted
FASB Statement No. 123(R), “Share-Based Payment” (Statement
123(R)). This statement replaces FASB Statement No. 123, “Accounting for
Stock-Based Compensation” (Statement 123) and supersedes APB No. 25.
Statement 123(R) requires that all stock-based compensation be recognized as
an expense in the financial statements and that such cost be measured at the
fair value of the award. This statement was adopted using the modified prospective
method of application, which requires the Company to recognize compensation
cost on a prospective basis. Therefore, prior years’ financial statements
have not been restated. Under this method, the Company recorded stock-based
compensation expense for awards granted prior to, but not yet vested as of
January 1, 2006, using the fair value amounts determined for pro forma
disclosures under Statement 123. For stock-based awards granted after
January 1, 2006, the Company recognizes compensation expense based on
estimated grant date fair value using the Black-Scholes option-pricing model.
The following table illustrates the effect on net income for the
years ended December 31, 2005 and 2004 as if the Company had applied the
fair value recognition provisions of Statement 123(R) to options granted
under the Company’s stock plans prior to adoption of Statement 123(R) on
January 1, 2006. No pro forma disclosure has been made for periods
subsequent to January 1, 2006 as all stock-based compensation has been
recognized in net income. For purposes of this pro forma disclosure, the
value of the options is estimated using a Black-Scholes option-pricing model
and amortized to expense over the options’ service periods with forfeitures
recognized as they occurred.

U.S. Dollars (In thousands)
Net income, as reported	2,702		10,797
Stock-based employee compensation expense included in reported net
income	127		128
Stock-based employee compensation determined under the fair value
based method	(560	)	(688	)
Pro forma net income	2,269		10,237
Income per share:
Basic - as reported	0.10		0.40
Basic - pro forma	0.08		0.38
Diluted - as reported	0.10		0.39
Diluted - pro forma	0.08		0.37

F – 11

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006 and
2005

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

R.	Reclassification
	Certain
prior years amounts have been reclassified in conformity with the current
year’s financial statements presentation.
S.	Recently Issued Accounting Standards
	1.	In June
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes-an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109,
“Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Company is
currently reviewing this new standard to determine its effects, if any, on
its results of operations or financial position.
	2.	In September
2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB No. 108”). SAB
No. 108 addresses the process and diversity in practice of quantifying
financial statement misstatements resulting in the potential build up of
improper amounts on the balance sheet. The Company will be required to adopt
the provisions of SAB No.108 in fiscal year 2007. The adoption of SAB No. 108
did not have an impact on its consolidated financial statements.
	3.	In September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements”, (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes
a framework for measuring fair value and expands disclosures about fair value
measurements. The changes to current practice resulting from the application
of this Statement relate to the definition of fair value, the methods used to
measure fair value, and the expanded disclosures about fair value
measurements. The Statement is effective for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. The Company
does not anticipate that the adoption of the provisions of SFAS No. 157 will
materially impact its financial position and results of operations.
	4.	In February
2007, the FASB issued FASB Statement No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115, which permits entities to choose to measure many financial
instruments at fair value. The Statement allows entities to achieve an offset
accounting effect for certain changes in fair value of certain related assets
and liabilities without having to apply complex hedge accounting provisions,
and is expected to expand the use of fair value measurement consistent with
the Board’s long-term objectives for financial instruments. This Statement is
effective as of the beginning of an entity’s first fiscal year that begins
after November 15, 2007. The Company is currently reviewing this new standard
to determine its effects, if any, on its results of operations or financial
position.
T.	Recently Adopted Accounting Standards
	1.	Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
Statement 123(R) using the modified-prospective-transition method (refer to
note 2Q).
	2.	Effective
January 1, 2006, the Company adopted FASB Statement No. 151, “Inventory Costs
– an Amendment of ARB No. 43, Chapter 4” (Statement 151). Statement 151
clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage) requiring that those
items be recognized as current-period charges. In addition, Statement 151
requires that allocation of fixed production overheads be based on the normal
capacity of the production facilities. The Company’s current procedures
follow these guidelines and therefore the adoption of Statement 151 had no
impact on the valuation of inventory or charges to cost of sales.

F – 12

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006 and
2005

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

T.
3.	Effective
January 1, 2006, the Company adopted the disclosure requirements of EITF
Issue No. 06-3, “How Taxes Collected from Customers and Remitted to
Governmental Authorities Should be Presented in the Income Statement” (that
is, gross versus net presentation) for tax receipts on the face of their
income statements. The scope of this guidance includes any tax assessed by a
governmental authority that is directly imposed on a revenue-producing
transaction between a seller and a customer and may include, but is not
limited to, sales, use, value added, and some excise taxes (gross receipts
taxes are excluded). The Company has historically presented such taxes on a
net basis.
4.	In September
2006, the FASB issued SFAS No. 158, “Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans – an amendment of FASB Statements
No.87, 88, 106, and 132(R)”, (“SFAS No. 158”). SFAS No. 158 requires an
employer to recognize the over-funded or under-funded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an asset or
liability in its statement of financial position. To recognize changes in
that funded status in the year in which the changes occur through
comprehensive income of a business entity or changes in unrestricted net
assets of a not-for-profit organization. The provisions of this Statement are
effective for an employer with publicly traded equity securities are required
to recognize the funded status of a defined benefit postretirement plan and
to provide the required disclosures as of the end of the fiscal year ending
after December 15, 2006. The adoption of Statement 158 had no impact on the
valuation of inventory or charges to cost of sales.

NOTE 3 – MARKETABLE SECURITIES

U.S. Dollars (In thousands)
Available for sale:
Corporate debt securities	599	601
Auction rate securities	1,500	1,500
	2,099	2,101

The carrying amount, gross unrealized holding losses, and fair value of available-for-sale debt securities by major security type and class of security at December 31, 2006 and 2005 were as follows:

U.S. Dollars (In thousands)
At
December 31, 2006:
Available
for sale:
Corporate debt securities	600	(1	)	599
Auction rate securities	1,500	-		1,500
	2, 100	(1	)	2,099
At
December 31, 2005:
Available
for sale:
Corporate debt securities	603	(2	)	601
Auction rate securities	1,500	-		1,500
	2,103	(2	)	2,101

F – 13

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006 and
2005

NOTE 3 – MARKETABLE SECURITIES (Cont’d)

Maturities of debt securities classified as available-for-sale were as follows at December 31, 2006:

U.S. Dollars (In thousands)
Available
for sale:
First year	600	599
Due after five years
through ten years	1,500	1,500
	2, 100	2,099

Proceeds from the sale of investment securities available for sale were $3,900 and nil in 2006 and 2005, respectively; gross realized gains included in other finance income in 2006 and 2005 were $6 and nil, respectively.

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category have been in a continuous unrealized loss position for less than 12 months, at December 31, 2006 were as follow:

U.S. Dollars (In thousands)
Corporate
debt securities	(1	)	599
Action
rate securities	-		1,500
	(1	)	2,099

NOTE 4 – INVENTORIES

2006	2005
U.S. Dollars (In thousands)
Components	17,702	9,020
Systems partially
completed	5,340	4,392
Completed systems, including
systems not yet purchased, at customer locations	18,372	11,530
	41,414	24,942

F – 14

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006 and
2005

NOTE 5 – OTHER CURRENT ASSETS

2006	2005
U.S. Dollars (In thousands)
Due from Government
institution	743	846
Due from employees	196	184
Prepaid expenses	480	482
Advances to suppliers	519	461
Deposits to leaseholders	110	562
Other	324	282
	2,372	2,817

NOTE 6 – FIXED ASSETS

2006	2005
U.S. Dollars (In thousands)
Land	815	815
Building	7,998	7,636
Machinery and equipment	4,048	3,170
Office furniture and
equipment	2,385	2,223
Automobiles	295	222
Leasehold improvements	386	339
	15,927	14,405
Less accumulated
depreciation	5,198	4,442
	10,729	9,963

Depreciation expenses for the years ended December 31, 2006, 2005 and 2004 are summarized to $792, $658 and $747 thousand, respectively.

NOTE 7 – OTHER ASSETS

2006	2005
U.S. Dollars (In thousands)
Deferred expenses	215	-
Deposits to lease holders	459	-
Intangible assets (A)	112	-
	786	-

F – 15

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 7 – OTHER ASSETS (Cont’d)

A. Patents registration costs

Gross carrying amount	Accumulated amortization	Intangible Assets, net	Amortization period
U.S. Dollars (In thousands)			Years
Patents
registration costs	114	2	112	10

Amortization expense for the years ended December 31, 2006, 2005 and 2004 are summarized to $2, nil and nil thousand, respectively.

NOTE 8 – OTHER CURRENT LIABILITIES

2006	2005
U.S. Dollars (In thousands)
Accrued
compensation and related benefits	4,825	3,786
Government
institutions	843	156
Accrued
warranty costs	1,057	1,162
Commissions	2,077	794
Advances
from customers and deferred revenues	3,125	2,195
Other	904	628
	12,831	8,721

NOTE 9 – CONVERTIBLE LOAN

2006	2005
U.S. Dollars (In thousands)
U.S. Dollar denominated loan, bearing annual interest of Libor+2.1%	5,000	5,000

On August 23, 2005 (the “closing date”) the Company raised $5 million as a convertible loan from FIMI Opportunity Fund L.P and FIMI Israel Opportunity Fund, Limited Partnership (“Fimi”). The loan is payable in three equal annual payments starting at the third anniversary of the closing date. The lenders have the right to postpone the repayments to the end of the fifth anniversary from the closing date. The loan bears annual interest of Libor + 2.1%. The interest is payable every three months. Conversion of the loan, in a whole or in part, is optional at any given business day after the closing date. Conversion price per one ordinary share is $5.50, however, in the event that the average closing price of the Company’s shares as reported on Nasdaq for the sixty consecutive trading days immediately preceding the first and second anniversary of the loan agreement closing date, is lower than the conversion price in effect on such date, the conversion price in effect on such date shall be reduced to equal the higher of the average closing price and $2.00. As of December 31, 2006 the conversion price per one ordinary share is $5.50.

F – 16

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 9 – CONVERTIBLE LOAN (Cont’d)

The Company is subject to the main following covenants in connection to the loan:

| 1. | The shareholders’ equity should not decrease to below $45 million, or, $40 million as a result of dividend distributions. Shareholders’ equity may not decrease by more then 10%, unless such deviation is cured within three consecutive financial quarters immediately following the financial quarter in which such decrease had occurred. | | --- | --- | | 2. | The shareholder’s equity shall represent at least 55% of the total assets of the Company. | | 3. | The net loss shall not exceed an aggregate of $10 million in any single financial quarter or any year. | | 4. | Not to take any further loans which exceeds the aggregate amount of $15 million (other than the loans and credit lines which were in effect at the closing date) and not to enter into new transactions with its affiliates. |

As of December 31, 2006 the Company was in compliance with the aforementioned terms.

NOTE 10 – SEVERANCE PAY

Under Israeli law and labor agreements, the Israeli companies are required to make severance and pension payments to their retired or dismissed employees and to employees leaving employment in certain other circumstances.

| 1. | The liability in respect of most of its employees is discharged by participating in a defined contribution pension plan and making regular deposits with a pension fund. The liability deposited with the pension fund is based on salary components as prescribed in the existing labor agreement. The custody and management of the amounts so deposited are independent of the companies and accordingly such amounts funded (included in expenses on an accrual basis) and related liabilities are not reflected in the balance sheet. | | --- | --- | | 2. | In respect of the liability to other employees, individual insurance policies are purchased and deposits are made with recognized severance pay funds. | | | The liability for severance pay is calculated on the basis of the latest salary paid to each employee multiplied by the number of years of employment. The liability is covered by the amounts deposited including accumulated income thereon as well as by the unfunded provision, which amounted to $222 thousand as of December 31, 2006 and 2005. | | 3. | Severance pay expenses were $750, $544 and $529 thousand in 2006, 2005 and 2004, respectively. |

F – 17

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 11 – COMMITMENTS AND CONTINGENT LIABILITIES

A.
The
Company’s subsidiaries have entered into various nonconancelable operating
lease agreements, principally for office space. As of December 31, 2006,
minimum future rental payments under these leases amounted to $1,438
thousand. In May 2004, the Company entered into a noncancelable operating
lease for vehicles for a period of 36 months. As of December 31, 2006,
the minimum future rental payments were approximately $1,367 thousand.
As of
December 31, 2006, minimum future rental payments under such
noncancelable operating leases are as follows:

| Year

Ending December 31,
2007	1,524
2008	792
2009	364
2010	63
Thereafter	62
	2,805

| | Aggregate office rent expenses amounted to $572, $546 and $529 thousand in 2006, 2005 and 2004, respectively. | | --- | --- | | B. | Valuation and qualifying accounts | | | The following is a summary of the allowance for doubtful accounts related to accounts receivable for the years ended December 31: |

U.S. Dollars (In thousands)
2004	2,090	1,229	(1,083	)	2,236
2005	2,236	680	(710	)	2,206
2006	2,206	778	(131	)	2,853

C.
The Company
entered into accounts receivable factoring agreements with two financial
institutions (the “banks”). Under the terms of the agreements, the Company
has the option to factor receivables, with the banks on a non-recourse basis,
provided that the banks approve the receivables in advance. In some cases,
the Company continues to be obligated in the event of commercial disputes,
(such as product defects) which are not covered under the credit insurance
policy, unrelated to the credit worthiness of the customer. The Company
accounts for the factoring of its financial assets in accordance with the
provisions of SFAS 140 . The Company does not expect any
reimbursements to take place in the foreseeable future.
The
factoring fees of the above mentioned agreements sums to $ 51 thousands in

1. | | As of December 31, 2006 trade receivables amounting to approximately $2.5 million, were factored. |

F – 18

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005
NOTE 11 – COMMITMENTS AND CONTINGENT LIABILITIES (Cont’d)

D.
1.	On May 10,
2004, a lawsuit was filed against the Company in the District Court in
Nazareth, Israel, by a competitor, Orbotech Ltd., alleging that an optional
component in the Dragon and Falcon systems infringe upon a patent held by
Orbotech Ltd. and requesting an injunctive relief and damages. Currently, the
issue dealt with by the court is the validity of the asserted patent. The
Company believes that it has substantial defenses against the validity of
Orbotech’s patent and substantial defenses against Orbotech’s claims.
Therefore no provision was recorded by the Company.
2.	On February
23, 2005, a lawsuit was filed against the Company in the District Court in
Jerusalem by Orbotech Ltd., alleging infringement of patent held by Orbotech
Ltd. regarding a specific illumination block, seeking injunctive relief and
damages. The court ruled, based on a court’s expert opinion, that the Company
allegedly infringed the patent, and granted Orbotech a provisional remedy.
Following the grant of the provisional remedy by the District Court, the
Company filed a motion for leave to appeal. The Supreme Court rejected the
Company’s request since the provisional remedy was granted on the basis of
prime facie evidence only. The claim is currently in the preliminary stage of
discovery and only after evidence is presented and cross examinations are
conducted will a final judgment be rendered by the District Court, subject to
the right to appeal. The particular illumination block was at the time of the
preliminary ruling still in a development stage. The Company’s temporary
inability to manufacture and sell the specific illumination block, does not
affect its ability to manufacture and sell products incorporating other
illumination blocks; the Company manufactures its products with several other
illumination blocks. In February 2007 the patent referring to the specific
illumination block expired. The Company has filed two requests for the
lawsuit to be dismissed. . The Company believes that it has good defenses in
the infringement aspect of the claim. The Company further believes that it
has claims with respect to the validity of the asserted patent, as well as
other defenses such as estoppel and lack of good faith on the part of
Orbotech. Therefore no provision was recorded by the Company.
3.	On July 14,
2005, a lawsuit was filed against the Company in the United States District
Court for the District of Minnesota by one of the Company’s competitors in
the field of semiconductor manufacturing and packaging, August Technology
Corporation (today Rudolph Technologies Inc. together with August Technology
Corporation), alleging infringement of a patent and seeking injunctive relief
and damages. The Company has filed an answer and counterclaims alleging,
inter-alia, non-infringement, invalidity and unenforceability of the patent.
The case is currently approaching the end of the discovery phase and is
expected to be trial ready by October 2007. The Company believes that it has
substantial defenses to August’s allegations. Therefore no provision was
recorded by the Company.

F – 19

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006 and 2005

NOTE 12 – CONCENTRATION OF RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash equivalents, short-term bank deposits, marketable securities and trade receivables. The Company’s cash equivalents and marketable securities are maintained with high-quality institutions and the composition and maturities of investments are regularly monitored by management. Generally, these securities and deposits are traded in a highly liquid market, may be redeemed upon demand and bear minimal risk.

The Company’s marketable securities include auction rate securities and highly rated corporate bonds. The trade receivables of the Company are derived from sales to a large number of customers, mainly large industrial corporations located mainly in Asia, the United States and Europe. The Company generally does not require collateral: however, in certain circumstances, the Company may require letter of credit, other collateral or additional guarantees. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful of collection. The Company performs ongoing credit evaluations of its customers.

NOTE 13 – SHAREHOLDERS’ EQUITY

A.	Initial Public Offering
	The Company
shares are traded on the NASDAQ National Market under the symbol of CAMT.
	In December
2005 the Company registered its shares to be listed and traded in the Tel-Aviv
stock exchange.
B.	Private Placement
	In April 2006, the Company raised $14.5 million, net of issuance
expenses, by issuing 2,525,252 ordinary shares at a price of $5.94 per share
in a private placement to Israeli institutional investors. The private
placement also included warrants that are exercisable into 1,262,626 ordinary
shares at a price of $6.83 per share during a period of four years. The
warrants issued in April 2006 have been classified in equity.
C.	Stock Option Plan
	As of
December 31, 2006, the Company has five share option plans for employees and
directors. Future options will be granted only pursuant to the 2003 Share
Option Plan described below.
	In October
2003, the Company adopted a stock option plan (the Plan) pursuant to
which the Company’s board of directors may grant stock options to officers
and key employees. The total number of options, which may be granted to directors,
officers, employees and consultants under this plan, is limited to 998,800
options. Stock options can be granted with an exercise price equal to
or less than the stock’s fair market value at the date of grant. All stock
options have 10-year terms and vest and become fully exercisable after
4 years from the date of grant with 30% to vest at the end of each of
the first three years and remaining 10% to vest at the end of the fourth year
following the grant day.
	As of
December 31, 2006, there were 38,000 additional shares available for the
Company grant under the Plan. The fair value of each option award is
estimated on the date of grant using the Black-Scholes option-pricing model
that used the weighted average assumptions in the following table. The
risk-free rate for the expected term of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.

F – 20

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006 and 2005

NOTE 13 – SHAREHOLDERS’ EQUITY (Cont’d)

C. Stock Option Plan (Cont’d)

	2006 Grant	2005 Grant
Dividend
yield	0	0
Expected
volatility *	86%-87%	90%
Risk-free
interest rate	5%	4.2%
Expected
life (years) **	6	6

*	Historical volatility
**	The company used the simplified method to estimate the expected life.

The weighted average grant date fair value of options granted during the years ended 2006 and 2005 was $5.38 and $2.30 respectively. The total intrinsic value of options exercised during the years ended December 31, 2006, 2005 and 2004 was $246,756, $5,859 and $23,058 respectively. The total intrinsic value of options vested at December 31, 2006 is $236,589.

As of December 31, 2006, there was $679,354 of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.6 years.

Share option activity during the past three years is as follows:

2006			2005			2004
Number of shares		Weighted average exercise price US$	Number of shares		Weighted average exercise price US$	Number of shares		Weighted average exercise price US$
Outstanding at January 1	1,315,650		2.06	1,250,000		1.98	1,353,056		1.90
Granted	60,000		5.19	144,000		3.00	-		-
Forfeited	(13,980	)	2.37	(68,600	)	2.59	(82,328	)	1.16
Exercised	(431,706	)	1.63	(9,750	)	1.56	(20,728	)	0.00
Outstanding at year end	929,964		2.46	1,315,650		2.06	1,250,000		1.98
Vested at year end	665,729		2.22	702,990		1.95	375,300		1.98

F – 21

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006 and 2005

NOTE 13 – SHAREHOLDERS’ EQUITY (Cont’d)

The following table summarizes information about share options at December 31, 2006:

Range of exercise price US$ — 0.00	208,632	6.56	0.00	169,877	0.00
2.98-3.29	520,832	6.98	2.98	453,952	2.98
3.00	140,500	8.74	3.00	41,900	3.00
5.00	50,000	9.38	5.00	-	5.00
6.15	10,000	9.58	6.15	-	6.15
	929,964	7.31	2.46	665,729	2.22

The following table summarizes information about nonvested options at December 31, 2006:

| Balance at

January 1, 2006	612,660		Weighted average grant- date fair value — 2.07
Granted	60,000		5.38
Vested	(394,445	)	2.04
Forfeited	(13,980	)	2.16
Balance at
December 31, 2006	264,235		2.87

NOTE 14 – EARNINGS PER ORDINARY SHARE

The following table summarizes information related to the computation of basic and diluted profit per Ordinary Share for the years indicated:

	Year ended December 31, — 2006	2005	2004
	(In thousands)
Net income attributable to Ordinary
Shares	$ 11,603	$ 2,702	$ 10,797
Weighted average number of
Ordinary Shares outstanding used
in basic profit per Ordinary Share calculation	29,176	27,253	27,114
Add assumed exercise of outstanding
dilutive potential Ordinary Shares	377	333	686
Weighted average number of
Ordinary Shares outstanding
used in diluted profit per Ordinary Share calculation	29,553	27,586	27,800
Basic earnings per Ordinary Share	$ 0.40	$ 0.10	$ 0.40
Diluted earnings per Ordinary Share	$ 0.39	$ 0.10	$ 0.39

F – 22

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 15 – GEOGRAPHIC INFORMATION

Substantially all fixed assets are located in Israel and substantially all revenues are derived from shipments to other countries. Revenues are attributable to geographic areas/countries based upon the destination of shipment of products and related services as follows:

2006	2005	2004
U.S. Dollars (In thousands)
China and Hong Kong	33,713	24,665	29,576
Other Asia	20,413	5,036	5,341
United States	15,622	11,484	8,116
Taiwan	12,895	12,258	14,574
Western Europe	9,170	6,597	4,780
Japan	6,716	2,065	3,533
Rest of the world	1,526	927	1,499
	100,055	63,032	67,419

NOTE 16 – SELECTED INCOME STATEMENT DATA

A. Selling, general and administrative expenses

2006	2005	2004
U.S. Dollars (In thousands)
Selling (a1)	21,000	14,559	12,819
General and administrative	6,850	4,201	3,134
	27,850	18,760	15,953
(a1) Including shipping
and handling costs	2,626	1,890	2,066

B. Financial expenses, net

2006		2005		2004
U.S. Dollars (In thousands)
Interest expense	422		405		450
Interest income	(795	)	(336	)	(142	)
Other, net	661		251		51
	288		320		359

C.
During 2004,
the Company decided to abandon its plan for a secondary share offering to the
public. The total accrued expenses related to this offering were $1,122
thousand which were expensed in 2004.

F – 23

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 17 – INCOME TAXES

A.	Tax under various laws
	The Company
and its subsidiaries are assessed for tax purposes on an unconsolidated
basis. The Company is assessed under the provisions of the Income Tax Law
(Inflationary Adjustments), 1985, pursuant to which the results for tax
purposes are measured in Israeli currency in real terms in accordance with
changes in the Israeli Consumer Price Index (“CPI”). Each of the subsidiaries
is subject to the tax rules prevailing in the country of incorporation.
B.	Tax benefits under the Law for Encouragement of Capital Investments,
1959 (“the Investment Law”)
	The
Company’s production facilities have been granted “Approved Enterprise”
status under the Investment Law. The Company participates in the Alternative
Benefits Program and, accordingly, income from its approved enterprises will
be tax exempt for a period of 10 years, commencing in the first year in which
the approved enterprise first generates taxable income due to the fact that
the Company operates in Zone ”A” in Israel.
	On April 1, 2005, an amendment
to the Investment Law came into effect (“the Amendment”) and has
significantly changed the provisions of the Investment Law. The Amendment
limits the scope of enterprises which may be approved by the Investment
Center by setting criteria for the approval of a facility as a “Beneficiating
Enterprise”, such as provisions generally requiring that at least 25% of the
Beneficiating Enterprise’s income will be derived from export. Additionally,
the Amendment enacted major changes in the manner in which tax benefits are
awarded under the Investment Law so that companies no longer require
Investment Center approval in order to qualify for tax benefits.
	In addition, the
Investment Law provides that terms and benefits included in any certificate
of approval already granted will remain subject to the provisions of the law
as they were on the date of such approval. Therefore, the Company’s existing
Approved Enterprise will generally not be subject to the provisions of the
Amendment. As a result of the amendment, tax-exempt income generated under
the provisions of the new law, as part of a new Beneficiating enterprise,
will subject the Company to taxes upon distribution or liquidation.
	The
Company has been granted the status of Approved Enterprises, under the Law,
for an investments programs for the periods ending in 2007 and 2010, and the
status of Beneficiating Enterprise according to the Amendment to the Law, for
the period ending in 2015 (“Programs”).
	Out of the
Company’s retained earnings as of December 31, 2006 approximately $17 million
are tax-exempt earnings attributable to its Approved Enterprise programs and
approximately $2 million are tax-exempt earnings attributable to its
Beneficiating Enterprise program. The tax-exempt income attributable to the
Approved and Beneficiating Enterprise cannot be distributed to shareholders
without subjecting the Company to taxes. If these retained tax-exempt profits
are distributed, the Company would be taxed at the reduced corporate tax rate
applicable to such profits (currently - 25% According to the implementation
of the Law; effectively 33%). According to the Amendment, tax-exempt income
generated under the Beneficiating Enterprise status will be taxed upon
dividend distribution or complete liquidation, whereas tax exempt income
generated under the Approved Enterprise status will be taxed only upon
dividend distribution (and not upon complete liquidation, where the tax
liability will be incurred by the shareholders). As of December 31, 2006, if
the income attributed to the Approved Enterprise were distributed as
dividend, the Company would incur a tax liability of approximately $4
million. If income attributed to the Beneficiating Enterprise were
distributed as dividend, including upon liquidation, the Company would incur
a tax liability in the amount of approximately $ 0.5 million.
	These
amounts will be recorded as an income tax expense in the period in which the
Company declares the dividend.

F – 24

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 17 – INCOME TAXES (Cont’d)

| B. | Tax benefits under the Law for Encouragement of Capital Investments, 1959 (“the Investments Law”) (cont’d) | | --- | --- | | | The Company intends to reinvest the amount of its tax-exempt income and not distribute any amounts of its undistributed tax exempt income as dividend. Accordingly, no deferred income taxes have been provided on income attributable to the Company’s Approved and Beneficiating Enterprise programs as the undistributed tax exempt income is essentially permanent in duration. | | | The entitlement to the above benefits is conditional upon the Company’s fulfilling the conditions stipulated by the Law, regulations published there under and the certificates of approval for the specific investments in approved enterprises. | | | Should the Company fail to meet such requirements in the future, income attributable to its programs could be subject to the statutory Israeli corporate tax rate and the Company could be required to refund a portion of the tax benefits already received, with respect to such program. The Company’s management believes that the Company is meeting the aforementioned conditions. | | C. | Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969 | | | The Company is an “industrial company” as defined by this law and as such is entitled to certain tax benefits, mainly accelerated depreciation as prescribed by regulations published under the Inflationary Adjustments Law and the right to deduct issuance costs as an expense for tax purposes. |

F – 25

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 17 – INCOME TAXES (Cont’d)

D. Composition of income tax provision

2006		2005	2004
U.S. Dollars (In thousands)
Income
(loss) before income taxes:
Israel	10,256		2,399	12,710
Non-Israeli	1,388		303	(1,414	)
	11,644		2,702	11,296
Income tax
(benefit) provision:
Current:
Israel	-		-	-
Non-Israeli	414		-	-
	414		-	-
Deferred:
Israel	(160	)	-	-
Non-Israeli	(274	)	-	-
	(434	)	-	-
Previous
years:
Israel (d1)	-		-	533
Non –
Israeli	61		-	(34	)
	61		-	499
	41		-	499

(d1) On March 31, 2004, a settlement was reached between the Company and the Israeli tax authorities over disputed assessments for the 1999, 2000 and 2001 tax years. Under the settlement reached, the Company paid a total of $695 thousand to settle approximately $6.7 million in assessments previously demanded by the Israeli tax authorities with respect to the 1999-2001 tax years. In addition, the Company will continue to calculate its applicable tax benefits for the subsequent years of the Israeli tax benefits program in which it currently participates (2002-2007) at the rates previously disputed by the Israeli tax authorities. The settlement amount resulted in a one-time provision for income taxes of $460 thousand in the first quarter of 2004, in addition to the $225 thousand that was reserved for this purpose in the fourth quarter of 2003.

F – 26

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 17 – INCOME TAXES (Cont’d)

E.
The
following is a reconciliation of the theoretical tax expense (benefit),
assuming all income is taxed at the regular tax rate applicable to Israeli
companies, and the actual income tax expense:

	Year Ended December 31, — 2006	2005		2004
	U.S. Dollars (In thousands)
Income before income taxes	11,644		2,702		11,296
Statutory tax rate	31	%	34	%	35	%
Theoretical tax on the above amount	3,610		918		3,954
Increase (decrease) in taxes resulting
from:
Tax benefits arising from “Approved and
Beneficiating Enterprises”	(1,641	)	(281	)	(238	)
Decrease in taxes resulting from
utilization of carryforward tax losses and deductible temporary differences
for which deferred tax benefits were not provided in previous years	(1,337	)	(2,066	)	(4,790	)
Tax losses and deductible temporary
differences for which no tax benefit has been recorded	351		371		1,029
Permanent differences and nondeductible
expenses, including difference between Israeli CPI-adjusted tax returns and
dollar-adjusted financial statements-net	(1,318	)	970		(34	)
Nondeductible stock based compensation	237		43		45
Tax expenses due to previous years	61		-		499
Other	78		45		34
Actual income tax expense	41		-		499
Per share effect of the benefits arising
from “Approved and Beneficiating Enterprise”:
Basic	$ 0.06	$	0.01	$	0.01
Diluted	$ 0.06	$	0.01	$	0.01

F – 27

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 17 – INCOME TAXES (Cont’d)

F.
Deferred tax
assets consist of the following at December 31:

2006		2005
U.S. Dollars (In thousands)
Current:
Provision
for doubtful accounts	194		198
Accrued
warranty	97		80
Unearned
revenue	185		-
Net
operating losses carryforwards	91		-
Accrued
expenses	134		50
Other	-		24
	701		352
Valuation
allowance	(636	)	(352	)
Current
deferred tax asset, net of allowance	65		-
Long-term:
Net
operating losses carryforwards	1,759		2,334
Severance
pay	14		-
Fixed assets	(53	)	-
Other	198		-
	1,918		2,334
Valuation
allowance	(1,549	)	(2,334	)
Long-term
deferred tax asset, net of allowance	369		-
Net deferred
tax assets	434		-

| | Under SFAS No. 109, deferred tax assets are to be recognized for the anticipated tax benefits associated with net operating loss carryforwards and deductible temporary differences, unless it is more likely than not that some or all of the deferred tax assets will not be realized. The adjustment is made by a valuation allowance. | | --- | --- | | | Since the realization of the net operating loss carryforwards and deductible temporary differences is uncertain and not considered more likely than not, a valuation allowance has been established to reduce deferred tax assets to their estimated realizable value. The net change in the total valuation allowance was a decrease of $ 501 thousand, $ 1,548 thousand and $ 2,232 thousand for the years ended December 31, 2006, 2005 and 2004, respectively. | | | As of December 31, 2006, major foreign subsidiaries have NOL carryforwards aggregating approximately $5,863 thousand, of which approximately $3,049 thousand expires from 2009 to 2023 and approximately $2,814 thousand has no expiration date. | | G. | Reduction in corporate income tax rate in Israel | | | On July 25, 2005 an amendment to the Israeli tax law was approved by the Israeli parliament, which reduces the tax rates imposed on Israeli companies to 31% for 2006, This amendment states that the corporate tax rate will be further reduced in subsequent tax years as follows: in 2007 29%, in 2008 27%, in 2009 26% and thereafter 25%. This change does not have a material effect on the Company’s financial statements. |

F – 28

CAMTEK LTD.
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005

NOTE 18 – TRANSACTIONS WITH RELATED PARTIES

2006	2005	2004
U.S. Dollars (In thousands)
Purchases
from Priortech Ltd. (including affiliates)	3,244	597	1,122
Interest
income from Priortech Ltd.	16	19	30
Sales to
Priortech Ltd. (including affiliates)	240	1	230

NOTE 19 – SUBSEQUENT EVENTS

| A. | Subsequent to balance sheet date, the Company’s liabilities to banks were secured by negative pledge. Pursuant to the terms of the negative pledge the Company committed to comply with certain financial and other covenants which include, inter alia, a minimum amount of shareholders’ equity, a minimum ratio of shareholders’ equity to total balance sheet, as such are defined in the agreement, a minimum amount of sales and annual earnings. In addition, certain restrictions have been imposed on the Company regarding creating floating liens, execute a change in control over the Company and execute a merger. | | --- | --- | | | If the Company will not comply with all or part of the financial covenants, or if certain events specified in the agreement should occur, the bank will have the right to demand the immediate repayment of the credit. In Management’s opinion, the Company will comply with those covenants over the credit period. | | B. | Subsequent to balance sheet date the company granted 45,000 share options at an exercise price of $4.50 per share and 8,000 share options were exercised at a weighted average exercise price of $2.86. |

F – 29

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

ITEM 19. Exhibits.

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

Exhibit No. Exhibit

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

1.1 Memorandum of Association of Registrant (incorporated herein by reference to Exhibit 3.1 to Amendment No. 1 to the Registrant’s Registration Statement on Form F-1, File No. 333-12292, filed with the Securities and Exchange Commission on July 21, 2000).‡

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

1.2 Articles of Registrant (incorporated herein by reference to Exhibit 3.2 to Amendment No. 1 to the Registrant’s Registration Statement on Form F-1, File No. 333-113208, filed with the Securities and Exchange Commission on April 5, 2004).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

4.1 Amended and Restated Employee Share Option Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-8, File No. 333-84476, filed with the Securities and Exchange Commission on March 18, 2002).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

4.2 Amended and Restated Subsidiary Employee Option Plan (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-8, File No. 333-84476, filed with the Securities and Exchange Commission on March 18, 2002).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

4.3 Employee Share Option Plan — Europe (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-8, File No. 333-49982, filed with the Securities and Exchange Commission on November 15, 2000).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

4.4 Executive Share Option Plan (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-8, File No. 333-60704, filed with the Securities and Exchange Commission on May 11, 2001).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

4.5 2003 Share Option Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-8, File No. 333- 113139, filed with the Securities and Exchange Commission on February 27, 2004).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

4.6 Sub-Plan for Grantees Subject to United States Taxation (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-8, File No. 333-113139, filed with the Securities and Exchange Commission on February 27, 2004).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

4.7 Sub-Plan for Grantees Subject to Israeli Taxation (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S- 8, File No. 333-113139, filed with the Securities and Exchange Commission on February 27, 2004).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

4.8 Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.10 to Amendment No. 1 to the Registrant’s Registration Statement on Form F-1, File No. 333-12292, filed with the Securities and Exchange Commission on July 21, 2000).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

4.9 Registration Rights Agreement, by and between the Registrant and Priortech Ltd., dated March 1, 2004 (incorporated herein by reference to Exhibit 10.9 to Amendment No. 1 to the Registrant’s Registration Statement on Form F-1, File No. 333-113208, filed with the Securities and Exchange Commission on April 5, 2004).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

4.10 Registration Rights Amended and Restated Agreement by and between the Registrant and Priortech Ltd., dated December 30, 2004. (incorporated herein by reference to Exhibit 4.10 to the Registrant’s Registration Statement on Form 20-F File No.000-30664 filed with the Securities and Exchange Commission on June 30, 2005).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

4.11 Convertible Loan Agreement, by and between the Registrant and FIMI Opportunity Fund, L.P., and FIMI Israel Opportunity Fund, dated August 8, 2005 (incorporated herein by reference to Exhibit 4.11 to the Registrant’s Registration Statement on Form 20-F File No.000-30664 filed with the Securities and Exchange Commission on June 29, 2006).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

4.12 Press Release announcing the Company’s completion of $15,000,000 Private Placement dated April 28, 2006; Press Release announcing Priortech Ltd. Sale of Camtek shares to Israeli Institutional Investors dated June 21, 2006 (incorporated herein by reference to Exhibit 4.12 to the Registrant’s Registration Statement on Form 20-F File No.000-30664 filed with the Securities and Exchange Commission on June 29, 2006).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

8.1 Subsidiaries of the Registrant (incorporated herein by reference to Exhibit 21.1 to Amendment No. 1 to the Registrant’s Registration Statement on Form F- 1, File No. 333-12292, filed with the Securities and Exchange Commission on July 21, 2000).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

12.1 Certification of Chief Executive Officer required by Rules 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.*

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

12.2 Certification of Chief Financial Officer required by Rules 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.*

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

13.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

15.1 Consent of Somekh Chaikin, a member firm of KPMG International (attached to the original filing).

MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation"

15.2 Consent of Brightman Almagor & Co., a member firm of Deliotte, Touche Tohmatsu, and Goldstein Sabo Tevet (attached to the original filing).

MARKER FORMAT-SHEET="Footnote Rule-TNR" FSL="Workstation" MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation"

‡ English translations from Hebrew original.

MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation"

• Filed herewith.

MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation"

SIGNATURES

MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default"

The Company hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

MARKER FORMAT-SHEET="Signature (Single)" FSL="Workstation"

CAMTEK LTD. By: /s/ Rafi Amit —————————————— Rafi Amit Chief Executive Officer

MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation"

Date: November 9, 2009